New York Real Estate Lawyer Blog

Will the the Housing and Economic Recovery Act of 2008 (July 30, 2008) provide the much needed support for homeowners in the Hudson Valley? Only time will tell as various financial institutions continue to feel the fall out on Wall Street.

The highlights of the new law permit the Federal Housing Administration to guarantee up to $300 billion in new 30-year, fixed-rate mortgages on loans made to borrowers who are facing foreclosure and who may owe more than the home is worth. This is a common problem in Dutchess, Putnam, Ulster and Rockland Counties.

Under the new law, the United States Government offers government insurance to lenders who voluntarily reduce mortgages for at-risk homeowners to 90 percent of the property's current value. The lender then forgives some of the face value of the mortgage principal, bringing the balance down, but the government would potentially share in the upside when the property appreciates.

Other provisions of the life saver include, (1) FHA, Fannie Mae and Freddie Mac loan limits will be capped at $625,000 – more than a 50 percent increase over the previous conforming loan limit; (2) $4 billion dollars in grant money will be available to communities to purchase distressed properties and rehabilitate them for resale; (3) the government can infuse capital or buy into Fannie Mae and Freddie Mac; (4) First-time homebuyers will receive a refundable tax credit, almost an interest-free loan of up to $7,500 (paid back over 15 years).

Obviously, these are complicated and new programs designed to lighten the load of everyday homeowners in the Husdon Valley. Contact your mortgage, legal and financial professionals to assist you.

According to the Wall Street Journal, New York City real estate as a whole is down ten (10%) . S&P/Case-Shiller Home Price Index, reported in WSJ today.

Can we expect that trend to continue-- probably, for three primary reasons. First, Wall Street executives and traders are taking a financial bath. According to the article, job losses on Wall Street (which employed 15.7% of Manhattan's workers) will impinge on their average salary ($269,000-2006) causing their stiff down payments to suffer as bonuses are slashed and the subprime mortgages cause the stock options to plunge and the pink slips to issue.

Second, as the mortgage crisis deepens, access to credit is going to tighten.

Third, as the US dollar strengthens, Western Europeans are going to stop dumping their Euro's in the NYC real estate market.

The bottom line-- perhaps some of us mortals will be able to afford some of these coops and condos soon.

You would think that paying $53.5 million for two separate penthouse apartments in New York's famed Plaza Hotel would get you what you paid for. Not always! According to published reports about one recent real estate transaction, Andrei Vavilov, hedge fund financier, has sued the hotel developers El-Ad Properties and real estate brokers Stribling & Associates for breach of contract, fraud, deceptive trade practices and negligence, demanding return of his $10.7 million deposit and $30 million in damages because the Penthouse was "attic-like."

Another story of buyer beware-- sometimes very aware. Vavilov reportedly made the luxury purchase after watching a video- shot, produced and directed by the sellers. Apparently, the video didn't do the small windows, low ceilings, obstructed views and ugly drainage grates justice. According to the lawsuit and published reports, every time the buyer tried to investigate and inspect the apartments (four times), they were "denied access" to the units.

The Sellers have counter-claimed in New York State Supreme Court, accusing the buyer of libel and filing a "sham" lawsuit-- seeking $36 million in damages.

Apparently the advertised penthouses are not the "one of a kind" oases, perched on top of one of the city's most magnificent addresses, which originally induced Vavilov to risk $10.3 million down.

The bottom line-- be sure you have your house inspected before you plunk down your life savings to buy that fixer-upper, even if it does cost $55 million.

Is the New York State Office of Court Administration going to eliminate many Justice Courts throughout rural and upstate New York? That's what the commission appointed by Chief Judge Judith S. Kaye recommended. Who amoung us has not been before the local justice court, where judges, sometimes lawyers/ sometimes not, of the local town or village courts dispenses their judgement in a reported 2 million cases a year.

According to the New York Law Journal, the recently released study recommends consolidation of 500 of the 1,250 town and village courts in New York state because of their cost, antiquated facilities or duplication of services with other justice courts.

The consolidation plan was among the recommendations made Wednesday by the Special Commission on the Future of the New York State Courts, a panel originally formed by Kaye to report on ways to streamline the court system.

