flipMany 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.

fancyacuppa-300x158The New York Times recently published an article concerning the beloved business Tea & Sympathy, a British-themed store and restaurant located in Manhattan’s Greenwich Village, and the difficulty that it has encountered meeting its lease obligations.  Closure of this business may occur  unless the landlord is willing to amend the lease terms.  Loyal customers of Tea & Sympathy have rallied in support of the business by contributing to a “Go Fund Me” page to assist the business in meeting its expenses.  This post will examine legal strategies to be employed when a tenant foresees difficulty in meeting its lease obligations.

Some of our clients with commercial leases have contacted us when they have encountered difficulty in meeting their lease obligations.  The cause of such inability can arise from various factors.  Perhaps the tenant did not engage the services of an experienced attorney when the lease was negotiated and inadvertently agreed to terms that were not advisable for a tenant.  Unanticipated factors may have come into play that increased tenant obligations beyond those that may be comfortable,  such as increased fees and real estate tax escalations of the municipality where the leased premises is located, or a major capital improvement conducted by the landlord for which the tenant agreed to pay a percentage of the cost.  Although the tenant agreed to the rent increases when the lease was signed, the tenant may have eventually become unable to sustain the rent increases once other business expenses also increased.  The business climate may have changed since the lease was signed.  For instance, the product or service offered by the tenant may also no longer be desired or is now being offered online at a lower price.  Given that most commercial leases are long-term arrangements, many of these factors can cause a tenant to be unable to meet its lease obligations.

Your attorney should first determine whether the tenant wishes to continue to conduct business at the leased premises.  If not, a lease surrender should be negotiated prior to “going dark”.  Should the tenant wish to continue at the premises and even be fortunate enough to have sympathetic customers (like those of Tea & Sympathy) who would be disappointed if the business closes, attorneys for the tenant should conduct a negotiation with the landlord towards the goal of modifying the lease so that the current terms are consistent with the tenant’s current abilities and the landlord’s current needs to cover property expenses.  Negotiation of a lease modification avoids yet another vacancy for the landlord and maintains the landlord’s cash flow.

bible-300x172Recently in the news is a follow-up story relating to a dispute regarding control over a Chelsea synagogue.  A prior blog post related the original story about a “rogue Rabbi” who took control of the synagogue pursuant to a lease agreement, and was accused of violating the lease by, among other things, tearing out original pews, renting the synagogue out for parties, and other alleged wrongful conduct.  That dispute is still being litigated.

The new dispute relates to a recent election held by the synagogue to elect a new Board of Trustees.   Certain members have disputed the validity of the election, and have filed suit to reverse the results of the election.  As our prior blog posts have explained, such disputes are usually governed by the New York Religious Corporation Law.  The law governs all religious institutions, including the so-called “major” religions, Christianity, Judaism, Islam, and Hindu.

However, New York Religious Corporation Law only provides general guidelines regarding many of the issues which may arise over a disputed election.  One potential issue is which individuals qualify as members of the congregation, and, therefore, would be allowed to vote in an election.  Congregants or members are usually defined under the law as those who are over 18 years old, and who worship regularly at the institution in question.  Certain churches may define congregants as those who receive communion regularly at the church.  Contributing funds to the institution on a regular basis may also be a factor in membership qualification.  Our firm recommends that the institution’s by-laws be drafted to include a more specific description of membership qualification.  Institutions are free to define membership in their by-laws, and such by-laws will be upheld by the Courts.  For example, the institution may define regular attendance at services as a qualification for membership, or may limit membership to dues-paying individuals, or to individuals who have contributed a certain level of funding.  Specifically defining membership is important for any religious institution, as participants in elections are limited to only members of the congregation.  Qualified members may then vote in elections to determine the leadership of the organization.

church-300x224A recent New York Supreme Court decision relates to the intersection of two major practice areas of our firm, foreclosure and Religious Corporation law.  The case involved a mortgage loan taken out by Grace Christian Church, located in Brooklyn, New York.  According to the Court, the Church mortgaged its property to the plaintiff, John T. Walsh Enterprises, LLC, in exchange for a loan of $350,000.00.  When it failed to make payments under the terms of the note, the plaintiff brought a foreclosure action against the Church property.

