Condominium Law

Doggy Doo-Doo Bags, Flippin’ the Bird, and Grumbling Signs: Complaining About Condominium Management Is A Constitutional Right, Court Holds

by Rich Vetstein on November 3, 2011

in Condominium Law, Massachusetts Real Estate Law

Old Colony Village Condominium v. Preu, Massachusetts Appeals Court No. 10-P-875 (Oct. 31, 2011). Click here for link to full text of case.

I love when constitutional law intersects with real estate law. It’s rare, and full of drama. A recent decision by the Appeals Court considered a condominium unit owner’s unalienable right to complain, moan and kvetch about condominium management. The First Amendment and the unit owner won this battle.

Doggy Doodie Bags, The Bird & Signs

The case is right out of the Seinfeld episode where Jerry’s dad, Morty, is embroiled in a condo trustee election battle at the “Del Boca Vista” condominium project in Florida. Mr. Preu and the condominium management had a history of, shall we say, bad blood between them. Mr. Preu ultimately went on a rampage, placing in the common area bags containing dog feces and labeled with the name of board president Gerard Ritzinger, apparently in response to Preu’s belief that Ritzinger had allowed his dog to defecate in an area in which it was forbidden. He gave the middle finger to condo trustees walking through the hall and to security cameras. He wrote nasty memos on his condo fee checks. He also obstructed common area fire doors. Lastly, he posted signs in the common area and a note on a unit owner’s door about the cleanliness of the condominium.

The trial judge found that the bag of doggy doo-doo and messing with fire doors violated the condo rules, but that the posting of signs, flipping the Bird, and the nasty memos were protected speech under the First Amendment. The Appeals Court only considered the free speech issue.

Check Your Free Speech Rights At The Door?

The Court held that condominium unit owners do not check their First Amendment rights at the condominium door. “A condominium association does not have as free a hand in restricting the speech of unit owners in the common areas in which those owners share an undivided property interest as another property owner might in dealing with a stranger on his or her property,” the court held. Accordingly, the court ruled that Preu’s posting of signs, flipping the middle finger and nasty memos — although not the most civil of behaviors — were protected First Amendment speech which could not be punished under condominium by-laws and rules.

Lessons to be Learned…

So what’s the take-away from this case?

For prospective condo buyers, know what you are getting yourself into before buying a condominium unit. Ask for the condo meeting minutes going 3 years back to see whether there are a history of internal dysfunction and disputes like the Old Colony Village Condo.

For condominium trustees and management, the lesson is a bit tougher. While you don’t want to put up with a lot of over-the-top cr*p from unit owners, think twice about starting World War III litigation like this case. The only person in this dispute who made out well is the condo board attorney, as this dispute easily ran over $25,000 in legal fees through a trial and an appeal. Was that a solid investment of condo funds by the board? Over dog poop? Probably not.

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Richard D. Vetstein, Esq. is an experienced Massachusetts Real Estate Condominium Real Estate Attorney. For further information you can contact him at [email protected].

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Upcoming Free Webinar (Nov. 1, 11:00AM): An Ounce of Prevention Is Worth A Pound Of Cure: Strategies & Teamwork To Avoid Deal Disasters

by Rich Vetstein on October 24, 2011

in Closings, Condominium Law, Massachusetts Real Estate Law, Offer To Purchase, Purchase and Sale Agreements

Realtors, are you using the most current contingencies and language in your Offers? Do you know the most current Fannie Mae/FHA condo rules and how they will impact your condo sale? Want to know the latest on the U.S. Bank v. Ibanez ruling and the foreclosure title mess? How can you avoid last minute crises? All these questions and more will be answered in our upcoming free webinar.

One Hour Complementary Webinar: An Ounce of Prevention Is Worth A Pound Of Cure: Strategies & Teamwork To Avoid Deal Disasters

November 1, 2011, starting at 11:00am EST.

Presented by: Richard Vetstein, Esq. and Marc Canner, Esq. of TitleHub Closing Services and Brian Cavanaugh of MetLife Loans.

