New York Real Estate Lawyer Blog

When thinking about restructuring a mortgage or even going through the foreclosure process, most homeowners are motivated by the bottom line-lower monthly mortgage payments or relief from burdening debt.

What most homeowners do not consider is that along with lower mortgage payments, they may receive an income tax bill from the Internal Revenue Service (IRS). The Internal Revenue Code, which embodies the federal tax laws, classifies some discharge or forgiveness of debt as taxable income.

In other words, if the bank agrees to foregive or reduce your principal on the mortgage you signed, then you may owe income tax on the foregiven portion of the mortgage. For example, say you restructure the mortgage on your New York State home and you consequently owe $30,000 less, that $30,000 is considered “income” and is potentially taxed. The idea is that if you borrow money, which is then not paid back, it is a debt that is not being paid back and is akin to receiving “free” money. The taxing authorities consider such foregiveness “income,” because you got the value, but are now not paying it back.

Many times, Lenders submit IRS Form 1099-C to the IRS and the forgiven debt is included in a homeowner’s income for the year, and the homeowner then must file IRS Form 982. Depending on the amount of debt forgiven, the increase in your income taxes can be substantial.

The good news used to be that The Mortgage Debt Relief Act of 2007 will be in effect until December 31, 2013. The Act allows homeowners to exclude from their taxable income any income from the discharge of debt relating to their principal residence. It applies to forgiven debt used to buy, build, or substantially improve a principal residence as long as the debt is secured by the residence.

Stated another way, if you are relieved of mortgage debt before December 31, 2013 due to mortgage restructuring or foreclosure, your transaction will probably not result in taxable income. The act permits married homeowners who jointly file their income taxes to treat up to $2 million as qualified principal residence indebtedness. The amount for single taxpayers is $1 million.

The Bottom Line– Homeowners thinking about restructuring their mortgages should discuss the tax implications with a real estate attorney who can provide advice for how to take advantage of The Mortgage Debt Relief Act.

In New York, grieving your property taxes means more than just complaining when your bill and assessment arrives. Each year the tax assessor for hundreds of municipalities sets a base line “assessment” for how much your they believe your real estate property is worth. Then, based upon formulas adopted by the State, they determineshow much you pay in taxes. You have the right to “grieve” your taxes by filing the correct form with your local “assessor,” in a formal review of the assessment, called a “tax grievance.”

As the property values escalated during the last decade, municipalities gleefully re-assessed the properties at higher and higher values so they could increase the amounts of revenue they collected from the real estate taxes. Homeowners are traditionally skitish about filing a tax grievance for various reasons– maybe they benefitted from such increased assessments because they took out home equity loans, or mortgages. That said, others refrained from filing a grievance fearing that the Town would reassess their property, find the various improvements made to the property, and then tax you more? While you may not file objections every year, the municipality is not permitted to raise your assessment because you grieved your taxes.

What does it mean for New York homeowners to “grieve” your property taxes. To begin with, you must file an RP-524 Form. This process is supposed to be simple, and is well explained here.

You will then be entitled to meet with the assessor and either agree with the value set, or you will be issued a decision as to the value based upon the evidence you submitted, and you may then appeal, as set forth below. Before you file this form, you should take the following steps before deciding to contest your taxes.

First, check the assessed value of your property on your municipality’s assessment roll to see if it is fair (or close to fair market value). This information is available on your town’s website. Here is a link to an overview of a sample assessment. The link explains what the assessment means. When a property is fully assessed at 100 percent, the market value and the assessed value are identical.

Next, after you see the assessed value of your home, you need to consider whether that amount is fair. Is your home worth what your town says it is worth? You should document your home’s value so you can present your evidence in your grievance. An appraiser or real estate professional can help with this task. You can also do this on your own by considering how much someone would pay for your home if you sold it on the open market. If you recently purchased or constructed your home, compare the assessment to the purchase price or cost of construction. If a hypothetical buyer is willing to buy your home at the assessed value, then the assessed value is likely “fair,” and you will have a hard time arguing that you are “over-assessed.” You can also try to compare your home to similar homes in your neighborhood. For example, if your neighbor’s home is nearly identical in lot size, bedroom number, number of bathrooms, etc., but that home’s assessment is significantly less than your home’s assessed value, then the assessment of your home might be too high. If you are over-assessed, you are probably paying too much in taxes, and may have an argument.

Next, you must carefully learn the date by which all tax grievances must be filed. The “tax grievance” day is the last day to file a grievance, and you should not wait to file for the informal review with your municipality. This will enable you to exchange information with the assessor and possibly lower your assessment. Remember, a lower assessment means a lower tax bill. If your town does not offer an informal assessment procedure, you can complete this administrative form and submit it to your town’s assessing department during the formal grievance period. Check with your town for the dates.

