Real Estate Transactions and Finance

May 3, 2019

Renting to Own in New York

There are many opinions regarding whether being a renter or owner of one’s residence is the correct decision in New York. Many factors, including one’s economic situation, must be considered in whether to rent or buy real property. One additional possibility is renting the property with an option to buy. This post will discuss the legal issues related in entering into such an agreement.

Initially, there must be an agreement with the owner of the property regarding the terms of the rental. This is commonly documented in the form of a lease. The lease will delineate the monthly rental amount as well as the lease term and other provisions. If the parties agree, an option to buy the property can be included in the lease, or as a separate agreement.

The most common arrangement is to provide the renter with the option to purchase the premises at a set price during the rental term, or at the expiration of the rental term. If the renter exercises her option to buy, then the attorney for the property owner should prepare a contract of sale to be executed by all parties. The signed contract of sale is necessary should the potential purchaser need to apply for a mortgage loan to purchase the premises. Any institutional lender will need a copy of the fully executed sale contract in order to process a standard loan application. In addition, a down payment, typically in the amount of ten percent (10%) of the purchase price is usually also necessary to obtain a traditional bank loan. The lending institution requires proof of the down payment deposit into the escrow account of the seller’s attorney.

April 26, 2019

Flip or Flop: New York Edition

By Weiss & Weiss

Many of our readers are familiar with television programs where people purchase properties in terrible condition, conduct renovations and then sell at a handsome price at the end of the show. While some New Yorkers may be inspired by these programs, reality often differs from the outcome as depicted on television. This post will examine some of the pitfalls in “flip” transactions and methods to alleviate some of the legal issues that arise.

Traditionally, a flip transaction takes place as follows. A purchaser locates a property that is a “good deal”. Perhaps it is purchased at foreclosure auction , without the opportunity to view the interior of the property or to determine whether tenants occupy the property. The property is a “good deal” because it is priced below other properties in the area, and is perceived by the purchaser as being in a prosperous area in which their ultimate purchaser will want to live. Once the property is purchased, the owner will renovate the property and market it for sale. The flipping purchaser does not intend to use the property for his own occupancy and therefore needs to sell the property as quickly as reasonable.

As most flippers ultimately realize, there is no such thing as a “good deal”. These transactions are often too good to be true, as these properties are acquired “warts and all”. Often the flip properties are acquired from foreclosing lenders whose attorneys present contracts that are allegedly nonnegotiable, “need” to be signed immediately and contain unduly harsh closing deadlines that could result in the loss of the downpayment or other penalties. Flippers should not cave to pressure to sign such contracts without attorney review. An experienced attorney will inform flippers that they are most likely purchasing the property subject to existing property violations, past due real estate taxes, unpaid water bills, another mortgage that may not have been removed by the foreclosure proceeding, occupants that may need to be evicted and the like. It may be prudent to order a title search prior to signing such a contract and to resist pressure from the seller to use the title company that it recommends.

March 15, 2019

Varsity Blues? Misrepresentation in New York Real Estate

By Weiss & Weiss

Many of our readers are aware of the recent college admissions cheating scandal. Credentials of proposed candidates were misrepresented in an effort to obtain admission to prestigious colleges. Parties to real estate transactions in New York may also misrepresent financial qualifications and property conditions in an effort to close the sale of a property. This post will address the types of misrepresentations that may occur in real estate transactions and the remedies if such misrepresentation is discovered.

From the prospective of a purchaser, misrepresentation can take the following forms. It is not unusual for a contract to purchase a house to contain a provision that the purchaser represents that she has adequate funds to close, has not filed bankruptcy during the past seven years, and is not aware of any judgments filed against her. The purpose of this clause is to deter a seller from entering a contract, taking the property off the market and later discovering that the purchaser cannot obtain cooperative board approval or obtain a loan commitment due to facts that the purchaser knew at the outset of the transaction.

Purchasers also are often required to represent that a loan application will be pursued with diligence. A purchaser may falsely elevate financial details on his mortgage application in an effort to qualify for a mortgage for which he is not otherwise qualified. Lenders protect themselves as to this potential form of misrepresentation by requiring proposed borrowers (and applicants for short sale approval) to deliver a signed IRS form 4506-T. This document allows the lender to obtain tax returns directly from the IRS, in case the borrower falsified tax returns delivered to the lender in an effort to look more favorable as a borrower. In addition, lenders typically contact the borrower’s employer immediately before the closing to confirm continued employment and salary awarded. Cooperative applications commonly contain personal and business letters of reference. Due diligence may dictate that the authors of such letters be contacted to confirm that they did indeed write and submit such letters as part of the board application.

February 8, 2019

Bucket List- Who’s in Charge after Your Death?

By Weiss & Weiss

So long as one is alive and mentally capable, one is in control of her own financial and legal affairs. Once a person passes away, a fiduciary needs to be appointed by the Surrogate’s Court to determine and pay estate debts , collect and distribute assets, file relevant tax returns and pay taxes, vacate a rental property used by the deceased or sell a property owned by the deceased. Also, if the deceased left minor children surviving, a guardian needs to be appointed to care for the children on a daily basis. This post will explore the types of fiduciaries that may be involved after a person’s death and how they are appointed.