Click Here To Register

Facebook Event Invite Here

Topics Include:

1. Must Have Language For Your Offers
a. Fannie/FHA condo compliance
b. Realistic deadlines
c. Beyond the standard contingencies

2. Early Lending Intervention
a. Coordinating with Mortgage Partners
b. Pre-quals and pre-approvals
c. Current underwriting concerns

3. The Attorney’s Role: Purchase and Sale Agreement
a. Common Pitfalls & Solutions
b. New buyer rider provisions
c. Ibanez Foreclosure Title Issues

4. Dealing with 11th Hour Problems
a. Extensions for financing
b. Title issues & title insurance
c. Use and occupancy agreements

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Got Lien? Massachusetts Condominium Liens & 6d Certificates For Unpaid Condo Fees and Special Assessments

by Rich Vetstein on September 24, 2011

in Condominium Law, Liens, Massachusetts Real Estate Law

images-7Unpaid condo fees and special assessments can be a real thorn in any condominium’s side, especially smaller condos. Not only do unpaid condo fees threaten the financial health of a condominium, but a high delinquency rate can run afoul of Fannie Mae/Freddie Mac and FHA condominium lending guidelines, thereby hindering the sale of a unit.

Fortunately, the Massachusetts Condominium Act, General Laws Chapter 183A, provides condominium trustees and managers with a fair amount of ammunition to recover those unpaid condo fees and special assessments. The law provides that condominium common expense assessments (monthly condo fees) are a lien against condominium units from the date each assessment becomes due, and that unit owners are personally liable for their share of condominium common expenses, including late charges, fines, penalties, interest, and all costs of collection. Ultimately, the condominium trust can foreclose its lien and sell the unit at foreclosure auction.

Massachusetts Super-priority Condo Lien

The real teeth of the Condominium Act is the “super-lien” provision. A properly filed condo lien has “super-priority” over the first mortgage on a unit for up to 6 months worth of unpaid condo fees, plus all attorneys’ fees and collection costs. Required 60 and 30 day statutory notices must be sent to the mortgage lender and unit owner prior to filing the lien. Typically, the mortgage lender will not want to allow a condo lien to negatively affect the priority of its mortgage, so it will pay the unpaid condo fees and other charges, then charge them back to the borrower/unit owner. Even in the case of foreclosure of a unit, the super-lien will continue to roll-over (up to 6 months worth).

6d Certificate

For all sales of Massachusetts condominiums, Mass. General Laws Ch. 183A, sec. 6(d) requires that the condo trustees sign a certificate verifying the outstanding condo fees assessed against the unit, if any. The term “6d” certificate refers to that statutory section of the Condominium Act, section 6(d). Lenders and their closing attorneys will require a “clean” 6d which states there are no unpaid fees. The recording of a clean 6d certificate will prevent the association from ever filing a lien against that unit.

No Right to Withhold

Another favorable aspect of the lien law is that a unit owner is not allowed to withhold payment even if he disputes the charges. There is no right to set-off. If the unit owner is unhappy or disputes the validity of the assessment, that’s too bad. He must pay the fees under protest, and file a suit challenging the legality of the assessment.

Collection Against Tenants

Another helpful remedy in the case of absentee unit owners is that the condo trust has a right to collect rents from tenants of non-paying unit owners. The condominium association will notify the tenants in writing that they are required to forward all future rent payments to the condo trust until the unpaid balance is satisfied. This typically gets the prompt attention of the unit owner.

Here is a sample 6d certificate.

Massachusetts 6d certificate sample

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Richard D. Vetstein, Esq. is an experienced Massachusetts Real Estate Condominium Real Estate Attorney. For further information you can contact him at [email protected].

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Court Upholds Oral Handshake Deal In Land Swap

by Rich Vetstein on August 22, 2011

in Commercial Real Estate, Condominium Law, Massachusetts Real Estate Law, Purchase and Sale Agreements, Real Estate Litigation

26297-cooperation-handshakeSeller Couldn’t Sit Back & Watch Construction Project Unfold

Massachusetts appeals judges have been mighty busy this summer issuing real estate decisions. From the forced removal of condo buildings to toxic mold, to foreclosure eviction defense, it’s been no summer vacation in Massachusetts real estate law.

Handed down today is a case right from a first year law school property exam, Hurtubise v. McPherson, embedded below.

As most real estate professionals know, contracts for the sale of real estate must be in writing and signed by the party to be charged, i.e, the seller. This is a rule of law going back to English common law and is called the Statute of Frauds which can be found in the General Laws of Massachusetts, Chapter 259, Section 1. As with most black letter law, there are a few exceptions to the general rule, and this case is a textbook example of the “detrimental reliance” exception to the Statute of Frauds.

Hand-Shake Land Swap Agreement

Here are the facts of the case. Hurtubise and McPherson owned adjoining tracts of land in the town of Templeton. Hurtubise operated a storage business on his property. He wanted to build an additional storage shed along the border between his property and McPherson’s property. Hurtubise realized that he could not meet the setback requirements of the local zoning code unless he acquired land from McPherson. Hurtubise approached McPherson, explained his need, and proposed a land trade, offering to convey to McPherson a portion of the front of his (Hurtubise’s) property in exchange for the portion of McPherson’s land at which Hurtubise intended to erect the new storage shed. McPherson agreed to the proposal and the parties shook hands.

