COVID-19 Update: How we are serving and protecting our clients.

Articles Posted in Real Estate Transactions and Finance

floodSeveral of our law firm’s clients have been adversely affected by flooding caused by Hurricane IdaWe wish to offer our sympathy for all of those affected.  This post will address the legal issues raised from this storm event and offer potential solutions.

Let’s consider the issues from a purchaser’s perspective.  Prior to entry into a contract, due diligence  should be conducted by the purchaser concerning potential property issues.  Most notably, it should be determined before the contract is signed whether the property is in a flood zone, so that the purchaser can consider whether he wishes to take on this potential additional risk.  In addition, if the property is in a flood zone, the lender will most likely require the purchaser to obtain flood insurance, which is quite costly and will be added to the monthly mortgage payment after closing.  The mortgage lender will need to be involved because the value of the collateral, the house, may have been severely damaged and the lender will want to ensure that the property is rebuilt to its former state.  Also, lenders may be willing to grant a payment forbearance to the purchaser, so that mortgage payments will not be due for a set period of time from borrowers affected by a disaster.

The following issues are of concern to a property seller when a significant flood event occurs.  Properties are appraised during the purchaser’s loan application process to confirm that the property value supports the amount of the loan.  Lenders will want to conduct an additional inspection after the flood to confirm that the property has not been damaged or otherwise lost value after the date of the appraisal.  Concerned purchasers and their home inspectors may also be expected to make another evaluation of property condition.

dividehouse-300x225Our firm handles many partition matters.  A partition action is when one co-owner of a property brings a lawsuit because he no longer wants to co-own a property.  The lawsuit usually demands that the property be sold and the proceeds be equitably divided among or between the various co-owners.  If a partition action is not settled by the parties, the Court will appoint a Referee to sell the property and distribute the proceeds after hearings are held on how the proceeds should be divided.

However, in our experience, most, if not all, partition lawsuits can be settled by the parties before there is a Court-ordered sale.  There are generally three ways in which such actions may be resolved.  Let’s say there are two co-owners of a house, named Amy and Bob.  The first way to settle the action is that Amy buys out Bob’s interest, and becomes the sole owner of the property.  The second way is the reverse, in which Bob buys out Amy’s interest and becomes sole owner.  The third possibility is that Amy and Bob agree to sell the property to a third party, and also agree on how the sales proceeds will be divided between Amy and Bob after the sale.

This post will discuss the first two scenarios.  If one party is buying out another’s interest, it is possible that there is a mortgage lien already on the property.  Before finalizing a settlement, a title search should be conducted. This will show all liens and judgments on the property.  Experienced counsel can order such a search and interpret the results for the parties.  Once this is done, the parties need to decide how an existing mortgage will be handled in any settlement.  This will depend on several factors, such as the balance due on the mortgage, which of the parties has been making the payments, and which party is going to remain at the premises after the settlement.

realtor-300x199Now that the fall real estate market has ended, parties to real estate transactions are starting to prepare for the busy spring market.  Some sellers make the decision to forego the services of a professional real estate agent.  Other parties determine that using a real estate agent is essential to achieving the optimal high price and favorable terms sought.  This post will address the process involved in engaging a real estate agent.

This author  has found that over a period of decades, sellers prefer to work with an agent whose office is close to their home.  Such an agent may also live in the same neighborhood and would be very familiar with issues that are of concern to buyers.  Information on school registration, recreational facilities nearby and even medical providers will make a buyer feel at home and more comfortable selecting a particular house.  Agents in close proximity provide convenience in showings as often as needed and monitoring of property conditions.  As such, it is not unusual for a seller to ask neighbors for a referral.

The agent located will visit the home, provide suggestions for repairs and staging that may facilitate a quick sale and a recommended listing price.  Whether the agent owns her own brokerage or works for another brokerage, the seller will be presented with an agreement to sign and other disclosures such as lead paint and COVID disclosures, before photos of the home are taken and the property is listed on the Multiple Listing Service, allowing for exposure of the real estate listing to all buyers searching for a new home.  As an explanation, an agent may work for a brokerage with which he has an arrangement for shared compensation.

auction-300x206Some of our prior blog posts have dealt with foreclosure actions concerning real property.  A recent New York Supreme Court case, however, deals with a different type of foreclosure, and the effects of the COVID-19 pandemic on the same.

Most foreclosure cases in New York State are of the judicial type, and deal with the foreclosure of real property.  In a judicial foreclosure, the owner of real property gives a mortgage and note to a lender, in exchange for a loan.  The real property is collateral for the loan.  If the borrower fails to repay the loan, or otherwise defaults on the loan by failing to follow the loan terms, the lender may file a foreclosure action in the appropriate New York State Court, which would be the Supreme Court in the county in which the property is located.