Here's a link to the article, but stay tuned.-- Study supports elimination of Hundreds of NY Courts.

Sellers of homes in Hudson, Germantown, Chatham and all of the other towns in Columbia County, New York, can expect to pay a transfer tax on the transaction.

Beginning December 1, 2007, title agents will collect the Columbia County Real Estate Transfer Tax of $2.00 for each $1,000.00 of the consideration (money) paid for all conveyances of real property located in Columbia County, New York. That means more transfer forms, and more headaches for “grantors,” who are also known as sellers. [Chapter 556 of the Laws of 2007, Columbia County].

The Columbia County Tax law exempts the first $150,000 of sales price (consideration) in connection with the sale of a one family residence, and is collected in addition to the New York State Real Estate Transfer Tax. Not to over-stress the orderly real estate closing, the County uses a tax return which must accompany the payment of the Columbia County Transfer Tax which is essentially a photocopy or carbon copy of the TP-584 (New York State Transfer Tax Form).

This Tax is codified in new Article 31-A-2 (Sections 1439-a through 1439-o) of the New York State Tax Law, which allows Columbia County to pass such law imposing the transfer tax. The Act authorizing the Columbia County Transfer Tax shall expire and be deemed repealed on December 31, 2009.

The bottom line-- Sellers or real estate in Columbia County-- your taxes just went up.

If you are lucky enough to afford a home valued at over a million dollars, you should be aware that New York Tax Law, Section 1402-a, imposes a 1% tax upon the buyer in the purchase of residential one, two or three family homes (including condominium or cooperative units).

In the boom years, and in New York City, the “Mansion Tax” as it is popularly known, adds a fixed amount to your closing costs, but almost seems outdated today, where homes routinely change hands for more than a million dollars. Promulgated in 1989 when the average price of a New York City apartment was far less than a million dollars, units are routinely more expensive in today’s market, moving the tax from the rich, to a tax on the average home buyer in New York City, the Hamptons, and Westchester County. As credit gets tight, buyers and sellers of million dollar residential real estate may have to consider creative (and legal) solutions to help facilitate the transaction.

When griping about the Mansion Tax, however, consider that it increases the final “tax basis” in the property, and will reduce your capital gain when you sell. So much for the short term solution or salve. More upsetting is that such “mansion taxes,” whether imposed by New York or by another state, are not deductible on the buyers' federal income tax returns.

Creative real estate brokers, lawyers and their clients might benefit from remembering that the mansion tax is not applicable to vacant land, is reduced in the case of a legal mixed-use property, and is paid on the commercial aspects of the transaction (if applicable). Contract provisions may also ameliorate the effect on the transaction because, while the law provides that the buyer pays the tax, the parties can agree (contract) otherwise. Recall too that the Mansion Tax is not applicable to the sale of personal property.

Bottom line-- when you are reaching to buy that million dollar home in Westchester, Rockland or New York City, you should talk with your New York real estate professional or lawyer about ways to legally reduce your obligation.

Should we go to trial, or take the money? According to a recent study, the "right" answer generally depends upon whether you are a plaintiff or a defendant in the civil lawsuit.

According to the study, in a full sixty-one (61%) percent of cases analyzed, plaintiffs who failed to settle the case prior to trial often received less at trial (approximately $43,000 less). To the contrary, defendants who refused to settle and made the "wrong" decision, were wrong in only twenty-four (24%) percent of cases analyzed, but paid a much higher price for being wrong ($1.1 million). So, should you listen to your attorney?

The study looked at 2,054 cases that went to trial from 2002 to 2005, and tried to account a number of different factors relating to the lawyers, the case and the court. [See, September 2008 issue of the Journal of Empirical Legal Studies–co-authored by Blakeley B. McShane, a graduate student at the Wharton School of the University of Pennsylvania, Martin A. Asher, an economist at the University of Pennsylvania, and Randall L. Kiser principal analyst at DecisionSet, a consulting firm that advises clients on litigation decisions, found at http://www3.interscience.wiley.com/cgi-bin/fulltext/121400491/HTMLSTART]. While there are many different variables to consider, the study raises provocative questions about legal advice to go to trial, and the debate rages whether the lawyers are giving impartial advice when their pocketbook is part of the equation. While most cases settle, critics of the profession have long argued that lawyers have an incentive to recommend trial to collect fees.because of contingency fees or because they would be paid large fees to ready the case for trial.

