New York Real Estate Lawyer Blog

According to a recent article in the NYTimes, Americans thinking about a "reverse" mortgage have more clarity, and possibly, more access to the remaining equity in their homes in New York.

Reverse mortgages allow borrowers who are 62 or older to tap into their homes’ equity without having to repay the loan on a monthly basis. A "reverse" mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. No matter how this loan is paid, you typically don't pay anything back until you die, sell your home, or permanently move out of your home.

To encourage this planning device, the president signed legislation raising the outside loan amounts on reverse mortgages, which are to be guaranteed by the federal government. By raising the limits and changing the laws to premit coops to be considered, Congress is trying to give older homeowners access to more of the equity left in their homes, provide stricter consumer protection, and offer co-operative ("co-op") owners the chance to apply for reverse mortgages.

Under the new laws, mortgage counsellors will have to take tests to show they understand the products, costs will be capped, and coops will be eligible.

The bottom line: be careful and understand the product before you agree to a reverse mortgage in New York.

To all prospective client and attorney relationships--note to self-- get the fee agreement in writing, because the terms can come back from the grave to bite you.

In New York State there is a rule of evidence known as CPLR § 4519 (the “Dead Man’s Statute”), which is designed to protect the dead from transactions that occurred during their life. Although there are many exceptions to the general rule that an interested party may not testify as to transactions with the deceased, there are many ways that the rule can change the outcome of litigation, including disciplinary or legal malpractice claims against attorneys.

In one reacent case, a long time client of a New York attorney died, leaving a sizeable estate. The attorney represented the estate in the sale of the family home and kept in contact with the Decedent's daughters, who were co-administrators. Eleven days after their mother's death, the attorney issued a check payable to himself, and did so several more times over the course of 13 months to the tune of $100,000 from his escrow account.

Upon learning of the sizeable fees paid to himself, the daughters demanded an accounting and a check for the remaining monies. In response, the attorney conceding that he did not have a fee agreement in writing, and claimed that the now dead mother had either given the money as a gift or orally told him that the fees were for legal work performed, and the daughters filed a complaint with the Departmental Disciplinary Committee.

The Committee charged the attorney with various charges of misconduct: for conduct involving dishonesty, fraud, deceit, or misrepresentation, in violation of DR 1-102(A)(4); misappropriation of funds in violation of DR 9-102(A); violation of DR 9-102(B)(4) regarding (4) engaging in conflict of interest in violation of DR 5-101(A); conduct reflecting adversely on Zalk’s fitness as a lawyer in violation of DR 1-102(A)(7).

During the hearing, the referee took testimony about the transactions with the dead mother on the ground that the plain language of the Dead Man’s Statute did not preclude the attorney from relying on his conversations with the deceased to describe the fee arrangement because an attorney's disciplinary proceeding was not,“against the executor, administrator or survivor of the deceased person.”

On appeal, the Appellate Division found that the attorney engaged in professional misconduct, and ruled that the Dead Man’s Statute precluded him from using his testimony to disprove the charges.

In reversing, New York's highest court, the Court of Appeals found that the Dead Man’s Statute only applied to testimony “against the executor, administrator or survivor” of the deceased. By the court’s reasoning, the attorney was testifying as a witness on his own behalf against the disciplinary charges, and therefore could offer testimpony that would that potentially cut against the parties’ interests in the contingent future proceeding. For you attorneys out there, the case is cited at In re Zalk, 2008 WL 2367490 (N.Y. 2008).

The bottom line-- get your fee arrangement in writing.

With all the negative press that the real estate market has been suffering lately, you are ready to look for homes in Dutchess, Rockland, Westchester, Putnam or Ulster County. You have that money burning the proverbial hole in your pocket seeking to purchase a foreclosed home for investment. Do you even know what you are talking about?

What is a Foreclosure Sale?

Foreclosure is the legal proceeding brought by a Lender acts to recover the “security” represented in a home for an overdue loan. Since banks don’t really do a good job or want to own real estate, they often want to unload the distressed property just get the bad loan off their books. In this politically charged landscape, and election years, the rules are constantly changing. Government is increasingly intervening on the behalf of the “consumer,” meaning that a foreclosure sale is not as simple as making the winning bid at auction.