Hurtubise proceeded with his plans for construction of the new building. He obtained a building permit and began to excavate along the border of McPherson’s lot. During the seven to eight weeks of construction, Hurtubise saw McPherson at the site. McPherson never objected to the location of the new building. Hurtubise eventually constructed a 300 x 30-foot storage shed for $39,690.

After construction, McPherson objected and accused Hurtubise of taking more land than he initially had represented. McPherson informed Hurtubise that an exorbitant payment of $250,000 would resolve the dispute which Hurtubise refused to pay. McPherson then notified the town that Hurtubise’s new building encroached on his property. The town’s building commissioner revoked Hurtubise’s building permit and ordered him to cease occupancy of the storage shed. After McPherson threatened to demolish the building, Hurtubise brought suit to enforce the oral agreement.

Exception To Written Contract Rule

As mentioned above, to be enforceable, real estate contracts for the sale of property must be in writing and signed by the seller, at minimum. As Judge Mitchell Sikora wrote in the opinion, “however an equitable qualification puts some flexibility into the joints of the Statute.” An oral agreement for the sale of land can be valid if the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only by specific enforcement. In non-legalese, this means that if you start a construction project and spend thousands of dollars upon the promise of a land deal, albeit not in writing, you may be able to enforce that promise.

Because Hurtubise just sat by idly and watched McPherson construct his shed at considerable cost without objection, the court ruled that he couldn’t then complain there wasn’t a written agreement, in an attempt to wriggle out of the land swap deal. The court then ordered Hurtubise to convey McPherson the land necessary to build the shed.

This case is one of the very few instances where a court has upheld an oral hand-shake real estate agreement. The take-away: make sure your real estate contracts are always in writing and signed!

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Richard D. Vetstein, Esq. is an experienced real estate litigation attorney who’s handled numerous real estate contract breach cases in Land Court and Superior Court. Please contact me if you are dealing with a Massachusetts real estate contract legal dispute.

Hurtubise v McPherson Case

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Appeals Court Resurrects Toxic Mold Claim Against Admiral’s Hill Condominium

by Rich Vetstein on August 16, 2011

in Condominium Law, Construction Law, Insurance, Massachusetts Real Estate Law, Premises Liability, Safety

mold_houseApplication of “Discovery Rule” Enables Toxic Mold Claim To Survive Dismissal

Toxic mold is a dangerous condition that can arise in buildings with untreated water leaks and penetration. The most common form of “toxic mold” is Stachybotrys chartarum, a greenish-black mold. It can grow on material with a high cellulose and low nitrogen content, such as fiberboard, gypsum board, paper, dust, and lint. Growth occurs when there is moisture from water damage, excessive humidity, water leaks, condensation, water infiltration, or flooding. Constant moisture is required for its growth. According to the Centers for Disease Control, toxic mold causes upper respiratory tract symptoms, cough, and wheeze in otherwise healthy people; with asthma symptoms in people with asthma; and with hypersensitivity pneumonitis in individuals susceptible to that immune-mediated condition. The CDC also found limited or suggestive evidence linking indoor mold exposure and respiratory illness in otherwise healthy children.

Roof Leaks Lead To Toxic Mold

According to the August 15, 2011 case of Doherty v. Admiral’s Flagship Condominium Trust (see below), Denise Doherty owned a condominium unit at the Admiral’s Flagship Condominium in Chelsea. (If you are driving into Boston northbound on the Mystic Bridge, these are the condominium units on Admiral’s Hill under the bridge.) In 2004, a roof leak led to ceiling cracks and loosening plaster in Doherty’s unit, and she requested that repairs be made. Any repairs made were either untimely or inappropriate. In February, 2006, Doherty noticed mushrooms and water infiltration on the same threshold and notified the condominium management company. It replied that the threshold was rotted, and required replacement. The management company did a shoddy job repairing the damage.

A month later a mold remediation company found hazardous mold in unsafe levels in Doherty’s unit caused by water infiltration and chronic dampness. Following this discovery, the condominium management promised to repair the leaks, and that the mold would be removed. A mold remediation was attempted, but failed, and mold remains in the unit. In 2008, Doherty’s doctor ordered her to vacate her unit due to the presence of the mold. Although Doherty has continued to request repairs of the leaks and chronic dampness, and a full remediation of the mold, no further action has been taken. She filed suit against the condominium and its manager on February 13, 2009, claiming that due to the defendants’ failure to repair, she has suffered severe, permanent health problems, lost income, loss of her personal property, and loss of the value of her condominium unit.