If you are denied a reduction but you still believe your home is over-assessed, New York allows judicial (court) review of the assessment. If you are thinking of asserting your rights in court, you should contact a local real estate attorney to discuss your options. We offer cost-effective flat rate representation for people interested in filing a grievance or an appeal cared a SCAR petition.

The Small Claims Assessment Review is a procedure that provides property owners with an opportunity to challenge the assessment on their real property as determined by the Board of Assessment Review (the Board) (in counties outside Nassau and NYC) or the Assessment Review Commission (ARC) (in NYC and Nassau County). It is a less costly and more informal alternative to a formal Tax Certiorari proceeding, which can be time consuming and expensive. As outlined in Section 730 of the Real Property Tax Law, property owners may petition the court for review of their property assessment before a specially trained hearing officer for a nominal fee of $30.

The Bottom Line– if you think your house is over assessed, you should avail yourself of the right to challenge the tax assessment.

Yesterday’s Blog dealt with what happens if you don’t diligently apply for your mortgage while attempting to buy a house. But, what happens if you got your commitment and the bank thereafter revokes it?

According to the case law, a purchaser should be entitled to return of the down payment. Kapur v. Stiefel (1999) 695 N.Y.S.2d 330, 264 A.D.2d 602 (1999). In that case, the purchaser obtained a refund where the mortgage commitment was revoked, makeing the mortgage contingency clause (generally relied upon to cancel the contract)unavailable. This is not automatic, and the question becomes whether the purchaser acted in “bad faith,” or intentionally caused the bank to withdraw the commitment. Although litigation might errupt over whether the purchaser acted in bad faith, if a court finds that they did not (based upon documentary evidence), then the purcahser should be able to get the money back from the seller.

Specifically, the Court held:

“Inasmuch as plaintiff’s mortgage commitment letter was revoked by the lender after the contingency period, the provision in the contract of sale conditioning plaintiff’s right to the return of his escrowed down payment upon his cancellation of the contract within seven business days after the date specified for obtaining the commitment letter was inapplicable. Nor, under the circumstances at bar, involving a commitment revocation as opposed to the failure to obtain a commitment in the first instance, was plaintiff’s cancellation of the contract otherwise governed by specific provisions of the parties’ contract. This being the case, plaintiff purchaser’s right to the return of his escrowed down payment turns instead upon whether the commitment revocation and consequent failure of the transaction was attributable to bad faith on plaintiff’s part (see, Creighton v Milbauer, 191 AD2d 162; Lunning v 10 Bleecker St. Owners Corp., 160 AD2d 178, lv denied 76 NY2d 710; Lane v Elwood Estates, 31 AD2d 949, affd 28 NY2d 620).”

The case cites Lunning v 10 Bleecker St. Owners Corp., 160 AD2d 178, lv denied 76 NY2d 710 (1990), where the court held, “When a condition of a mortgage loan commitment is not fulfilled through no fault of the purchasers, their performance is excused, so long as they acted in good faith.”

The Bottom Line– if you find yourself in the unfortunate situation of having obtained a mortgage, and the bank does not thereafter fund it, through no fault of your own, you have case law on your side, and you should consider litigation to obtain a refund of your down payment.

One of the must mis-understood concepts is the “Mortgage Contingency Clause,” and how you, as a home buyer, must diligently protect your right to cancel a real estate contract if you are unable to secure a mortgage. This blog is not about the situation where your Bank issues you a mortgage commitment, and then pulls out of the deal for some reason. By then, you have likely waived your mortgage contingency.

In New York State, signing a contract to purchase real estate is usually accompanied by a “downpayment,” which is held in escrow by the seller’s attorney. The downpayment is sometimes called an “earnest money” deposit. (I always thought that such term appropriately described the deposit because you are “excited” to be purchacing a house, but you must earnestly apply for a mortgage. Many times, it is traditional to put as much as ten percent of the cost of the house up as a “downpayment,” and that is the amount at risk if you do not properly apply for your mortgage.

In New York, the downpayment also represents a seller’s damages if the buyer breaches the contract and refuses to purchase the house without justification. A downpayment can represent up to ten percent, or more, of the purchase price depending on negotiations between buyer and seller.

