New York Real Estate Lawyer Blog

Beware of what you are signing in an upstate New York real estate transaction. The problems and perils of non-lawyers having contracts signed prior to attorney review.

New York State's highest court, the Court of Appeals, recently considered a frightening set of facts and protected the attorney-client relationship. But, beware.

In this case, the defendants signed a real estate contract to purchase the home of plaintiffs. The contract contained a rider with an "attorney approval contingency" stating as follows:

"This Contract is contingent upon approval by attorneys for Seller and Purchaser by the third business day following each party's attorney's receipt of a copy of the fully executed Contract (the "Approval Period"). . . . If either party's attorney disapproves this Contract before the end of the Approval Period, it is void and the entire deposit shall be returned."

Both the contract and the rider were form documents copyrighted and approved by the Greater Buffalo Association of Realtors, Inc. and the Bar Association of Erie County. After signing the contract, the defendants developed qualms about purchasing the plaintiffs' house, and instructed their attorney to disapprove the contract within the three-day period for invoking the attorney approval contingency.

Three years later, the Plaintiffs finally sold the house at a loss and sued for breach of contract and the "covenant of good faith and fair dealing." Both the trial court and the mid-level appellate court entered judgment against the defendants finding, in essence, that they had negotiated in "bad faith" by cancelling the contract within the three day right of attorney review.

In reversing, and dismissing the complaint, the Court of Appeals found two reasons to dismiss the complaint:

First, the plain language of the contract in this case makes clear that any "fruits" of the contract were contingent on attorney approval, as any reasonable person in the defendants' position should have understood that they could cancel for attorney review.

Second, the court held

any inquiry into whether a particular attorney disapproval was motivated by bad faith will likely require factual examination of communications between the disapproving attorney and that attorney's client (see e.g. McKenna, 123 AD2d at 517 ["defendant acted in bad faith by instructing his attorney to disapprove the contract"] [emphasis added]; Moran v Erk, 45 AD3d 1329, 1329 [2007] ["the evidence supports the court's determination that defendants acted in bad faith by instructing their attorney to disapprove the contract"] [emphasis added]). That is, the disapproving attorney will be subpoenaed to testify about communications the disclosure of which might be detrimental to that attorney's client -- a direct conflict with an attorney's duty to preserve a client's confidences and secrets (see 22 NYCRR 1200.19[a] [defining "secret" as "information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client"]).

Stated simply, if the attorney has to testify as to the reasons for disapproval, then it chills the right of the client to speak, and for the attorney to listen.

The bottom line-- the Court of Appeals held that where a real estate contract contains an attorney approval contingency providing that the contract is "subject to" or "contingent upon" attorney approval within a specified time period, and no further limitations on approval appear in the contract's language, an attorney for either party may timely disapprove the contract for any reason or for no stated reason.

Peter's bottom line-- Don't sign a contract until you have reviewed it with your New York State real estate attorney. Here's the full case.--Case-Attorney Contingency Clause.

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Posted In: General Interest , Real Estate Hints and Help

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“CEMA” stands for Consolidation, Extension and Modification Agreement, and is used to save mortgage tax in certain situations.

Sellers sometimes use this process and procedure to refinance real estate located in New York State because, when recording a New York Consolidation, Extension and Modification Agreement, they pay only the mortgage tax on the difference of the new money and old. The idea behind a CEMA is to renew the terms of an existing mortgage by re-financing an existing note and mortgage. The CEMA is the actual legal document which combines into one set of rights and obligations all the promises and agreements stated in existing Notes and Mortgages secured by the property being re-financed.

If the new Consolidated Note and Mortgage includes additional monies (or funds), the Borrower pays only the Mortgage Tax on such “new funds.” In counties such as Dutchess, Rockland, Westchester, Ulster this process can save thousands of dollars because the mortgage tax is paid (over one percent) on the difference between the old money and the new funds.

If you are refinancing a Mortgage secured by property located in New York State for delivery to Freddie Mac, your attorney or mortgage professional should use the most current version of the New York Consolidation, Extension and Modification Agreement Single-Family Fannie Mae/Freddie Mac Uniform Instrument (Form 3172).

The NY CEMA is utilized for refinances in lieu of the traditional cancellation (satisfaction) of the old Mortgage Note and release of the lien. The NYCEMA enables Borrowers with Mortgages secured by property located in New York to reduce the amount of the Mortgage recording tax paid in connection with the refinance. Tax on the outstanding Mortgage balance has already been paid, so the Mortgage tax is waived on that amount

Sometimes the process takes a long time because the original lender must locate the original note and mortgage and deliver to the Refinancing agent.

