Real Estate Transactions and Finance

April 23, 2015

Will the HUD Form be Disappearing from our Closings?

Our readers who have attended residential real estate closings are familiar with the HUD Settlement Statement (the “HUD”). This document is meant to clearly identify all of the financial figures in a residential real estate transaction. The HUD is a disclosure document required when a mortgage is obtained from an institutional lender (such as Chase, CitiMortgage or Wells Fargo). The borrower is provided with this form either immediately before or during the closing in order to identify the real estate tax adjustments with the seller, costs of making the loan (such as origination fee, application fee, credit report fee and appraisal fee), real estate tax and insurance escrows established by the lender (including the breakdown of the number of months collected at the closing to be held in reserve), itemization of title charges (such as the insurance premium, search fees and recording fees) and the like. The HUD follows other well-known disclosure documents such as the Good Faith Estimate and Truth-in-Lending Disclosure delivered to the borrower before the closing.

However, the HUD as we know it may soon be disappearing from our closings, with certain exceptions discussed below. Beginning with applications for mortgage loans made after August 1, 2015, the Consumer Financial Protection Bureau will be requiring a new series of disclosure documents. Lenders and their attorneys may encourage loan applications to be made before August 1, so that they only need to comply with the disclosure regulations with which they are familiar.

Rest assured, the basic content of the new disclosures and the intent behind them will remain the same. The disclosures are meant to integrate the first disclosure (Loan Estimate) with the last disclosure (Closing Estimate). The Loan Estimate form will replace the Good Faith Estimate and Truth-in-Lending Statement. It needs to be delivered three business days after the loan application is made. Some of the data on the Loan Estimate will be precisely the same on the Closing Estimate, so that the borrower will be familiar with the financial terms of the transaction. The Loan Estimate will be likely to please borrowers, in that it will disclose information that our clients have been seeking from the early stages of the transaction: is there a rate lock and for how long, what is the interest rate, what are the monthly payments expected, is there a prepayment penalty and most significantly, how much cash will be needed to close. This allows borrowers to take the steps needed to liquidate assets as needed to raise the funds needed to close. In the past, some people have been unduly surprised by the amount of the cash needed to close and have been unprepared.

March 27, 2015

The Spring Real Estate Market- Timing is Everything

By Weiss & Weiss

In the New York metropolitan area, the residential real estate market is often seasonal. During the holidays between Thanksgiving and New Years Day, most sellers do not list their properties for sale or may remove their home from active listing status. During the winter months, most buyers are reluctant to be exposed to the cold weather and the snow to view properties. Fortunately, all of this changes with the approach of spring. The inventory of homes increases as more properties are listed and additional purchasers are looking to enter transactions. Both parties to transactions, who will experience increased competition as inventory increases, should take the steps described in this post so as not to miss the spring season.

The school calendar is also strongly influential on real estate transactions in the New York suburbs. The optimal time to close for both parties is between the end of June and the beginning of September, so that the children of the selling family can complete their current school year and the children of the purchasing family can start the next school year in a timely fashion. When representing purchasers, our attorneys confirm that the property is in the school district expected by the purchasers. If the closing may occur close to, but not in advance of the start of school, we will contact the school district to determine whether the children of the purchasing family can start school prior to the closing. We will provide any documentation requested by the school district to assist in enrollment. Our lawyers will creatively fashion a solution so that the closing can occur as needed to enroll the children in school.

The following steps should be undertaken by sellers considering bringing their property to market. The home should be physically ready, so that is shows more favorably, bringing the best price to the seller. For instance, decluttering should be done to make the rooms and closets seem larger and to make it easier to move when the time comes. Since painters get busy in the spring, appointments should be made to freshen up the look of the home. Did the winter cause any property damage such as leaks, broken gutters and the like? If so, repairs should be made before bringing the property to market.

March 20, 2015

The Disposition of Housing of the Deceased

By Weiss & Weiss

Many people who pass away also leave behind the place in which they resided. The housing could be a rental apartment, a cooperative or condominium unit, or a house. The deceased may not necessarily have resided in the property immediately before death if they went to assisted living or a nursing home. This blog post will address the legal and practical matters arising from housing of the deceased.