Critics of the study note that cold hard statistics mean nothing when contemplating settlement of a particular case because each case rises and falls on specific facts, under laws which are decided by different judges. The study tried to account for those possibilities, however, finding that factors such as years of experience, the lawyer’s law school, and the size of the firm did not really impact whether the parties made the right decision to go to trial.

The bottom line– A good lawyer has to be able to tell clients that a judge or jury might see the case differently, and they might lose at trial– settle, don’t gamble. For the client and the attorney making the decision-- remember, there are many factors -- fees included.

Contrary to surrounding counties which require well testing, the Dutchess County executive vetoed recent legislation that would have required the seller of real estate in Dutchess County with a private well to test it before the closing. Under the vetoed law, the test results would have been given to the seller, the buyer and the Health Department. According to published reports, the county executive expressed reservations about requiring individuals to test their particular wells because there are allegedly ongoing ground water tests across the county, and because he has his own plan by which individual homeowners could apply to have their water tested.

The sub-text-- competent real estate attorneys, real estate brokers, and inspectors recommend private well testing to buyers, and wells are commonly tested as part of a real estate transactions in Dutchess County.

Remember the old adage-- good fences make good neighbors? Well that's not always the case, especially as neighbors get closer and closer to each other.

In this litigagion, the Defendants owned three residential parcels which adjoined property owned by the Plaintiffs. The offending fence was located three (3) feet within the boundary lines of the Plaintiffs’ parcel and extended the length of the Defendants’ property.

The Plaintiffs notified the Defendants that the Plaintiffs were going to replace the fence with a new fence and were going to re-locate it to their property line. That should clarify things for each of the parties-- or so they thought.

The Defendants did not want to see the fence moved so they objected, and the Plaintiffs commenced action to quiet title and "eject" the Defendants from the use of the land lying between the fence and the actual property line. The Defendants counterclaimed that they owned the three foot sliver of land by "adverse possession."

The Supreme Court, Nassau County, granted the Plaintiffs’ motion for summary judgment and dismissed the adverse possession claim because there was no proof that the land between the fence and the property line was “usually cultivated or improved” by the Defendants or “protected by a substantial inclosure”, as required by Real Property Actions and Proceedings Law, Section 522 (“Essentials of adverse possession under claim of title not written”). Contrary to the Defendants' arguments, the fence was not theirs.

According to the Court,

“substantial and obvious alteration is required” to establish that the land was “usually cultivated or improved … Even the placement of a structure, such as a garage, is not enough to establish hostile possession by improvement if that structure lies mainly on the claiming party’s land and the encroachment on the disputed property is slight”. In addition, “the mere presence of a fence is insufficient [to show a ‘substantial inclosure’].

The morale of the story according to the Court was that there must be a showing that it was a substantial barrier erected by the party claiming adverse possession, without the consent of the owner”. RSVL Inc. v. Portillo, decided September 11, 2007, is reported at 16 Misc.3d 1137 and 2007 WL 2669463.

In any adverse possession claim, as with any factual dispute that reachs the level of litigation, minute and often overlooked facts play a role in the court's determination. You, as a good neighbor, should contact experienced real estate litigation counsel to consider how the facts of your case might change the outcome.

Bottom line: hire a surveyor to place your fence properly, and get competent legal advice from a New York real estate litigator or civil trial attorney.

Gov. David A. Paterson recently created new legislation which is designed to protect both buyers and banks. The legislation is targeted at sub-prime loans which are defined as 1.75 percentage points above the prevailing market interest rates.

The legislation opens the possibility for buyers to avoid foreclosure actions if they can demonstrate that the loans should not have been given to them. Fannie Mae and Freddie Mac have stated that they will decline to purchase these sub-prime loans from New York given the increased exposure and cost as a result of this new legislation. Given the risks of this new law it is also possible that community banks and others that offer these sub-prime mortgages will decline to do so in the future. In addition to the risks involved with foreclosures, these banks may decline to offer sub-prime mortgages because Fannie Mae and Freddie Mac’s new policy will make it difficult for these lenders to re-sell these loans.

