Closings

Legislation Would Temporarily Allow Video-Conferencing Technology For Attorney Notaries

Update: 4/23/20 — The bill (now Senate Bill 2645), has passed both Senate and the House, and will soon be on the way to the Governor’s desk where he is expected to sign the bill. Click here for my new post: Legislature Passes Remote Virtual Notarization Act for COVID-19 Emergency.

Update: 4/22/20 — The Senate has passed a new revised version of the Bill, now it moves on to the House where it is expected to pass.

The real estate legal community, including yours truly, have been working and lobbying tirelessly to address the various impacts of the Coronavirus (COVID-19) Crisis on real estate transactions and closings. One of the first solutions we proposed is legislation allowing for remote or virtual notarizations of deeds, mortgages and other closing documents so that buyers and sellers can sign documents in the safety of their own homes on their computers. Due to the COVID-19 crisis, many folks are subject to the Governor’s Stay At Home Order or don’t feel safe traveling outside to an attorneys’ office for a real estate closing. Meanwhile, while the economy heads towards a recession, real estate is one of the few assets with available equity for consumers.

Under our proposed legislation, An Act Relative To Remote Notarization During COVID-19 State of Emergency (S.D. 2882), a licensed Massachusetts attorney may notarize legal documents using video-conferencing technology. There is a two-step process laid out in the legislation to complete the notarization process where the signer shows the attorney his/her state issued identification, sends the original signed documents back to the attorney, and then verifies the authenticity of the signed documents. Once that process is complete, the attorney can stamp the documents as notarized and must also complete and sign an affidavit attesting that all requirements have been met. Those notarized documents may then be recorded with the Registry of Deeds as valid, legal and binding recordable instruments. Additionally, the two video-conferences must be recorded and kept on file for 10 years. The bill would only be in effect during the COVID-19 State of Emergency.

The bill has widespread industry support from the Real Estate Bar Association (including the Probate Section), the Massachusetts Bar Association, the Massachusetts Association of Realtors and Greater Boston Real Estate Board. Twenty three (23) states have now passed remote notarization bills, including just recently due to the COVID19 crisis, including New York State, Vermont, Connecticut, Florida, Virginia, Texas, and Nevada. Moreover, a nationwide bill has been proposed by the American Land Title Association.

There are a number of technology companies that offer end-to-end remote notarization systems and are approved by national title insurance companies and lenders. They include:

To our real estate partners and colleagues, WE NEED YOUR HELP NOW! We need you to email or call your State Rep. and Senator and tell them you support our proposed legislation, An Act Relative To Remote Notarization During COVID-19 State of Emergency (S.D. 2882). To search for your state legislator, please click here.

Thank you! I will keep you posted as to developments and hopefully passage of the bill. Also many thanks to Attorneys Kosta and Nik Ligris on spearheading the bill!

Massachusetts Act relative to remote notarization during COVID-19 state of emergency. by Richard Vetstein on Scribd

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Closings May Proceed Forward Without Smoke Detector Inspection Certifications

Due to the Coronavirus Crisis, many local fire departments have been ceasing state mandated smoke detector inspections, which are required for real estate transactions to close. I’m happy to report that on March 20, 2020, after intense lobbying from the real estate industry, Gov. Baker issued an Emergency Order allowing for the deferral of inspections by local fire departments until the Coronavirus (COVID-19) State of Emergency is lifted. The Order is embedded below and can be found here: COVID-19 Order Permitting the Temporary Conditional Deferral of Certain Inspections of Residential Real Estate.

Inspections may be deferred only if the following requirements have been met:

  • The parties agree in writing that the buyer, not the seller, shall be responsible for installing approved smoke/CO detectors in the premises;
  • The buyer agrees as a condition of taking title to equip the premises with approved detectors immediately after the closing
  • The state required smoke/CO detector inspection must be conducted no less than 90 days after the Mass. COVID-19 State of Emergency is lifted.

We (real estate attorneys) are drafting up new compliance agreements and language for Offers and Purchase and Sale Agreement to comply with this new Order. Please email me at [email protected] for assistance.

Massachusetts Gov. Baker CO… by Richard Vetstein on Scribd

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Significant Impacts Hitting: Registry and Court Closures, Closing and Financing Delays, Social Distancing, School Closings, Quarantine Potential

As I was writing this post tonight, Gov. Baker ordered the shutdown of all schools through April 6, closed down restaurants and bars, and is banning gatherings over 25 people. Also announced tonight is the shut down of all Trial Court facilities on March 16 and March 17, which includes the Cambridge and Suffolk (Boston) Registries of Deeds. We are now hitting the tipping point, and going forward there will be substantial impacts on the real estate and legal industry.

I first wrote about the Coronavirus (COVID-19) global pandemic five days ago. Seems like an eternity ago. As of that writing (data as of March 9), there were 729 reported cases in the US, with 27 deaths. As of tonight March 15, cases have over quintupled with Johns Hopkins reporting 3,722 confirmed cases and 61 deaths. With the well publicized testing delays, the real number of cases are likely far higher.

Registry of Deeds Impacts

As mentioned above, Gov. Baker just ordered the closure of all Trial Court facilities for Monday March 16 and Tuesday March 17. Both Cambridge and Suffolk (Boston) Registries are housed in Trial Court facilities so they will be closed for those two days. I spoke to Maria Curtatone, Registrar of Deeds for Cambridge Middlesex South, and she indicated that this may well be the precursor to widespread shutdown of all registries of deeds and courts throughout the state. We will await further announcements on that.

Update (3/17/20) — Suffolk and Cambridge are closed to the public until at least April 6. Currently, they are both still processing electronic recordings for recorded land. All Land Court recordings and plans must be sent in by overnight or regular mail.

We have just received a chart below showing current Registry status:

I remain concerned, however, that all Registries will be forced to shut down and will not offer in person, mail or electronic recordings. If that occurs, we will see a potentially catastrophic impact to real estate in Massachusetts. Title insurance companies have assured its attorney agents that they will offer “gap coverage” in case recordings are delayed. This coverage offers insurance coverage between the time of the physical closing and the time of actual recording of documents at the registry. However, it remains to be seen how this will play out. Will mortgage payoffs still be processed even though deeds will not be recorded? Will sellers allow buyers to get keys and move into homes if deeds aren’t recorded and their sale proceeds are held in escrow? We will need to work through these issues.

I am also concerned if COVID-19 starts hitting closing attorney offices. If a lawyer or staff member is infected, it could result in the quarantine of their entire office, essentially shutting it down for some time.

COVID-19 Contingency Provision

In my previous post, I discussed a new COVID-19 Impact Clause for Offers Purchase and Sale Agreements. (Sample language below). It is imperative that these clauses are used in both Offers and PSA’s. It’s also very important that all parties and their attorneys work together cooperatively throughout this crisis, acknowledging that there will likely be substantial impacts and delays. The goal, as always, is to get to the closing and complete the deal, by any means necessary.

COVID-19 Impact Provision. The Time for Performance may be extended by either Party by written notice for an Excused Delay which materially affects the Party’s ability to close or obtain financing. As used herein an Excused Delay shall mean a delay caused by an Act of God, declared state of emergency or public health emergency, pandemic (specifically including Covid-19), government mandated quarantine, war, acts of terrorism, and/or order of government or civil or military authorities. Notwithstanding anything to the contrary contained in this Agreement, if the Time for Performance is extended, and if BUYER’S mortgage commitment or rate lock would expire prior to the expiration of said extension, then such extension shall continue, at BUYER’S option, only until the date of expiration of BUYER’S mortgage commitment or rate lock.  BUYER may elect, at its sole option, to obtain an extension of its mortgage commitment or rate lock. Notwithstanding the foregoing, said Extension shall not exceed [insert number of days].

Virtual and Remote Closings

Another impact that we are already seeing is that parties to the real estate transaction are afraid of traveling outside their homes right now (or even being visited at home) and being in contact with other people, especially those who are high risk. My colleagues and I are working on an emergency executive order for Gov. Baker to sign which would temporarily authorize remote or virtual closings using such technology as Zoom and Docusign.

