As with this year’s blockbuster Star Wars — The Force Awakens, my prediction for an active and entertaining 2015 in Massachusetts real estate law has come to fruition. Without further ado and with a Star Wars theme, I present you with the top 5 “episodes” for the last year in Massachusetts real estate law.
I. TRID (Truth in Lending RESPA Integrated Disclosure) Rules
Heralded as the most comprehensive change to real estate closings in the last 20 years, the new TRID rules (Truth in Lending/RESPA Integrated Disclosure) have certainly lived up to their billing. If TRID were a Star Wars character, it would be Kylo Ren of the First Order, smashing and destroying the old way of doing closings with his scarlet cross-guard lightsaber. The new rules went into effect on October 3, and the real estate industry has been, by and large, scrambling to get up to compliance speed with the new regulations. The new “Closing Disclosure” is quite convoluted with far too much information, and also necessitates a separate “seller” closing disclosure. So, the old three page HUD-1 form has turned into two forms with seven pages. That’s the government for you… There is also a 3 day waiting period for closings to be scheduled after the issuance of the new Closing Disclosure. Some lenders have been great getting the “CD” out on time. Some others, not so much. In my estimate, I would say that at least 50% of my transactions have been delayed due to TRID related issues. For 2016, I predict continued delays and compliance issues for the first two quarters of the new year, with things hopefully smoothing out for the spring market. Oh, did I already tell you that I miss the old HUD-1 Settlement Statement already!
II. SJC Rules Real Estate Agents Can Remain Independent Contractors
The summer saw the SJC come down with its long awaited ruling on independent contractor classification in Monell, et al. v. Boston Pads, LLC. After much lobbying from the industry, the Court ruled that Massachusetts real estate and rental agents can remain classified as independent contractors under the state’s real estate licensing and independent contractor law. The ruling keeps the traditional commission-only independent contractor brokerage office model in place, with brokers allowed to classify agents as 1099 independent contractors, without facing liability for not paying them salary, overtime or providing employee benefits. However, like the plot holes in The Force Awakens, the Court left open a few important questions such as whether agents could build a case on other legal theories. In 2016, look for the Legislature to address the murkiness which remains with the law.
If Gov. Charlie Baker were a character out of the Force Awakens, he would be the hotshot Resistance pilot Poe Dameron, swooping down in his X-Wing fighter and saving the day for thousands of Massachusetts homeowners who have been unable to sell or refinance their homes due to foreclosure title defects. After a five year legislative struggle (in which I testified before the Legislature), Gov. Baker signed into law the Act Clearing Title To Foreclosed Properties. The bill will resolve potentially thousands of titles which were rendered defective and un-transferable after the SJC’s landmark ruling in U.S. Bank v. Ibanez. There is a one year waiting period, but after that we should start seeing previously unsellable homes start to come back on the market.
IV. SJC Continues To Scrutinize Foreclosure Compliance
In a major foreclosure decision, the Supreme Judicial Court ruled in Pinti v. Emigrant Mortgage Co. Inc. that a lender’s defective notice of default is grounds to void and nullify a foreclosure sale. This is so even after the property was purchased at auction by a third party without knowledge of the defect. This ruling has resulted in two leading title insurance companies, First American and Fidelity/Chicago, deciding to restrict underwriting title to foreclosed properties
V. Just Cause Eviction Proposal
The upcoming year will see a looming “Resistance” battle between liberal tenant activists and small property owners over a Just Cause Eviction proposal submitted to the Boston City Council. As I’ve written here, the proposal is just a clever re-branding of rent control which was outlawed a decade ago and has been proven not to work by leading economists and city planners. The Just Cause Eviction petition would prohibit a landlord from evicting any tenant except for certain serious “just cause” grounds, making it very difficult and expensive to evict tenants at will or those whose leases have expired. Small property owners claim — and I agree — that the procedural impediments to the Just Cause Eviction proposal are shockingly socialist in nature. Everyone agrees that Boston has a problem creating affordable housing, however, rent control disguised as a just cause eviction proposal is not the answer. It’s not fair to make small property owners to bear the burden of creating affordable housing across the city. That’s the job of the government. Rent control has never been a successful solution to the housing problem. To be continued in Episode VIII…
I hope everyone has a very happy, healthy and prosperous New Year! –Rich