In New York State, it is no longer as simple as taking several certified checks to the foreclosure auction because there are various statutory protections that give the original homeowner a second chance (and possibly third) chance to rectify the defaulted loan. Even then, after the gavel drops, you, as the foreclosure buyer might get stuck paying back taxes, transfer taxes, and rectifying various liens taking other risks that might not have occurred had you purchased the home through more conventional channels. You are not an investor unless you have done your homework and understand the substantial risks attendant to foreclosure auctions.

In short, a foreclosure sale is risky business if you don’t know what you are doing, or have competent legal counsel to wend your way through the process. Without proper legal advice, you could end up paying thousands of dollars for a house you'll never own.

Short Sales, Another Alternative?

A “short sale” as the term has come to be known involves a distressed homeowner whose real property is valued less than the mortgage amount. To avoid walking away from the debt, the owner, brokers, and bank team up to identify a “way out” of the disaster for all through the short sale. For a bank, the cost to foreclose, and then sell the property, may exceed the expense of just letting the homeowner sell the home for less than the mortgage amount. The process works out more like a cross between a normal house sale and a foreclosure, where the auction buyer has to clean up the problems without help.

With the assistance of an attorney and a broker, the homeowner can usually pick a real estate agent and market the home, but the bank negotiates the real terms of the deal by dictating the prices, and many of the terms of the contract. If the bank refuses, the buyer loses, which is often frustrating to buyers. A “short sale” may look like a great buy, but you are at the mercy of the Seller’s banks whims, even though they know nothing about the house or local market conditions.

In a short sale, the multiple listing service (MRIS) must disclose that the property is subject to a short sale. From the buyers’ perspective, you have a right to know this because, regardless of the owner's good faith and intent to sell you the property, the bank (a third party) might be controlling the final decision as to whether the house closes. Only patient buyers can withstand that waiting. The busted deals and additional paperwork of short sales also lead to increased costs for buyers.

From the seller’s perspective, make sure that you know your rights under current law. Although your mortgage contract says, "If you pay, you stay, if you don't, you won't;" the Legislature may have offered you a handy life line. Sometimes, despite the emotions, sale is the only rational way to protect your situation.

Either way, whenever you contemplate a foreclosure or short sale, be open, honest and candid with your real estate professional, whether that be the agent, broker, attorney or bank. To conceal your condition will do nothing but make it worse for everyone involved.

The bottom line, be sure that you know what you are doing when you contemplate investing in this world we live in. Oh, and hire local New York real estate counsel to help you wend your way through the morass.

Are you buying a house in New York, but forgetting to calculate your full monthly nut? Mortgage payments are not the only bite out of the monthly payments that New York Homeowners and buyers make every month. Aside from the principle and interest payments, mortgage holders must pay real estate taxes and homeowners insurance, thereby increasing the monthly nut.

Among the assessments that new homeowners forget about are unanticipated reassessments or rate hikes, supplemental bills where there were “exemptions” for the prior owner, and significantly higher taxes because of such re-apportionment. When considering the purchase of any home, you should contact the local building inspector and the local tax assessor’s office to find out and research the current issues that might effect future taxes and the assessments of the home you are buying.

Property Taxes

Property taxes are almost always based on the value (assessment) of the home, and such value can go up and down, but does not typically fluctuate.

Beyond that, each state or locality typically uses its own peculiar formula to calculate property taxes. These formulae introduce a certain amount of complexity and unpredictability into property taxes.

Ask your attorney or the assessor, how property tax is calculated; whether the home will be reassessed upon transfer to you; when the next scheduled reassessment will occur in the town, county or village you are buying in; whether the current owner has any “exemptions” or rebates that might limit their tax bills (or increase yours); whether you might qualify for tax relief of some type.

Bottom line: the real estate broker's estimate of the tax may not be completely accurate because the current owner may have taxes that will be lower than yours after the transfer. While the tax bill might provide information, you should check with the assessor to find out hidden post-sale reassessments, which might result in a substantially higher tax. For example, sometimes, there may be several property tax authorities seeking payment, including counties, cities and special districts, such as local water, sewer or school authorities.

The transfer itself, or prior unauthorized remodeling of the home may not be contained within the present tax picture and can trigger a reassessment because additional bathrooms, central heating, ventilation and air-conditioning and other capital improvements can increase the assessment.

Tax and Insurance Escrows.

As a matter of course, most lenders require new home owners to establish an escrow account, setting aside monies to cover the taxes and insurance when due. The escrow is established by estimating the amounts due annually, then dividing it by 12 monthly installments, and then banks pay the property taxes and insurance directly.

