Disclosures

peeling-paintFraught with liability and danger, the Massachusetts Lead Paint Law is always a hot topic for Massachusetts residential real estate professionals. Fortunately for us, my colleague Attorney Marc Canner recently gave a seminar on the Lead Paint Law in which he prepared a very helpful Frequently Asked Questions (FAQ) with Practice Pointers which he’s graciously allowed me to share here.

The overriding policy of the Mass. Lead Paint Law is to encourage full disclosure of all lead paint related issues and give buyers the opportunity to test for lead paint before they purchase a home with lead paint. Unlike rental properties, however, there is no obligation on the seller to de-lead prior to a private sale. But common sense dictates that a lead-free house may be more valuable and marketable, and this is particularly true for multi-family properties where tenants with children under six years of age may in any event trigger the de-leading requirements of the law.

Further, penalties for non-compliance with the disclosure requirements are quite stiff. Sellers and real estate agents that do not meet the requirements can face a civil penalty of up to $1,000 under state law and a civil penalty of up to $10,000 and possible criminal sanctions under federal law for each violation. In addition, a real estate agent who does not meet requirements may be liable under the Massachusetts Consumer Protection Act, which provides up to triple damages.

What lead paint disclosures does a listing agent have to provide?
Whenever an owner of a home built before 1978 sells, the listing agent must provide the (1) the “Property Transfer Notification Certification”, and (2) all 10 pages of the Department of Public Health’s “Childhood Lead Poisoning Prevention Program ‘CLPPP’ Property Transfer Lead Paint Notification.” Most agents only use the one page form, and that’s a “no-no.”

Practice tip: It is a good idea to combine the two forms as one document in DotLoop (or other transactional software system) or on the MLS when the listing agent is providing these to the Buyer.

Can the Buyer sign the Property Transfer Notification Certification form before the Seller?
No. It is invalid. The Property Transfer Notification Certification (“Property Transfer Form”) must be completed and signed by the Seller before the Buyer can sign. The Buyer’s signature acknowledges they are in receipt of the disclosure. Thus, the Buyer cannot be in receipt of the disclosure until the Seller first completes the form.

Practice tip: If the listing agent is slow to send the Property Transfer Form, then the buyer’s agent should document the requests by email. In addition, the buyer’s agent should email the listing agent’s broker to request the timely receipt of the Property Transfer Form.

What disclosures and acknowledgements have to be completed on the Property Transfer Form?
All disclosures and acknowledgements have to be accurately completed, including the Seller’s Disclosure, the Purchaser’s or Lessee Purchaser’s Acknowledgement and the Agent’s Acknowledgement. Agents should be aware that HUD and the EPA have audited broker’s files in the past and have at times found them deficient from a compliance standpoint. Thus, it is critical to accurately fill out the form.

Practice tip: Make sure that the Property Transfer Form includes the property address. The older form, “CLPPP form 94-3 dated 6/30/94” does not include a line for the address. Both agents working on the transaction should sign the form.

Does a listing agent have to provide a Property Transfer Form for a property built after 1978?
No. The lead paint law only applies to homes built before 1978. Therefore, testing for lead-based paint is not required.

Practice tip: If the listing agent provides a Property Transfer Form for a home built after 1978, neither the buyer nor the buyer’s agent has to sign the form.

Does a Seller have to accept an offer from a Buyer who is requesting lead paint testing?
A property owner or real estate agent cannot sidestep the lead paint law simply by refusing to sell or rent to families with young children. The purpose of the lead paint law it to protect the health of children and pregnant women. An owner cannot refuse to sell or refuse to renew the lease of a pregnant woman or a family with young children just because a property may contain lead hazards that they do not want to spend the money to remove. Any of these acts is a violation of the Lead Law, the Consumer Protection Act, and various Massachusetts anti-discrimination statutes that can have serious penalties for a property owner or real estate agent. A case in point: a Boston area landlord was recently hit with a $75,000 penalty by the Mass. Attorney General’s office for lead paint violations.

What is required to obtain a Certificate of Compliance?
Owners of homes built before 1978 where children under six live should have the property inspected by a licensed lead inspector. Typically, an inspector will look to remove peeling, chipping or flaking paint. A full list of surfaces to be deleaded is available in the CLPPP form.

Practice tip: To contact a licensed lead inspector, click this link.

Does a listing agent need to disclose a Letter of Interim Control?
Yes. A Letter of Interim Control is only valid for one year. Thus, if a home built before 1978 that has a Letter of Interim control but does not have a Certificate of Compliance, then the agent needs to Disclose the Interim Letter of Control and likely engage a professional to determine what work is needed to bring the property into compliance.

What is the contractors’ role in the lead removal process on home improvement projects?
In a previous article, I noted that new regulations went into effect in 2010 that cover paid renovators who work in pre-1978 housing and child-occupied facilities, including renovation contractors, maintenance workers in multi-family homes, painters and other specialty trades. These regulations provide that most home improvement projects on homes built before 1978 require certified lead paint removal project contractors to follow strict lead paint removal precautions. Nothing in these new rules requires owners to evaluate existing properties for lead or to have existing lead removed.

Are there lead paint removal tax credits and loans available?
There are a number of lead paint removal no and low cost loans available. MassHousing, for example, has a “Get the Lead Out” Lead Paint Removal loan program for income eligible owners or tenants.

In addition, Massachusetts has a tax credit of up to $1,500 for each unit deleaded.

If an agent has a buyer purchasing a home built before 1978, should the agent request lead removal be done before the closing or after the closing?
If making these strategic decisions, we recommend that you consult a real estate attorney in order to be in full compliance with lead paint laws.

At closing, should Sellers sign the form in the closing package that says the Seller agrees to remove all known lead paint?
The form typically contained in most lender closing packages states that the Buyer agrees to indemnify and hold the lender harmless in the event of any non-compliance with lead paint laws.

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Richard Vetstein and Marc Canner are Massachusetts real estate attorneys. Rich can be reached at rvetstein@vetsteinlawgroup.com and Marc at mcanner@cannerlaw.com

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CFPB.pngCFPB Issues Long Awaited “Know Before You Owe” Mortgage Disclosures, Replacing Truth in Lending, Good Faith Estimate, and HUD-1 Settlement Statement

As part of a continuing overhaul of the home mortgage market, the Consumer Financial Protection Bureau today issued a final rule to bolster fairness and clarity in residential lending, including requiring a new good faith estimate of costs for homebuyers, Truth in Lending disclosure and a new HUD-1 Settlement Statement.

The new Loan Estimate will replace the current Good Faith Estimate (GFE) and the current Truth in Lending Disclosure (TIL). The new Closing Disclosure will replace the current HUD-1 Settlement Statement. The new forms are embedded below.

The real estate industry will have 20 months to implement the new disclosures, by August 1, 2015. The CFPB website has a summary of the new rules and disclosures here.

Initial Impressions, Did The CFPB Finally Get It Right?

Overall, I would say that the forms are a major improvement over the existing disclosures, especially the Truth in Lending disclosure. I always joke that the Truth in Lending disclosure should be called “Confusion in Lending” (which usually gives the borrower a chuckle) as it’s nearly impossible to explain even for a trained attorney and sophisticated borrower. That may be rectified now with the new forms — although I still may employ the joke!

The new HUD-1 Closing Disclosure is a longer and more involved form, but it basically just reorganizes all of the information now contained in the current 3 page HUD-1 Settlement Statement, and it appears to be easier to read and explain at the closing table.

The CFPB says that the new forms will replace the existing forms, resulting in a decrease in pages to review — which is a minor miracle in and of itself. A common complaint from borrowers is the sheer number of forms and disclosures signed at the closing, so this is welcome news.

3 Business Day Rule May Be Problematic

As Bernie Winne of the Massachusetts Firefighters Credit Union testified at the announcement hearing today in Boston, the new requirement that the Closing Disclosure (new HUD-1) be provided to the borrower within 3 business days of the closing may pose a problem in some transactions and will certainly result in a major adjustment in current practices. There are often last minute changes in closing figures, seller credits, holdbacks, payoffs, etc., which result in last minute changes. Hopefully, the CFPB will realize this in the upcoming implementation period and relax the rules in certain circumstances. There has already been significant chatter on Twitter and the blogosphere about this new requirement.

Another encouraging note was CFPB Director Cordray’s comments today about the agency pushing for more electronic closings. Fannie Mae has done squat to push e-closings, so hopefully CFPB will take the lead in this important area!

