Real Estate Transactions and Finance

February 1, 2018

Recent Tax Overhall and Deducting New York Real Estate Taxes

In December, 2017 a new federal tax bill was enacted. Such legislation has a profound effect on relatively high tax states such as New York. This has resulted in a lawsuit filed by the State of New York as well as other regional high tax jurisdictions. Previously, there was no limitation on deducting real estate taxes and mortgage interest paid. With the new tax legislation, state and local tax (“SALT”) deductions are limited to $10,000. Real estate taxes due for properties owned by clients represented by this firm typically exceed this $10,000 limitation. As such, panic sweep homeowners before the end of 2017. These people tried to pay their property taxes for 2018 while it was still 2017, so that they could deduct as much as possible. This post will address if this strategy was effective and discuss the means by which real estate taxes are paid in New York.

Apparently paying taxes in advance may not be effective for the following reasons. Let’s assume that the property taxes on a home in Scarsdale are $24,000 in 2017. The homeowner wanted to pay an extra $25,000 in 2017 to cover anticipated 2018 taxes. Such a strategy is ineffective because taxes are levied as a result of a budget and warrant resulting in a tax bill to the homeowner. If the taxing authority has not completed this process, paying an estimated amount would not allow such payment to be deducted.

Further, many homeowners with mortgages have a tax escrow associated with their mortgage. This means that every payment will include mortgage interest and principal, as well as an amount determined by the lender that is sufficient for the lender to pay real estate taxes on behalf of the homeowner once they are due. The lender sends an annual statement to the homeowner and the IRS stating the taxes paid on the account. If the homeowner pays taxes on her own, it will not match the amounts reported to the IRS, potentially subjecting her to a tax audit. Thus, any homeowner who has her taxes escrowed should not pay real estate taxes on her own outside of her ordinary loan payment.

January 25, 2018

You Belong With Me: Disclosing Reasons Behind Coop Rejections

By Weiss & Weiss

Consider the following scenario. A shareholder in a cooperative has been trying to sell her apartment because circumstances have resulted in her opportunity to buy a house in a sunny location out of town. Her buyer is a young professional gentleman who wants to own, rather than rent, and build equity to trade up to another home in the future. Their real estate agents make the deal. All parties look forward to closing. Of course, such a transaction requires approval not only of the lender making the purchase loan but of the cooperative board. Once the buyer obtained his loan commitment, after having submitted numerous financial documents and information, he finds out that either the board will not even interview him or has declined to approve the purchase after the interview was held.

It has been longstanding practice in New York that a board does not have to disclose the reasons why it is declining an applicant. The board is governed by the “business judgment rule” , allowing it broad latitude for its decisions, assuming that most decisions are made for the benefit of the cooperative as a whole. The board’s decision is only subject to being overturned if the parties can prove that the decision was made for an illegal reason, such as discrimination. Let’s say that the proposed buyer is a homosexual, which became obvious by information contained on the board application as to affiliations or as discussed in the interview. Should that have been the reason why the declination was issued and the applicant was able to prove same, the decision could be overturned and subject the board to potential damages because homosexuals are a legally protected group.

It has recently been proposed in the Westchester County Legislature that cooperative boards should be legally required to disclose their reasons for rejection. Those advocating for the rule suggest that it will prevent discrimination and is helpful to “protected classes”. This author feels that the law already protects applicants against boards that discriminate. However, the proposed law would be helpful for other reasons. It contains specific timeframes for the review of applications. Should a board decide not to interview during the summer so that its members can travel, the law would prevent a three month delay in the review of an application. Our readers should be aware that if a person’s loan is declined, reasons will be stated in a letter, allowing the applicant to improve his submission in the future. However, without any stated reason for a board declination, the seller and the real estate listing broker will have no information as to the type of buyer sought by the board. What if the board now prefers that applicants earn more than $100,000 annually, but it has not communicated this information to shareholders? With free disclosure of information, the broker will know how important it is to verify income and will not suggest a buyer who cannot meet the criteria.