Federal Housing Administration (“FHA”) loans, which are insured and repaid by the government, could be the only remaining options for a buyer that cannot qualify for a loan that is not sub-prime. FHA loans are typically fixed rate loans but can become expensive because borrowers must pay FHA insurance premiums, which can add up to half a percentage point to the interest rate.

After years of litigation in the New York insurance industry, beginning January 2009, New York will abandon its often harsh rule permitting personal injury or wrongful death insurers to disclaim coverage on the ground that they did not receive timely “notice” of the claim without proof that there was some sort of harm or “prejudice” suffered by the insurer caused by the delay. [New York Insurance legislation, A11541/S8610]. This is good news for insurance customers throughout New York, who will now have some time to report claims against their insurance policies.

At Klose & Associates, we counsel our clients to promptly report any potential claims to the insurance company, thereby preserving any rights they may have under the insurance policy. Under the old rule– insurers could disclaim coverage based on a late filing of a claim. The courts did not care whether the insurance company suffered “prejudice” from the late notice of the claim, and looked only at whether there was a delay in reporting the accident. This sometimes meant that owners who legitimately did not know about a claim or potential claim were denied insurance coverage simply because the injured party failed to report the incident to the owner.

With the institution of this legislation, even the injured parties would be allowed to sue the insurer to determine the extent of responsible property or car owner’s insurance coverage, and to consider whether suits are worth pursuing. The law requires the insurance company to demonstrate that they were "materially prejudiced" by the delay in reporting the claim if the report was with the first two years after the accident. If the owner fails to report the claim within two years after the accident then the person owning the insurance policy will need to prove that the insurer was not prejudiced by the delay. Regardless, the argument will now be whether the insurance company was actually prejudiced by the delay in reporting the claim.

The legislation applies to personal injury or wrongful death coverage and not other kinds of insurance, such as property or health policies, and was made possible by recent rulings by New York’s highest court relaxing the "no prejudice".

This does NOT mean that you should delay or post-pone reporting any accidents to your insurance company. For the owner that buries her head in the sand, hoping that no claim will be made, only buys potential litigation with the insurance company over the late notice. The bottom line, always report any accidents, and some near accidents, as soon as you know that someone was injured. If you really don’t know about the accident, you may still have the right to insurance even if you report the claim late.

If you have any questions or concerns about an accident that occurred on your property or with your motor vehicle, call your attorney at Klose & Associates. We routinely investigate insurance claims and determine whether you have the right to insurance coverage. At the same time, if your insurance company refuses to accept responsibility, you should immediately seek our insurance lawyer or litigation counsel.

The huge law firm, Reed Smith, is facing suit over fees paid by one of its former not-for-profit clients. Law.com reports that the not-for-profit alleges that the high demands on partners to increase profits ultimately led to “excessive” fees in a routine employment discrimination case, originally quoted to be $50,000 but ballooned to reportedly more than $960,000.

Recent litigation brought by the foundation is proceeding on several grounds, including breach of contract, breach of fiduciary duty, fraud and legal negligence. In permitting the case to move forward the judge ruled that the client faithfully paying fees to the law firm did not mean that they could not later complain about their excessive nature. Good news for clients who pay their fees.

According to the court,

"The complaint has specifically alleged billing fraud, excessive billing, and billing for unnecessary services (fee-churning) and secretly elevating billing rates without the consent of the plaintiff and related allegedly improper billing practices."

According to the report by Law.com, the claims by the not-for-profit related to "fee-churning," survived dismissal. [Definition: One example of fee churning might be where the law firm assigns multiple associates and partners who all review and re-review each correspondence, pleading, or other legal document].

The complaint reportedly alleges that the law firm overstaffed the case, failed to describe billing entries by subject matter or activity, secretly raised the rates of the lawyers billing and at rates which exceeded those promised, according to the report in Law.com.