Loan Estimate Disclosure

  • The new Loan Estimate will combine the disclosures currently provided in the Good Faith Estimate and the initial Truth in Lending statement.
  • Lenders must provide the Loan Estimate 3 business days after an application is submitted by a consumer, excluding days that the lender is not open (e.g., Saturdays).  However, it is not clear based from materials available thus far when a consumer has submitted sufficient information to constitute an “application.”
  • The Loan Estimate will conveniently provide for the monthly principal and interest payment, projected payments over the term of the loan, estimated taxes and insurance (escrows), estimated closing costs, and cash to close.
  • It will provide for a Rate Lock deadline.
  • The Annual Percentage Rate (APR) appears on page 3, despite requests by consumer advocates that it appear in a prominent location on the first page.  In addition, it appears that the Bureau did not adopt the proposal to revise the APR calculation to include more items in the finance charge and thereby potentially increase the number of loans that would fail the Qualified Mortgage’s points-and-fees test or would be treated as “high cost” or “higher priced.”

Closing Disclosure

  • The Closing Disclosure will combine the disclosures currently provided in the HUD-1 settlement statement and any revised Truth in Lending statement. It is now a 5 page document compared to the current 3 page document.
  • Critically, the Closing Disclosure must be provided at least 3 business days before the closing. Lenders and closing attorneys will have to adapt to this new requirement as currently we usually get the final HUD approved by the lender 24-48 hours before the closing.
  • Page 1 of the Closing Disclosure carries over much of the Truth in Lending information previously found in the TIL form.
  • Page 2 and 3 replicate the existing HUD-1 Settlement Statement (pages 1 and 2) outlining the fees and closing costs, adjustments, and commissions charged to the buyer and seller. It also contained a more extensive section on Cash to Close which will be helpful to explain.
  • Page 4 contains a nice easy-to-read section on the escrow account which is often challenging to explain to borrowers.
  • The last page is similar to the current page 3 of the HUD-1, providing a quick summary of the loan terms, interest rate, total payments and APR.

CFPB Loan Estimate

CFPB Closing Disclosure

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CFPB.png

Updated 11/20/13: CFPB Issues Final Mortgage Rules and Disclosure Forms (click here for more info)

A long awaited regulatory and compliance announcement may be coming to Boston next week.

The Consumer Financial Protection Bureau has announced that on November 20, 2013, it will hold a field hearing in Boston on the “Know Before You Owe: Mortgages” rules. Industry experts predict that CFPB will announce its long-awaited new Truth In Lending (TILA)-RESPA integrated disclosures final rule and forms.

The new rules and disclosures will result in another dramatic change in the Truth in Lending, Good Faith Estimate and HUD-1 Settlement Statement used by lenders and attorneys in residential purchase and refinance transactions. A new “Loan Estimate” would replace the current Good Faith Estimate (GFE) and the current Truth in Lending Disclosure (TIL). A new Closing Disclosure would replace the current HUD-1 Settlement Statement. Our prior post on the new closing disclosures can be found here.

The event will feature remarks by CFPB Director Cordray and testimony from consumer groups, industry representatives, and members of the public. The event will be held at the Back Bay Grand, Back Bay Events Center, 180 Berkeley Street, Boston, MA 02116. If I’m lucky enough to get an invite, I will be there and will report back on what happens.

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Real-Estate-AgentsReviewing this blog, it occurred to me that I’ve never written about real estate agency and designations, which is one of the more confusing aspects of real estate law. I think all the new disclosures and regulations imposed by the Board of Real Estate, while well-intended, have made this area unnecessarily complicated. I’ll try to explain agency in plain English.

Massachusetts Mandatory Licensee Consumer Relationship Disclosure

The Massachusetts real estate brokerage industry is highly regulated by both state law and regulations, as well as local and national codes of ethics. Under state regulation, once you sit down with a Massachusetts real estate agent to discuss a specific property, the agent should give you a form called the Massachusetts Mandatory Licensee Consumer Relationship Disclosure. The disclosure form describes the five types of agency relationships between and among buyer, seller, and agent:

Seller’s Agent – This is typically known as a listing agent. The real estate agent represents only the seller, not the buyer. The listing agent owes the seller undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality and accountability. However, a listing agent must disclose all known material defects in the real estate to buyers.

Open Houses:  Open houses are often the cause of disputes as to agency and commissions. Under Mass. regulations, at any open house the listing agent must conspicuously post and/or provide written materials explaining to attendees the relationship they may have with the agent conducting the open house. If a buyer is working with an agent (but the agent is not present at the open house) it’s a good idea to write the name of the agent’s name and leave the agent’s card at the sign-in, otherwise the listing agent could be considered the procuring cause of the buyer which could cause a dispute down the road.

Buyer’s Agent – A buyer’s agent works for the buyer only. The agent owes the buyer undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality and accountability. Like a listing agent, a buyer’s agent must disclose any known material defects in the real estate. Some agents are exclusive buyer agent’s and do not take on listings. An advantage of using a buyer’s agent is that you can be assured the agent will work only for you, the buyer, and will have no relationship with the listing agent’s office, as is common with designated and dual agencies described below.

Designated Seller’s and Buyer’s Agent – This type of agency occurs when a listing agent refers an agent working in the same office to represent the buyer. So, two agents in the same office are representing both sides of the transaction. The happens a lot when an unrepresented buyer is introduced to the property at an open house, and the listing agent will refer the buyers to a fellow agent in her office. This is usually the smart and prudent choice to avoid the conflicts inherent in being a dual agent representing both buyer and seller, discussed below. Both buyer or seller must agree to a designated agent agency in writing. The designated agent owes her client the same duties and obligations discussed above.

Dual Agent – A dual agent represents both sides of the transaction — buyer and seller –but can be a risky proposition. The upside for the agent is that he or she keeps the entire commission, but the agency can be fraught with potential conflicts of interest. Dual agency is allowed only with the express and informed consent of both the seller and the buyer. Written consent to dual agency must be obtained by the real estate agent prior to the execution of an offer to purchase a specific property. A dual agent shall be neutral with regard to any conflicting interest of the seller and buyer.

Non-Agent Facilitator – This is the rarest of all agencies. When a real estate agent works as a facilitator that agent assists the seller and buyer in reaching an agreement but does not represent either the seller or buyer in the transaction.

What is a “broker” vs. a “salesperson”?  Under the Massachusetts regulations governing real estate agents, a real estate broker runs the real estate office and is the broker of record, overseeing the transactions of all salespersons (agents). A broker must complete 40 additional hours of education and must work for a broker for at least three (3) years before they can move on to licensure as brokers. A broker is responsible for accepting and escrowing all funds, such as a deposit placed on the purchase of a home, and for finalizing transactions. A real estate broker must supervise any transactions conducted by a salesperson. Every local real estate office, even the large ones like RE/MAX, Century 21 and Coldwell-Banker, will have a broker/office manager in charge of the office. The small, independent real estate offices are typically operated by a single broker, with perhaps a handful of salespeople.

real estate salesperson is what most folks consider real estate agents. When a person first passes their real estate exam, they become a “salesperson.” A salesperson must be affiliated with, and work under, a broker, either as an employee or as an independent contractor, under the supervision of the broker. A salesperson can not operate his own real estate business. A salesperson also has no authority or control over escrow funds.

What Is A Realtor®? A Realtor is a real estate broker or salesperson who is a member of the National Association of Realtors and has agreed to conduct herself under the comprehensive NAR Code of Ethics. Not all real estate agents are Realtors. Membership in the NAR gives a Realtor full access to the entire Multiple Listing Service providing a national database of all sold and listed properties. Realtors can also file complaints against each other and the organization accepts complaints from consumers. Complaints can affect membership status and fines can be levied against agents who are found guilty of wrongdoing by a multi-member panel of their peers. The NAR does not have the ability to suspend a real estate licenses–that action can only be accomplished by the Mass. Board of Real Estate.

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RDV-profile-picture.jpgRichard D. Vetstein, Esq. is a Massachusetts real estate attorney with over 15 years of experience. If you have any questions regarding real estate agency, please contact him at rvetstein@vetsteinlawgroup.com or 508-620-5352.

Massachusetts Mandatory Licensee Consumer Relationship Disclosure

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HomeTheatreI had a interesting situation come up the other day during a pre-closing walk-through. Unbeknownst to me or the listing agent, the seller had removed wall-mounted speakers from the living room, leaving gaping holes with the built-in surround sound speaker wires hanging out. Needless to say, the buyers were not happy after the walk through. While we were able to amicably resolve the issue at the closing table, it underscored an important, but often overlooked, aspect of the sale process: how to best handle fixtures and built-in items.

What’s A Fixture vs. Removable Personal Property?

From a legal standpoint, when equipment, decorations, or appliances become affixed or fastened to the real estate, it becomes a fixture and is supposed to be transferred as part of the sale, unless there is an agreement providing otherwise. What are some of the factors determining whether something is a fixture?