New York State currently has a moratorium, due to the effects of the coronavirus, on judicial foreclosures.  Under this Administrative Order, “no auction or sale of property in any residential or commercial matter shall be scheduled to occur prior to October 15, 2020.”  However, not every foreclosure case in New York is a judicial foreclosure, requiring a Court proceeding.  Non-judicial foreclosures occur most commonly in coop matters.  An owner of a cooperative apartment does not own real property, but, rather, shares in the cooperative corporation, which, in turn, owns the real property on which the building is located.  As a result, if the shareholder defaults on a share loan, the lender may foreclosure on the shares without Court intervention.  The lender can issue notices under the Uniform Commercial Code (UCC), which is integrated into New York law, and have an auction sale under the UCC rules, without going to Court.

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We  note that recent news concerning New York’s commercial real estate landscape has been rapid and stunning.  Iconic businesses such as Sears, JC Penney, Modell’s and Brooks Brothers have filed for bankruptcy protection or closed retail stores, office spaces remain underutilized and the restaurant business is experiencing significant challenges.  Tenants that remain are rethinking their need for expensive commercial space.  Landlords are considering converting properties to new uses in order to fully lease available space.  This post will examine some of the current trends in commercial leasing and provide suggestions as to how such challenges may be overcome.

Century 21, the iconic downtown Manhattan retail fixture, announced that it is closing all of its stores.  As we reflect on the 9/11 terrorist attacks today, we also recall that Century 21 was committed to operating near the World Trade Center, rebuilt and reopened.  Unfortunately, the effects of Coronavirus on its business could not be overcome due to the tenant’s inability to collect on its claim for business interruption insurance.  Such insurance may be required by a landlord in a commercial lease.  It provides that if a tenant’s business is interrupted, that lost revenues and the like will be paid and will cover the rent that the tenant could not pay due to lost revenues.  Business interruption insurance covers lost revenues due to physical damage from terrorist attack or casualty, but often contains exclusions for matters such as a pandemic.  Even though common sense dictates that coronavirus has interrupted business to the extent that insurers should cover the claims, many tenants have been unable to collect on such insurance and use those funds to become current on their rent obligations.  Without revenues, tenants have been otherwise unable to pay their rent and have decided to vacate space.

In the office market, Covid 19 has frightened corporate leaders and employees, leading to many expecting to work from home for months to come.  This is leading to high office vacancy rates and new leases (if any) for shorter terms.  Subleases may become more prevalent so that tenants do not have to commit to long-term financial obligations.

openworkWe hope that our readers have been fortunate enough to have stayed healthy during these trying times.  Finally, our home region has commenced the post-Covid re-opening process.  We are currently in Phase II.  Our attorneys hope that all business activities will return to “normal” as soon as possible, just as baseball fans want to hear the “crack of the bat” as their favorite player hits a home run.  Since it is time for us to catch up on routine medical care, it is also prudent to consider returning to meeting your legal needs.  This post will address the specific areas that can be covered by our lawyers at this time.

New real estate transactions have diminished in recent months.  This author anticipates a delayed Spring market, meaning that contracts that may have been signed in March and April will likely be signed in the upcoming weeks instead.  Covid shutdown regulations forbid in-person showings by real estate agents.  Property owners were scared to allow potential buyers into their homes for viewings.  Phase II allows real estate agents to show properties in person, rather than merely virtually.  Sellers have become aware that buyers concerned with diminished quality of city life may now crave serene suburban living.  It is potentially an optimal time to sell one’s house.

Restrictions on retail establishments have started to loosen, allowing for curbside pickup and potential additional shopping options.  Restaurants are permitted to serve with outside seating.  While these sound like positive developments, the income stream to the commercial tenant with such restrictions is severely limited.  As such, it may be time to request that your attorney  review your commercial lease and seek a modification.  Tenants are otherwise expected to pay full rent, without being able to fully occupy the space and generate the same amount of income per square foot.

show-300x225Despite current conditions, the purchase and sale of real estate in New York is continuing.  This post will discuss how COVID-19 has changed the “nuts and bolts” of an ordinary transaction, from start to finish.  First, let’s assume a homeowner wishes to list her home for sale.  Due to social distancing expectations, mass showings of properties, such as “open houses,” would be frowned upon, if not prohibited.  However, individual showings by appointment of properties, by licensed real estate brokers, may continue.  Another option being utilized is virtual showings of properties on various online platforms.  This allows potential buyers to view the property while maintaining safety.  Younger or first-time homebuyers may be more comfortable with the virtual option, as they usually have more familiarity with online services.

Once there has been an accepted offer, the next step is often the hiring of a home inspector to inspect the property.  Currently, this is being allowed, but with the restriction that the inspector will inspect the property alone, without being accompanied by the potential buyer.  Once the inspector completes his work and issues a report, the buyer can use this information in contract negotiations.