January 9, 2018

Sales of Property and Status of Tenants in New York State

By Weiss & Weiss

Our firm handles real estate transactions as well as landlord-tenant matters. At certain times, these two areas of the law may intersect. One situation which occurs frequently is when a multi-family house is sold by its owner, who may have one or more tenants living at the property.

In such a situation, what are the legal responsibilities regarding the tenants? Most standard real estate sale contracts contain a clause requiring that the property be conveyed vacant and free of tenants. Unless there is a rider to the contract modifying this clause, this means that it is the seller’s responsibility to remove all tenants prior to closing. When our attorneys are confronted with such a situation, the first thing to do is to ask the proposed new owner’s attorney whether they wish to retain the tenants living at the premises. It is possible that the new owner would also like to rent the property, or a portion of same, and does not want to go through the time and expense of locating new tenants after the purchase is complete.

If the new owner wishes to retain the tenants after she purchases the property, the next step is to determine whether the current tenants have a written lease for the premises. If they do, the lease should be reviewed by the buyer’s attorney, and, at closing the lease should be legally assigned to the new owner. What this means is that the new owner “steps into the shoes” of the former owner regarding the obligations under the lease. Any security deposit being held by the seller of the property should be transferred to the buyer at the closing. In addition, any rent already paid by the tenant prior to the closing should be pro-rated at the closing. For example, a closing is scheduled for April 15. The tenant pays his monthly rent of $1,000.00 on April 1 as per his lease. At the closing, the buyer should receive a $500.00 credit as his share of the rent for the one-half month that he owns the property. He will collect rent directly from the tenant starting in the first month after the closing.

December 8, 2017

Buying a House May Still Be the Right Move

By Weiss & Weiss

Our readers may be aware that there is a movement to pass sweeping Federal tax reforms. Some analysts have suggested that such proposed legislation may not be favorable to highly taxed areas such as New York and that home ownership may be discouraged as a result. The proposed legislation in its current form may limit Federal deductions for real estate taxes to $10,000 per year. Many properties in the areas served by our practice have yearly real estate tax obligations in excess of this amount.

There is a possibility that the legislation will not pass in its current form. Also, homeowners always have the ability to contest their real estate taxes and potentially obtain a reduction. The proposed purchaser may consider a house with taxes lower than or closer to $10,000 per year. Over the course of decades of homeownership, laws affecting deductions of real estate taxes may change. As a result, the decision to own a home should not be dictated merely by whether real estate taxes above $10,000 may be deducted.

Owning a single family home has the following additional benefits. A sense of permanence from creating family memories over many years can only really take place in a house. Building personal equity can only occur when real estate is owned. If a person rents an apartment, he will merely pay rent every month and not have any resulting value to trade in. However, if a house is purchased, the value is likely to increase, leading to a profit when the property is eventually sold. Such profit can be converted to another property or investment in the future.

November 2, 2017

Outstanding Judgments – Their Effect on Real Estate Transactions

By Weiss & Weiss

In the course of an ordinary real estate transaction, our firm orders a title report on the property being sold. Contained in the title report is a judgment and lien search, which shows any outstanding judgments against the seller and liens against the property. Why is this important? In New York State, a money judgment, when filed in the Supreme Court of a county in which a debtor owns real property, become a lien on property for a period of ten (10) years. Furthermore, a judgment creditor may file a motion at the end of the ten year period to extend the lien for an additional ten years. After twenty years, the judgment is no longer a lien on the property.

Therefore, when a seller of real property has a recorded judgment less than ten years old, it becomes an issue which must be cleared prior to closing. The reason for this is that the contract most likely provides that the property will be conveyed free of judgments and liens, and, in addition, a mortgage lender will not approve a loan to close without resolution of an outstanding judgment or lien. If the judgment remains as a lien on the property, the new owner may find himself subject to a foreclosure proceeding against his newly-purchased property, even though the judgment was not incurred by him.

