Articles Posted in Real Estate Transactions and Finance

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reverse-300x206Prior blog posts have discussed the legal ramifications of reverse mortgages, which are becoming more common, and, with this, have become the subject of more court actions, including foreclosure cases.  Reverse mortgages allow a person to borrow against the equity in their home, and are limited to those homeowners older than age 62.  The sums borrowed against a person’s primary residence are usually not legally required to be repaid until after the borrower’s death.

Of course, no one lives forever, and, eventually, all things must pass.  At that point, the legal heirs of the borrower will often receive collection notices from the reverse mortgage lender, demanding repayment of the loan.  This post will discuss the legal options available to the heirs when a reverse mortgage has become due as a result of the borrower’s death.

The first recommendation is that the heirs retain experienced legal counsel to represent their interests.  Counsel should examine the documents underpinning the reverse mortgage, and check to ensure that the borrower actually took out the loan, and understood the ramifications of the transaction.  Unscrupulous lenders may take advantage of our senior citizens, some of whom may not be in top shape physically or mentally.  If a surviving heir suspects this to be the case, the reverse mortgage may be challenged in Court, depending on the overall circumstances of the transaction.

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pondMany of us have recently enjoyed watching the Winter Olympics.  The competitive spirit of the athletes is enhanced by the beauty of the snow and ice and the vistas in South Korea.  Back in our region, snow and ice can be dangerous for homeowners and subject them to damages for injury to person and property.  Of course, young children are most susceptible to injury and tragic consequences are sought to be avoided.  Homeowners should take reasonable measures to avoid dangerous conditions caused by ice and in warmer times, swimming pools.

Let’s imagine that a young couple purchases a lovely home overlooking a lake.  What a wonderful lifestyle to be enjoyed.  Skating on the frozen lake in the winter and swimming in it in the summer.  However, should the lake not be sufficiently frozen, and a person falls in as a result and drowns, the homeowner could be subject to a claim for personal injury if he did not take adequate measures to protect against harm.  Some of these measures are limiting access by fencing or a gate with a key and posting signs in multiple languages advising of the danger.

Swimming pools are also what can be termed as an attractive nuisance.  Using them is appealing to neighbors, even if not invited by the homeowner.  Those who are unable to swim or are impaired by drugs or alcohol can be injured if they have easy access to the swimming pool.  As with the lake, it is essential that a locked gate or fence surround the pool.  Also, potentially a pool alarm should be installed to alert the homeowner to unauthorized use.  These measures are important even if the properties are spaced far apart, as in some areas served by our firm.

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chelsea-300x200A recent article in the New York Times discusses the purchase of the building which currently houses Chelsea Market by Google.  Of course, this raises the issue of what becomes of the tenants in the building, including the all-important food vendors.  Commercial real estate in New York, whether in the New York City area or its surrounding suburbs, often changes hands.  The question then becomes what are the legal responsibilities of the new owner regarding the existing tenants.

In most cases, the property is sold subject to the current tenants’ leases.  This means that if the tenants have valid leases, and most commercial tenants would have such leases, then the new owner “steps into the shoes” of the existing landlord, and takes the property subject to the leases.  It is important for anyone purchasing such commercial real estate to have experienced counsel review the existing leases, and be aware of the rights and responsibilities of both landlord and tenants.  A commercial property such as Chelsea Market may have dozens of commercial tenants, who may have different leases, expiring at different points of time, with potential options to renew.  The new owner must analyze the situation prior to purchasing to ensure that the existing rent obligations create sufficient cash flow for their purposes.  Also, if the new owner wants the space vacated, an evaluation is needed to determine how long the existing tenants may remain.

Assuming the buyer is obtaining financing for its purchase, the institutional lender will require subordination non-disturbance and attornment agreements from the tenant.  This is an acknowledgement from the tenant of the status of the lease, such as term, security deposit held, rent due and whether either party is in default, and that it will pay the lender if the buyer does not make payments on their mortgage loan.  In exchange, the tenant should obtain an estoppel certificate, which is a document confirming their tenancy, and stating that they will not be evicted assuming they continue to meet their obligations under their existing leases.

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retaxes-300x168In 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.

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cooprejectConsider 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.

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tenant-300x161Our 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.

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tax
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.

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lock-300x300In 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?

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lordtaylor-300x158
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.

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survey
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.

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