If a person dies without a will (intestate), the Court will appoint an Administrator to serve. The Administrator to be appointed will be the same person who will inherit according to the intestacy statute. For instance, if the closest survivor is a sister, such person will inherit the deceased’s assets and serve as the estate administrator. Guardians for minor children (under 18 years of age) will need to be appointed by the Court in the event that the person dies intestate. Since a parent should not leave it to the Court to appoint a guardian for her children, it is prudent for such person to engage the services of a qualified professional to draft a will containing her wishes relative to fiduciaries.

We have posted previously about the merits of having a will and/or trust. In either case, fiduciaries are selected by the person making the will or trust. Executors are formally nominated in wills. They are charge of paying valid financial obligations and distributing assets that are collected. The testator (person making the Will) can select the best person in her life for the position of executor. Perhaps she is estranged from family and would prefer not to have the Court appoint the surviving relative according to statute in the case of intestacy. Also, the testator may have a friend who is sophisticated with respect to financial matters and is best suited to act as executor. Trustees of trusts take on similar roles as executors. Of course, selecting a guardian to raise one’s children in the event of death is a highly personal and important choice to be exercised.

January 10, 2019

Up Against a Wall- Legal Negotiation Strategies

By Weiss & Weiss

Our readers who follow the news are aware that the Federal government has been partially shut down for several weeks. President Trump has taken the position that he will not agree to re-open the government unless a wall is erected along our southern border. The Democratic leadership has responded that it will absolutely not agree that a wall is to be installed. It is not the goal of this author to side with either of these positions. Rather, we find it striking that neither side is negotiating effectively. By stating an absolute, such as there must or must not be a wall, both sides are preventing a satisfactory resolution; which requires agreeing to terms that inherently will be neither of these positions. Presenting an “all or nothing approach” is not how matters are successfully concluded. This post will address one of the tools that experienced attorneys have at their disposal- strong negotiating skills. We will explore how these skills are utilized in various legal matters.

Negotiation strategies can take the following course in real estate transactions. We recommend that parties to a proposed deal let their attorneys “do the talking” and thereby prevent themselves from showing emotion or desperation to sign the contract. Otherwise, such a party is vulnerable to agreeing to issues in the contract that may not be beneficial and result in regret. For instance, a seller who needs to sell for financial reasons or who may be facing foreclosure, without other viable offers, may agree to excessive demands from the buyer like making repairs, credits for inspection issues, etc. On the flip side, a buyer “in love” with a particular house that has multiple offers in a strong Spring market may agree to risky decisions such as waiving the mortgage contingency, allowing violations to remain and the like. The more prudent negotiation move is to allow only a qualified attorney to be aware of these factors, not display feelings and allow the attorney to be the only one to negotiate on a party’s behalf.

Commercial lease negotiations contain their own strategy. A tenant may want to be in a particular location and find it necessary to tolerate the unreasonable expectations of a landlord. For instance, a landlord may wrongfully impose snow removal obligations on the tenant. The tenant’s attorney can get more leverage in this negotiation if the tenant is willing to walk away and find another location instead. Such flexibility may help to achieve better results for the client. Perhaps the landlord has an opportunity to rent to a “big box” nationally known tenant. In such a case, the tenant will require that its form of lease be signed and will not be amenable to many landlord requirements. Locating another tenant who is willing to accept landlord demands could be best in some situations.

December 6, 2018

Sold! You’re the Successful Bidder- Auctions Part II

By Weiss & Weiss

We have advised our readers of the process for bidding at a foreclosure auction sale in New York. Perhaps you have attended the auction, participated and made the highest, winning bid. This post will address what happens next.

Upon making the highest bid, the participant will need to make an immediate payment of ten (10%) percent of the bid price. The auctioneer will provide a written receipt and the parties will sign the receipt. The successful bidder should contact an experienced attorney and provide the Notice of Sale, Terms of Sale and Receipt to his attorney. Your attorney should review these documents to ensure compliance by the successful bidder as well as the party auctioning the property.

Typically, Terms of Sale provide for the bidder to close and receive the Referee’s Deed to the property within thirty (30) days of the auction sale. Failure to do so may result in the loss of the deposit and the auctioning party offering the property to the next highest bidder or holding a second auction. Therefore, the successful bidder should be prepared to pay the balance with readily available liquid funds, without the need to apply for a mortgage. The attorney should order a title report, which will be bound in a title policy at closing, so that no other liens will encumber the property and the status of real estate tax payments is known for adjustment purposes. Then, the successful bidder will have the benefit of title insurance.

November 29, 2018

Bidding at a Foreclosure Auction Sale in New York – Part I

By Weiss & Weiss

Our firm receives many inquiries from parties who intend to bid at a foreclosure sale. Foreclosure sales most often occur when a party is unable to pay a mortgage encumbering a property, and a foreclosure judgment is obtained by the lender. What happens next? A foreclosure sale, or auction, is scheduled by the lender. This must be properly noticed by having all parties served with the Notice of Sale, as well as having the Notice published in a general circulation publication, which the Court will order, such as the Journal News in Westchester.