For more information on this please read my new post, Massachusetts Remote Notarization Bill Filed in Legislature

Court Closings

Update (3/17/20): The Supreme Judicial Court today ordered that, because of the public health emergency arising from the COVID-19 pandemic, beginning tomorrow (March 18, 2020) and until at least April 6, 2020, the only matters that will be heard in-person in Massachusetts state courthouses are emergency matters that cannot be held by videoconference or telephone. Each of the seven Trial Court departments, in new standing orders to be issued today, will define emergency matters for their departments.  As a result of the SJC order, courthouses will be closed to the public except to conduct emergency hearings that cannot be resolved through a videoconference or telephonic hearing.  Clerk’s offices shall remain open to the public to accept pleadings and other documents in emergency matters only.  All trials in both criminal and civil cases scheduled to commence in Massachusetts state courts between today and April 17, 2020, are continued to a date no earlier than April 21, 2020, unless the trial is a civil case where the parties and the court agree that the case can be decided without the need for in-person appearance in court. Where a jury trial has commenced, the trial will end based on the manifest necessity arising from the pandemic and a new trial may commence after the public health emergency ends. Courts, to the best of their ability, will attempt to address matters that can be resolved or advanced without in-person proceedings through communication by telephone, videoconferencing, email, or other comparable means.

A link to the SJC Order OE-144 is here.

In addition to the closings on March 16-17, the Massachusetts Court System announced over the weekend major “triage” changes reducing the number of persons entering state courthouses. These rules are effective Wednesday March 18, 2020. A link to all of the new changes can be found here — Court System Response to COVID-19. A summary of each court and respective changes are as follows:

Superior Court — All jury trials postponed until April 22. Motions handled by individual judges with preference for telephonic hearing and postponement where necessary to limit number of people entering courtroom. Emergency matters may proceed normally. The new Standing Order 2-20 can be found here.

Housing Court — All cases including evictions (except emergencies) postponed until after April 22. Matters may be heard earlier upon a showing of good cause. New Housing Court Standing Order is here.

Probate and Family Court — Trials postponed until May 1. Motions and pre-trials heard telephonically or postponed until after May 1. Modification complaints won’t be heard until after May 1. New Probate and Family Court Standing Order 1-20 is here.

District Court — No jury trials until after April 21. All criminal appearances rescheduled for 60 days, and no earlier than May 4. Arraignments and Bench trials may proceed. The new District Court Standing Order is here.

Land Court — All trials postponed until after April 21. All other motions and proceedings shall be held telephonically at judge’s discretion. Registration of title documents should not be done in person. Mail or email is now preferred. (Not sure how that will work). New Land Court Standing Order 2-20 is here.

Appeals Court — Oral argument for March will be telephonic.

Supreme Judicial Court — Please see the Court’s website.

As you can glean from the changes, virtually all trials are being pushed out through the end of April. Motion hearings are court specific with telephonic hearings being substituted for in-person hearings. Of course, if the courts are all shut down, all bets are off. With no staff, the courts will not even be able to handle new filings. The system would just stop in its tracks, except for the most emergency of matters.

Lender/Financing Delays

This week we will see if there are any major disruptions to lenders’ ability to provide financing. I am seeing some smaller mortgage companies moving to remote employee staffing. I’m also hearing about appraisal delays. If there are government employee impacts such as at the IRS for processing tax transcripts, there could be delays with underwriting. I think it’s inevitable that we will be seeing lender delays moving forward.

Municipal Closings

I am also hearing of closings of municipal departments, which may affect the availability of final water/sewer readings and possibly smoke detector certificates. Title 5 inspections could also be impacted.

25 Person Social Gathering Restriction

New restrictions on crowd sizes that Gov. Charlie Baker issued on Sunday, March 15, could upend open houses. The restrictions banned gatherings of 25 or more people. Brokers seemed to anticipate a possible drop-off in attendance, even before Baker’s restrictions and despite strong numbers the past couple of weeks. “Next week may be a different story,” Jason Gell, a Keller Williams broker and president of the Greater Boston Association of Realtors, said on March 12. “Unfortunately, any decline in open houses or listings is likely to make the conditions for buyers even more difficult.”

Social Distancing, School Closures and Possible Lockdown

The impacts of COVID-19 are manifesting not necessarily in the actual infection and sickness of patients (which I’m not discounting at all) but all the measures we are taking to “flatten the curve.” I want to urge all my readers that COVID-19 could wind up being the worst global pandemic since the Spanish Flu and should be taken as seriously as life and death. If you can work from home, do that and don’t go into the office. If you can arrange for remote employee access, please do that. Take advantage of technologies like Zoom, Docusign and Dotloop. Please keep your kids at home. No playdates, family gatherings or hang-outs. They say we are only 2 weeks behind Italy and you see what’s going on there. Stay safe! More updates to follow as I get them.

-Rich

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Potential Impacts: Registry of Deeds Closings, Financing Delays, New Covid-19 PSA Clause, Housing Market Slow Down?

The Coronavirus (COVID-19) is a highly infectious respiratory virus, which originated in Wuhan, China, and has spread across the globe, wreaking havoc on financial markets, public health systems, schools, universities, and daily lives. As of March 9, there are 729 reported cases in the US, with 27 deaths. Here in Massachusetts, as of March 9, there are 41 cases with no reported deaths. Infectious disease experts predict that the virus will continue spreading across the United States, affecting just about every aspect of our lives.

Update (3/17/20): Registry and Court Closings

Update (3/27/20): Impact on Rental Housing

Update (3/26/20): Remote Notarization Legislation

Here in Massachusetts, we are beginning to see significant impacts. Harvard University just cancelled all classes in favor of online instructions. Mayor Walsh has cancelled the St. Patrick’s Day parade. Some schools are closing temporarily and cancelling events. Companies are cancelling conferences and restricting travel. And of course, the stock market has dropped precipitously.

Likewise, in the real estate industry we are starting to see impacts as well. Despite the COVID fear factor, most agents are still reporting robust attendance at open houses and market activity, as confirmed by Curbed Boston. However, that may soon change as the virus gets increasingly widespread and the impacts to the financial markets begin to set in. I’m going to outline some potential impacts going forward, and I’ll update this post as developments emerge.

Registry of Deeds and Court Closings

Update (3/13/20): Suffolk and Salem Registry have shut down public closings. Only title examiners and attorneys are allowed access. They are still recording documents.

We are starting to see court and government building closings in other states. Federal courts in New York’s Southern District, including Manhattan, are restricting entry. No one will be allowed in who traveled within the past 14 days to China, South Korea, Japan, Italy or Iran, or who had close contact with someone who has. Trials have been postponed in Seattle and Tacoma courts.

No closings have been announced here in Massachusetts, but it’s a possibility. Virus impacts may result in Registries of Deeds and the Land Court being forced to closed or operate with a skeleton staff.

Fortunately, we have electronic recording capabilities here in Massachusetts. If the registries are closed, hopefully they will still allow for e-recording which should enable closings to keep on track. However, registry staff must still examine each electronically recorded document so there still could be impacts. We don’t know the fully extent of the impacts, if any.

Lender/Financing Delays

I have not yet heard of any major disruptions to lenders’ ability to provide financing. However, it’s not out of the realm of reason if companies are requiring their employees to work from home, etc. Further, if there are government employee impacts such as at the IRS for processing tax transcripts, there could be delays with underwriting. The same is true if appraisers cannot get out into the field and do their reports. I’ve already heard of at least one lender asking an attorney for a COVID-19 delay provision in a purchase and sale agreement, which brings me to the next topic…

COVID-19 Delay Clause In Purchase and Sales Agreement

Due to the various impacts and possibilities for delays as outlined above, we are already seeing requests for language dealing with the Coronavirus in purchase and sales agreements. As just mentioned, there may be lender delays affecting a buyer’s ability to obtain timely financing due to virus impacts. Buyers and sellers may be subject to quarantines, or if they are traveling, they may be stuck in a public health purgatory like the Princess Cruise ship. If Registries are closed and no e-recording is allowed, then closings will need to be cancelled or rescheduled. My colleagues and I are working on a new COVID-19 clause that will balance all of these concerns.

Our draft provision (subject to change) is as follows:

COVID-19 Impacts. The Time for Performance may be extended by either Party by written notice for an Excused Delay which materially affects the Party’s ability to close or obtain financing. As used herein an Excused Delay shall mean a delay caused by an Act of God, declared state of emergency or public health emergency, pandemic (specifically including Covid-19), government mandated quarantine, war, acts of terrorism, and/or order of government or civil or military authorities. Notwithstanding anything to the contrary contained in this Agreement, if the Time for Performance is extended, and if BUYER’S mortgage commitment or rate lock would expire prior to the expiration of said extension, then such extension shall continue, at BUYER’S option, only until the date of expiration of BUYER’S mortgage commitment or rate lock.  BUYER may elect, at its sole option, to obtain an extension of its mortgage commitment or rate lock. Notwithstanding the foregoing, said Extension shall not exceed [insert number of days].

Impact On The Real Estate Market

If you’re in the market for a house, all this uncertainty might have you worried about the housing market. Will it suffer a swoon similar to Wall Street? There are a few ways the virus could affect the housing market that you should be aware of. However, I think we can breath a sigh of relief, because a housing catastrophe on the scale of the 2008 financial crisis is almost certainly not going to happen.