Since most standard Contracts of Sale in New York contain a clause that the property must be conveyed free of all outstanding liens and judgments, it is the seller’s responsibility to ensure that there are no judgments against the property. Failure to do so would give the potential buyer grounds to have the contract cancelled and receive a refund of their downpayment. Obviously a seller does not want that to happen. What does a seller do when there are outstanding judgments of record?

October 26, 2017

Changing Fashion in New York Commercial Real Estate

By Weiss & Weiss

Our readers may have seen the recent report in The New York Times pertaining to the sale of Lord & Taylor’s flagship location in Manhattan to a co-working space company called WeWork. This seismic change in the use of “America’s Dress Address” is quite significant. Lord & Taylor realized that its huge location in Manhattan was out of fashion and much more valuable when considered as a real estate asset only, rather than the proceeds generated by mostly clothing sales. WeWork is a company most identifiable with the revolutionary means in which millennials are choosing to work. Many millennials tend to be self-employed, but may prefer to work away from home. They demand temporary and flexible work quarters. WeWork allows such people to select a location for the short or long term at a price to be determined, without a long term commitment. The worker or user has a professional location in which to engage in his occupation.

This post will address this transaction from a commercial leasing perspective. The purchaser will use the Lord & Taylor property as its headquarters, through which it will presumably enter other commercial leasing transactions for other properties, and for shared work quarters in this property. When entering commercial lease transactions for other properties, this author would suggest attempting to obtain the following provisions in such commercial leases.

Commercial leases typically identify the permitted use, such as real estate office, medical office and the like. However, in this case, the tenant will want the use to be as broad as possible. For instance, general office use, including co-working space and ancillary use may be suitable for this tenant. That way, when multiple parties occupy and leave the premises and use the space for varied purposes, it will not be a lease violation. Co-working spaces could be shared by diverse parties such as writers, day traders, salesmen as well as those who want to host conferences and meetings and the like.

October 13, 2017

Property Surveys- Why New Yorkers Need Them

By Weiss & Weiss

Our clients often inquire as to the relevance of surveys in their real estate transactions. This post will discuss what a survey accomplishes and why our attorneys recommend that their purchasing clients obtain one, even if they are not obtaining a loan. In this context, we will be discussing the standard land survey, one that identifies such items as structures, fences and easements.

A survey is prepared by a licensed surveyor who will visit the property under contract with documents provided such as a prior survey, deed and the like. The surveyor will have special instruments that are installed on a tripod, measuring tape and other types of equipment. The goal is to measure and describe precisely the property to be conveyed in the intended transaction. In Westchester County, New York , property deeds are indexed and recorded primarily by previously assigned block and lot numbers with a property description (known as Schedule A) attached to the Deed. Our readers may be familiar with the standard Schedule A language, beginning at the point of x, continuing a particular number of feet to y and ending at z. In order to accurately draft the property description for current conditions, the surveyor needs to visit the property and take measurements of the property lines as exists today. As such, an old property description may potentially be inaccurate. An experienced attorney representing a buyer will want a survey to be done to make sure that the description is accurate on the deed being conveyed.

Surveyors also identify any structure built on or within the property lines. A buyer’s attorney should make sure that any structure is properly permitted, if required by the relevant municipality. For instance, a house should have a certificate of occupancy or a “pre-date” letter confirming that the town did not require such a document when it was built. Is a shed or deck on the property? If so, this may also require a permit in order to be legal. A buyer’s attorney will want to make sure that the seller has obtained any necessary documents for these structures. Surveys give clues that permits may be needed.

October 6, 2017

Tiny Homes = Big Problems?

By Weiss & Weiss

“Tiny homes” have become popular among those who want their possessions pared down to the necessities so that they can save what may be a large mortgage payment on a large home and enjoy experiences such as adventurous travel in its place. We have reported on what we call the clutter reduction program . Limiting excessive possessions has assisted in the development of the tiny homes movement. However, tiny homes are not without big problems. The New York Times recently reported about the difficulty that tiny home owners have in what should be an obvious issue: where are you permitted to place your tiny home? Individuals spend hours upon hours designing such homes, with innovative space saving techniques and environmentally friendly building systems, only to neglect the need to determine the proper legal placement of such tiny home.