Governor signed Chapter 269 of the Session Laws of 2008, which significantly amends the Real Property Actions and Proceedings Law in New York State. What does that mean for the average homeowner and neighbor embroiled in a dispute over property lines or boundariesr? Only time will tell, but it appears that it may become more difficult to prove that you own a portion of your neighbor's property if you do not have a "good faith" claim of right to such property.

In the aftermath of two fairly controversial rulings by the Court of Appeals (New York’s highest court) and a mid-level appellate court, the Legislature decided that homeowners (and their real estate litigators) needed a better definition of what it means to “adversely possess” a piece of your neighbor’s property. The new law significantly alters the requirements that must be met before courts will find that title to real property has changed under the doctrine of adverse possession.

Under the new law (effective July 2008), which actually changes various parts of other laws, the Legislature seems to have expressed the view that the existence of minor, non-structural encroachments such as fences, hedges, shrubbery, plantings, sheds and non-structural walls are deemed, as a matter of law, to be permissive and non-adverse. In every day terms, the existence of fences, planters, hedges, shrubbs, and similar objects often placed on or close to your property line will not change who actually owns that slice of property, and will not give rise to a claim for adverse possession. Just because you put your fence on a piece of your neighbor’s property, does not mean you own the property-- there are various other facts and conduct required.

The new legislation specifically provides that the acts of lawn mowing or similar maintenance across boundary lines by your neighbor are deemed “permissive and non-adverse”– that is, neighborly. Such language should be a breath of fresh air for some people who are not quite sure whether they are mowing their own property or helping their neighbors. The Legislature is erring on the side of neighborly accommodation.

By enacting the law, the Legislature tries to insert some "certainty" by defining for the residents of New York that an “adverse possessor” of real property is a person or entity that 'occupies real property of another person or entity with or without knowledge of the other's superior ownership rights, in a manner that would give the owner a cause of action for ejectment.'

If that “adverse possessor” holds its status for ten (10) years, he can apply to the court for title to that portion of land provided that the “occupancy” was “adverse, under claim of right, open and notorious, continuous, exclusive, and actual. “Claim of right” is no defined by the statute to mean that the person claiming possession and title had “a reasonable basis for the belief that the property belongs to [that property owner].”

The most significant change for homeowners and the courts is the wholly new section of law, RPAPL, Section 543, which specifically states that “the existence of de minimus non-structural encroachments including, but not limited to, fences, hedges, shrubbery, plantings, sheds and non-structural walls . . . 'shall be deemed to be permissive and non-adverse.” This means that you can't simply claim another's property by mowing a part of their lawn.

Stated in easy to understand terms, the legislative history of this law suggests that when considering whether someone has actually taken over possession of property “adversely” the courts will consider whether such claim was in “good faith,” recognizing that the legal tool known as “adverse possession” should be used to settle good faith disputes over who owns land, and should not be used offensively to deprive a landowner of title to the real property.

So, go on mowing your neighbor's lawn, but don't expect to claim that area of land unless you install your pool on that slice of land, and hold it there for ten (10) years.

Contact experienced local New York real estate litigation lawyers and counsel to consider the ramifications.

Mortgages/Predatory Lending. A New York court recently denied foreclosure and stayed the proceeding seeking to take back the home finding that the original lender violated New York ’s “predatory lending” statue, Banking Law, Section 6-L (“High-cost home loans”).

The Court scheduled a hearing to determine damages incurred by the homeowner and indicated that the relief may actually include the voiding of the mortgage, return of all mortgage payments, return of the expenses of obtaining the loans and attorneys’ fees.

While it is still early in this mortgage crises, and the effects remain to be seen, the lender's conduct in question included (i) lending in excess of the purchase price to enable payment of
points and closing fees, leaving the borrowers with negative equity in the property; (ii) financing
of fees and points in excess of three per cent of the principal amount of the loan; (iii) the failure
to undertake the “due diligence” required regarding the borrower’s ability to pay a “high cost
home loan”; and (iv) not issuing to the borrower a required “Consumer Caution and Home Ownership Counseling Notice”.

Continue reading " Predatory Lending Practices May Defeat Your Foreclosure in New York " »