The good news is that mortgage interest rates are still at historic lows. However, I’m also hearing that a lot of lenders are at full capacity with demand for both refinances and purchases so rates may be heading up in the very near future.

I think as we are heading towards a global recession and the continuing daily life impacts of the virus, we are going to see a slowing down of the real estate market in general. Uncertainty is the hobgoblin of the home buyer. Indeed, this is exactly what Lawrence Yun, Chief Economist at the National Assoc. of Realtors is saying:

I hope I’m wrong. Comment below or shoot me a line ([email protected]) and tell me what you’re seeing out there. I’ll keep you posted with any developments.

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Parties Who Negotiated Past Purchase and Sale Agreement Deadline Waived It, Court Rules

The Massachusetts Appeals Court just came down with a ruling which should be a cautionary tale to everyone in the residential real estate business. It’s an interesting fact pattern, but not necessarily unusual. For those with short attention spans, the Court held that the standard deadline to execute the purchase and sale agreement is not necessarily a hard deadline. Rather, the deadline can be waived by the parties if they negotiate beyond the date, even without a formal extension in place. The Court also held that where the property is owned by several individuals, even if only one of those individuals sign the offer, this is not necessarily fatal to the deal.

Ferguson v. Maxim, Mass. Appeals Court, 18-P-1081 (Nov. 6, 2019)

In the case, the buyer, David Ferguson, and the seller, Joyce Maxim, signed the standard form Offer to Purchase put out by the Massachusetts Association of Realtors for the sale of residential property in Leominster. (For my post comparing the MAR form with the Greater Boston Real Estate Board, click here). It turns out that title to the property was actually held by a group of five individuals including Maxim, but we will get to that in a few. As is standard, the Offer provided that the parties would enter into a standard form purchase and sale agreement by a specific deadline. However, the seller’s attorney did not sent out a draft PSA until after the deadline, and negotiations continued well past the deadline without any issue raised by the parties or their attorneys. Both attorneys had suggested formalizing an extension of the PSA deadline at various times, but a formal extension agreement was never signed. At some point the seller’s attorney tried to cease the negotiations acknowledging that “we are well beyond our [PSA] date.” A week later, the buyer’s attorney tried to resurrect negotiations and save the deal. Further negotiations ensued between the parties, but they were abruptly stopped by the seller’s attorney who stated that the deal was for all intents and purposes dead.

Mr. Ferguson, the buyer, was naturally upset, and sued, seeking an order of “specific performance” to enforce the deal, based on well established law that an offer to purchase is a legally binding contract for the sale of real estate. (Read the case if you want to learn about various procedural issues that arose in the case with respect to the buyer’s obtaining a lis pendens and the seller’s special motion to dismiss under the lis pendens law.).

Two Important Take-Aways

The important take-aways from the ruling were twofold. First, the Court ruled that the typical deadline to execute the purchase and sale agreement is not always a hard deadline. Some people may be surprised to here that, but under Massachusetts law, a deadline in any contract can be “waived” by the parties words, actions, or conduct. Here, the Court said that a waiver of the deadline could be found where the seller’s attorney didn’t provide the draft PSA until after the deadline and the parties freely negotiated well past the deadline, even without a formal extension in place. Second, the Court also held that where the property is owned by several individuals, only having one of those individuals sign the offer is not necessarily fatal to the deal. If there is evidence that the signatory had apparently authority to sign for the others, or that the sellers ratified the offer, then the contract could be enforced. So now the buyer’s case will continue on for trial. Interestingly, during the pendency of the case, the sellers sold the property to another party. If the buyer is successfully, that new buyer is going to be very unhappy because his transfer will be voided! He may want to lawyer up himself.

Let’s Play Monday Morning Quarterback!

Now, what could have been done differently in this case to avoid the bad result for the seller? For starters, the seller’s attorney should have delivered the draft PSA on time. Once the parties started negotiations after the PSA deadline, they were in “no man’s zone” and that can only come back to hurt the sellers. Deadlines need to be taken very seriously, and sharp lawyers will always send out emails or other written reminders of them, and reserve their rights to terminate an agreement if the parties blow past a deadline without a written extension in place. The buyer’s attorney played this correctly, and didn’t push on the deadline issue because the law would favor his client on the waiver issue (which it ultimately did).

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Benefits and Affordability Of Owner’s Title Insurance Coverage Praised In Widely Read Article

When my friend Jim Morrison, formerly of Banker and Tradesman and now a freelance real estate reporter, contacted me about an article on owner’s title insurance, I was rather surprised. After all, title insurance isn’t the most “sexy” of real estate topics. However, I did have a whole bunch of horror stories to tell Jim about what happens when buyers don’t elect to get owner’s title insurance coverage. I told Jim the stories and, as always, recounted how I got owner’s title insurance on my own house purchases, even though I was pretty certain the title was clean. The article would be posted on Boston.com, Jim said. Sound great, Jim, thanks for letting me comment, I said.

Well, Jim wrote a fantastic article. And what do you know, but the article was so widely read and shared that the Globe decided to put it in the Boston Sunday Globe Magazine with yours truly featured in the inset! I was thrilled — not only for the good press, but more importantly, to spread the word that owner’s title insurance is a “must-have” for every buyer and a good deal financially.

You can find a link to the article here: What Is Title Insurance, and Why Do You Need It? It is really one of the best articles on owner’s title insurance that I’ve seen in a long time. For all my fellow law colleagues, real estate agents, and mortgage professionals, it’s a great piece to share on your social media feed and client newsletters!

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Horry, SC Booking Photo — Allen J. Seymour

As I’ve written here before, I have been representing three families victimized by convicted felon, Allen Seymour, in a brazen complex real estate forgery scam where he forged deeds and sold properties out from under owners. I’m happy to report that the Worcester Superior Court just sentenced Seymour to a prison term of 3-5 years at MCI-Cedar Junction. This sentence was for his violation of the terms of his probation from his first criminal conviction in a similar scam in 2010. He remains under indictment for 22 counts of forgery, larceny and money laundering in the most recent case involving my clients. We expect that he will receive another substantial prison term once that case goes to trial later this year.

As reported by the Worcester Telegram, Worcester Superior Court Justice Janet Kenton-Walker sentenced Seymour, 52, to 3-5 years in state prison, with 5 years of probation to follow, and also ordered to pay $750,000 in restitution and was prohibited from working in the real estate industry. Assistant Attorney General Edward Beagan had asked Judge Kenton-Walker to sentence Seymour to 6 years in state prison on the violation. He further asked the judge to keep Mr. Seymour on probation on one of the charges and allow the $750,000 restitution order to remain in place.

I have filed three civil actions in Middlesex Superior Court, seeking to quiet title and restore ownership to the victims. The cases are ongoing.

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Court Shoots Down Lender’s Attempt to Expand Doctrine of Equitable Subrogation

In the interesting case of Wells Fargo Bank v. Comeau (Nov. 15, 2017), Justice Peter Agnes of the Appeals Court has held that a surviving wife is not financially responsible for paying back a refinanced mortgage where the wife neither signed the promissory note nor the refinance mortgage, even though she originally held title to the home as a married couple (tenants by the entirety) and signed the original mortgage on the property. In so ruling, Judge Agnes rejected Wells Fargo’s argument to expand the doctrine of equitable subrogation to cover a situation such as this.

Parties to Deed Must Match Up With Mortgage!

Nancy and William Comeau owned their Haverhill home jointly in the traditional Massachusetts form of ownership called “tenancy by the entirety” where title passes automatically to the surviving spouse upon death of a spouse. When the couple purchased the home, they both signed a first mortgage to Haverhill Cooperative Savings Bank. It appears that Nancy was not an applicant for the loan because she did not sign the promissory note. However, the cardinal rule is that the parties to the deed must match the parties to the mortgage, otherwise there will be problems (foreshadowing what happened in this case).

When the couple went to refinance the Haverhill Savings loan with Wells Fargo, only William, the husband, signed the note and mortgage. Big mistake! Since Nancy, the wife, remained on the title as a joint owner, she should have signed the mortgage as well. After the refinancing, William unfortunately dies. His estate is probated, but Wells Fargo makes another mistake and fails to file a claim within the one year probate statute of limitations.