Many New York State taxing authorities are now required to provide homeowners notice that their taxes have been paid. Alternatively, it is important to keep a close watch over the disbursements, because loan servicers sometimes fail to make the payments.

Assessments

Tax assessments on residential property is usually a function of recent assessed value or sales price of the home; value of comparable homes; improvements; exemptions for which the home, home buyer, or homeowner qualifies; and property tax rates. If one of those is incorrect or improper, there is generally an appeals or “grievance” process by which the homeowner can appeal the assessment. In New York, the date is generally the third Tuesday in May, but you should check with your attorney to be sure you file your grievance timely.

The bottom line–Property taxes are unpopular but the revenue generated pays for schools, libraries, fire departments, police officers, street lights and many other public benefits– they are part of life in Dutchess, Rockland, Westchester and Columbia County. Learn to plan for them, and fight them if they are wrong.

Eastchester, New York, homeonwers are at the end of their proverbial rope. When the Town of Eastchester failed to address the flooding and sewer backups in their Westchester County home, they took the only possible next step-- they filed suit.

Here's the link to the article.

We cannot comment on this pending litigation, but it is one example of how homeowners can take some control over their own destiny by commencing litigation in New York.

New York State has recently enacted a new section (27-2405) of the Environmental Control Law which shall now require Landlords and Owners to Notify Tenants of "Indoor Air Contamination." Effective December 2008, property owners and landlords will be required to to disclose the results of environmental testing to tenants (both current and prospective). What are the potential ramifications of such a new law?

First, although the New York Environmental Law focuses on "indoor air contamination" and vapor intrusion, the law broadly defines the disclosure to include all "test results."

"TEST RESULTS" SHALL INCLUDE THE RESULTS OF ANY TESTS CONDUCTED ON INDOOR AIR, SUBSLAB AIR, AMBIENT AIR, SUBSLAB GROUNDWATER SAMPLES, AND SUBSLAB SOIL SAMPLES"

Therefore, such tests could mean that any tests of indoor air, outdoor air, groundwater and soils beneath homes and buildings must be disclosed to Tenants if the test results exceed federal or state air guidelines.

If the New York State property is the subject of engineering control by a municipality or the government and is subject to monitoring under a remediation program, then such tenants must be provided written notice of any testing in bold on the first page of any lease agreement.

The penalty provided by the New York statute requires owners of such properties to provide the fact sheet and notice of public meetings (if the test results will be discussed), or face monetary fines.

As with any new law, there are various unanswered quandaries:

1-- Does a purchaser of a building have to disclose the results of its environmental investigation, including any Phase I or Phase II inspections?

2-- Does the law apply to previous testing done before a new owner gains possession?

3- Assuming something is found, does the law require a building be retested?

4-- If the testing shows no problems, must the testing be disclosed?

5-- Is the owner responsible for unknown substances or areas that are not tested at first but later found to exceed some standard?

More to follow as these questions, and others get answered by the courts or attorneys.

I have to comment on this scam because many lawyers are getting slammed, and I routinely get solicited from my private web-site for this type of scam:

Someone representing an Asian company goes onto my web-site and tells me they need to collect a six figure judgment against "suppliers" in New York or other states. The source is my actual web-site (Static Form) and is NOT a spam based e-mail. So someone is actually taking the time to go to my web-site-- Thanks, but NO thanks. I suppose they see that I do large litigation type cases, including some breach of contract (collection-type cases).

The overseas company seems legitimate. One time, I had my trusty family member with contacts in Europe actually call the company to see if it was legitimate. The e-mail address appears to be from a recognized, established, publicly-traded Asian (or whatever nationality) company.

Credible sources say that other attorneys have actually commenced communication with the potential "client" by e-mail, entered into engagement letters, obtains documents supporting the debt (or judgment) and begins to work "collect" on the new matter. Some have, unfortunately, even "settled the debt" with the company that "owes" the money. As part of the satisfaction, the debtor provides the attorney with a bank check. The attorney deposits the bank check, deducts his/her fee and arranges for a wire to the overseas client. The bank wires the funds
before the bank check clears, and the check is forged, causing the bank to reverse and sometimes freeze the the attorney's account (usually escrow accounts).

Obviously, this is a serious problem that can lead to immediate disbarment for failure to protect the escrow funds. Please, whether you are a lawyer or not, beware of scam artists bearing "gifts," including bank checks.

Use extra diligence in accepting matters initiated by overseas parties not known. You have a responsibility to protect yourself and your clients. Although the allure of international business litigation can be mesmerizing, please ensure that your client selection processes avoid this common problem.