Method of attachment. Is the item permanently affixed to the wall, ceiling or flooring by using nails, glue, cement, pipes, or screws? Even if you can easily remove it, the method used to attach it might make it a fixture. Examples include built-in surround sound wiring, lighting fixtures, built-in speakers into the wall, custom built-in cabinetry.

Adaptability. If the item becomes an integral part of the home, it cannot be removed. For example, a floating laminate floor is a fixture, even though it is snapped together. Built-in appliances are properly considered fixtures, especially custom items. That includes your Sub Zero refrigerator and Viking Range/Oven specially selected for the gourmet kitchen. Free standing appliances, however, are generally not considered fixtures.

There are, of course, plenty of gray areas with fixtures. Wall mounted flat screen TV’s, surround sound speaker systems, and decorative mirrors are a few coming to mind. These gray areas are the cause of most disputes surrounding fixtures. How do you handle them? Keep reading.

Disclose All Exclusions/Inclusions In Listing

The opportunity to address fixtures, inclusions and exclusions starts when the home is listed. As suggested by Sudbury, Mass. Realtor, Gabrielle Daniels, agents should identify all potential fixture issues ahead of time, and disclose them on MLS either as included or excluded in the sale. If the sellers want to take that new Bosch dishwasher with them to their new home, they had better disclose it ahead of time so the buyer knows ahead of time.

Carry Over To The Offer and Purchase & Sale Agreement

Referring to this as the “no-surprise” rule, Metrowest Realtor Jennifer Juliano correctly advises that the same exclusions and inclusions in MLS should be carried over and written into the Offer to Purchase with a reference to the MLS Listing Number, and the purchase and sale agreement. The standard form purchase and sale agreement addresses inclusions and exclusions with even greater detail, tracking the law of fixtures in Massachusetts. Below is the standard language in the Greater Boston Real Estate Board form:

Included in the sale as part of said premises are the buildings, structures, and improvements now thereon, and the fixtures belonging to the SELLER and used in connection therewith, including, if any, all wall-to-wall carpeting, drapery rods, automatic garage doors openers, venetian blinds, window shades, screens, screen doors, storm windows and doors, awnings, shutters, furnaces, heaters, heating equipment, stoves, ranges, oil and gas burners and fixtures appurtenant thereto, hot water heaters, plumbing and bathroom fixtures, garbage disposals, electric and other lighting fixtures, mantels, outside television antennas, fences, gates, trees, shrubs, plants, and ONLY IF BUILT IN, refridgerators, air conditioning equipment, ventilators, dishwashers, washing machines and dryer; and but excluding _______.

As you can see, the standard language provides by default that most commonly understood fixtures are part of the sale, such as furnaces, carpeting, and lighting fixtures. Exclusions must be written into the agreement, or by default they may be considered fixtures and included in the sale.

If items are left unaddressed in the agreements, you’ll have a situation similar to mine with the removal of surround sound speakers and a stressful walk-through. Feel free to post in the comments about your own thorny fixture situation!

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100316_photo_vetstein (2)-1Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. He can be reached by phone at 508-620-5352 or email at rvetstein@vetsteinlawgroup.com.

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7076759_ac0f_625x1000Do Your Due Diligence!

Condominiums remain hot in the Greater Boston area, often the new starter home for the young professional buyer. I am also seeing quite a lot of two and three family homes in the Boston, Cambridge, and Somerville area being converted into condominiums. While condos are usually a great investment, buying one requires some unique due diligence. You must be satisfied that the condominium project as a whole is financially healthy and that you are not buying into a major “money pit.”

The role of the buyer’s attorney in a condominium purchase is to review the condominium documents including the master deed, declaration of trust/by-laws, budget and meeting minutes, if any. The documents, however, only tell so much of the story. What’s really important is what may be lurking behind those documents. Here are some good questions to ask:

  1. How much money is in the capital reserve account and how much is funded annually? The capital reserve fund is like an insurance policy for the inevitable capital repairs every building requires. As a general rule, the fund should contain at least 10% of the annual revenue budget, and in the case of older projects, even more. If the capital reserve account is poorly funded, there is a higher risk of a special assessment.  Get a copy of the last 2 years budget, the current reserve account funding level and any capital reserve study.
  2. Are there any contemplated or pending special assessments? Special assessments are one time fees for capital improvements payable by every unit owner. Some special assessments can run in the thousands. Others, like theBoston Harbor Towers $75 Million renovation project, in the millions. You need to be aware if you are buying a special assessment along with your unit.  It’s a good idea to ask for the last 2 years of condominium meeting minutes to check what’s been going on with the condomininium.
  3. Is there a professional management company or is the association self-managed? Usually, a professional management company, while an added cost, can add great value to a condominium with well run governance and management of common areas. Self-managed condos tend to have a higher incidence of dysfunction.
  4. Is the condominium involved in any pending legal actions? Legal disputes between owners, with developers or with the association can signal trouble and a poorly run organization. Ask whether there are any pending lawsuits.

Purchase and Sale Agreement Tips

Regardless of the answers you receive, my practice is to insert a comprehensive condominium verification provision in the purchase and sale agreement. This will make the seller go on the record as to some important aspects of the condominium financial’s health and should go a long way to ensure that the buyer is not stepping into a huge special assessment or other major financial catastrophe. If issues arise prior to the closing, this provision will give the buyer an “out” to terminate the deal and return the deposits.

Condominium Verification Information.  The Seller represents that, to the best of his/her knowledge, the following information is true and accurate as of the date of this Agreement  and shall remain true as of the date of closing:

    1. The condominium documents provided to the Buyer and/or available for downloading on the ____ County Registry of Deeds are true, accurate and complete copies of all documents recorded with the Registry of Deeds as of the date hereof and that no other documents and/or amendments which adversely impact the Unit being purchased will be recorded which have not been presented to the Buyer.
    2. The current condominium monthly fees are $_____ per month.
    3. Seller has not received any notice of nor is Seller aware of any special assessments for the Unit, whether or not assessments are due now or in the future, and Seller is aware of no immediate pending improvements, repairs or replacements or plans therefore which would likely result in a supplemental assessment or significant increase in the monthly common expenses for the Unit.
    4. In the event there are any supplemental assessments owed with respect to the Unit on the closing date, Seller shall be obligated to pay such assessments in full prior to closing notwithstanding any agreement by the organization of unit owners to allow such payments to be made in installments but only to the extend Seller’s lender agrees to allow said payment on the HUD-1 Settlement Statement. Otherwise, Buyer may either agree to accept the obligation to pay said assessment or terminate the agreement by written notice to Seller within 5 days of receipt of notice of said assessment.
    5. The master insurance policy for the unit conforms with the requirements of the Condominium Documents.
    6. There is presently no litigation threatened or pending by or against the Seller, or the Condominium Association, which would cause the Condominium to not be in compliance with current secondary mortgage market guidelines.

The Seller shall promptly notify the Buyer of any change in facts which arise prior to the closing which would make any such representation untrue if such state of facts had existed on the date of execution of this Agreement.  The provisions of this paragraph shall survive delivery of the deed.

If you have any questions about purchasing a Massachusetts condominium unit, please contact me at rvetstein@vetsteinlawgroup.com.

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Massachusetts real estate closing attorneyExpands Realtors’ Disclosure Liability and Invalidates Exculpatory Clause In Standard Form Purchase and Sale Agreement

It’s been a very tough week for Boston, to say the least. (Please consider donating to the One Boston Fund over here —>).

Unfortunately I have some more bad news for Massachusetts real estate agents, as the Supreme Judicial Court recently ruled against a Realtor for failing to properly verify a representation made on MLS concerning a listing’s zoning classification. The closely watched case is DeWolfe v. Hingham Centre Ltd. (SJC-11168) (embedded below).

Zoned For Business or Residential?

The lawsuit was brought by a buyer of a hair salon business who relied upon what turned out to be erroneous information supplied by the listing agent (through information provided by the seller). The broker represented on the Multiple Listing Service (MLS) and newspaper advertising that the property was zoning “Business B,” which allowed a hair salon. Further, the broker placed at the property copies of pages from the town’s zoning by-law that listed hair salons as “Permitted Business Uses” in the Business B District. The property was not, in fact, zoned for business use; it was zoned residential, thereby prohibiting the hair salon the buyer wanted to open at the property. The buyer sued for misrepresentation and violations of the Consumer Protection Act, Chapter 93A.

Ruling: Realtors Have Duty to Exercise “Reasonable Care” In Making Zoning Representations

In an unanimous opinion by Justice Barbara Lenk, the SJC stated that while a real estate broker may ordinarily rely upon information provided by his client, where such reliance is unreasonable in the circumstances, an agent has a duty to independently investigate the information before conveying it to a prospective buyer.

The court ultimately held that all Massachusetts real estate agents have a duty to exercise reasonable care in making representations as to a property’s zoning designation.