Lender Goes To Court

In an attempt to get Nancy to pay up on the mortgage, Wells Fargo went to Superior Court and made the creative argument that the wife should be responsible under the little known legal doctrine of equitable subrogation which gives courts equitable power to reform mortgages, to restore once-extinguished mortgages, and to adjust priorities among existing mortgages where it is fair and just to do so. Wells lost in Superior Court. On appeal, Justice Agnes agreed, ruling that this case was not appropriate for the equitable subrogation remedy, thereby leaving Wells Fargo with a total loss on its mortgage debt. Judge Agnes reasoned that the situation was entirely of Wells Fargo’s making, and that it had the opportunity to have Nancy sign the mortgage or make a claim against William’s estate, but it failed to do so.

Having handled many title insurance claims in my prior practice, we often used equitable subrogation in cases where a title examiner missed a mortgage in connection with a refinance. Those types of human error would allow for equitable subrogation, however, this case would not, as Judge Agnes correctly ruled in my opinion.

This case is a good example why closing attorneys should always have both married spouses execute the mortgage even if one spouse is not on the loan.

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A Path to Electronic Notary Acknowledgements

by Rich Vetstein on August 7, 2017

COVID-19 Update (3/25/20): Emergency Legislation Filed To Allow for Remote Notarizations

By Richard P. Howe, Jr., Registrar, Middlesex North Registry of Deeds

As young people who have known nothing but digital commerce enter the home ownership market, the conveyancing community in Massachusetts will face increased pressure to leave paper behind in favor of purely electronic closings. The statutory basis for this technological transition has been in place since 2004 with the adoption of MGL c.110G, the Massachusetts Uniform Electronic Transactions Act. Since then, all registries of deeds in the commonwealth have implemented electronic recording systems. Still, some uncertainly remains, especially regarding acknowledgements.

Earlier this year I wrote about electronic acknowledgement statutes in other jurisdictions in “Remote electronic acknowledgments,” published in the March 2017 edition of REBA News. In the same article, I explained why registries of deeds in Massachusetts should record documents electronically acknowledged outside of Massachusetts, but not record those electronically acknowledgement within Massachusetts. The primary basis for that opinion was that Massachusetts law requires a notary to affix a notary stamp to an acknowledgement, and that our law provides no electronic equivalent of that notary stamp.

With the demand for electronic acknowledgements looming but not yet fully upon us, now is the time to amend our notary statute to accommodate new technological practices. The starting point for such an amendment should be a shared understanding of the purpose of an acknowledgement, particularly with regard to real estate documents.

In colonial Massachusetts, registries of deeds and the requirement that real estate documents be acknowledged arose simultaneously. The purpose of the registry was to provide a public record of who owned what land as a means of curtailing secret sales that muddled ownership and created uncertainty in real estate transactions. The purpose of requiring deeds to be acknowledged before recording was meant to curtail fraud, either in the guise of a forged signature or of an actual signature that was later denied by its maker.

Conceived in the seventeenth century, the rationale for these rules, and the rules themselves, persist today. Registries of deeds perform the same core function of making public real estate ownership records, using new technology to do it.

So what is the core function of an acknowledgement? Primarily, it is to assure the public that the person who signed a document is who he or she purports to be. In Massachusetts, a notary does this by personally witnessing the signing of the document while positively identifying the person who signed it. The notary attests to this by signing the acknowledgement clause, printing his name and the expiration date of his notary commission underneath his signature, and then affixing his notary stamp to the document.

MGLc.222, s.8 requires a notary stamp to include “the notary public’s name exactly as indicated on the commission; the words ‘notary public’ and ‘Commonwealth of Massachusetts’ or ‘Massachusetts’; the expiration date of the commission in the following words: ‘My commission expires _____’; and a facsimile seal of the commonwealth.”

Not to minimize the importance of the facsimile seal of the commonwealth, but I am not sure how including that on an inked stamp that anyone, anywhere may purchase in any name from multiple vendors adds appreciably to the authenticity of a document or the signature upon it. To me, the basic reason for requiring a notary to include identifying information such as a printed name and a commission expiration date in the acknowledgement clause is to help identify and locate the notary if questions arise about the document.

While the notary stamp does require those two bits of information, so does the notary clause itself, which seems to make the notary stamp superfluous. Perhaps it would be more useful to assign each notary public a unique identifying number, much like an attorney’s BBO number, and require that number to be included in the acknowledgement clause in lieu of a stamp. Such a unique number would expedite the identification of the notary and his whereabouts. It would also be easy and inexpensive to implement, both on paper and in electronic form.

In reviewing electronic acknowledgement statutes already adopted elsewhere, it seems that many states have created a dual commission regime, one for regular notaries, the other for electronic notaries. Other places require notaries to invest in sophisticated (and presumably expensive) technology that renders the electronic document being acknowledged tamper-proof. Perhaps the tasks assigned notaries in other jurisdictions are more complex than those in Massachusetts, but both of these practices – a dual commission system and requiring sophisticated software of electronic notaries – greatly exceed anything now required or expected of notaries in this commonwealth.

In crafting rules for electronic acknowledgements in Massachusetts, we should strive to duplicate the functions now being performed by our notaries while allowing those functions to be performed on tablets and computer screens, not just on paper. Complex and expensive systems are not needed to do this, and such additional requirements would needlessly delay our ability to keep pace with the evolving expectations of those we serve.

Dick Howe has served as register of deeds in the Middlesex North Registry since 1995.  He is a frequent commentator on land records issues and real estate news.  Dick can be contacted by email at [email protected]

Reprinted with permission from the REBA Blog.

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Foreclosure2-300x225.jpgMany Titles Automatically Cleared As Of Dec. 31, 2016

While 2016 may have been a tough year for some, the new year brings some relief to those affected by foreclosure related title defects. For some homeowners saddled with bad titles due to improper foreclosures, when the Times Square ball dropped, their titles defects magically disappeared under The Act Clearing Title to Foreclosed Properties. They are now free to sell or refinance after waiting many years in most cases.

The Act, now codified in Mass. General Laws Chapter 244, section 15, was enacted by Gov. Charlie Baker last year in an effort to minimize the impact of several troublesome SJC rulings which cast doubt on titles coming out of foreclosures, including the seminal case of U.S. Bank v. Ibanez. The Act, which I testified in support of at the State House, establishes a new three year statute of limitations for challenging foreclosures and clears titles with foreclosures conducted prior to Dec. 31, 2013, unless the homeowner brought a lawsuit and records it with the Registry of Deeds.

Practice Pointer: Under the Act, any defective title stemming from a foreclosure completed prior to Dec. 31, 2013 is now cured, provided there is no legal challenge filed and complaint recorded with the Registry of Deeds and no other statutory exemption applies. Speak to your title underwriter or consult an attorney for guidance.

Covered Time Period

The Act establishes a three-year statute of limitations period to bring a challenge to a foreclosure. To timely bring a challenge, an aggrieved homeowner must file lawsuit challenging the validity of the foreclosure sale, and must also record a copy of the lawsuit in the registry of deeds before the limitations period expires. The Act reaffirms the mortgagee affidavit requirements of the foreclosure law, including the provision that the recording of a valid affidavit is “evidence that the power of sale was duly executed.”  The Act also provides that after three years from the date that the foreclosing lender records a validly executed affidavit, the affidavit serves as “conclusive evidence” that the power of sale was duly executed.

Retroactive Application

The Act applies retroactively. To address constitutionality concerns, for mortgagee affidavits recorded prior to December 31, 2015, the statute of limitations period is the longer of the full three-year period or one year from the effective date of the Act, December 31, 2015. Thus, by the terms of the Act, for all foreclosures completed prior to December 31, 2013, the deadline to assert and record a challenge was December 31, 2016. For foreclosures completed between January 1, 2014 and December 31, 2015, the three year statute of limitations runs from the date of the foreclosure.

No Relief to REO/Fannie Mae Owned Properties, But….

The Act does not apply to mortgagees, noteholders, servicers, their affiliates, or government entities like the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) that continue to hold title to properties following foreclosure sales. The Act only applies “arm’s length third party purchasers for value,” defined as a party who either (1) purchased the property directly at the foreclosure sale, or (2) purchased the property from the bank or another entity at some point after the foreclosure sale, to the extent the power of sale was not duly exercised.” While foreclosing parties, noteholders, and mortgagees will not benefit directly from the Act on properties that they own or service, they will benefit from the resolution of title disputes, the insurability of properties they formerly owned or foreclosed, and the validity of mortgages that they currently service.

Broader Applicability?

The Legislature clearly intended for the Act to resolve title defects arising out of the Ibanez case. But the Act, as drafted, is not limited to just Ibanez defects. It could also be applied to defects arising out of other SJC rulings, including Eaton (promissory note status), Pinti (cure notice) and Schumacher (cure notice).  Because the Act is retroactive and silent as to what specific title issues it resolves, a recorded mortgagee affidavit could cure many other issues aside from Ibanez issues. We will see how title underwriters and the courts apply the Act in the months to come. As always, the best practice is to get your title underwriter’s opinion in an email and place in your file.