The parties will then negotiate a Contract of Sale, which is traditionally prepared by the seller’s attorney.  As contracts are prepared and transmitted online, current conditions will not affect this portion of the transaction a great deal.  The attorneys, buyer, seller, and brokers can still exchange information and offers online or by telephone without violating any social distancing restrictions.

sickMost of us have been recently inundated by reports of the Coronavirus pandemic.      virus Although many of our readers do not travel to some of the afflicted locations, fear has a way of becoming contagious in its own right and can have negative business consequences.  Fundamentally, the fear is based upon not only becoming sick but also on the effect that widespread contagious illness can have upon the economy.  This post will address how our attorneys  respond to unfavorable financial times and the strategies to be rendered.

Real estate transactions  tend to be voluntary business activities.  For instance, a proposed buyer may be renting an apartment and be in the market to potentially purchase a house.  Typically, a buyer needs liquid cash assets to post a downpayment and have the cash needed to close.  If the stock market continues its losses of the past few days, a buyer may decide not to move forward because he needs to sell additional assets than previously intended in order to raise the cash needed.  An experienced attorney  would advise such a person that real estate is an investment that can be sold at a future date, hopefully at a profit.  However, continuing to rent an apartment does not provide an asset to be sold at a future date or potential tax benefits such as deducting mortgage interest and real estate taxes paid.  Now that we are about the enter the Spring market , new inventory and opportunities for buyers are available.  Perhaps if a seller is concerned that her house will not sell as readily in this economy, the price may be reduced to attract additional buyer interest.

Certainly, commercially leased properties  may see reduced customer traffic if consumers are afraid to be in public places and prefer to order products online or not visit restaurants where ill persons may be present.  If such conditions persist, a tenant may need a seasoned lawyer to negotiate a lease modification or lease surrender , thus assisting the tenant in not being required to continue in a lease that is not consistent with current economic conditions.  If such a modification cannot be negotiated, the tenant may be advised to “go dark” .  Should the landlord not be willing to accept these options, he may seek to bring a landlord-tenant proceeding against the tenant.

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We  have posted previously about the change of use of properties in the region served by this law firm.  Real estate developers may be interested in such properties because they envision a potentially new profitable use for the property, especially if the use changes.  For instance, an existing swim club has a dwindling membership base or a nursery business is no longer viable.  These obsolete properties have large acreage and could be used for assisted living facilities or multi-family housing.  Let’s imagine that an owner of a single-family house is next door or overlooks such a site.  It is not hard to believe that the homeowner would not want to live through the rock blasting and noise created by bulldozers and years of construction.  Also, the assisted living facility or multi-family housing may change the character of the neighborhood or make it otherwise undesirable to the homeowner.  This post will address the options available to such a homeowner.

Usually a developer in this scenario needs to apply to the applicable municipality to request the change of use for the property.  There may be valid objections that the neighbors can raise, such as increased traffic and roads that do not accommodate those who will visit and use the facility.  If the homeowner does not believe that objecting to zoning changes and the like would be successful or if the homeowner merely wishes to negotiate a deal for himself, there are other options available.  One option may be to sell the house to another individual who may not be aware of the potential development of the neighboring property.

Developers who want a particular building site are financially well equipped.  If it makes monetary sense, a developer may consider buying the single-family home that stands in the way of his development.  If the homeowner is willing to leave his house, he should hire an experienced attorney  to negotiate the most favorable terms.  The best deal for the homeowner may be to sell the house  and to have a qualified attorney  include certain provisions in the contract.  All seller expenses should also be paid by the developer.  These expenses include payment of the seller’s transfer taxes, attorney fee , broker commission and any other costs of the sellers.  In addition, the negotiated price should also be high enough to pay off the seller’s mortgage so that the seller is not out-of-pocket at the closing.

newlaw-1-300x300A recent article reports on a new law signed by New York Governor Andrew Cuomo which is meant to assist defendants in foreclosure actions.  This article will explain the law, as well as its possible impact on both plaintiffs and defendants in foreclosure lawsuits.

The law amended Article 13 of the New York Real Property Actions and Proceeding Law to allow a defendant to raise the issue of “standing” at any time in the legal proceedings.  A non-attorney may first ask what is the issue of standing and how this change in the law benefits a party being foreclosed.  Standing is a legal defense relating to the plaintiff’s basic right to bring a foreclosure action (or any other type of action).  In order to commence a  foreclosure lawsuit, the lender (usually a bank or loan servicer) must show that it is a corporation licensed to do business in New York State, and also it is the holder of the note and mortgage which is the subject matter of the lawsuit.

Failure to meet these requirements may result in the lawsuit being dismissed due to a lack of standing.  Because many loans are transferred between different lenders and loan servicers on a frequent basis, it is entirely possible that the party bringing the foreclosure action may not have “standing” as the loan may have been sold to another entity prior to the case being filed.  In that case, the plaintiff may lack standing, and the action may be dismissed.

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