Here, the owner testified that he told the real estate broker that the property was zoned “Residential Business B.”  The experienced broker apparently knew that there was no such zoning district in Norwell, and instead advertised the property as zoned “Business B.”  In addition, the broker was aware of no prior business use of the property, and had observed houses – not businesses – adjoining the property on either side.  Based on these facts, the SJC concluded that a jury could find that the broker was on notice that the information provided by the owner was unreliable, and acted unreasonably in representing the property as zoned “Business B” without conducting any further investigation.

Exculpatory Clause in Standard Form P&S Not Applicable

The SJC also rejected the broker’s argument that the exculpatory clause in the standard form purchase and sale agreement barred the buyer’s claims. The familiar contract language provides:

The BUYER acknowledges that the BUYER has not been influenced to enter into this transaction nor has he relied upon any warranties or representations not set forth or incorporated in this agreement or previously made in writing, except for the following additional warranties and representations, if any, made by either the SELLER or the Broker(s): NONE.

The justices held that, under the confusing, double-negative language quoted above, a buyer can rely on prior written representations that are not set forth or incorporated in the agreement. Therefore, the agreement did not protect the broker from liability arising from the written misrepresentations in the newspaper ad, the MLS listing, and the inapplicable zoning by-law placed at the property.

The SJC has sent the case back to the trial court for a possible jury trial or, most likely, towards settlement. And hopefully the Greater Boston Real Estate Board is re-drafting its poorly worded exculpatory clause.

Advice For Realtors Going Forward

  • Do NOT say or write anything on MLS or anywhere else concerning a property’s zoning status. Make the buyer conduct his/her own independent research.
  • If your MLS requires input of zoning status, put the zoning with the following disclaimer:  *subject to buyer verification
  • Never trust your client when it comes to information concerning the property. I hate to say this, but when it comes to disclosures, it’s true.
  • Always independently verify information about the property from available public sources. Here, the agent could have simply gone down to the town planning office to verify whether the property was zoned commercial or residential.

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RDV-profile-picture-larger-150x150.jpgRichard D. Vetstein, Esq. is a Massachusetts attorney with substantial experience in real estate disclosure litigation brought by buyers against Realtors. Please contact him at info@vetsteinlawgroup.com or 508-620-5352.

 

Dewolfe v. Hingham Center

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septic_systemMassachusetts Title V Septic Regulations Frequently Asked Questions (FAQ)

About 1/3rd of all homes in Massachusetts are dependent upon septic systems, rather than municipal sewer. These include some of the toniest Metrowest suburbs from Wayland, Sudbury, Weston, and Hopkinton all the way down the Cape.

While the month of April brings the start of the busy spring real estate market, it also brings thawing of the permafrost, snow and lots of rain — conditions which can wreck havoc with older septic systems and their leaching fields. Most buyers and their Realtors recoil at the words “Title V” and “fail” and for good reason. The cost to replace a failed septic system can be exorbitant, running upwards of $50,000 in some cases.

Massachusetts septic systems, also called subsurface sewage disposal systems, are governed by Title V or Title 5 of the Massachusetts Environmental Code administered by the Massachusetts Department of Environmental Protection (DEP). These complex regulations govern the inspection, design, construction and operation of septic systems. The rules affect as many as 650,000 Massachusetts homeowners with septic systems. Here are some frequently asked questions and answers on Title 5 septic regulations.

My home has a septic system. Do I need to have it inspected before I sell?

If you are selling your home, you cannot close without a passing Title V inspection of your septic system, completed by an inspector who is licensed by the state and your town. A Title V Inspection is good for 2 years. However, the inspection will be valid for 3 years if you have documented septic pumping service each year on or before the anniversary date of your septic system inspection. A list of licensed inspectors is available at your local Board of Health office. Here is a list of Board of Health Departments for Massachusetts.

The inspector will determine whether your system “passes,” “fails” or “conditionally passes” (i.e., requires repairs).

What is a conditional pass?

A conditional pass means that your system will pass if a certain condition is met. A repair or replacement of the distribution box is the most common condition that needs to be met. The inspector would write up his official Title V report with the conditional pass notes outlining the needed replacement of the distribution box. Once the repair is done, your Board of Health will issue a Certificate of Compliance which will be accepted as a passing Title V at closing.

My septic system failed. What do I do now?

If the inspection fails, your septic system must be repaired or replaced. If ownership of the house is not being changed, the homeowner may have up to two years to complete the repair. However, if the Health Agent deems the failure to be a health hazard, the homeowner can be required to begin the process of repairing it immediately.

Failed septic systems can be handled in a real estate sales transaction in two ways. First, the seller can undertake the work and complete it prior to closing, with a full sign off from the Board of Health. This is often the preferable course for all parties and the lender. Alternatively, the parties can agree to an escrow holdback to cover the cost of the septic repair plus a contingency reserve, and the work is undertaken after the closing. Some lenders don’t allow septic holdbacks, however.

What are the steps and permitting fees to install a new septic system?

The first step in beginning a septic repair is to hire an engineer to evaluate your land and to design a system that would be appropriate for your property. Once the engineer is hired, a percolation or “perc” test is scheduled. The perc test measures the rate at which water is absorbed into the ground and determines whether the soil is suitable for a septic system. Based on the results of the perc test, the size of your lot, and the number of bedrooms in your home, the engineer designs a septic system to serve the property. Once the plans have been drawn, four copies of the plans, two copies of the soil analysis, and a check for $175.00 must be submitted to the Board of Health office. The BOH has 45 days to review the plans and to either approve or reject them. If the plans are approved, the plans can be picked up and the installation of the system can begin. If the plans are rejected, the plans must be revised and an additional fee of $75.00 is charged to have them reviewed again. If the designed system requires state variances (done by the Department of Environmental Protection), an additional 90 days must be allotted for the review process.

When the job is completed is there any form of certification that it has been done and that it meets Title V standards?

At the completion of the job, (that is, when all work has been done according to the plans; when the engineer has submitted an “as-built” plan as to where the system was installed; and when the installer has submitted a certification statement), the Health Agent signs a Certificate of Compliance, (COC), which is issued to the installer. Upon payment for the work, the installer gives the COC to the homeowner.

How long does the process for repairing a septic system take, from beginning to end?

A homeowner should allow approximately 3 to 4 months for the installation of a septic system. The length of time can vary from system to system. There are a number of variables involved. The availability of the Health Agent to witness a “perc “ test is one. Because of the amount of work that has to be completed, engineers and installers are often busy for months in advance. In addition, if the designed system requires either local or state variances, time must be allotted for public / variance hearings. A system that is installed in less than 2 months (from start to finish) is the exception to the rule.

What is an average cost for the system?

New septic systems can range from $25,000 to $50,000. The type of system designed, the size of the lot, the number of bedrooms, the engineering fees, the requested variances, the type of soil, and the proximity of the system to water, all contribute to the cost of the system.

If I am required to replace my failed system and I do not have the money, what do I do?

Homeowners who cannot afford to repair their failed septic systems made apply for financial aid with the Massachusetts Home Septic Loan Program. Here is the MassHousing Web site. Here is the PDF for the Homeowner Septic Loan Repair program. Applications for this program are available at most local banking institutions. The loans are low interest and repayable over an extended period of time.

The state also provides a tax credit of up to $6,000 over 4 years to defray the cost of septic repairs to a primary residence. Forms are available from the Department of Revenue (DOR) to allow homeowners to claim up to $6,000 in tax credits for septic upgrades. The credit cannot exceed $1,500 in any year and may be spread out over 4 years. The tax credit is limited to work done on a primary residence only. Tax Form Schedule SC is the correct form for the tax credits. MassDOR Web site

I have a cesspool. Will that pass Title V?

You may be wondering how this all applies to cesspools. Cesspools are much harder to pass in Massachusetts. Does every single one automatically fail? No.

Only those cesspools that exhibit signs of hydraulic failure, are located very close to private or public water supplies, or otherwise do not protect or pose a threat to the public health, safety or the environment will need to be upgraded. Also, cesspools must be upgraded prior to an increase in design flow (e.g., the addition of a bedroom to a home.

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Richard D. Vetstein is a Massachusetts real estate attorney who helps people buy, sell and finance residential real estate. He can be reached via email at info@vetsteinlawgroup.com or by phone at 508-620-5352.

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Largest Lead Paint Penalty On Record for Attorney General Coakley

Landlords with lead paint beware…enforcement of the state’s strict Lead Paint Law remains a priority for Attorney General Coakley’s office. The AG just hit a Boston area property owner with the largest fine on record — $75,000 — and ordered him to de-lead his rental units, resolving allegations that he engaged in a pattern of unlawful and retaliatory practices against tenants with young children in order to avoid his obligation to comply with state lead paint laws. The AG’s press release can be read here.