If the person lived in a rental apartment, it remains to be determined whether the rental was rent-regulated or not. A rent-regulated apartment could be either rent controlled or rent stabilized and is generally found in New York City. If a surviving family member wants to continue residing in the rent-regulated apartment, he may wish to allege that he has succession rights and has the legal right to continue to live in the apartment. When the unit is not rent-regulated, the surviving family member may wish to negotiate a surrender of lease and return of any security deposit, in exchange for the prompt removal of the possessions of the deceased. Most landlords do not aggressively pursue eviction in this scenario, if the surviving family member in good faith is acting reasonably efficiently in clearing out the apartment. However, if the death occurred in the apartment and was under gruesome circumstances, the landlord may seek to have out-of-the-ordinary cleaning expenses paid by the family.

When the departed individual lived in a cooperative or condominium apartment, monthly maintenance or common charges will continue to accrue. The representative of the estate should request a delay in the submission of any default notices, pending the representative’s access to assets as needed to make such payments. So long as the cooperative or condominium board is convinced that the representative has duly and promptly applied for Letters Testamentary or Letters of Administration, additional time to obtain access to assets will usually be granted. In no event do we recommend that the estate representative pay such charges from her own personal account.

March 6, 2015

Managing Disputes Concerning Fixtures and Personal Property in New York Real Estate Closings

By Weiss & Weiss

Many parties to real estate transactions focus not only on the house or the apartment that is involved in the transaction, but also on fixtures and items of personal property. Should a buyer expect that all lighting fixtures are included in the deal? What if a seller wants to take certain items with him? This post will address these issues.

In New York, generally a seller will remove all easily movable items from the apartment or house being sold. These items include furniture, clothing, personal articles and the like. Of course, a buyer will want the seller to remove these items before closing and will be justified in refusing to close until the premises is in “broom clean” condition, as is required in the standard contract. Appliances, such as the refrigerator and stove, are to remain in the premises, as is covered in most standard contracts that we negotiate on behalf of our clients.

Fixtures may not as obvious. A fixture is an item that is attached to the wall, floor or ceiling. A built-in bookcase is not furniture to be removed by the seller, as it is attached to the wall. Chandeliers, wall sconces and other lighting fixtures are expected to remain after closing. There are cases when a seller wants to keep a particular fixture after closing or other cases where a buyer wants to make sure that a beautiful chandelier is not removed by the seller.

January 28, 2015

For Sale By Owner

By Weiss & Weiss

Our attorneys handle many real estate transactions on behalf of our clients each year. Most clients selling their houses, cooperative or condominium units use the services of a licensed real estate agent. Other sellers chose to sell without the use of such a professional. These transactions are known as for sale by owner (“FSBO”). While we interact with real estate agents on a regular basis, it is not the purpose of this blog post to argue for the use of a real estate agent in your transaction. Our purpose is to distinguish the nature of our legal representation in transactions with and without real estate agents.

The sales price matters to the seller, but has no bearing on our legal work. The preparation of the contract will just involve the insertion of the agreed offer price. However, if a seller retains the services of an experienced real estate agent, he will potentially avoid two situations regarding the price. First, a seller may list the property at too high a price, which would impede viable offers being made. The real estate agent will know the market and be aware of the realistic price at which the property is to be offered. Second, the real estate agent may also ensure that the property is not offered at a price that is lower than the seller should receive in this market.

Sellers do not want to experience the delay of their transaction due to a property or title defect that could have been resolved. For instance, it is not unusual for a seasoned real estate agent to view the applicable municipal records to confirm that all improvements have been properly permitted and that a Certificate of Occupancy has been issued for the premises. Of course, there is nothing to prevent the homeowner for conducting such a search. Whether the real estate agent or the homeowner conducts such a search is immaterial. However, it is important to be aware as early in the process as to whether such issues exist, so that they are resolved to allow for the timely closing anticipated by the parties.