The forged bank check is also a common problem for everyday businesses.

Upstate towns are jumping on the conservation band wagon. The most recent is the Town Board of the Town of North East in Dutchess County.

New York State has authorized the Town Board of the Town of Northeast in Dutchess County to establish a Community Preservation Fund by referendum. The goal of the fund is to provide a source of revenue for the Fund, and adds Article 31-A-3 ("Tax on Real Estate Transfers in the Town of Northeast") to the Tax Law.

Provided the Town approves a referendum to adopt a Local Law, transferees may be subject to a new transfer tax of up to two percent (2%) of consideration, payable by the grantee, on the conveyance of real property in the Town. Other Towns, including the Town of Red Hook has asdded, "[a]n exemption from the tax which is equal to the median sales price of residential real property within the applicable county, as determined by the Office of Real Property Services pursuant to Section 425 of the Real Property Tax Law…"

If you are transferring in the Town of North East, ask your Dutchess County real estate professional whether a transfer tax return will be required for the Town.

According to an American Bar Association, real estate lawyers are being sued more often for bad advice arising from real estate transactions According to a recent study of various insurance companies, and their claims between 2004 and 2007, malpractice claims against lawyers related to real estate transactions climbed four percentage points to 20 percent of all such malpractice cases between 2003 and 2007, a four percent jump.

Lawyers are getting sued for errors in real estate transactions with alarming frequency, and were second only to attorneys handling personal injury claims, which also rose in frequency.

Real estate transactions apparently went bad in a variety of ways for the lawyers. Such claims stemmed from conflicts of interest, closing and contract-drafting errors, and problems linked to zoning and escrow issues.

The study results are based on a survey of insurance companies that provide legal malpractice coverage in the United States and Canada, with 18 U.S. and six Canadian companies responding to the investigation.

Finding lawyers willing to take New York State legal malpractice claims against other lawyers can often be difficult.

When commission disputes arise, how do you handle them in New York?

Real Estate brokers, realtors, and other real estate professionals who depend upon a commission to be paid will now have a clearer path to address their commission disputes. Under the recently amended NY Real Property Law ("RPL"), Section 294-b, ("Recording brokers affidavit of entitlement to commission for completed brokerage services"), a duly licensed real estate broker may undertake a special procedure to protect their right to an earned real estate commission. (Effective January 1, 2009).

Under the "Commission Escrow Act," a licensed real estate professional may claim entitlement to a brokerage commission for sales and leaseholds by filing an affidavit stating the right to such commission with the recording officer of the county in which the real property is located.

While the filing of the affidavit does not invalidate the transfer or lease of real property, and does not create a lien, it requires the Seller to establish an escrow of monies to "protect" the brokerage commission.

Under the amendment, the so called "Notice of Entitlement" to the commission has been expanded to include claims for transfers of cooperative units; and will be now be recorded upon the "lien docket."

If the property is a one-to-four family dwelling, condominium unit or cooperative apartment, used as a residence and there is a brokerage dispute where the Notice of Entitlement has been filed; the seller shall establish an escrow fund, as follows,

"the lesser of the net proceeds of the sale or the amount of the unpaid portion of the compensation agreed to in such written contract [the brokerage agreement] shall be deposited by the seller… with the recording officer in whose office the affidavit was recorded…until the rights of the seller and broker to such monies has been determined by order of a court of competent jurisdiction…",

Real estate professionals should understand that there are very specific procedures that must be provided, including (i) the brokerage contract includes a notice, as required by the law, (ii) the Notice of Entitlement and affidavit has been recorded, and (iii) the broker serves a copy of the affidavit on the seller prior to closing.

Because the law is still new, it is unclear what will occur if the seller fails to deposit monies into the escrow account since the law does not "create a lien or encumbrance against any real property" and does not invalidate "any transfer of real property".

The term escrow generally means a pool of money held by a third party until the matter can be adjudged by some court or other tribunal. Here, the idea is that buyers and sellers of real estate can deposit the money into a fund and fight over it knowing that there is a pool of money at the end of the dispute. The measure does not pre-judge who is guilty and who is innocent, but provides the outline of a process for keeping the funds available in New York State.

The bottom line-- how often does your attorney tell you,"the cost of fighting is going to be more than the cost of recovery, just settle or give up?" Now, the money will be tied up, offering more of an incentive to capture that money. Call your new york state real estate litigation lawyer if you are uncertain.