The offending landlord is Keith L. Miller, of Newton, who at the time owned and managed at least 24 residential rental units in Chelsea, Newton, Arlington, and Brighton. This is the largest fair housing settlement with a landlord that has been reached under AG Coakley.

The Massachusetts Lead Paint Law, one of the strictest in the U.S., imposes a mandatory obligation to de-lead if there is a child under 6 residing in the rental premises. A property owner or real estate agent cannot get around the law simply by refusing to rent to families with young children. They also cannot refuse to renew the lease of a pregnant woman or a family with young children just because a property may contain lead hazards. And property owners cannot refuse to rent simply because they do not want to spend the money to de-lead the property. Any of these acts is a violation of the Lead Law, the Consumer Protection Act, and various Massachusetts anti-discrimination statutes that can have serious penalties for a property owner or real estate agent.

The state has several lead paint financial assistance programs to help landlords pay for de-leading costs which can be quite expensive.

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redfin-logo-tag-webControversial New Internet Practice Raises Confidentiality Concerns & Realtor® Scorn

The internet based real estate brokerage company, Redfin, is now arming buyers and sellers with insight into the negotiations that take place when the firm’s clients submit winning — and losing — offers to buy a home. On its heavily trafficked website, the Seattle-based brokerage is now displaying “Offer Insights” detailing intimate details of negotiations surrounding offers that Redfin agents submit on listings. Redfin claims that buyers can opt out of the program, and no addresses are revealed before closing. (But, addresses are shown for sold properties).

Here is an example for two properties in Quincy, one where an offer was accepted and one where it was rejected:

redfin offer insights copy

Confidentiality & Ethical Concerns?

From a strategic and marketing perspective, this new idea is certainly creative, as it gives Redfin agents and their potential clients a competitive advantage over other agents and aids in providing transparency in the marketplace. However, posting details about private contractual negotiations raises some thorny legal and ethical concerns, and many non-Redfin listing agents are crying foul.

Some Realtors assert that the details of offer negotiations are private and confidential, and therefore, cannot be disclosed without the consent of all parties to the transaction, especially the seller. I don’t necessarily buy into that. I’m not aware of any legal confidentiality protection given to private contract negotiations — indeed they are 100% discoverable in litigation, at least in Massachusetts. A buyer and seller are in an adversarial position, so there is no special legal relationship between them warranting a duty to keep negotiations private.

I can see why a seller would be very upset to find out that the juicy details of negotiations are posted on the internet for the world to see. A seller may certainly want to know this before entertaining a Redfin offer. Moreover, a seller (and a creative attorney) could manufacture a tortious interference claim if a Redfin Offer Insight proves to interfere with a potential deal with another party. That’s a lawsuit for another day…

MLS Rules and NAR Code of Ethics

Some Realtors say that the Redfin practice violates Multiple Listing Service rules and the NAR Code of Ethics. Multiple listing services have rules for commenting on sites which contain MLS information. A seller may instruct her listing agent to disallow public comments on listings. A Redfin buyer’s agent could be in violation of MLS rules if he leaves remarks about the house or negotiation, according to some non-Redfin agents. It will be up to the particular MLS to enforce its own rules against agents; they have no legal effect per se.

The National Association of Realtors Code of Ethics prohibits Realtors from using confidential information of clients for the Realtor’s advantage or the advantage of third parties unless the clients consent after full disclosure. The catch is that “confidential information” is defined as whatever state law says is confidential.  As I said earlier, private contract negotiations are not legally confidential in Mass., so I’m doubtful this would apply.

In sum, the Redfin Offer Insight feature may well be legal, but tight-walks through the ethical rules governing MLS’s and Realtors. As long as they don’t disclose names or property addresses until the deal closes, I think it’s ok legally (in Massachusetts), and I do appreciate giving buyers as much market information as possible. On the flip side, it may put non-Redfin listing agents at a competitive disadvantage. Maybe that’s why they are crying foul?

Agents, what are your thoughts? Post your comments below.

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RDV-profile-picture-larger-150x150.jpgRichard D. Vetstein, Esq. is a nationally recognized real estate attorney who writes frequently about legal issues facing the real estate industry. He can be reached at info@vetsteinlawgroup.com.

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2011-20121I always look forward to recapping the year that was, and bringing out the crystal ball to predict the year ahead. This year, like years prior, was an active year for Massachusetts real estate law, with several important court rulings, legislative developments, and emerging legal trends. The year 2013 is expected to be just as busy.

Eaton v. Fannie Mae and Fannie Mae v. Hendricks Foreclosure Rulings

Another year, another pair of huge foreclosure rulings by the Massachusetts Supreme Judicial Court. On June 22, 2012, in Eaton v. Federal Nat’l Mortgage Ass’n, the SJC held that lenders must establish they hold both the promissory note and the mortgage in order to lawfully foreclose. This posed major problem for the vast majority of conventional mortgages which lenders securitized and sold off on the secondary mortgage market, thereby splitting the note and mortgage among various securitized trusts and mortgage servicers. Responding to pleas from the real estate bar, the SJC declined to apply its ruling retroactively, thereby averting the Apocalyptic scenario where thousands of foreclosure titles would have been called into question. My prior post on the Eaton ruling can be read here.

The FNMA v. Hendricks case had the potential to change Massachusetts foreclosure practice, but the SJC rejected the challenge. The court upheld the validity of the long-standing Massachusetts statutory form foreclosure affidavit which provided that the foreclosing lender has complied with the foreclosure laws,rejecting the borrower’s claim that the affidavit was essentially robo-signed.

New Medical Marijuana Law Has Landlords, Municipalities Smoking Mad

Burned up Massachusetts landlords and anti-pot local pols are still fuming with concern over the state’s newly passed but hazy medicinal marijuana law. The law — rolling out Jan. 1 — mandates the opening of at least 35 medicinal marijuana dispensaries, and grants users the right to grow a two-month supply of marijuana at home if they cannot get to a dispensary because they are too sick or too broke. The new law also potentially opens landlords up to federal prosecution for violating the federal controlled substances laws. Many towns and cities are contemplating banning dispensaries or passing zoning by-laws regulating their locations. My prior post on the new marijuana law can be read here.

539wApartment Rental Occupancy Limits

In 2013, the SJC will consider the Worcester College Hill case which will significantly impact landlords renting apartments to students and in other multi-family situations. The question is whether renting to 4 or more unrelated persons in one apartment unit requires a special “lodging house” license which would, in most cases, make it cost-prohibitive to rent to more than 3 unrelated persons. (Lodging houses require a built-in fire sprinkler system, for example). The SJC will hear oral arguments in the case on January 7, 2013.

Foreclosure Prevention Act Passed

On August 3, 2012, Governor Deval Patrick signed the Foreclosure Prevention Act. The new law requires that lenders offer loan modifications on certain mortgage loans before foreclosing. Unfortunately, the law did not fix the problem with existing title defects resulting from the U.S. Bank v. Ibanez case in 2010. (Sen. Moore’s office plans to re-introduce Senate Bill 830 in 2013). My prior post on the new law can be read here.

SJC To Consider Realtor’s Liability for Erroneous MLS Info

Sometime in 2013, the SJC will issue a very important opinion in the controversial DeWolfe v. Hingham Centre Ltd. disclosure case where a Realtor was held liable for failing to verify the zoning of a listing on the Multiple Listing Service. The Court will also consider whether the exculpatory clause found in the Greater Boston Real Estate Board’s standard form purchase and sale agreement legally prohibits a buyer’s misrepresentation claim against the real estate agent. The Massachusetts Association of Realtors and the Greater Boston Real Estate Board have filed friend of the court briefs urging the SJC to limit Realtors’ disclosure obligations in the case. My prior post on the case can be read here.

Good Faith Estimate, TIL, and HUD-1 Settlement Statement To Change Dramatically

In the second major overhaul of closing disclosures in three years, the Consumer Financial Protection Bureau will be rolling out in 2013 a new “Lending Estimate” and “Closing Estimate” which will replace the current Good Faith Estimate, Truth in Lending Disclosure, and HUD-1 Settlement Statement. The changes are part of the Dodd-Frank Act, and has the lending and title insurance industries scrambling to figure out who should be ultimately responsible for the accuracy of closing fees and other logistics in delivering these new disclosures. My prior posts on the topic can be read here.

mw_1011_FISCAL_CLIFF_620x350Fiscal Cliff Anxiety Syndrome

The Year In Review would not be complete without mention of the dreaded Fiscal Cliff. As of this writing, President Obama and the House (which even rejected its own Speaker Boehner’s last proposal) have been unable to work out a deal to resolve the more than $500 billion in tax increases and across-the-board spending cuts scheduled to take effect after Jan. 1, 2013. If there is no deal, and the country goes over the fiscal cliff, the consensus is that it will have quite a negative effect on the economy and the real estate market in particular.