October 31, 2014

Happy Halloween: Haunted Houses, Zombie Houses, Ghosts and Other Scary Things

By Weiss & Weiss

Even Halloween gives rise to legal issues that may pertain to our blog readers. This blog post will address haunted houses, zombie houses, ghosts and other scary situations from a legal perspective.

Unfortunately, a crime, suicide or other unpleasant event may have happened in a house prior to sale. Such a house may be considered to be “haunted”. Does New York law require disclosure that the house is haunted to a potential buyer? The answer is no. New York is a caveat emptor state, meaning “let the buyer beware”. Psychological issues do not require disclosure. It is the buyer’s responsibility to conduct inspections, ask questions and develop her own opinion about the neighborhood, school district and conditions in the house. Once the buyer has accepted delivery of the Deed at the closing, she has no claim against the seller for property conditions except those that specifically survive the closing according to the contract between the parties.

The only exception to this concept is New York’s Property Disclosure Law . This requires the seller to complete an extensive list of questions detailing property condition, such as has there ever been an oil tank at the property, is the electrical system original and the like. If a seller does not provide the completed Property Disclosure form, a $500.00 credit is to be provided to the buyer at closing. Interestingly enough, in upstate New York, most sellers complete the Property Disclosure form, while in downstate counties typically served by our firm, most sellers opt to credit the buyer at closing rather than complete said form.

October 17, 2014

Have Your Home Improvements Been Properly Permitted?

By Weiss & Weiss

Often in a residential real estate transaction, unpermitted improvements to a house are present. The seller may find that purchasers are unwilling to enter a transaction with these conditions. The buyer may not want the responsibility for obtaining permits for work done by others. Our clients who are parties to residential real estate transactions often encounter legal issues when home improvements are not properly documented by the municipality where the property is located.

When a renovation is conducted, an inquiry should be made of the municipality as to whether a building permit is needed and application should be made for such a permit if required. The building inspector should review the work in progress to confirm that it is conducted according to the permit and once completed will issue a certificate of compliance or completion. This process insures that all work is done according to current building code and that licensed professionals conduct the work. Building permits and documents evidencing completed construction in accordance with the building permit, as memorialized in a Certificate of Occupancy or Certificate of Compliance, are necessary to protect both parties to transactions in New York State for the reasons to be discussed in this blog post.

A great deal of the housing stock in New York is aged, being originally constructed several decades ago. If a house was constructed eighty (80) years ago, a certificate of occupancy would have been issued authorizing the home’s use as a one or two family house. There is also the possibility that the house is so old that it pre-dated the requirements for the issuance of a certificate of occupancy. In that case, the town will issue a letter that there is no certificate of occupancy on file because the construction pre-dated the requirement.

September 26, 2014

How Your Cooperative or Condominium Board Benefits from Hiring an Attorney

By Weiss & Weiss

Attorneys provide valuable legal services on behalf of cooperative and condominium boards. Some buildings with fewer than ten units and without disputes have managed without an attorney representing the board. Other buildings may continue with the attorney who originally represented the sponsor. The purpose of this blog post is to describe the services that can be provided by an attorney representing a cooperative or condominium board.

Transfers of apartments will occur at some point. It is not unusual for the building’s managing agent to conduct closings. While many managing agents conduct a variety of tasks and are indispensible to the building, their knowledge is largely operational and particularly relevant to the physical plant of the building. Attorneys are properly situated to evaluate legal situations presented before and during a closing. For instance, after a shareholder dies, the family may wish to transfer the apartment to a family member or sell the apartment to a third party. A managing agent is not the best person to evaluate whether the seller/transferor has delivered the proper documents. Does a managing agent know to ask for a Will to make sure that the deceased did not bequeath the apartment to a friend? It may be a mistake with potential legal liability to the cooperative if the apartment is transferred to a purchaser rather than to the friend. Can the managing agent properly review the Letters Testamentary or Letters of Administration to confirm that they are valid to pass the apartment in question? Sometimes estate documents could even be presented from other jurisdictions, requiring a trained legal practitioner to evaluate. The managing agent may mistakenly approve a power of attorney or affidavit of lost stock certificate and proprietary lease that is invalid for some reason, fail to obtain original documents that are necessary for the cooperative to hold, or fail to collect fees on behalf of the building. A variety of issues may be encountered by a transfer agent at a closing which require the judgment and discretion of the building’s attorneys. In this instance, our firm charges the parties to the transaction only, so that engaging our services to be the transfer agent for closings does not cost the building as a whole and potentially benefits the building as a whole by avoiding legal liability.