An artfully drafted contract prepared by a real estate lawyer will include provisions such as a mortgage contingency clause, which calls for the seller to return the downpayment to the buyer if the buyer is unable to obtain a mortgage to purchase the property. This seems straightforward, but litigation often arises surrounding the return of a downpayment to a buyer claiming an inability to obtain financing. In today’s world, there are many ways for a bank to cause problems for a buyer and her attorney. Without careful attention to dates, deadlines and notice provisions, getting your down payment back can be difficult.

One sure way to lose your down payment is to apply for a mortgage which is greater than the amount requested in the Mortgage Contingency. According to the New York courts, if you apply for a mortgage for an amount greater than the amount in your contract, you will lose your downpayment. This is because in New York, applying for a mortgage greater than the contract price is a breach of contract as a matter of law. See, Silva v. Celella

In other words, a court will likely find that you violated your mortgage contingency clause, and not be entitled to return of your downpayment because you breached the contract. An experienced real estate attorney can review your mortgage application and guide you through the financing process to avoid and minimize these risks.

In another case, Humbert v. Allen, involving legal malpractice claims, the attorney didn’t send notice that the plaintiffs were denied a mortgage. However, the court held that the plaintiffs didn’t suffer damages because they applied for a mortgage twice the amount of the contract price, so they breached the contract anyway.

The bottom line– there are many traps for the unwary. You should thoroughly discuss your obligations to apply for a mortage and request the down payment back under the terms of the real estate contract presented.

Is there ever any tax relief? Property Taxes in New York are ever escalating. As a result, many tax payers claimed that their real estate was eligible for School Tax Relief (STAR), when many of such properties were not actually eligble. Asssessors around the State were missing out on millions of dollars. As a result, the New York State Legislature amended the law to require many New York homeowners to re-apply.

To qualify for STAR, you must occupy your home and your income plus your spouse’s income cannot exceed $500,000 per year. STAR then exempts the first $30,000 of the full value of a home from school taxes. Until now, homeowners signed up once for STAR and enjoyed the benefits year after year. However, the New York Department of Taxation and Finance is changing the rules for 2014. To continue receiving STAR benefits in 2014, a new law requires homeowners to re-affirm their eligibility. Registration started on August 19 and will end on December 31, 2013.

Homeowners currently receiving Basic Star should watch their mail. The State Taxation Department is mailing STAR codes to STAR recipients. The code is required to register. Letters were already sent to homeowners in Western New York in the following counties: Allegany, Cattaraugus, Chautauqua, Chemung, Erie, Genesee, Livingston, Monroe, Niagara, Ontario, Orleans, Schuyler, Seneca, Steuben, Wayne, Wyoming and Yates. The remainder of New York State will receive letters containing the codes by early October.

There is also a STAR code lookup available here, although certain counties are still unavailable, including: Rockland, Westchester, Dutchess, Sullivan, Putman, Orange, Geneva, Nassau, Suffolk counties.

In addition to the code, the state requires the following information:

• The names and social security numbers for all owners of the property and spouses.

• Confirmation that the property is the primary residence of one of its owners (married couples with multiple residences may only claim one STAR exemption).

• Confirmation that the combined income of the owners and their spouses who reside at the property does not exceed $500,000.

• Confirmation that no resident owner received a residency-based tax benefit from another state.

Here is another helpful link to the STAR program.

If you prefer to call, a state hotline is available to answer questions. The number is 518-457-2036. New York is also Tweeting about the registration program at:

Bottom Line– Perhaps if we all start paying our proper share, the taxes will not continually rise.

Last month we spoke about some tips for new home buyers in New York State when purchasing home owners insurance, and we solicited the help of my friend Bill Allen, an independent insurance broker at the William C. Allen Insurance Agency, Mineola, NY 11501. Here are some ways to try to lower those costs:

1) Consider installing a security system and smoke detectors: A security system that is monitored by a central station alarm company or notifies the police directly will typically provide a 5% discount. Smoke detectors are a standard safety feature in new homes and should be installed in older homes. Having them may not only save a life but could also reduce the cost of insurance.

2) Raise the deductible. Higher deductibles equal reduced premiums: A homeowner willing to take a greater portion of the risk by agreeing to paying a higher deductible in the event of a claim, will pay a much lower premium. Since insurance should only be used for catastrophic events and never for small claims, it makes sense to have higher deductible.

3) Bundle insurance policies: By combining home, auto and umbrella (excess liability) policies, insurance companies give substantial discounts which can save hundreds if not thousands of dollars.

4) Rely and Purchase an Umbrella Policy. One of the most cost effective ways to effectuate better insurance coverage for your entire family is to purchase an Umbrella Policy which will give you greater personal coverage, greater automobile injury protection, protection of your secondary homes; and protection from wacky lawsuits like defamation (always an issue on Face Book).

