Real Estate Transactions and Finance

August 2, 2012

A New York Bidder’s Expectations Concerning the Property Auction Process

Those who bid at property auctions in New York are confronted with many potential issues. Auction properties are often attactive to first-time homeowners and to investors because they are perceived as being less expensive than comparable properties. If the property is residential, the bidding process differs based upon whether the property is a single-family house, a condominium unit or a cooperative unit. The type of property, whether it is commercial or residential, may have implications for tenants already in occupancy and whether such tenants may have statutory occupancy rights.

The auction process for a single-family home is similar to the auction process for a condominium unit, because both types of property are real property. The major difference is that common charges are levied by the Board of Managers of a condominium, allowing for the filing and foreclosure of a lien for unpaid common charges by the condominium Board. However, once the matter is in foreclosure, it is supervised and directed by a Court, meaning that same is litigated and requires a judgment of foreclosure issued by a judge before proceeding to auction. In a condominium, mortgage balances take priority over unpaid common charges. As such, in many cases, an auction bidder in an auction for unpaid common charges will likely be taking the unit subject to the outstanding mortgage, requiring the successful bidder to pay mortgage arrears and keep the mortgage current to avoid foreclosure.

Cooperative bidders will experience an auction process that is non-judicial (not supervised or litigated in the Court) unless a party requests that a Court issue an injunction to prevent or delay the auction. Since cooperative maintenance charges take priority over a share loan, it is possible for an auction bidder to obtain the unit for only the amount of the maintenance arrears and sever the security interest of the lender, provided that the auction is properly noticed. Our readers should note that this is an unlikely scenario because most lenders will choose to cure a maintenance default by paying it themselves, because a cooperative unit is likely to be more valuable than the maintenance arrears due to the cooperative.

July 26, 2012

Fair Housing in Westchester County, New York

By Weiss & Weiss

A recent article in the Journal News discusses the latest developments in the Westchester County, New York fair housing settlement. For those who are unfamiliar with the situation, a lawsuit was brought by a public interest group against Westchester County, alleging housing discrimination. In order to settle the lawsuit, then-County executive Andrew Spano agreed to build at least 750 units of “affordable housing” in Westchester. This blog post will discuss the ramifications of the settlement, as well as the legal issues associated with the sale and resale of affordable housing.

Long-time Westchester residents will recall that in 1980, a similar case was brought against the City of Yonkers, also alleging discrimination in housing. While it is beyond the scope of this post to address the merits of this case (as well as the case against Westchester), the legal issues become important for potential buyers and sellers of property in Westchester. In the Yonkers case, Judge Leonard Sand ruled that Yonkers had discriminated against minorities and ordered the city to provide low-income housing in all areas of Yonkers for minority applicants.

Of course, implementation of such a remedy is far from simple, and the Yonkers case involved many years of litigation over the issue of whether the city was in compliance with Judge Sand’s directives. Unfortunately, the same issues now seem be arising in the Westchester County lawsuit. Once a municipality enters into a settlement of a discrimination lawsuit, as Mr. Spano did on behalf of the residents of Westchester County, there may be no end to judicial enforcement of a remedy. It seems unlikely that a Court will ever reach a finding that no further discrimination exists and end its supervision of the construction of affordable housing.

July 12, 2012

Mortgage Disclosure Regulations Promulgated by the Consumer Financial Protection Bureau

By Weiss & Weiss

Our readers should be aware that the financial crisis has spawned at least one new government agency. In this post, we address the Consumer Financial Protection Bureau (“CFPB”), whose central mission is “to make markets for consumer financial products and services work for Americans– whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.” With respect to mortgages, the CFPB has recently promulgated proposed regulations pertaining to mortgage disclosure.

Many people believe that the financial crisis and resulting recession were caused by borrowers entering mortgages that they did not understand and becoming financially overwhelmed as a result. The CFPB has recently proposed regulations intended to prevent this problem in the future. Revisions to the Good Faith Estimate document and the preliminary Truth-in-Lending Disclosure form figure prominently in the new regulations, so that borrowers understand the loan terms and the actual cost. For instance, the new document that combines the purposes served by the Good Faith Estimate and the preliminary Truth-in-Lending Disclosure form, now entitled the Loan Estimate, is to be presented within three business days of the mortgage application and purports to be easier to understand than similar documents presented in the past.

Further, another document, entitled the Closing Disclosure, to be presented to the borrower three business days before closing, is intended to replace the form known as the HUD-1 and the revised Truth-in-Lending Disclosure form. The Closing Disclosure is meant to prevent a borrower from being surprised by unexpected closing costs and the amount of cash needed to close. While most consumer mortgages are covered by the regulations proposed by the CFPB, common mortgage transactions such as home-equity lines of credit and reverse mortgages are excluded.