Tiny homes, as any other structure, require the legal right to use any particular parcel of land. Perhaps a particular municipality requires that structures be of at least a certain square footage or that lots be of a certain minimum size, in order to discourage the placement of less aesthetically pleasing mobile homes. Zoning laws could be violated. For instance, the zoning for a property location may allow for vacant land or commercial use only and the tiny homeowner will be living there. Likewise, the zoning regulation may allow single family home use only on a lot and a conventional homeowner allowing another residential structure is in effect using the lot for multifamily use. Also, linkage to municipal sewer systems and electrical grids may be desired.

Now that the tiny home owner has decided that acquiring the legal right to land use is required, this author will render advice on the means to such acquisition. Parking your tiny home in a public parking lot is not an answer, as many commercial property owners have posted notices in their parking lots to the effect that no vehicles are permitted during certain hours. Vacant land owners may post no trespassing signs for the same reason.

September 7, 2017

Who’s the Dictator?

By Weiss & Weiss

The New York Post recently reported a news story wherein a condominium property manager “decorated” the common areas of the building with Nazi and other historic propaganda relating to dictators. Residents of the building felt threatened and intimidated by other activities of the property manager, including alleged physical threats. This story is an exaggerated version of many tales told by clients of this firm . In this post, we will discuss suggestions for managing abusive employees of cooperative and condominium buildings as well as hostile environments created by certain board members.

The cooperative or condominium building is legally responsible for the acts of its employees. The exception to this rule is criminal activity, with which the perpetrator bears responsibility. If an employee is abusive to unit owners or denying services to particular shareholders, the board has an obligation to discipline or remove the offending employee. Boards should consult with a qualified attorney in the event that the employee is a union member in order to strategically handle the employment situation, so that the building is not subject to a grievance filed with the union.

If the board is not responsive to shareholder complaints, it may be appropriate to seek an election to replace current board members with those more in keeping with unit owner sentiment. First, one should request that an experienced attorney review the governing documents to determine how to legally hold a special or general election to replace the board. Then, all procedures outlined in the governing documents should be followed so that the election is not subject to being overturned. Hopefully, this will result in a new board being installed that will manage the offending situation by suitable means.

August 25, 2017

Divorce and Foreclosure – What are Your Rights?

By Weiss & Weiss

Financial troubles can be the cause of much stress for married couples. Often, these stresses lead to a couple separating, and ultimately, divorcing. In such situations, there will always almost be issues regarding the marital residence, be it a house or an apartment. Due to the financial issues, the property may already be in foreclosure. This blog post will explore the legal issues relating to married couples who own property which may be in foreclosure, and the issues that arise if a divorce proceeding occurs.

The first assumption is that the property in question is owned by both parties. The legal term for such ownership is tenants by the entirety. This means that the property is jointly owned by a married couple, and if either party passes away, their ownership share automatically passes to the surviving spouse. It should be noted that tenants by the entirety only applies to married couples. Once a divorce is finalized, the ownership interest changes to tenants in common, which means that the interest does not automatically transfer upon death to the survivor, but remains as part of the estate of the deceased.

Of course, when the parties are divorcing, the ownership of the martial residence is usually a major issue. If the property is in foreclosure, or is likely to become the subject of a foreclosure case in the near future, such issues must be addressed as part of the divorce proceedings. There are several possibilities in this situation. First, if there is equity in the property, and neither party wants to remain in the marital residence, the property may be sold, with the couple sharing the proceeds as per their divorce agreement. In the course of such a sale, any outstanding mortgage would be paid off, and any foreclosure proceedings would be discontinued as a result of such a sale. This is probably the easiest solution, although not always possible.