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347New Smoke Detector Rules Go Into Effect On December 1, 2016

Catching many people by surprise, including me, a new change in Massachusetts smoke detector regulations will take effect Dec. 1. The new rules provide that when homes built before 1975 are sold, the house must be equipped with smoke detectors with a 10-year life span. These detectors are sold as 10 year sealed lithium battery power smoke alarms. They can be found at your local Home Depot or hardware store.

Also remember that current rules require photoelectric detectors covering the area within 20 feet of a kitchen or bathroom containing a bathtub or shower. The 10 year sealed detectors are sold with both photoelectric and the older ionization technologies. I found this Kidde 10 Year Kitchen Model at Home Depot selling for $49.97.

As part of this year’s Fire Prevention Week in October, State Fire Marshal Peter J. Ostroskey told the Boston Globe that “what we’ve seen in the past eight to 10 months across the state is that our fatal fires involve homes that have smoke alarms in them, but they are inoperative.” Ostroskey said that as investigators search charred wreckage of fatal fires, they have discovered that batteries have been removed or that the smoke alarms themselves have not been replaced even though they are no longer functioning properly because they are 10 years old or older.

Ostroskey said the 1975 cutoff date was chosen because homes built after that year were already required by the state building code to have hard-wired power supplies for smoke detectors. But even those hard-wired detectors need to have backup batteries replaced and the detectors should be replaced every 10 years, too, he noted.

A Fact Sheet from the State Fire Marshal is available here.

Thank you to Realtor Rona Fischman at 4 Buyers Real Estate for advising me of the new rules.

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notary-public

SJC Decision Provides Clarity to Title Attorneys

Now that the summer is over, it’s time to get back to blogging! During the quiet summer months, the Supreme Judicial Court issued an important decision for real estate attorneys and the title community in Bank of America v. Casey (June 16, 2016) (link to case). The SJC confirmed that a statutory curative attorney’s affidavit may be recorded with the registry of deeds correcting a defective notary acknowledgment on a mortgage which otherwise could have invalidated the instrument. This is a very helpful decision, and should result in more titles (and properties) being cleared and sold.

Defective Notary Acknowledgment

In 2005, Alvaro and Lisa Pereira refinanced their New Bedford property with Bank of America, N.A. The Pereiras individually initialed the bottom of each page of the mortgage agreement except the signature page, on which the full signature of each appears. Attorney Raymond J. Quintin, the closing attorney, also signed this page, as the notary to the Pereiras’ execution of the mortgage. The mortgage agreement contains a certificate of acknowledgment (acknowledgment) on a separate page. The Pereiras individually initialed the acknowledgment page at the bottom, but the acknowledgment itself is blank in the space designated for the names of the persons appearing before the notary public, and the Pereiras’ names do not appear elsewhere on the page. Quintin notarized the acknowledgment, affixing his signature and his notary public seal. 

Seven years later (which is unexplained in the ruling), Attorney Quintin signed and recorded an “Attorney’s Affidavit, M.G.L. Ch. 183, Sec. 5B” stating that he properly witnessed the Pereiras signing the mortgage and that “through inadvertence, the names of the parties executing this mortgage, Lisa M. Pereira and Alvaro M. Pereira, were omitted from the notary clause.” Parenthetically, these curative affidavits are quite common in the industry.

Approximately six months later, Mr. Pereira filed for bankruptcy and sought to be released from responsibility under the mortgage on the ground that the mortgage contained a material defect — the omission of the mortgagors’ names from the acknowledgment.

SJC–Attorney Affidavits Pursuant to G.L. c. 183, sec. 5B May Cure Defective Notary Acknowledgment

The Court first went over the general rule that a defective notary acknowledgment is usually grounds to void any recordable instrument altogether. Mass. General Laws chapter 183 section 5B provides a cure to this problem by providing that “an affidavit made by a person claiming to have personal knowledge of the facts therein stated and containing a certificate by an attorney at law that the facts stated in the affidavit are relevant to the title to certain land and will be of benefit and assistance in clarifying the chain of title may be filed for record and shall be recorded in the registry of deeds where the land or any part thereof lies.”

The Court then ruled that the curative affidavit recorded by the closing attorney cured the defect and validated the mortgage. The Court said the attorney’s affidavit must comply with the formal requirements of § 5B, attests to facts that clarify the chain of title by supplying information omitted from the originally recorded acknowledgement, and references the previously recorded mortgage. As long as it does that, the problem is solved.

This isn’t a “sexy” opinion, but it is nevertheless important to the real estate bar and community.

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Nine Months After TRID: Full Term Delivery

by Rich Vetstein on June 25, 2016

This past week, I was honored to give a panel discussion on life after TRID (Truth in Lending Integrated Disclosure Rules) at the Massachusetts Mid-Year Mortgage Conference sponsored by the Warren Group. After my panel, Jim Morrison of Banker and Tradesman interviewed me and here’s the video they produced highlighting my talk.

Full-Term Delivery from The Warren Group on Vimeo.

As I said, life after TRID hasn’t been as bad as we all thought. It’s a good thing that the borrower gets their closing cost disclosures well ahead of the closing. The new Closing Disclosure form, however, is quite convoluted and hard to follow, leaving much to be desired. We’ve gone from a 3 page HUD-1 to a total of 11 pages of closing cost disclosures with the new buyer CD, the seller CD and the ALTA form. Not quite the simplification that CFPB was looking for…

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Best Practices In A New TRID World

by Rich Vetstein on October 18, 2015

Scroll Down For My Complimentary TRID Rider and Offer Timeline Cheatsheet

I’ve been doing a lot of speaking, and more importantly, thinking and collaborating with loan officers and Realtors, on the impact of the new TRID (Truth in Lending RESPA/Integrated Disclosure) on Massachusetts residential real estate transactions. I know everyone is pretty much burned out with all this TRID talk, but what I will give you in this post is some hands-on, practical advice (like how to fill out an Offer) and forms to help you navigate TRID — best practices, if you will.

Those who are unfamiliar with TRID, the major change is that the Good Faith Estimate is going away in favor of a new “Loan Estimate” and the HUD-1 Settlement Statement is going away in favor of a new “Closing Disclosure.” TRID provides for specific deadlines as to when the Loan Estimate and Closing Disclosure must be delivered to the borrower. If those deadlines aren’t met, closings can be delayed for up to 7 days. For my comprehensive post on the new rules click here.

trid 1 copyChange In Deadlines

The first major impact to real estate transactions will be the length of time to complete a transaction. The general consensus is that post-TRID, 60 day closings (from accepted offer) will be the norm. Will lenders be able to do 45 day closings? Yes, but only if all parties have their act together, and that’s a big “If.” Thirty (30) day closings will be nearly impossible to achieve, in my opinion.

So what does this mean? It means that all deadlines need to be tighter and that items typically left for the week or two prior to closing (like final readings and fuel adjustments) have to be done earlier in the transaction and closing table adjustments will be impossible.

Deadline to Submit Info For Closing Disclosure

trid 3 copyOne of the most important new dates will be the date on which all parties must provide the information necessary for the Closing Attorney and the lender to prepare the final Closing Disclosure (new HUD-1). TRID requires that the new Closing Disclosure issue to the borrower 3 days prior to closing (if sent electronically) or 7 days prior to closing (if sent by mail). Lenders will require all information necessary to prepare the CD well before this deadline. This will vary by lender anywhere from 10-20 days prior to closing. Also, some lenders intend to issue the Closing Disclosure along with the Loan Commitment. Accordingly, in my opinion the best practice under TRID is to target 20 days prior to closing by which all information needs to be submitted to the closing attorney. All parties should agree to this date in their purchase and sale agreements.

And by all information, what do I mean? See the graphic to the right. closing info copy

Final Utility Readings and Oil/Fuel Adjustments

Although the TRID rules specifically allow for some last minute changes to the Closing Disclosure without triggering re-disclosure and delay in the closing, most of the lenders which I’ve consulted with do not intend to authorize last minute changes to the Closing Disclosure which might trigger a re-disclosure delay.

Given this, the Mass. Real Estate Bar Association (REBA) has proposed language in its new TRID rider that all utility readings (water, sewer, oil/fuel) be completed and submitted to the closing attorney no later than 10 days prior to closing. The Closing Disclosure shall reflect payment and adjustments as of the reading date except for real estate taxes which shall be adjusted as of the closing date. No further adjustments will be made on the Closing Disclosure, but the parties are free to make their own estimates of utilities as of the closing date.