The bottom line– look into the process because it may save you closing costs in a New York State refinance.

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Why do so few people choose to control the disposition of their own estates after they die? Perhaps you fear death, you procrastinate, you are too lazy to think about your death, or you think that a will is unnecessary or too expensive. Why haven’t you e-mailed your lawyer, called your closing attorney, or actively engaged in executing a will? What is holding you back?

There is a debate among various elder law attorneys and marketing professionals about why New Yorkers and fellow Americans do not see their local attorney to prepare or revise their Last Will and Testament. Did you know that more people die without a will than with one!!

There are two givens in life-- death and taxes. So, why not control what happens in death through the execution and preparation of a Will? Do you really want the New York State Legislature to dictate where your personal belongings go after you die? The truth is that all people in New York State are empowered to execute a Will to override the rules relating to “intestacy” (where your stuff goes if you don’t have a Will).

How can you get a will-- buy a computer program for $3- to $50 dollars, where you input your own information-- You could do that, but are you really getting value out of your own legal advice? Do you really want a computer generated document that bears no relation to an attorney’s advice, consultation, and consideration. Are your heirs not worth having a simple and relatively painless conference with a live attorney and the execution of a document that considers your life and your station?

Unless you have spoken to your attorney, you cannot claim that you and your family do not need some form of simple will.

Bottom line– Get out, hire a local New York State Wills, Estates and Trusts attorney, and consider your mortality for a moment and execute a simple will– your family will be better off.

Key Terms to understand: will, testament, estate planning, trusts, business, marketing, legal ethics

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Posted In: Wills, Estates, and Trusts

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Buyer Beware: When buying a small business in New York be sure that your small business attorney follows the New York State Bulk Sales rules.

Prior to 1990, Article 6 of the Uniform Commercial Code (UCC) regulated bulk sales– the transfer of large pieces of inventory, notes, etc. Article 6 was enacted to deal with sellers who attempted to fraudulently convey inventory (obtained on credit) by selling in a “bulk sale” transfer to a single buyer outside the ordinary course of business, disappearing with the proceeds, and leaving creditors without paying.

Under New York’s version, the Code provides various mechanisms to protect both potential buyers and creditors of businesses where bulk transfers of inventory occur. Failure to comply with the Bulk Sales or Transfers Act means that the original creditors (of the seller) get a lien against the assets (inventory) transferred to the buyer. Buyers must comply with the Bulk Sales provision and be ready for its implications.

The Bottom Line–hire a new york business formation attorney to handle the transaction, or pay the price later.

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You have relatives in Greece, but need them to sign a deed in a form recordable with the New York State courts. How, in today’s age, where people move, fly and otherwise re-locate, do we get them to sign a deed without coming back to Rockland County?

How do we prove that a document signed in Russia is authentic and should be given the full faith and credit of our local laws in Dutchess County? What if your wife died in England, but you need to sign a document for American Surrogate court. All of these questions are becoming increasingly common, and increasingly easy to solve.

In October 1981, the United States joined as a signatory to the 1961 Hague Convention. For most of us, that means that we can now follow the “simplified certification” process whereby public documents (including notarized deeds) will be universally admissible in America and abroad. For a list of signatories to the Convention go here.

Countries that recognize the Convention agree to recognize public documents issued by other signatory countries if those public documents are authenticated by the attachment of an internationally recognized form of authentication known as an “apostille.” The function of the apostille is to certify that the signature on the document is authentic; identify the title or capacity in which that person signed; and the identity of any stamp or seal affixed to the document.

When the document is used in a foreign country, it may be necessary to authenticate the notarization or certification. Foreign countries often require documents to be authenticated before the documents will be accepted in the foreign jurisdiction. Be sure you follow those guidelines, or your document may not be acceptable.

An “authentication” certifies that the signature and the position of the official who has executed, issued or certified a copy of a document.

In New York, an apostille takes the form of a one page document issued by the New York State Secretary of State and embossed with the Great Seal of the State of New York, and includes the facsimile signature of the individual issuing the certificate. You may need to go to the nearest American Consulate office to finalize the process.

Speak to a New York Real Estate Attorney.

