New York Real Estate Lawyer Blog

We all get them-- telemarketers calling to solicit funds for the Police Benevolent Association, the PTA, or the American Heart Association. Did you know that a vast majority of the the professional telemarketers are the ones making the money, not the Non-Profit, and it's totally legal.

When I first started practicing law (as a law student in Massachusetts) I worked for the Attorney General's Office, Public Charities Division. At the time (long ago), they were investigating telemarketers for Police Benevolent Associations. Whether in New York or elsewhere, the telemarketer is making the money, not the Not For Profit.

In today's day and age, where there are so many fine charitable organizations in desperate need of your hard earned dollars, why would you give through the telemarketer who often takes more than 65% of the money the raise? The internet, credit cards, and direct giving make charitable donations so much easier. Why give to the telemarketer?

Why not-- of the 553 fund raising campaigns in 2007 (442 charities using telemarketers), a total of $178.7 million, with 60.5 percent ($108.2 million) going to the telemarketers! That's why not.

If you don't believe me-- see this recent article in the NYTimes reporting that, on average, just 39 cents of every dollar raised by commercial telemarketing companies for charities in New York State actually go to charity. I applaud the attorney general, Andrew M. Cuomo, for his report finding that such funds are used to pay fees and expenses associated with professional fund-raising, not for the operation of the charity.

I don't mean to get on a soap box, but GIVE DIRECTLY TO THE CHARITY OF YOUR CHOICE (here's mine).

Posted by Peter Klose | Permalink | Email This Post

Posted In: General Interest

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Is the price of re-financing worth the expense in New York? Well, as you can imagine, that depends.

As a recent NYTimes article points out, as the prices for mortgages drop, consumer interest perks up, and we all go around wondering whether it makes sense to re-finance again!!

Here's the rub-- typical real estate mortgages last for about five to seven years before the mortgagor (homeowner) sells or refinances, but lenders compensate for such fluctuation by collecting much of the mortgage interest up front. So, if you are in your home for the long term, and have paid off more than five to seven years worth of debt, you are watching your equity grow and the overall debt drop more quickly-- a nice thought in today's market. But, now the banks are offering very low interest rates (less than five percent in some cases). Now what?

Bite the bullet and re-finance if you are in it for the long haul, but read the article, and consider a CEMA-- discussed here.

Posted by Peter Klose | Permalink | Email This Post

Posted In: General Interest , Real Estate Hints and Help

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What can you do if your disability insurer disclaims coverage for your long term disability claim?

Well, as one policy holder found, you can sue, and win. In this case, the insured sued because the infamous Unum Provident disclaimed coverage for his long term disability claim. Unfortunately for the insurance company, the claimant happened to have read his policy (he was an attorney), and took issue with their disclaimer all the way to the Second Circuit (federal appeals court).

In a scathing decision, the appeals court reversed the lower court and found that the administrator of the Plan (Unum) had a conflict of interest because it had both the discretionary authority to determine the validity of the disability claim, and paid the benefits under the policy; found that a reasonable person would conclude that the insurer's denial of long-term disability was arbitrary and capricious; and granted benefits and interest running from September 18, 1995, the date on which defendant-insurer rejected plaintiff's appeal.

Some of the Court's findings are interesting: For example, the Court found the reasons given for rejecting the information was unreasonable and deceptive because other evidence of the claim submitted by the doctors would have revealed a plethora of details about why this poor man could not work as a tax attorney for Sotheby's. Essentially, the nurse's rejection of the medical evidence "mischaracterizes the quality and detail of the evidence . . .submitted on appeal."

Indeed, First Unum never told the insured that they had rejected the application because one portion of the appeal did not have the physician's signature. Citing Juliano v. Health Maint. Org. of N.J., Inc., 221 F.3d 279, 289 (2d Cir. 2000) (finding an insurer's failure to communicate the reason for denying coverage sufficient evidence to warrant de novo review of the administrator's decision under our old standard). The Court criticized the insurance company for implying that it would have been pointless to undertake any efforts to sort out the obvious and facial discrepancies in his record by "hiding behind a terse initial response to a set of questions it posed three months earlier. Essentially, they ignored the evidence they didn't like and relied heavily upon evidence that was inconclusive of his disability.

Had he been told what their problem was, the insured would have "had no trouble addressing First Unum's undisclosed and uninvestigated concerns." Moreover, First Unum never explained how he could continue to perform the material duties of a tax lawyer despite these restrictions, and compounded its "deception" by representing that the records reviewed by their physician, when, in fact, no records were reviewed by a physician.

Apparently, this was not the first time that this insurance company was slapped on the wrist by a federal court. The opinion refers to at least 30 other cases).

The bottom line-- don't always believe what the insurance company says, and call your New York insurance lawyer.