The Bottom Line: Having the right team of experienced and trustworthy real estate professionals including a seasoned insurance professional will help smooth out that process.

Post Script– do you know the difference between an insurance “agent” and an insurance “broker.” Bill Allen is an independent insurance professional offering most forms of insurance including homeowners insurance throughout New York and the Tri-State area. As an indpendent insurance professional, he can act as a Broker– meaning that he works on your behalf to secure the correct insurance for you needs from a wide variety of insurers and insurance policies. This is different from an “agent” who is associated and must sell only the policies of one insurance company and is acting as an “agent” for the Company, not you. Keep this in mind when shopping around.

So, you are buying a house in the suburbs of New York City and you want to rely upon the Mortgage Contingency to protect your hard earned down payment. But, what if the bank offers you a smaller mortgage than you applied for because the appraisal came in low? Did your attorney protect you with an “Appraisal Clause?”

Every homebuyer wants to get a good deal, but how can you prevent overpaying for your new property? And why is it so important? The key to making sure the price is right is to make sure you have an appraisal and that your sales contract includes an appraisal clause.

An appraisal is a detailed report, created by an independent professional, to establish the value of the home you are buying. The value is what other buyers would pay in a competitive market. Most appraisers will compare the home you want to other homes in the neighborhood that recently sold. The appraiser will make adjustments for the unique features of your home.

For example, your home might be worth more if it has an extra bedroom compared to another home on the same street. Some appraisers will consider how much it would cost to build the same home in the same location. You want your house to appraise for the offering price or more. This is because you want to avoid borrowing more than your house is worth.

Most banks will not extend the mortgage to a buyer if the house does not “appraise” for the purchase price. This could mean one of two things. First, you might have to come up with extra cash to close the deal, or, second, you might jeopardize your down payment if the bank issues you a commitment for less than your mortgage contingency.

An appraisal “clause” in a real estate closing contract can help solve this problems because it allows you to cancel the contract if the house fails to appraise for the amount you offered. In other words, if you offered more than the home’s appraised value, the clause lets you walk away before losing money, regardless of whether the bank will give you a mortgage.

The bottom line– hire an attorney who will fight for your protection.

Let’s face it– the purchase of a home is a life altering, stressful and often expensive proposition with hidden fees, costs, and expenses. Many times, a Mortgage Commitment comes from the bank with the requirement that the new homeowner purchase home owner insurance. My clients often call the agent who issued their automobile policy and ask for insurance, but they don’t ask the right questions, or make assumptions that hamper them later– particularly when they need that policy to respond to some sort of loss. I took up this issue with my friend and compatriate in the real estate world– William C. Allen, William C. Allen Insurance Agency, 372 Willis Avenue Mineola, NY 11501. Here are some helpful insurance tips.

Although it is an intangible product, insurance is the safety net that fills the gap when things go terribly wrong so adequately protecting a home, usually one’s largest asset, is essential. Considering the high costs associated with buying a home, many new homeowners make the mistake of trying to save money by purchasing the most inexpensive insurance they can find. This does not mean they should overpay, but inexpensive policies often omit or limit coverage and may contain exclusions (things that aren’t covered) that could end up costing the homeowner more in the long run if a loss occurs.

First time home buyers should ask trusted friends, family members or their attorney for a referral to an experienced insurance agent who can explain the various nuances associated with homeowners insurance. Because an agent’s job is to manage risk, a good one will include in the discussion what the coverages are, what different insurance companies have to offer and, lastly, ways to limit the cost of the insurance.

Dwelling or building coverage is the amount it would cost to rebuild a home in the event of a total loss. Many companies will offer guaranteed replacement or an additional percentage above what the dwelling coverage is in order to cover cost overruns during the rebuilding process. Some companies will limit the amount they will pay to replace a roof based on how old the roof is while others may limit the replacement of the home to “similar” construction rather than “same” construction. There is a difference, that’s why it is important to speak with someone familiar with the policy language of the various insurance companies in order to help make the right choice. [I always recommend asking the questions– what is replacement cost coverage, what is ordiance and law coverage, how much demolition is covered].

Besides having the proper amount of coverage to rebuild the home in case of a loss, homebuyers should also consider adequate coverage to replace personal property such as clothes, furniture, electronics, etc. Some policies provide an automatic percentage of the dwelling amount as the amount for personal property but an insurance agent can help determine how much property coverage there should be based on the size of the home. That amount may vary but most people have more than they think so considering what it would cost to replace everything is important. Also, opt for a coverage called replacement cost on contents which will pay to replace items lost at today’s prices rather than paying a depreciated amount.

