Real Estate Transactions and Finance

November 30, 2012

New York Residential Real Estate Contracts- Legal Issues

Residential real estate contracts in New York State are prepared and negotiated by attorneys, rather than by other real estate professionals such as real estate brokers. This custom allows the opportunity for parties to real estate transactions to have professionally prepared contracts, serving as the road map for the entire transaction. There are particular provisions in a typical New York residential real estate contract of which our readers should be aware.

The most common conversation that we have with our real estate clients, whether they are the purchaser or the seller, pertains to the closing date. The standard contract clause will provide that the closing date will be “on or about “x” date”. This has been interpreted by New York courts to be a ” target=”_ date, not a date that either party must absolutely attend a closing and complete the transaction. We advise our clients not to schedule the movers, arrange for contractors to commence renovation projects or set up the closing of another transaction based upon an “on or about” closing date. New York legal custom generally allows thirty days after the target “on or about” closing date before one of the parties may legally expect to hold the closing.

At this point, it would then be appropriate for one of the attorneys to send a “time of the essence” closing date notice. A time of the essence notice must be in writing and will specify the time, date and location when the party sending the notice expects to perform its contractual obligation, deemed “law day”. New York Courts have held that time of the essence notices are to be sent on no less than thirty days notice. The party sending the notice needs to attend the closing on “law day” and to perform the closing, such as by having their client sign closing documents and having other parties such as title closers attend. In fact, it is common practice to have a court reporter attend the time of the essence closing to document a party’s failure to perform, so that a contract downpayment may be seized or another remedy for breach of contract employed.

August 9, 2012

Short Sales of Real Estate in New York

By Weiss & Weiss

The large number of foreclosed properties in New York State has caused a situation where banks may be more willing to compromise when a borrower cannot make their mortgage payments. If a lender proceeds with a foreclosure to its final conclusion, the lending institution will end up taking title to the property. Many lending institutions would rather not be “in the business” of owning, selling, and managing real estate. As a result, there are several alternatives to foreclosure which may be available. The first is a loan modification. As discussed in a prior blog post, courts in New York State are required to attempt to settle foreclosure actions in a separate foreclosure part.

Another alternative is a short sale. A short sale happens when the mortgage balance exceeds the current value of the property. This is an increasingly more common situation in our times, as lenders in the past were overly generous in issuing loans on properties, including second mortgages. Overly optimistic appraisals and credit reports were the foundation of said loans. Combined with a recent decline in real estate values, the result is that many homeowners find themselves unable to pay their mortgage, and also find that the total debt on their property may exceed the current fair market value of the property.

When this occurs, the borrower may ask the lender to allow a “short sale” on the property. A short sale is when a lender allows the property to be sold for less than the amount due on the mortgage, and then forgives the rest of the debt on the property after the sale. The main reason that this may be an acceptable alternative for a homeowner is that they remain personally liable on the Note and Mortgage, even after foreclosure and sale of the property. A lender may seek a deficiency judgment against the borrower if the property is auctioned for less than the amount owed by the borrower. This can result in a large judgment entered against the borrower, and could result in the borrower having their personal credit damaged, or being forced to file for personal bankruptcy.

August 2, 2012

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

By Weiss & Weiss

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.