Upcoming Event! On January 8, 2013, we are sponsoring a breakfast seminar with veteran real estate journalist Scott Van Voorhis, who will offer his predictions on 2013. Please email me to sign up. The Facebook Event invitation is here. The venue is Avita in Needham, 880 Greendale Ave., Needham, MA.

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Richard D. Vetstein is an experienced Massachusetts real estate attorney who hopes the White House and Congress can get their acts together and pass a compromise bill to avoid the Fiscal Cliff.

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Mandatory 3 Business Day Waiting Period Will Delay Closings

Action Needed: Comment On Proposed Rule

While our attention has been diverted from more important issues such as Hurricane Sandy and the election, please be advised that November 6, 2012 is the last day for lenders, settlement agents, Realtors and the public to comment on the controversial new combined Truth and Lending/HUD-1 Disclosure rules proposed by the new Consumer Financial Protection Bureau (CFPB). For those who don’t know, the CFPB has proposed a major overhaul to closing disclosures, combining the Truth In Lending and the HUD-1 Settlement Statement into a single 5 page disclosure form.

Of paramount concern to the real estate community is the proposed Three Business Day Rule, which would require that lenders provide the final Closing Disclosure (the new HUD-1) at least 3 business days prior to the closing. The major problem with this rule is that if there are changes in settlement and closing figures between the time of disclosure and the closing, the consumer must be provided a new form, and the closing must be delayed for at least 3 business days. ((There is an exception for adjustments between buyer and seller, such as a repair credit and for items under $100.))

In today’s lending environment, last minute changes to settlement numbers are common, and given the crush of underwriting tasks, final closing figures are typically provided 24-48 hours prior to the closing, or even the day of closing. Moreover, there are often delays getting information from outside sources — real estate tax information from municipalities, insurance information from independent agents, final water/sewer readings, oil bills and 6d condo fees from Realtors, and payoffs from sellers — all of which are out of the control of the lender and the closing attorney.

If there are last minute changes to settlement numbers, the proposed rule will delay closings for at least 3 business days, which could be catastrophic. This will have an unintended ripple effect on both the borrower and other parties, especially where the borrower is doing a “sell-buy” on the same day.

The CFPB is out of touch with the real estate industry on this rule. Indeed, at a recent symposium on the new rules, the CFPB’s new general counsel was reported as being very surprised that last-minute changes in settlement figures were relatively common. Delaying closings for 3 business days through delays of no fault of the lender or settlement agent hurts all the parties to the transaction. The rule is regulatory overkill.

CLICK THIS LINK TO COMMENT ON THE NEW CFPB RULE (CLICK SUBMIT A FORMAL COMMENT)

Tell the CFPB that the 3 Business Day Rule is a bad idea, and give anecdotal stories about how delays in closings will affect your business. And please share this post with fellow lenders, mortgage bankers, closing attorneys and Realtors.

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Richard D. Vetstein, Esq. is a Massachusetts real estate attorney with offices in Framingham and Needham, MA. You can reach him at info@vetsteinlawgroup.com.

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My kids (ages 9 and 6) are really into Halloween this year, convincing me into spending over $100 on laughing tombstones, zombies and other decorations at iParty over the weekend. I love Halloween, and enjoy when people go all out on decorating their homes.

But what if your house is truly haunted? Or you are a broker trying to sell a home which may have a paranormal past, like the scene of a murder of suicide? How can you protect yourself from buying a haunted house?

In Massachusetts there’s a law for that! Seriously….

Under Massachusetts law, real estate brokers and sellers are under no legal obligation to disclose that a property was the site of a felony, suicide or homicide, or has been the site of an alleged “parapsychological or supernatural phenomenon,” i.e., a haunted house.

Here is the law, Massachusetts General Laws Chapter 93, section 114:

The fact or suspicion that real property may be or is psychologically impacted shall not be deemed to be a material fact required to be disclosed in a real estate transaction. “Psychologically impacted” shall mean an impact being the result of facts or suspicions including, but not limited to, the following:

(b) that the real property was the site of a felony, suicide or homicide; and

(c) that the real property has been the site of an alleged parapsychological or supernatural phenomenon.

No cause of action shall arise or be maintained against a seller or lessor of real property or a real estate broker or salesman, by statute or at common law, for failure to disclose to a buyer or tenant that the real property is or was psychologically impacted.


Thus, real estate agents have no legal duty to inform buyers that a house has a paranormal past. (I’m sure some agents would so inform their buyers, but legally buyers are on their own to discover these types of stigmas).

Of course in this digital era, an easy way to determine whether a house is truly “haunted” is to Google the property address and the last few prior owners and see what comes up. If there was a murder or suicide–or even ghosts– it should reveal itself. Of course you can always hire Ghostbusters.

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Richard D. Vetstein, Esq. is a Massachusetts real estate attorney. He is debating between dressing up as Darth Vader or the Pirate Jack Sparrow this Halloween.

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Worcester Diocese Allegedly Pulled Out of Deal Over Possibility Of Gay Marriages at Mansion

James Fairbanks and Alain Beret, married business partners from Sutton, had been searching for the perfect property for nearly two years when they discovered Oakhurst, an aging mansion on 26 beautiful acres in Northbridge. The former retreat center, which was affiliated with the Diocese of Worcester and had been on the market for some time, would be the ideal spot for their next venture: an inn that would host weddings and other big events, as reported by the Boston Globe. When the Diocese of Worcester unexpectedly dropped out of negotiations with them in June, Fairbanks and Beret were shocked — and flummoxed. Then, they say, a church attorney inadvertently forwarded their broker an e-mail from Monsignor Thomas Sullivan, chancellor of the diocese, advising a church broker that he was no longer interested in selling to Fairbanks and Beret “because of a potentiality of gay marriages” there.

Sullivan wrote: “I just went down the hall and discussed it with the bishop.  Because of the potentiality of gay marriages there, something you shared with us yesterday, we are not interested in going forward with these buyers. I think they’re shaky anyway. So, just tell them that we will not accept their revised plan and the diocese is making new plans for the property. You find the language.”

Today, the gay couple filed what could be a landmark lawsuit in Worcester Superior Court against Sullivan, the bishop, the church’s real estate agent, and the nonprofit retreat center, the House of Affirmation, alleging they discriminated against Beret and Fairbanks on the basis of sexual orientation in the course of a real estate negotiation, violating state law. A copy of the Complaint in Fairbanks, et al. v. Roman Catholic Bishop of Worcester, et al. is embedded below.

A spokesperson for the church told the Globe that the church, as a matter of policy, will not sell properties where Masses have been celebrated to people who plan to host same-sex weddings. The church will not sell to developers who plan to transform them into abortion clinics either, he said — or to bars, lounges, or other kinds of uses that church officials deem inappropriate. “We wouldn’t sell our churches and our properties to any of a number of things that would reflect badly on the church,” he said. “These buildings are sacred to the memory of Catholics.”

In an even more ironic twist, the Diocese previously used the mansion for a retreat center for pedophile priests, according to Banker & Tradesman.

Watching this case play out will certainly be very interesting both from a legal and political perspective. Massachusetts — the birthplace of gay marriage — is one of the few states in the country which outlaws housing discrimination based on sexual orientation. One of the questions will be whether the Church is covered under the anti-discrimination law given their historical stance against homosexuals and gay marriage.

Also, as I pointed out to a reporter covering this story, the church could have negotiated a restriction on the future use of the property, which is common for sales involving open space, recreational use and such. It appears that the church did not do this, but instead came up with a pre-textual reason after the fact to support their decision not to proceed with the sale due to the gay marriage issue. We will be monitoring this interesting case!

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Richard D. Vetstein, Esq. is a Massachusetts real estate attorney with offices in Framingham and Needham, Mass. He can be reached at info@vetsteinlawgroup.com.

Complaint | Fairbanks v. Roman Catholic Bishop of Worcester, Mass.

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Concise Disclosures Aimed At Reducing Borrower Confusion and Helping Comparison Shopping

As part of a continuing overhaul of the home mortgage market, the Consumer Financial Protection Bureau on Monday issued proposed rules to bolster fairness and clarity in residential lending, including requiring a new good-faith estimate of costs for homebuyers and a new closing settlement statement.

My understanding is that the new “loan estimate” would replace the current Good Faith Estimate (GFE) and the current Truth in Lending Disclosure (TIL). The new closing disclosure would replace the current HUD-1 Settlement Statement. The new disclosures are open to industry and public comment for 120 days, after which they will be finalized and codified as law. For more details on the new disclosures, go to the CFPB site here.

Here is the new Loan Estimate.