This case is an excellent example of the interaction between these two areas of law. The reason for this is that, under New York’s Religious Corporation Law, a religious corporation cannot sell, mortgage, or lease its property for a term exceeding five years without the consent of the New York Attorney General.  Prior blog posts have discussed the legal procedures necessary for a religious institution to obtain such consent.  Recent changes in the law have made it possible to obtain such permission directly from the office of the Attorney General, without the necessity of a Court proceeding. However, if the Attorney General’s Office does not give initial consent, the religious institution then has the option of bringing an action in Supreme Court to obtain such consent.  Such action must be served upon the Attorney General’s Office, and, if the Court subsequently approves the transaction, whether it be a sale, lease, or mortgage, then the religious institution may proceed with its real estate transaction.

In the Grace Christian Church case, although the Church’s Board of Directors approved the loan transaction, they did not seek approval of the New York Attorney General, as the law requires.  In addition, the loan terms were significantly altered at the loan closing, without the consent of the Church’s Board of Directors.  A title search performed by an experienced title company would have shown that the property was owned by a religious corporation, and would have required such consent by both the Board of Directors as well as the Attorney General as a condition of closing the loan.

cheatingMany 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.

family-296x300Our firm often fields inquiries from clients regarding successor rights in New York residential rental apartments.  The first issue which needs to be determined is whether the premises in question are subject to rent regulation.  Rent regulation in New York State applies to many, but not all, residential units.  It is more prevalent in New York City than in its surrounding suburbs.  However, it does also cover many rental units in Westchester and Nassau Counties.

Whether an apartment is subject to rent regulation depends on many factors.  Defining these factors is beyond the scope of this blog post.  It may depend on the number of units in the building, the age and history of the building, and whether the owner accepted certain government benefits or loans.  A rent regulated unit will generally be subject to the rent stabilization laws of New York State or the local municipality in which the unit is located.  Generally, only cities with large populations will have apartment units subject to rent regulation.

There are local government offices, known as the Division of Housing and Community Renewal (DHCR) which maintain databases allowing for a tenant to determine if their unit is rent regulated.

foreclosure-300x170A recent article in the New York Law Journal discussed the possibility of public foreclosure defense services being in jeopardy due to government funding cuts.  What does this mean for the homeowner whose home may be in danger of being foreclosed?

Homeowners who are having problems paying their existing mortgages may be in danger of having a foreclosure action brought against them.  New York State currently provides public services to assist such parties.  These agencies may provide legal advice on avoiding foreclosure, help with loan modifications and refinancing, and other financial services related to mortgages.  Generally, these services may be provided free of charge by non-profit agencies, such as Legal Services of the Hudson Valley.

However, many of these agencies are overwhelmed by the demand for their services.  As stated in the article, state budget cuts may result in these agencies being unable to provide assistance for all homeowners who may be at risk of foreclosure.  What should these homeowners do in this situation?  We would recommend hiring a private attorney with experience in defending foreclosure lawsuits.  Prior blog posts have shown the various ways in which an experienced attorney can defend a foreclosure case in litigation.  Even delaying a foreclosure action can buy a homeowner valuable time in which to negotiate a loan modification, obtain a refinance commitment, or even sell the property and pay off the mortgage, if there is sufficient equity.

bucket1So 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.

super-bowl-betting-300x180Scheduled for this Sunday is the Super Bowl between the New England Patriots and the Los Angeles Rams for the championship of the NFL.  Recent news stories in the New York metropolitan area involve the possibility of making legal sports bets on the “big game” at casinos or racetracks located in New Jersey.  The reason for this development is a recent decision by the United States Supreme Court which invalidated a federal law prohibiting individual states from making sports betting legal, with limited exceptions.

The Supreme Court, by a seven to two vote, held that it was a violation of the Constitution to prohibit states from making their own decision regarding the legalization of sports betting.  The result is that every one of the fifty states can now legalize sports betting (or decide not to legalize sports betting), and may determine where, when, and how such bets will be made within their state.  The details of such legalization are left up to each state, including whether to allow online betting.

New Jersey, which brought the case before the Supreme Court, has already passed legislation permitting sports betting in racetracks and casinos, such as the Meadowlands Racetrack located just a few miles from New York City.  New York State has lagged behind, and has not yet legalized sports betting or decided on a structure for such potential legalization.  For the time being, New York State residents who wish to bet against the Patriots in the Super Bowl must travel to New Jersey, or to another state such as Nevada, which has authorized legal sports betting.