This is a change to current practice where it’s common that the final readings be done a day or two prior to closing. I’ve spoken to several agents about oil fuel in particular, and they all say they really don’t want to deal with the hassle under TRID, so they will be recommending to their sellers that they simply gift the oil to the buyer.

Opt for Buyer Credits Instead of Seller Repairs

Seller repairs will cause major hassle and potential delays under TRID. Under TRID, all property repairs must be fully disclosed in the purchase and sale agreement and to the lender. No more “side agreements” or “repair agreements” outside the PS Agreement. Most lenders will require an inspection of all repairs prior to closing and some will do the inspection prior to the issuance of the Closing Disclosure. This would also necessitate a much earlier walk-through by the buyer to inspect those repairs. If there are problems with the repairs, or the insistence on a holdback which would be reflected on the Closing Disclosure, this could delay the issuance of the Closing Disclosure, and therefore delay the closing.

Accordingly, the general consensus is that it will be much cleaner under TRID to forgo seller repairs and instead have the seller agree to a closing cost credit to the buyer. This will eliminate the lender inspection, additional walkthrough and potential of delays.

Also, a quick word about holdbacks at closing. We are not sure how lenders will handle holdbacks at the closing but many of us are of the opinion that lenders will not allow a holdback unless it’s disclosed on the Closing Disclosure. So that effectively means no closing table holdback agreements unless you want your closing delayed to re-issue the Closing Disclosure.

Use a TRID Rider/Addendum for all Offers

MAR, GBREB and REBA have all come out with their own TRID riders. In my opinion, the MAR/GBREB riders don’t sufficiently protect buyers from delays and they fail to address utility/fuel adjustments. The REBA rider is better, but could still use some improvement. So naturally I’ve drafted my own rider (and TRID timeline cheatsheet) which is embedded below. Feel free to use it to help you fill out offers. Whatever rider/addendum you chose, just use something, otherwise your buyer will be at risk of losing their deposit over TRID delays.

Recommend Attorneys Who Specialize In Conveyancing/Closings

Residential real estate closing work was already complicated and highly regulated. In a TRID world, the pitfalls for the inexperienced and non-specialists will be myriad. Now more than ever, Realtors and loan officers should partner with experienced attorneys who specialize in residential closings and are TRID ready and compliant. Do not allow your clients to use their cousin who is a lawyer and knows very little about real estate. It could be disastrous for you and your transaction.

If you have any questions about TRID, Offers, Purchase and Sale Agreements, Riders, etc., please feel free to contact me at [email protected] or 508-620-5352. I would be happy to help you navigate the TRID maze.

TRID – Massachusetts Offer to Purchase Timeline and Addendum by Richard Vetstein

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TRID-1MAR and GBREB Release New TRID Addendum In Advance Of Oct. 3 Start Date 

In anticipation of the upcoming October 3 start date for the new CFPB-TRID Rules (TILA-RESPA Integrated Disclosure), the Massachusetts Association of Realtors is advocating that several changes in existing practice be adopted as part of the MAR standard form purchase and sale agreement between buyer and seller. The changes, incorporated into a new Integrated Disclosure Addendum-Mortgage (embedded below and available to all MAR members by clicking here), will account for the risk of potential delays resulting from the new TRID rules, as well as impose a requirement on all parties to expedite providing information necessary to generate the new Closing Disclosure. For a comprehensive review of the TRID rules, click here.

Under TRID, there will be a new settlement statement called a Closing Disclosure, which must be issued to the borrower at least 3 days prior to closing. If that does not occur, the closing will be delayed for up to 7 days. Lenders are requiring that the information contained in the Closing Disclosure (fees, closing costs, taxes, insurance, escrows, credits, etc.) be finalized no less than 7-14 days prior to closing, to give them enough time to generate the new Closing Disclosure in a timely fashion. As with any major regulatory change such as this, we can expect delays and speed bumps for closings occurring after Oct. 3.

The new MAR Addendum attempts to allocate risk and responsibility by providing that:

  • The buyer provides the seller with the name of the lender’s attorney as soon as practicable and no less than 14 days prior to closing
  • No fewer than 7 days prior to closing, the Seller and Buyer must provide all adjustments and figures (water/sewer, condo fees, taxes, oil in tank, etc.) necessary to prepare the Closing Disclosure. *I would change this to 14-20 days prior to closing. 
  • The closing can be extended up to 3 business days in case of a TRID related delay. *I would change this to 8 days. 
  • No party can sue each other for TRID related delays

Practice Pointer: I do not think the MAR form goes far enough to account for the potential delays arising out of TRID. For example, if the lender does not use e-sign technology the Closing Disclosure would have to be mailed, and the closing would be delayed for 7 days, not 3 days. Moreover, lenders are advising me that they want all Closing Disclosure information in by 20 days pre-closing, so they can turn around the loan commitment and Closing Disclosure at the same time and have a buffer in case of last minute changes. Most importantly, please use some form of TRID addendum to your Offers. Do not wait for the P&S.

Please click here for my customized TRID Addendum and TRID Offer Timeline

Note that the Greater Boston Real Estate Board standard form purchase and sale agreement is still in wide use. The GBREB has released their own version of the TRID rider, available here.

Integrated Disclosure Addendum (c) 2015 Watermark by Richard Vetstein

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TRID Rules Expected To Delay and Disrupt Closings

by Rich Vetstein on July 31, 2015

TRID-1

Major Change To Current Practices | Expect Delays and Bumpy Road Starting Oct. 3

I just finished yet another closing where a national lender issued the closing documents the morning of the closing, and worse, issued a revised TIL (Truth in Lending) disclosure during the middle of the closing! Under the new TILA-RESPA Integrated Disclosure Rules (TRID) set to start on October 3, this too-common practice would have resulted in a closing delay of up to 7 days, to the dismay of everyone in the transaction.

The new TRID rules are game-changing regulations which threaten to disrupt and delay closings across the country. The new rules, already pushed back once due to industry outcry, go into effect in about 60 days on Oct. 3. I am very worried that lenders, Realtors and closing attorneys are not at all prepared for one of the most significant changes in how we do business. Experts are predicting that closings will be delayed, 60 day loan approvals will be the new normal, and new forms will bewilder buyers. “Expect a one- to two-week delay in closings,” said Ken Trepeta, director of real estate services of the government affairs branch for the National Association of Realtors, when describing the impact of TRID.

Check out my latest article: Best Practices In A New TRID World

Currently, we are finishing one of the strongest spring markets in a decade, but I’m quite concerned that come Fall, the new TRID rules will put the fall market into an ice bath. The best thing that every real estate professional can do is get educated and get prepared now for these changes. August is typically a slow month, so use it to get ready. My team will be doing a roadshow Powerpoint seminar to any local real estate office to explain the new changes. Contact me at [email protected] for more info.

New Closing Disclosure Replacing the HUD-1 Settlement Statement: 3 Day Rule

Under TRID, there will be a new settlement statement called a Closing Disclosure, which must be issued to the borrower at least 3 days prior to closing. If that does not occur, the closing will be delayed for up to 7 days. We are hearing that lenders will require that the information contained in the Closing Disclosure (all fees, closing costs, taxes, insurance, escrows, credits, etc.) be finalized as early as 20 days prior to closing, to give them enough time to generate the new Closing Disclosure in a timely fashion and to account for delays.

What does that mean for us professionals? It means that everything will need to be pushed up and done faster than before. That goes for titles, CPL’s, broker commission statements, invoices for repairs, insurance binders, condo fees, recording fees, title insurance, everything. And it means we can all expect delays as everyone adjusts to the new timetables and rules.

Practice Pointer: Click here to get my new TRID addendum/rider. 

What Forms Will Be Signed At Closing?

Lenders will require the new Closing Disclosure (embedded below) be signed by the borrower at closing. However, although the Closing Disclosure was intended to replace the current HUD-1 Settlement Statement, the geniuses at CPFB neglected to put a signature line for the sellers on the new Closing Disclosure. I’m not making this up. And we are no longer supposed to use the “old” HUD-1 Settlement Statement. Thus, our title insurance companies are telling us that there may be three settlement statements signed at closing: a Closing Disclosure for the buyer, a Closing Disclosure for the seller, and a combined Closing Disclosure. ALTA has created a new Combined Settlement Statement which can be found here.

Bank of America was asked whether it would require the use of the ALTA model forms, and it stated in a June 9 memo that it prefers the ALTA model if a closing attorney chooses to use a settlement statement to supplement the Closing Disclosure (CD), but specified that the settlement statement figures must reconcile to the CD and a copy of the settlement statement must be provided to the bank. The bank also stated that all revisions to fees and costs will require bank approval and an amended CD. In other words, closing attorneys will not be allowed to revise fees and costs by simply supplementing the CD with a settlement statement.