201207 Cfpb Loan-estimate

Here is the new Closing Disclosure

201207 Cfpb Closing-disclosure

I’m interesting in hearing comments on the new forms from mortgage professionals, real estate attorneys and borrowers. Please comment below!

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate closing attorney who has closed thousands of purchase and refinance transactions. Please contact him if you need legal assistance purchasing residential or commercial real estate.

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Real Estate Crash Has Resulted In Many More Forms and Disclosures

These days buyers are leaving closing rooms with not only their keys but a mild case of carpal tunnel syndrome! The reason for sore forearms and wrists is the voluminous stack of closing documents which are now required to be signed and notarized at every Massachusetts real estate purchase or refinance closing.

One of my opening “break the ice” lines at closings is to suggest that the buyers start massaging their writing hands. Then I show them the 2 inch stack of documents they must review and sign, and they usually say, “Are you serious? We have to sign all that?” Yep, I reply. You can thank Fannie Mae and the real estate collapse for that! All the new rules and regulations passed in the last 5 years have resulted in, you guessed it, more forms. Do you think the Feds and state ever eliminate old or out-dated forms? Nope.

Let me quickly go over some of the more important — and less important — documents signed at a typical Massachusetts real estate closing.

The Closing Documents

  • HUD-1 Settlement Statement. This is arguably the most important form signed at closing. It breaks down all the closing costs, lender fees, taxes, insurance, escrows and more. We did a full post on the HUD-1 and all the closing costs you can expect to pay here. Under the newer RESPA rules, most closing costs must be within 10% tolerance of the Good Faith Estimate provided by the lender (which you will also re-sign at closing).
  • Promissory Note & Mortgage. These two documents form what I like to call the “mortgage contract.” The promissory note is the lending contract between borrower and lender and sets the interest rate and payment terms of the loan. It is not recorded at the registry of deeds. The Mortgage or Security Instrument is a long (20+ page) document and provides the legal collateral (your house) securing the loan from the lender. The Mortgage gets recorded in the county registry of deeds and is available to public view. Read a full explanation of the Note and Mortgage in this post.
  • Truth in Lending Disclosure (TIL). The Truth in Lending should really be called “Confusion In Lending,” as the federal government has come up with a confusing way to “explain” how your interest rate works. This is a complex form and we’ve written about it extensively in this post. Your closing lawyer will fully explain the TIL form to you at closing.
  • Loan Underwriting Documents. With increased audit risk on loan files, lenders today are requiring that borrowers sign “fresh” copies of almost all the documents they signed when they originally applied for the loan. This includes the loan application, IRS forms W-9 and 4506′s.
  • Fraud Prevention Documents. Again, with the massive mortgage fraud of the last decade, lenders are requiring many more forms to prevent fraud, forgeries, and straw-buyers. The closing attorney will also make a copy of borrowers’ driver’s licenses and other photo i.d. and submit the borrower’s names through the Patriot Act database. They include Occupancy Affidavit (confirming that borrowers will not rent out the mortgaged property), and the Signature Affidavit (confirming buyers are who they say they are or previously used a maiden name or nickname).
  • Escrow Documents. Unless lenders waive the requirement, borrowers must fund an escrow account at closing representing several months of real estate taxes and homeowner’s insurance. This provides a cushion in case borrowers default and the taxes and insurance are not paid.
  • Title Documents. For purchase transactions, Massachusetts requires that the closing attorney certify that a 50 year title examination has been performed. Buyers will counter-sign this certification of title, as well as several title insurance affidavits and documents which the seller is required to sign, to ensure that all known title problems have been disclosed and discovered. Of course, we always recommend that buyers obtain their own owner’s title insurance which will provide coverage for unknown title defects such as forgeries, boundary line issues, missing mortgage discharges, etc.
  • Property Safety Disclosures. In Massachusetts, buyers and sellers will sign a smoke/carbon monoxide detector compliance agreement, lead paint disclosure, and UFFI (urea formaldehyde foam insulation) agreement. These ensure that the property has received proper certifications and will absolve the lender from liability for these safety issues.
  • Servicing, EOCA and Affiliated Business Disclosures. Chances are that your lender will assign the servicing rights to your mortgage to a larger servicer, like JP Morgan Chase or CitiMortgage. You will sign forms acknowledging this. You will be notified of the new mortgage holder usually within 30-60 days after closing. In the meantime, the closing attorney will give you a “first payment letter” instructing you where to send your first payment if you don’t hear from the new servicer. You will also sign forms under the federal and state discrimination in lenders laws and forms disclosing who the lender uses for closing services.

Well, those are most of the documents that buyers will sign at the closing. Sellers have a slew of their own documents to be signed at closing, and I’ll cover that in a future post. As I said, at your closing, massage your signature hand, grab a comfy pen, and sign your life away!

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. He can be reached by email at info@vetsteinlawgroup.com or 508-620-5352.

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Realtor Held Liable For Erroneous MLS Information

The Massachusetts Supreme Judicial Court has agreed to hear the case of DeWolfe v. Hingham Centre Ltd. which will consider two very important issues for the real estate community, especially agents. The first issue is the scope of a real estate agent’s duty to disclose and independently verify property information posted on the Multiple Listing Service (MLS). The second issue is whether the exculpatory clause found in the Greater Boston Real Estate Board’s standard form purchase and sale agreement legally prohibits a buyer’s misrepresentation claim against the real estate agent.

The case was originally decided by the Appeals Court, and I wrote a full post about it here. The original opinion can be read here.

In summary, the real estate agent, relying on what turned out to be erroneous information supplied by his client, listed a Norwell property on Multiple Listing Service (MLS) and newspaper advertising as “zoned Business B.” The property was not, in fact, zoned for business use; it was zoned residential, thereby prohibiting the hair salon the buyer wanted to open at the property. Despite the general disclaimer on the MLS system and in the purchase and sale agreement, the Appeals Court held that the Realtor could be held liable for misrepresentation and Chapter 93A violations due to providing this erroneous information.

This will be a very important case for the real estate brokerage industry, and we will be monitoring it. Oral arguments are expected to be held in late summer or early fall, with a final ruling coming a few months thereafter.

In the meantime, my advice remains the same:

  • Do not make any representations concerning zoning. Advise the buyer to go to the town/city planner or hire an attorney for a zoning opinion.
  • Never trust your client. I hate to say this, but when it comes to disclosures, it’s true.
  • Always independently verify information about the property from available public sources. Here, the agent could have simply gone down to the town planning office to verify whether the property was zoned commercial or residential. (The buyer or his attorney could have done so as well—this was a complete failure on all sides).
  • When it comes to zoning, which can be complex and variable, think twice before making blanket statements. Better to be 100% sure before going on record about whether certain uses are permissible. You can always get a zoning opinion from a local attorney.

*Hat tip to a new real estate blog on the scene, Disgruntled Neighbors by Attorney Andrew Goldstein, for bringing this to my attention.

~Rich

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Are There Liability Concerns For Accepting Back Up Offers?

My colleague Rona Fischman at the Boston.com Real Estate Now Blog had an intriguing question on the legalities surrounding accepting back-up offers. This question is especially timely with the rise of bidding wars in the Greater Boston real estate market. Rona asks:

I have been told that a back up offer cannot be presented to a seller because it is inducement to interfere with a contract in place (the accepted offer.) I have also been told that a back up offer must be presented, forthwith, like any other offer. Since I never list property, I don’t know which one is true. Can you give a legal and practical explanation for the blog?

Answer:  I do not believe that merely soliciting and presenting a back-up offer can give rise to a legal claim for interference with contractual relations as long as the seller does not break the existing contract with the buyer. Moreover, I believe that real estate agents have a legal and ethical obligation to present to their seller clients all offers made on the property, but it is the seller’s preference whether or not to solicit back up offers once he has already accepted an offer.

What Is a Back-Up Offer?

For those who do not know, a back-up offer is an offer made after the seller has already accepted and signed an offer to purchase with a buyer, in the hopes that the first offer will fall through and the seller will select the back-up offer. It is the seller’s decision whether to accept back-up offers at all. Back-up offers are common in bidding wars where there is frenzied competition for a well-priced property. Most buyers who submit a back-up offer will continue with their home search because the probability that their back-up offer is ultimately accepted is usually a long-shot.

Unlawful Interference with Contract?

Rona is worried that accepting back-up offers could expose an agent to liability for interfering with an existing contract. I don’t think she has much to worry about unless the seller tries to cancel the existing deal without legal right.

In the real estate context, the requirements to make out a valid claim for unlawful “interference with contractual relations” are the following:

  • There must be an accepted and signed offer to purchase between the buyer and seller which is sufficient to form an enforceable contract under Massachusetts law;
  • The competing buyer (making the back-up offer) must have knowledge of the contract;
  • The competing buyer must have intentionally induced or persuaded the seller not to perform its contractual obligations, i.e, not proceed with the transaction;
  • The interference was improper in motive or means; and
  • The plaintiff was legally harmed.