Posted by Peter Klose | Permalink | Email This Post

Posted In: Insurance (and litigation)

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How do you sell your distressed home or refinance your real estate if you have a federal or state tax lien?

Well, WSJournal.com reports that the IRS is trying to help themselves get paid for their tax liens more quickly, thereby speeding up relief to distressed homeowners trying to re-finance.

Under the new “expedited process,” the refinancing and sellers can find out more “quickly” how much they owe on a federal tax lien, so the lien does not delay or prohibit the transaction.

According to the article, there are more than one million federal tax liens against real estate or personal property, and IRS issues 600,000 fresh federal tax lien a year. That means that the federal government is making a formal claim against the property, and such claim needs to be resolved prior to closing, and before other creditors, even foreclosing banks.

The goal: the IRS will respond more quickly, thereby clearing the liens and allowing homeowners to proceed with refinancing or sales. Although it is unclear how much faster the new plan will make the process (or if it is just a public relations stunt), the IRS says they typically respond within thirty (30) days. What’s a bailout if the IRS can’t help distressed home owners directly.

Typically, the requests to the IRS take two forms in a distressed situation: First, you could ask the IRS to make its lien “secondary” or “subordinate” to the claim of the lender willing to refinance the distressed real estate. Or, if you are “upside down” and selling your home for less its value, the IRS might agree to “discharge” or “forebear” all or part of the claim for back taxes. That does not mean, necessarily that the tax debt is erased, but it does clear the distressed real estate and allow the sale or refinance.

Some states are taking the initiative also. For example, in some cases States are offering “amnesty” (not to prosecuting or penalizing) to those who voluntarily, before officials ask, pay what they owe, or agree to pay (offering reduced interest penalties).

The New York State Tax Department has launched a “voluntary disclosure” plan , which offers protection from criminal and civil penalties to all eligible taxpayers who voluntarily disclose and "correct" their "delinquent tax liabilities," or who agree to obey the law. Under the plan, New York has raised approximately $12 million in one year, and are expecting a total of somewhere near $25 million from delinquent tax payers.

The bottom line: There are more options to settling your debts in Dutchess, Westchester, Rockland, Ulster and beyond because the government realizes that a dollar in the hand is better than 10 dollars in the bush.

Posted by Peter Klose | Permalink | Email This Post

Posted In: General Interest , Real Estate Hints and Help

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It appears that the Federal Government is getting a little more needy, because it is now going to collect more capital gains taxes on the sales of residential real estate property in New York.

As discussed in other posts, under the "The Housing Assistance Tax Act of 2008," homeowners no longer are simply allowed to exclude $250,000 of capital gains ($500K if filing jointly). Indeed, the calculation becomes more difficult because the gain will now be taxed on the percentage of time you used the home as your "primary residence."

Yes, now for the "jargon." Capital gains must now be divided between "qualifying" and "non-qualifying" uses, and potentially cutting the amount of capital gain which might previously have been "excluded" from your income tax.

To earn the "exclusion" you must own and live in the property as your primary residence for at least two years out of the five years ending on the date of sale. If the real estate was not used as a "primary residence" during the entire five-years prior to the sale, (used as a rental house or a vacation home) then you would have to reduce the amount of the capital gains tax exclusion by allocating the gain to the percentages.

A "qualifying Use" means the property must be used as a primary residence, whereas, a non-qualifying use (taxable) means the property is not being used as a "primary residence" by either the homeowner or the home owner's spouse.

Example

The gain from the sale needs to be allocated between what gain is excluded as "qualifying" and what gain is not excluded (because it is "non-qualifying"). Divide the period of non-qualifying use by the period of ownership. Period of non-qualifying use/Period of ownership= a percentage.

Contact your trusty tax advisor on this because I do not offer tax advice. Taxpayers owning second homes, vacation homes, and rental properties will need to revise their capital gains strategy to account the implementation of the rules (January 1, 2009).

Bottom line-- Be careful, understand the rules and ask you accountant or tax professional when buying a second home in Dutchess, Rockland, Westchester, Putnam or Ulster County.

Posted by Peter Klose | Permalink | Email This Post

Posted In: General Interest , Real Estate Hints and Help

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Mortgage Fraud, Deed Thefts and other nefarious acts by unscrupulous people in New York City lead the New York Daily News to investigate.

As part of the "investigation" they filed a bogus deed to the Empire State Building, exposing the massive loopholes in New York City's recording of documents.

Here's the Daily News Article.

Bottom Line-- Wake up!!

Posted by Peter Klose | Permalink | Email This Post

Posted In: General Interest

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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.

Posted by Peter Klose | Permalink | Email This Post

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.

Posted by Peter Klose | Permalink | Email This Post

Posted In: Real Estate Hints and Help

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