Once all notices have been given, the sale is usually held in the lobby of the Courthouse of the Supreme Court in the County in which the foreclosed property is located. Most courthouses in New York State set aside a specific area or room in their building to hold such auctions, which are open to all members of the public. Prior to the auction date, it is wise for potential bidders to have experienced counsel review the terms of sale.

The sale is then conducted by the Referee for the foreclosed property. The Referee is an individual, usually an attorney, who has been appointed by the Court to conduct the auction and transfer the property after a judgment of foreclosure has been obtained by the lender, who is the plaintiff in the foreclosure lawsuit. The Referee’s role is to prepare all documents, conduct the auction sale, and then prepare the property transfer documents and convey all funds to the lender after the auction.

October 11, 2018

Controlling Tenant Attributes in Commercial Leases

By Weiss & Weiss

Landlords who lease commercial space typically concern themselves with the quality of a proposed tenant so that such character is consistent with that of other tenants occupying the property. Such concern is reflected in particular provisions found in a commercial lease. This post will discuss some of the more common tenant “character” provisions.

Signage is important to commercial tenants so that the store’s location is visible and identifiable to potential customers. Because landlords are concerned that certain signage may look physically unpleasing or be harmful to the reputation of the property, landlords typically specify signage requirements in the lease. The landlord will reserve the right to approve the signage sought to be used by the tenant and will usually not allow a sign that appears to be too large or has too much neon compared to other signs already used at the property. Of course, signs containing vulgar words will not be permitted. When negotiating your lease, your attorney should also negotiate an exhibit to the lease which will contain a drawing of exactly how your sign will look with specific dimensions referenced. That way, the parties will have already decided on the approved signage before the lease is signed.

Landlords also want to control store hours. Many leases have provisions to that effect. In a shopping mall environment, most leases will require stores to be open for the same number of hours. Such a provision benefits all tenants, as the mall is more likely to be a thriving place in which to do business if shoppers can visit more than one store. On the flip side, landlords may demand that a public storefront be closed after a certain hour so that visitors do not “hang out”, impairing the reputation of the property or creating too much noise, impacting neighbors of the property.

August 2, 2018

Converting Stores to Apartments – A Solution to Westchester’s Housing Shortage?

By Weiss & Weiss

Recent news in Westchester County is that the Wal-Mart store in downtown White Plains is scheduled to close on August 10 of this year. Our blog has recently explored the legal issues relating to a store closing for good, especially where there is an existing lease.

An interesting point regarding the Wal-Mart closing is that it is been suggested that the store be replaced with a residential building or be converted as exists into apartments. Many area residents who decide to move out of New York City are seeking homes in Westchester County. However, Westchester has a limited housing stock, and many of the current homes in Westchester date from the immediate post-war period, or are even older, and the lack the amenities many new home buyers are seeking.

In addition, the economics of supply and demand mean that due to the low current supply of housing stock in Westchester, housing prices are quite high and will likely continue to rise over time. Since demand is unlikely to decease, the only way to lower prices would be to increase the supply of housing. Other areas in the United States are experiencing similar housing shortages. Further, recent changes to the federal income tax laws concerning limits on the deduction of real estate taxes have affected the real estate market.

May 3, 2018

Repair Issues: What Will Sellers Typically Address?

By Weiss & Weiss

Now that many of our clients are participating in the Spring housing market , repair issues have developed in several transactions handled by our attorneys . This post will address the manner in which such issues should be addressed in a contract.

Most buyers will have a professional engineer inspect the premises prior to signing a contract. Inspections serve several purposes. They may illuminate a condition so severe that the buyer decides not to proceed. An example may be a cracked foundation requiring costly repairs. Inspections also show conditions that a seller may be willing to address, given the circumstances of the transaction, such as electrical repairs needed for immediate safety concerns. Also, inspections show conditions that are for the buyer’s information as a potential homeowner, including ongoing maintenance issues such as clearing the gutters on a seasonal basis. Conditions in this category should not be raised with the seller. In any event, rest assured that the inspector will find conditions requiring repairs because most homes that are inspected are not newly built and not in perfect condition.

Let’s consider those conditions that should be addressed. Buyers need to be aware that our current local real estate market is afflicted with low inventory. This means that many sellers are weighing multiple offers that vary as to terms such as price and whether the buyer needs to obtain a mortgage. Offers also vary as to whether a particular buyer appears to be pleasant and will easily close the transaction. With this in mind, a buyer may lose the deal if she asks the seller to repair a large number of items, many of which are relatively simple such as unclogging the hall tub drain. Unfortunately many first time purchasers are anxious, desire a house with no issues, and are unfamiliar with the area, so they may not know who to call to repair the tub. These people are better served by hiring their own plumber after the closing for a few hundred dollars, rather than making it an issue with the seller who may have other options.