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If anyone has ever closed on a HUD inspired (guaranteed) loan, you know that there are millions of forms that are designed to provide notice of the borrowers’ rights and responsibilities. The prevailing view of policy makers was let the borrower beware, give them notice, and then let them make the mortgage– move the closing along.

The present housing crisis, however, has everyone re-thinking whether the borrowers are really getting well advised about the meaning of all these lending terms, prices, fees, etc. Hardly surprising given American’s thirst for debt and former “equity” in their homes.

The problem, however, should not be so prevalent in New York, where attorneys are still largely responsible for closing with clients and, presumably, advising them of the mortgage process.

Nevertheless, the policy makers don’t want anyone looking at them for the blame. So, the Department of Housing and Urban Development recently released a new set of rules designed to help homeowners understand the products they are borrowing against. The update modifies the Real Estate Settlement Procedures Act, known as RESPA (enacted 1974).

Various industry lobbyists, lenders and others involved in mortgage transactions opposed the new rules, but HUD pressed them through anyway. Note, however, that HUD officials still have no enforcement mechanisms to require or penalize non-compliance, but state and federal regulators could insist on “compliance” with the federal rules. Indeed, the threats of class actions may also “encourage” lenders to comply.

Now, in addition to the standard HUD form signed at closing, the revised “good-faith estimate” for borrowers will explain rates, fees, any prepayment penalties and the possibility of later increases in monthly payments. Fortunately, closing attorneys avoided having to orally read the disclosures to the closing participants!!

The new HUD-1 form (January 1, 2010) is designed to help consumers before they sign so that they can compare the promises made by the lender with what they are actually being charged at the closing. Again, borrowers will not have the opportunity to review the new forms at the comfort of their home kitchen, because they will only be given the HUD-1 form shortly before the closing. Why can’t we just get the Truth in Lending Document from all prospective Lenders so we can compare the Annual Percentage Rates for each particular loan.

The new form should also help consumers understand that the broker is being paid in fees, often called “yield spread premiums.”

The bottom line-- hire competent New York real estate attorneys to represent you at your mortgage closing, or get a competent mortgage broker to explain the different products. Then, if you cannot pay the mortgage, expect to be foreclosed upon.

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Citibank took a bold step to solidify and quell the concerns of its mortgagors by halting foreclosures, and voluntarily considering how to modify the terms of its mortgages on a wholescale scale.

According to the WSJournal, the US Government is considering various ways to fix the problem from the top down, rather than having to modify each and every loan on each and every house. Other top lenders are seeking to avoid such intervention by the government, including Bank of America Corp., J.P. Morgan Chase & Co. and Citigroup Inc., the banking industry has announced measures to make loans more affordable. Citi said Tuesday it would modify terms on as much as $20 billion in mortgages for borrowers who are current on their loan payments but could fall behind. Here's the article.

Stay tuned!

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As the credit markets continue to shrink, and access to credit tightens up further, some of our clients are turning to seller financing, which is sometimes acceptable in small real-estate transactions. Indeed, the WSJournal reports that large commercial real estate transactions are also including seller financing as an option.

According to the commercial real estate brokerage firm Marcus & Millichap estimates that as many of six (6%) of the deals it tracked this year involved seller financing to the buyer. [See article].

Seller financing is not for the weak of heart or slight of pocket book, however, because mom and pop real estate seller (now lender) will be in the position of the bank and have to shell out money to foreclose should the purchaser not pay the mortgage.

There are ways to mitigate such non-payment situation, not all good, but speak to a real estate attorney in Dutchess, Rockland, Westchester, Putnam or Ulster.

For example, you could do partial seller financing, but you would be second in line or “subordinate” in a liquidation to any primary lender the buyer enlists. That means that if the property must be sold in a bankruptcy or some other workout situation, the primary lender must be fully paid off with the proceeds of the sale before the seller gets anything for the financing it provided. Be sure the property appraisals are adequate before you take that risk.

You could consider holding a deed in lieu of foreclosure to secure your repayment and retake the property.

You could consider leasing the land with an option to buy.

But think about it, if the buyer isn’t credit worthy for a bank, why is the buyer credit worthy for mom and pop seller.

The bottom line– hire competent local New York real estate counsel if you are considering a seller financed deal and be aware of the risks involved.

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That is the question that many home owners, politicians, and policy makers are worried about these days.

With various federally guaranteed and initiated plans designed to help homeowners in this time of falling home values and prices, how are we going to decide which homeowners should get assistance, and which sellers are just savvy enough to ask for such assistance?