Cooperatives and condominiums should also engage an attorney for occasional but significant legal events, such as the refinance of the underlying mortgage of a cooperative or the negotiation of a major contract. Such a major contract could pertain to the replacement of windows, renovation of the elevator, or installation of a new roof. Vendor contracts, such as for the laundry room equipment or oil delivery company require review by the building’s attorney because they will contain provisions that are only favorable to the vendor. Since managing agents may have professional relationships with some of these vendors, it may be prudent for “checks and balances” purposes for the building attorney to review these vendor contracts. Certainly an experienced attorney will be in the position of offering terms that are beneficial to the building that an untrained eye may miss.

September 5, 2014

Standards for Purchasers of New York Cooperative Apartments

By Weiss & Weiss

Our readers may be familiar with a cooperative apartment building located in Manhattan by the name of River House. This building is known not only for its distinctive classic architecture and regal location, but also by its stringent admissions standards for purchasers. It has been well known throughout the New York real estate community that the River House has declined the purchase applications of numerous famous people and persons with seemingly substantial assets. This culture has resulted in apartments being listed for sale for years, because potential purchasers cannot get approved by the board. Overly rigorous standards hurt all residents, as apartments will not sell as readily. The New York Times reported that the River House has recently relaxed some of its admissions standards.

As we have discussed in a previous blog post , a purchase of a cooperative apartment in New York is subject to the approval of the board of directors. If the board declines the purchase, it will not proceed. Legally, a board can reject a purchaser for any reason, so long as the denial is not for discriminatory reasons. In another blog post , we advise cooperative clients to treat all shareholders equally.

The governing case on the matter of decisions by cooperative boards is Levandusky v. One Fifth Avenue Apartment Corp. This case stands for the principle that cooperative boards, like corporations, are governed by the business judgment rule. So long as there is a legitimate purpose to the decision of a cooperative board and such decision is beneficial to the shareholders as a whole, the decision of the board will stand and will not be subject to judicial review. Boards acting in good faith and in the exercise of their honest judgment are insulated from judicial review of their decision. The business judgment rule is limited by arbitrary or malicious acts of board members, favoritism and discrimination. For instance, a board can legally decline a purchaser if it does not like the person, but cannot legally decline the applicant because they want to retaliate against a seller that they do not like, or because the candidate happens to be Hispanic. Of course, proving that the denial was based predominantly upon an illegal reason may be difficult.

July 10, 2014

Buyouts Between Landlords and Tenants in New York

By Weiss & Weiss

A recent article in the New York Times discusses the issue of landlords making cash offers to “buy out” tenants of their rent regulated tenancies. Our firm has handled these situations, representing both landlords and tenants in different transactions regarding such buyouts.

The reason behind such offers is the rent regulation system currently in place in New York City. Many, but not all, apartments in New York are subject to rent regulation. Rent regulation applies to apartments renting below a certain amount, but does not apply to rentals of a condominium or cooperative unit by its owner. Whether an apartment may be subject to rent regulation is a complicated issue and can be the subject of additional legal proceedings, with which our firm also has extensive experience.

Once an apartment is subject to rent regulation, a tenant residing therein has certain legal rights regarding their tenancy. The first right is the amount of the rent paid by the tenant. This amount is determined by an extremely complicated formula, in which the following factors are taken into account: the rent paid by the prior tenant, increased by a “vacancy allowance,” plus increases may be allowed for improvements made by the landlord to the apartment, such as the installation of new appliances, new windows, and so forth. Renewal leases are subject to particular limited on rent increases determined annually by the Rent Guidelines Board.