60 Day Approvals/Closings The New Normal?

With any historic change to how lenders disclose fees and approve loans, there’s going to be a steep learning curve — and delays. You can count on that. Industry insiders say the days of 30 and even 45 day loan approvals may be over, at least temporarily. Sixty (60) day approvals may be the new normal, and agents should build the longer timeframe into their offers and purchase and sale agreements and educate their buyers and sellers accordingly.

Repairs and Walk-Throughs

Since lenders will require all fees and credits finalized 7-10 days prior to closing, this will significantly impact how we handle repairs and credits. Agreed upon repairs also affect how the appraisal is conducted which will further impact the timelines. Experts are suggesting that Realtors consider doing walk-throughs at least 14-21 days prior to closing instead of the typical day before or day of walkthrough, because all repair issues and credits should be set in stone at least 7-10 days prior to closing and changes in fees and credits on the day of closing will not be permitted by the lender. Some experts are even saying that agents should do two walkthroughs, one within the TRID timelines and one immediately prior to closing. Also, under TRID paid outside closing (POC) items will be discouraged by lenders.

Take-away:  Realtors should be warned that repairs contained in the purchase and sale agreement will have the potential to delay closings under the TRID rules. Ensure that any repairs are completed 14-21 days prior to closing. Better yet, don’t have the seller make repairs at all; use closing cost credits instead. 

No More Back to Back Closings?

Due to the high potential for delays caused by TRID, back-to-back or piggyback closings may be a thing of the past, at least for now. A delay with a closing obviously has a domino effect on a back to back closing. The best practice, at least for the first few months of the new TRID era, is to schedule closings at least 3 days apart. Seller/buyers will have to prepare for this reality with bridge loans, use and occupancy agreements, or temporarily staying with your nearest relatives.

1416821334979Partner with Trusted and Verified Providers

Now more than ever, Realtors are going to want to partner with lenders and closing attorneys who have been vetted and verified as fully compliant with the TRID rules, so there will be minimal disruption and delay on their transactions. Realtors and loan officers should ask their closing attorneys whether they are compliant with the ALTA (American Land Title Association) Best Practices, which is quickly becoming the standard for TRID compliance. Under the ALTA Best Practices, the attorney will have passed an intensive initial due-diligence screening, a third-party internal audit, background and credit check, extensive review of applicant’s experience, business model and policy loss history, and licensing verification. The closing attorney should also have secure document encryption capabilities and privacy/technology policies in place. My office has been vetted and verified by Stewart Title which has a comprehensive website on the TRID rules. If your buyer wants to use his personal attorney who does not specialize in real estate, explain to him or her why that is a mistake which could ultimately delay the closing. 

Bumpy Road Ahead?

In my opinion, the TRID rules are the biggest change to the industry in 20 years, and will be much more difficult to implement than the new GFE and 3 page HUD of several years ago. As discussed above, my team will be doing a roadshow Powerpoint seminar to any local real estate office to explain the new changes. Contact me at [email protected] to schedule your complementary seminar.

More information:

Mass. Ass’n of Realtors Webinar on TRID with Ruth Dilingham, Special Counsel
National Ass’n of Realtors Webinar with Phil Schulman
Old Republic Title FAQ on TRID
CFPB Monitor TRID FAQ
CFPB Webinar Rebroadcast May 2015

CFPB Closing Disclosure by Richard Vetstein

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Superman's_classic_poseLike Superman, A Use and Occupancy Agreement Can Save the Day, But Be Aware of the Risks!

Tom and Mary Ryan, and their two little kids, Abigail and Jake, are relocating from California to the Boston area so Tom can take a job with a local tech company in Burlington. They have already sold their California home, and have been living in a cramped rented condominium in Santa Monica for two months already. Their loan has hit some snags because Tom was out of work for half of 2013, and had some IRS issues, although he is on solid footing now with his new job. The closing is scheduled for the end of this week and they have their cross country movers booked and scheduled and their life is now packed in boxes. Just when they finish packing their last box, their loan officer calls with somber news. “Tom, unfortunately, our underwriting department is dealing with delays getting your tax transcripts from the IRS. We are going to have to push back the closing for about a week. I’m so sorry.” Canceling the movers will cost several thousand dollars, and they will have to cancel furniture shipments as well. To make matters worse, new tenants are supposed to move into Tom’s rented condo unit right after they leave.

While all characters appearing in this work are fictitious, and any resemblance to real persons, living or dead, is purely coincidental, Tom and Mary are in trouble. With the prevalence of back-to-back closings and unforeseen underwriting issues and title defects, these situations are not uncommon. And with new TRID closing disclosure rules coming online in August, which are bound to cause even more loan approval delays, we may be seeing more of these situations in the months to come.

Fortunately, there is a solution to this situation. The sellers are willing to let the Tom, Mary and family move into the home prior to the closing under a Use and Occupancy Agreement. This will enable the buyers to complete their move, move into the house, but before the actual closing. A use and occupancy agreement, however, is not without its risks and downside, which I will discuss below.

One of the most important aspects of a Use and Occupancy Agreement is what it is versus what it is not. The agreement should specify that it creates a mere license to occupy the premises, not a tenancy or a landlord-tenant relationship. This will make it easier to remove/evict the occupants if something goes wrong. In any event, if the sellers are forced to remove the occupants, they will still have to resort to judicial eviction proceedings, which in Massachusetts can potentially take several months. This alone is the biggest drawback of a Use and Occupancy Agreement. The seller should always put language in the agreement that the buyers will be responsible for all attorneys’ fees and costs in case of an eviction.

The parties have to agree on a rental rate, typically based on the fair market rent for the premises or the mortgage and carrying costs. Websites such as www.rentometer.com can give you an idea of what a fair rental rate should be. Your Realtor should give you guidance as well. The rent should be divided by 30 for a per diem basis. You can also charge penalty rent if the term is extended past the original deadline.

The sellers should also include general indemnification language providing that “during the period of occupancy, Buyers shall maintain the Premises in good, clean condition and shall not make nor suffer any strip or waste to the Premises, nor make nor suffer any unlawful or improper use of the Premises and Buyers agree to indemnify Sellers and save them harmless from all liability, loss or any damage arising from such additions, alterations, strip, waste or unlawful or improper use, any nuisance made or suffered on the Premises by Buyers, including their family, friends, relatives, invitees, visitors, agents, or servants, or from any carelessness, negligence or improper conduct of any person.”

Lastly, the buyers should do their pre-closing walk through before they move in under a Use and Occupancy, because once they move in, the home will be a mess for awhile. That way, everyone will be on the same page as far as the property condition goes on the date of move in.

Many attorneys advise clients never to agree to Use and Occupancy Agreements. I am not one of those attorneys. With any risk, it depends on the situation. The sellers need to be comfortable that any delays will be resolved favorably and quickly. Sellers also need to appreciate that despite any language in the agreement, it could take months to remove an occupant if things so south. As long as everyone understands the risks, a Use and Occupancy Agreement can be a life saver.

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Massachusetts Real Estate Law Outlook for 2015

by Rich Vetstein on January 1, 2015

massachusetts condominium super lienWe had another interesting year in Massachusetts real estate law. From that controversial $60,000 discrimination penalty for asking a prospective renter “where are you from?”, to the influx of Airbnb rentals, to the tragic murder of Realtor Beverly Carter during a showing, and finally Gov. Patrick’s disappointing scuttling of the title clearance bill.

With pro-business Charlie Baker in the Governor’s Office, the fate of the independent brokerage model with the Supreme Judicial Court, and significant regulatory changes to title and closing services, we should expect another eventful year in 2015. Without further ado, I give you my outlook for 2015:

The Charlie Baker Effect

Gov. Deval Patrick was no friend to the real estate industry, often kowtowing to ultra-liberal activists. Case in point was when he killed the title clearance bill which had broad support within the Legislature and would have helped hundreds of homeowners get out of toxic titles. A new era is here with Republican and former CEO, Charlie Baker. Hopefully the Governor Elect will be more supportive of homeowners, developers, real estate agents, lenders and others in the industry. On the legislative table this year will be comprehensive “smart” zoning reform (including 40B affordable housing development reform), another effort at the title clearance bill and maybe even landlord-tenant legal reform.

Will Realtors Be Treated As Employees or Remain Independent Contractors?

The SJC should decide the closely watched case of Monell v. Boston Padsa class action brought by a group of disgruntled real estate agents at Jacob Realty claiming they should be treated as employees instead of independent contractors. Hanging in the balance is the fate of the historically independent, commission based real estate brokerage office model. An unfavorable result at the SJC would essentially turn this model upside-down, requiring brokerages to pay their agents minimum and overtime wages and provide all the statutory benefits afforded to employees. The real estate office as we know it today would likely cease to exist.