Here's a recent article from the WSJ, but there are many recent articles identifying the rub-- which home owners should get the help.

On commentator recognized that Fannie Mae recently changed their rules for borrowers who do a short sale. Instead of having to wait five years to qualify for a new Fannie Mae loan, and to encourage short sale, Fannie Mae is now requiring only a two year wait. [See Announcement 08-16 published on June 25, 2008].

Bottom Line-- Realtors and Brokers and New York Real Estate Lawyers and Sellers-- Go for the Short Sale in New York, but beware of the situation.

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To follow up my prior article on reverse mortgages, you should be aware of this interesting and informative article from the NYTimes., which gives you an interesting view of the types of products, the costs and risks associated with such investment stategies.

Good luck.

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To follow up on other stories in this blog, Short Sales gets very complicated and uncertain if there is more than one lender involved. Be sure that you are negotiating with the primary lender because junior lenders often absorb most of the loss, but you will need their approval too. Beware, sometimes the actual mortgage was sold to another entity, and you may also need approval from that company. To alleviate those problems, do a title search to verify the lien position of the lender you plan to contact.

One way to encourage a seller to participate with you is to advise them that the Mortgage Forgiveness Debt Relief Act of 2007 gives short sellers a tax break by changing the way the forgiven amount was viewed for tax purposes. The new law removed income tax liability for the “income” realized by not having to repay the entire loan– sellers get a tax break.

You must keep pestering the lender because time is of the essence. Shorte sales fall apart because the lender moves too slowly and fails to complete the deal before the property goes to auction.

Buyer can sometimes sweeten the deal for sellers by negotiating how the sale is reported to minimize the damage to the seller’s credit rating. While the lender has no obligation to agree to this in writing, it will give the seller a head start in rebuilding their financial lives. If the loan shows up on a credit report as “paid,” but “settled for less than originally owed,” the seller is much better off than if it is reported as “foreclosure.”

Bottom line– until this market bottoms out, we need to work hard to get that short sale completed by competent real estate attorneys, especially in Dutchess, Putnam, Rockland, Ulster and Columbia Counties, New York.

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So, your attorney has indicated that the Seller of a parcel of real property has an "old survey" and that you could get around the cost of a new survey with a survey inspection. What's the difference?

Survey: A licensed professional surveyor investigates the deed transfers into the owners of the parcel of property, and all of the surrounding parcels. Upon locating the various deeds, the surveyor then goes to the field with his sophisticated equipment to confirm that the metes and bounds description of the property is the same as those described by the various deeds into the owner and the neighbors. In addition to locating the boundaries, the surveyor actually investigates whether there are encroachments by fences, plantings, or other items on the property lines by physically locating such encroachments on the map. The result: you have a present day confirmation as to the boundary lines, possible encroachments, possible claims for adverse possession and an understanding what the status of "ownership" might be to that parcel of real property. The survey drawing delineates the position and boundaries the parcel.

Survey Inspection: If the seller obtained a survey, or there is an older version from the seller's seller, a title company might avoid the cost of a "new survey" by performing a visual inspection of the property, in a layman's attempt to identify "changes" to the property since the date of the last survey. Did the owners put up fences, buildings, or other items that might change the landscape and title to the property. Sometimes, the survey inspection will identify additions to the home, screened porches being converted to enclosed porches, and things that might give the buyer and her attorney pause to consider whether certificates of occupancy might be necessary.

Survey Endorsements: Are issued only to the buyer's mortgage lender., The title company assures (insures) the lender that the foundations do not encroach onto any easements referred to in the policy. The endorsement may be issued provided: (1) a physical inspection or survey discloses there are no encroachments onto any easements; and (2) the location of the foundations does not violate the covenants, conditions and restrictions of any other provisions of the title insurance policy.

Obviously, the best level of protection is the Survey because it gives you an understanding what the licensed surveyor is willing to certify as your actual boundary lines, and whether there might be any trouble brewing with the neighbors who might be claiming "adverse possession" of a portion of your property. The survey inspection is unscientific and merely provides you with an understanding of what might have changed-- did the owners add a pool which needs a fence to be "legal." You as the buyer get no protection from a survey endorsement. It simply protects your lender.

Bottom line-- To reduce the risk of real estate litigation in New York, get a survey, or risk objection and confusion about your property lines.

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