It is also important to take inventory of those possessions. One of the easiest ways of doing this is with a video camera, narrating while walking through the home describing items and what they cost. Burn the video to a DVD and remember to keep a copy at a location other than in the home. In the event of a loss, it is incumbent upon the homeowner to list all items lost or stolen so performing this task ahead of time will speed up any claims process.

Homebuyers should also consider if there are any outstanding liability issues with the home. If there are cracks in the sidewalk or if gutters are hanging loosely from the roof or if all the stairs are sagging and feel unsturdy, an insurance company may opt not to insure that home. Insurance companies will cancel a policy if they determine there are areas of the home both inside and out that are dangerous and could cause an injury. New homebuyers should hire an experienced independent inspector who will point out not only any liability issues but any other problems the house might have.

The Bottom Line– Ask a qualified insurance broker to quote you the best policy you can afford, being sure to consider the options, including the bells and whistles. I thank
Bill Allen for contributing to this Blog. He is an independent insurance professional and owner of the William C Allen Insurance Agency offering most forms of insurance including homeowners insurance throughout New York and the Tri-State area.

Restaurants try to provide a relaxing and pleasant atmosphere, so their diners enjoy a nice experience, . . . . romantic, relaxing, . . . not their customer’s home. Often, ambience and mood includes music, but your favorite spot might be dishing out copyright infringement in addition to the special of the day.

A copyright is the exclusive right to perform an artistic piece such as a song. It protects the person who created the work from unauthorized (unpaid for) use of the song. Federal law governs copyrights, which means that the law is the same regardless of whether the restaurant or bar is in New York, or another state. There is a struggle for the artists who created the songs to manage the license to play the music in a public establishment (a mini-booking fee). Some restaurants and bars actually acquire a license to play songs and television on the radio or over the speakers and televisions installed at your favorite dining establishment. More and more, as music moves to the digital environment, licensing companies are pursuing these small restaraunts and bars to “enforce” their claimed right to copyrighted work. So, when does the restaraunt need such license?

Generally speaking, restaurants with 3,750 gross square feet, excluding areas used only for parking, do not need licenses to play music and televisions. But what about restaurants with more than 3,750 gross square feet? Those establishments do not need licenses to perform music if any of the following apply:

1. The electronic “performance” is audio only and communicated by no more than six loudspeakers. Only four of the six loudspeakers are in the same room or adjoining outdoor space.

2. The performance is by audiovisual (televisions) means and there are no more than four audiovisual devices with no more than one audiovisual device per room. None of the audiovisual devices have a diagonal screen of more than 55 inches. If audio devices are used, there are no more than six loudspeakers and no more than four loudspeakers in any room or adjoining outdoor space.

3. No direct charge is made to see or hear the transmission or retransmission.

4. The transmission or retransmission is not transmitted beyond the establishment where it is received.

5. The transmission or retransmission is licensed by the copyright owner of the work so publicly performed or displayed
Bottom Line– If you use music or television to set a mood in your bar, restaraunt or tavern, you should check to see if licensing is required.

Who knows the most about your house? Its history, its features, its quirks, its problems? The answer is you, the seller. As someone about to sell a New York home, consult your lawyer (not your realtor) about the Property Disclosure Statement. Under New York State Law, you have a decision to make– complete a 35 question exam about your house, or give a $500 credit for not disclosing to buyers.

This disclosure or admission is part of New York’s Property Condition Disclosure Act, which became law in 2002. The law applies to all land that is improved by one to four family dwellings that are used or intended to be used as residences. Condominiums, cooperatives, vacant land to be used for construction, and certain other forms of ownership are exempt from disclosure.

It sounds simple, but the law demands much more than saying, “My home is in excellent condition!” or “My home is great!” In fact, the Act requires sellers to complete a six-page form that includes questions ranging from the age of your house to whether your property ever contained a fuel storage tank to whether you have ever tested the water quality and flow.

We generally recommend that you do not attach the disclosure to your contract, and instead give the buyer a $500 credit at closing. Why? Because New York State remains a solidly caveat emptor (buyer beware) state where the buyer is charged with investigating the house. Why would a seller risk disclosing something that later becomes wrong. Cases are replete with examples of litigants claiming that something was not disclosed — post closing. Who wants the head ache of a litigation after selling the house, especially in this market.

The Bottom line- despite the best ntentions, an innocent mistake such as declaring your home lead-free can lead you to court if the buyer later learns otherwise and decides to sue, alleging a misrepresentation. Would you rather pay $500 toward the credit, or litigate that innocent mistake?