CFPB Compliance: New HUD-1 Statement, GFE, TIL, Back Office Procedures

The new Consumer Financial Protection Bureau rules, which go into effect this summer, have the potential to drastically change how loans are disclosed and transactions closed, affecting loan officers, Realtors and closing attorneys alike. Gone are the Good Faith Estimate, Truth in Lending Statement (TIL) and HUD-1 Settlement Statement, replaced with a longer Loan Estimate and Closing Disclosure. The disclosure timetables will be much, much stricter — the final Closing Statement must be given to the borrower no later than three business days before closing. Lenders and closing attorneys will have to work more efficiently and quicker to meet these new deadlines. Closing attorneys who are ALTA Best Practices Certified will have a competitive advantage over those who aren’t. Smaller firms could fall by the wayside.

Housing Court Expansion

This year will likely see the expansion of Housing Court jursidiction state-wide including in Middlesex, Norfolk and Barnstable counties. The Housing Court will be available in high density rental towns including Cambridge, Framingham, Brookline, Waltham, Dedham, Malden and Somerville.

I hope you all have a happy, healthy and prosperous New Year!

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Electronic-signature1.jpgThis is a summary of the Boston Bar Association’s recent seminar, E-Recording: Practices and Pitfalls, a Roundtable Discussion, which I moderated last week. The speakers were:

Current Statistics

Electronic recording (e-recording) of deeds, mortgages and other title instruments has been available in Massachusetts registries since 2007. E-recording capabilities are now fully operational in every Massachusetts registry of deeds except for Bristol South (Fall River/New Bedford). E-recording is proving to be less expensive and faster than the traditional method of recording by sending a title examiner down to the registry of deeds to wait in line. In most cases, a transaction can be “on record” within 30 minutes of an in-office closing. It also eliminates the need to hire a courier or fight traffic and hold closings at Cambridge or other hard-to-get-to registries. E-recording is legal and binding, and accepted by Fannie Mae, Freddie Mac and virtually every major lender.

Middlesex South District Registry in Cambridge (which happens to be the 6th largest registry of deeds in the U.S.) leads the state in total number of documents electronically recorded and also has the lowest average recording time in the United States. Very impressive!

Electronic recording adoption rates have steadily increased with Middlesex (Cambridge and Lowell) leading the way at 40% of all recorded documents. That means, however, that 60% plus of registry business is still done through the traditional in person recording method.

E-Recording Process

As outlined by Brian Kilfoyle of Simplifile, one of the approved vendors for Massachusetts e-recording, the process of e-recording a document is relatively straight-forward:

  • Sign up with one of the registry’s authorized electronic recording vendors (SimplifileErxchange,Ingeo/CSC, or New England Title/Escrow). There is a $350 annual fee.
  • Scan original document to create an electronic image (pdf)
  • Log on to the secure website and enter data about the document and upload the document image
  • Perform a quick online title run-down to ensure no title issues have arisen since the first title exam
  • Press “send to the registry” button
  • The registry verifies the quality of the image and the accuracy of your data
  • Once accepted by the registry, the document is officially “on record” with recording data and document image immediately available on the registry website
  • The filer immediately gets an electronic receipt with all recording information along with an electronic copy of the recorded document.
  • Fees are paid by electronic funds transfer from the closing attorney’s bank account. There is a $5.00 surcharge for every e-recorded document which is typically passed along to the responsible buyer or seller.

Title Insurance and Gap Coverage

One of the earlier concerns about e-recording is the so-called “gap coverage” — dealing with the risk of an attachment or other lien recorded on your title while you are in the process of e-recording. As confirmed by Sarah Supple of Chicago Title, all Massachusetts owner’s title insurance policies will automatically protect the title agent (attorney) and the owner from any intervening liens recorded during the electronic recording process. Ms. Supple noted that the risk of an intervening lien was just as high when the title examiner is physically waiting in line as opposed to online.

Practice Pointer: Ms. Supple recommends that closing attorneys perform one run-down right before submitting the document into the e-recording “queue” and also a “mini-run down” right before disbursement of funds.

Fortunately, a survey of participants at the seminar revealed zero instances of an intervening lien/attachment filed in an e-recording situation.

What’s Next?

Hugh Fitzpatrick updated the audience on recent and future developments. As a member of the Registry Technology Commission and advocate, he is working with the Registries, Legislature and Governor’s Council on electronic notarization so documents can be signed and witnessed virtually in a secure system like DotLoop or Docusign. Another goal is to have all of the registries unified in their document search portals like masslandrecords.com. Right now, several registries have their own systems. Hugh also noted that the new CFPB rules are strongly encouraging electronic signing and recording.

Electronic recording is a very exciting development in the real estate title industry, proving to be cost-efficient, accurate and convenient for all parties to the transaction. My Needham office is fully e-recording capable, and we often have the documents recorded within 30 minutes of the closing.

Please note that the BBA Real Estate Section’s Next CLE is Real Estate Attorneys, Are You Ready for CFPB Compliance? Nov. 18, 2014, 3pm at Boston Bar Association. Click here for more info and to register.

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how to handle criticismAttorney’s Obnoxious Conduct At Closing Factor in Large Award

Every now and then I have a contentious deal where I should be wearing a black and white referee’s shirt instead of a shirt and tie. I’m usually successful in getting everyone to calm down and close the transaction. The case of KGM Custom Home Builders v. Prosky (embedded below) recently decided by the Massachusetts Supreme Judicial Court is an example of how really bad behavior at a real estate closing can get a party into big legal trouble.

45 Acres in Mansfield for Sale

The Prosky family of Mansfield entered into an agreement to sell 45 acres of developable land to KGM Custom Builders. The sale price was linked to the number of buildable lots that KGM could permit. After spending over $300,000 in 5 years including weathering an appeal, KGM was able to obtain permits for 60 residential units. However, the Proskys received a better offer for the land and a dispute over calculation over the purchase price arose. Nevertheless, KGM was not willing to back down, and scheduled a closing. Repudiating the contract, the Prosky’s attorney informed KGM that it should calculate the liquidated damages provision in the contract because the sellers were not going to sell.

Closing Shenanigans

A closing was nevertheless scheduled at which the Prosky’s attorney showed up with a professional videographer as “defense strategy.” The parties’  attorneys started yelling at each other, and KGM’s attorney shut off all electricity to the building, but the videographer was able to tape with battery power. KGM’s attorney demanded that the Prosky’s attorney produce the closing documents he was supposed to have drafted. The Prosky’s attorney waived the documents in the air, and when the buyer’s attorney went to grab them, he pulled them back and asked if could read them from 2 feet away. KGM, with funds on hand, was ready, willing and able to close, and took the Prosky’s attorney’s antics at the closing as not engaging in good faith, and walked out. At the end of the closing, one of the sellers asked the videographer, “can you explain to me what just happened”? (I would love to see this videotape!).

Anticipatory Repudiation, Breach of Good Faith and Fair Deal, or Both?

Naturally, KGM sued the sellers. The trial judge ruled the sellers had engaged in anticipatory repudiation but he calculated the sales price in favor of the sellers at over $1M, giving the buyer the option of going forward with the deal or taking the liquidated damages because the buyers had also breached the covenant of good faith and fair dealing with their attorney’s antics at the closing. The buyer elected damages, and the judge awarded nearly $500,000 in permitting costs and attorneys’ fees. The sellers weren’t happy with this, so they appealed.

On appeal at the SJC, the legal issue was whether the law allowed the trial judge to provide the buyer with this favorable election of remedies. With few exceptions, outside of the commercial law context, Massachusetts has not generally recognized the doctrine of anticipatory repudiation, which permits a party to a contract to bring an action for damages prior to the time performance is due if the other party repudiates. One such exception occurs where a seller of land informs the “holder of an enforceable option” to purchase that he plans to sell the land to a third party. The high court ruled that this case fit within this exception and upheld the award of damages to the buyer. Naturally, the court seemed particularly upset about the behavior of the seller’s attorney at the closing. In fairness, the SJC did slash the attorneys’ fee award by $120,000, but with statutory interest accruing for several years now, the end result will likely be the same — the sellers are out a lot of cash.

Fortunately, these types of antics are very much the exception rather than the rule at Massachusetts closings. There is really no excuse for this type of unprofessional behavior at a closing, no matter how contentious the dispute. If a party is going to elect to terminate a deal, go ahead and do it without the theatrics. After all, what you say and do at a real estate closing may come back to bite you and your client.

KGM Custom Home Builders v. Prosky (MA SJC 5/30/14)

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