Under this legal definition, there is liability only where the seller unlawfully breaks the existing offer/contract with the first buyer. As a general matter, merely submitting a back-up offer (and not formally accepting it) will not support a legal claim because there has been no breach of the first contract.

A thornier question is what happens if the seller tries to wriggle his way out of the first offer in favor of a better offer? Those are the situations which often result in litigation and the filing of a lis pendens. I would advise any seller and their agent to consult an attorney before they try to break an offer or purchase and sale agreement with a buyer. On the other hand, if a buyer loses his financing and cannot proceed with the transaction, and therefore has defaulted on his contractual obligations, then it may be clear to accept a back up offer. It is always the prudent course to obtain a release and waiver from the first buyer before dealing with a back-up offer. I cannot stress this enough.

What Are Realtors’ Legal & Ethical Duties With Back-up Offers?

There are no specific legal rules surrounding back-up offers. The regulations governing real estate agents in Massachusetts provide that “All offers submitted to brokers or salespeople to purchase or rent real property that they have a right to sell or rent shall be conveyed forthwith to the owner of such real property.” If a listing agent is a Realtor©, they have an additional ethical obligation to “continue to submit to the seller all offers and counter-offers until closing … unless the seller has waived this obligation in writing.”

Back-up offers are on a slightly different footing than offers made while the property is still actively listed. I would say that if a prospective buyer makes an unsolicited back-up offer, that offer must be conveyed to the seller regardless of whether or not she has decided to accept back-up offers. The agent should not make the decision to decline an offer for the client. The seller may, of course, decide to not solicit back-up offers or to solicit them. Such a decision should be noted on the MLS. It’s always the client’s prerogative to solicit back-up offers. For agents, the safe practice is always to convey any offer which comes in, and to have the seller state in writing that she is refusing to accept back-up offers.

If you have any “war stories,” questions, or comments, please post them in the comment section below.

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. They can be reached by email at info@vetsteinlawgroup.com or 508-620-5352.

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I cannot believe I’m writing this post, but yes it’s true, the real estate market in Greater Boston, Massachusetts has now come full circle and bidding wars are back. Don’t believe me? Just read this Boston Globe article from today.

Now that bidding wars are back, buyers and sellers have questions, so we’ll try to answer them here. I’ve also asked a few local real estate agents to offer their expertise as well.

What Are The Legal Issues Surrounding Bidding Wars?

A bidding war arises when there are several competing offers for a listing at the same time. There are really no hard and fast legal rules with bidding wars. Contrary to popular belief, a private seller in Massachusetts is not legally obligated to accept the highest offer made during a bidding war. A seller can be as financial prudent or as irrationally arbitrary as she wants in deciding which offer to accept. A seller may decide to forgo the highest offer in favor of a lower offer due such factors as the financial strength of the buyer (i.e., a cash buyer), because the buyer waived inspections, or simply because the buyer wrote the sellers a lovely letter about how wonderful their home is! (Read on for one agent’s advice on letter writing).

Legally, an offer is simply an invitation to negotiate, and provides a buyer with zero legal rights to the property. An offer does not create a legally enforceable contract — unless it is accepted and signed by the seller.

For real estate agents involved in bidding wars, they have an ethical and fiduciary duty to get the highest and best offer for their sellers. There is nothing illegal about a seller or their agent creating a bidding war, so as to pit one bidder against each other. A listing agent is doing a good job for their client in creating such a market for a property. Ethically, a real estate agent must be truthful and honest when communicating with all prospective buyers and cannot make any material misrepresentations, such as lie about an offering price. Agents must present all offers to their clients, however, the ultimate decision to accept an offer always remains with the seller.

There are different ways to manage a bidding war, and again, there are no special legalities for it. Some agents will set a date by which all preliminary bids have to be in. If there are only two bidders, an agent can go back to the lowest bidder and ask if he or she would like to re-bid. An agent can continue that process until one of the bidders backs out. If there are more than two bidders, some agents will set a second round of bidding with a minimum price of the highest bid in the preliminary round. If no one bids in the second round, the agent can return to that high bid. Bidding wars are fast moving, so buyers need to be able to react quickly.

Generally, disgruntled buyers who lose out on bidding wars do not have a legal leg to stand on — unless their offer was accepted and signed by the seller or there is clear proof an agent lied about something important. That is why making your offer stand out in a bidding war is so important.

Buyers: How To Make Your Offer Stand Out In A Crowd

In a bidding war, buyers ask how can they maximize their chance to be the offer the seller accepts? Gabrielle Daniels, of Coldwell Banker Sudbury, offers this great advice on her blog, LiveInSudburyMa.com:

  • Make your offer STRONG. If you know that there are other offers on the property, make your offer financially strong as possible. If you believe the house is worth asking price, offer asking price. Forget about the TV shows that tell you to offer 90 percent of asking. That is ridiculous – UNLESS that is what the house is worth. Every situation is different. Every house is worth something different. There are no “general rules” about what to offer.
  • Be prepared. Have your pre-approval ready. Sign all of the paperwork related to the offer (seller’s disclosure, lead paint transfer, etc.) Write a check, leave a check with your agent. It is better than a faxed copy of the check. Don’t leave any loose ends.
  • Show some love to the house (and the seller). Write a letter to the sellers, tell them why you love the house and why you are the best buyer for the house. Sure, this is a business transaction, but it is one of the most personal business transactions in which you will be involved. Your real estate agent should be able to help you with this.

For more great tips for buyers involved in a bidding war, read Gabrielle’s post, Multiple Thoughts On Multiple Offers.

Sellers, How Can You Take Advantage of Bidding Wars

For sellers in a bidding war market, it all comes down to pricing, as Heidi Zizza of mdm Realty in Framingham explains on her blog, MetrowestHomesandLife.com:

I had a house listing in Natick this past year. The house valued out to around $620,000. We could have gone to market at $629,900 or $639,900 and had many showings that eventually would land us an offer around $610,000 or so. We figured that at that price it would take the average days on market which was (if memory serves correctly) close to 90 days. We decided to go to market at $599,900. The house got so much attention we had a HUGE turnout at the first showing/Open House and had 4 offers by that evening all competing and all over asking. The highest bid was $620,000 and we sold the property in one day. You too can do the same thing. Market your house at a price that is so attractive you will be best in show. Your buyers will let you know it, and you will definitely get an offer, maybe even several!

For those of us in the real estate business who have weathered the storm of the last 4-5 years, this is “all good” as we say! The more bidding wars, the better!

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. They can be reached by email at info@vetsteinlawgroup.com or 508-620-5352.

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Renter’s Insurance Policy Raises Questions

I’ve recently become aware that some Massachusetts landlords are requiring that tenants procure their own policy of renter’s insurance as a condition of leasing. In fact, MSN Real Estate did a nice write up about the practice here. But I am also hearing about a dark side to this practice where some landlords have a kickback arrangement with the insurance provider where the landlord receives compensation for any policy taken out by a tenant.

Renter’s insurance is almost always a good idea, but under Massachusetts law, can a landlord require that a tenant get a policy (if the tenant doesn’t want one) and must it disclose a referral relationship with the insurance provider?

Landlords Should Be Careful About Renter’s Insurance Requirement

In light of recent court decisions, landlords should re-examine the legality of a mandatory renter’s insurance policy requirement.  In the recent Hermida v. Archstone class action ruling, which considered amenity fees under the Massachusetts security deposit statute, the court held that landlords can only charge first and last month’s rent, a security deposit, and a lost key fee at the beginning of a tenancy, and no other types of fees. Any other type of fee or financial obligation required to be paid by the tenant at the beginning of the lease could be deemed illegal under the Mass. Security Deposit law, Mass. Gen. Laws ch. 186, sec. 15B. Accordingly, landlord must be very careful about what and how much they charge tenants at the inception of leases, over and above the standard rent deposits and new key fee. At the very least, renter’s insurance should be optional, and any affiliate or kickback arrangement should be fully disclosed to the tenant. This still may not prevent a landlord from getting sued over a mandatory renter’s insurance requirement.

Renter’s Insurance Still Smart Choice

That said, I always recommend that tenants get their own renter’s insurance policy. It’s fairly inexpensive and provides protection to your personal belongings. Massachusetts law does provide for a minimum of $750 per unit for tenant relocation assistance due to fire displacement. However, that is not nearly enough for the average renter.

Has your landlord required that you purchase renter’s insurance? Have they disclosed any referral relationship? I’d like to hear from you. The practice may well be illegal.

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Richard D. Vetstein, Esq. is an experienced Massachusetts Real Estate Landlord Attorney. For further information you can contact him at info@vetsteinlawgroup.com.

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