Limitations Period Begins When Toxic Mold Symptoms First Arise

Doherty’s personal injury claims are governed by a 3 year statute of limitations. A statute of limitations is the time period set by law by which a person is allowed to file a lawsuit. If you sleep on your rights, you lose them.

The condominium claimed that the stopwatch for Doherty’s claims started in 2004 when the water leak occurred, and that she filed her lawsuit 2 years late. The lower court agreed and dismissed the lawsuit.

The Appeals Court overturned that ruling, holding that under the “discovery rule” the statute of limitations for a toxic mold claim starts when the injured person becomes aware of the existence of toxic mold through investigation or some physical manifestation of being exposed to toxic mold, such as respiratory symptoms, asthma and the like. In Doherty’s case, she first became aware of the toxic mold when the lab results came back in March 2006 which was within the 3 year limitations period. The court reasoned:

We agree with the foregoing cases that without some indication of a hazardous contamination, the plaintiff could not have been aware that she was being exposed to toxic mold, regardless of when the leak began. Contrary to the defendants argument, it is not a certainty that all water infiltration will eventually evolve into toxic mold. To conclude otherwise would encourage, and possibly even require, a plaintiff to preemptively file suit the moment water starts to infiltrate a dwelling or other building, before any mold or mold-related injury has even occurred.

According to the judges themselves, this decision is the first Massachusetts appellate case dealing with the statute of limitations for toxic mold, so it’s quite important. The case will make it easier for toxic mold victims to sue wrongdoers in state court. The case also highlights the importance of addressing water leaks in condominiums quickly and professionally. If the condominium management had properly dealt with the roof leaks in the first place, perhaps Ms. Doherty would not have been exposed to toxic mold in the first place!

Doherty v. Admiral’s Condo Case

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FHA Stays In Condominium Game With Issuance Of Revised Lending Guidelines

by Rich Vetstein on July 5, 2011

in Condominium Law, FHA, HUD, Mortgages

Good News For First Time Condo Buyers

FHA loan programs offer low down payment mortgages which are often ideal for first time home buyers who lack cash for a 20% down payment but are otherwise strong borrowers. On June 30, 2011, FHA confirmed its commitment to financing condominiums with the issuance of revised lending guidelines (HUD Mortgagee Letter 11-22). The new FHA Condominium Project Approval and Processing Guide can be downloaded here.

“Today, we institute revised guidelines that preserve FHA’s role in the condo marketplace during these difficult times while making certain we manage risk in a responsible way,” said FHA’s Acting Commissioner Robert Ryan. “This guidance formalizes and expands the policies we put in place in 2009 and lays the groundwork for a more formal rulemaking process going forward.”

Highlights Of New Guidelines

1.  Reserve Study Requirements:
New guidelines require reserve studies on all conversion (i.e., new) developments. Reserve Studies are valid for a period of 2 years.

2.  Reserve Funding
In addition to a reserve study determination, a minimum of 10% of the operating budget must be set aside as a baseline in a reserve account. Funds to cover the total cost of any item in the Reserve Study or that will require replacement within 5 years must be deposited in HOA’s reserve account. The insurance deductible must also be included in the reserve fund.

3.  Delinquent Condo Fees

On existing projects, the condominium cannot have more than a 15% delinquency rate on unpaid condo fees. This could be a problem for struggling condominiums. A waiver may be granted, however, with supporting documentation.

4. Pending Litigation

Litigation impacting the financing soundness of the condominium must be disclosed and explained to FHA. Again, this could be problematic if the condominium is involved in, for example, a lawsuit with the original developer over construction defects.

5. HO-6 Policies

Individual HO-6 insurance policies are required if the master condo insurance policy does not provide interior unit coverage (which most don’t).

6. Fidelity Bonds For Large Projects

Fidelity insurance to protect against employee dishonesty is required for projects over 20 units.

7. New Construction Pre-Sale
New Construction pre-sale requirements remain at 30%, although only for one year after the first closing. After the first year, it increases to 50% for the development.

8.  Maximum Commercial Concentration
Remains at 25%, however, new guidance allows for possible waiver request up to 35% of the development.

9. 10% Investor Concentration
No longer includes sponsor unsold units or units required to be rented by State or Municipality, ie; rent stabilized/rent controlled.

 

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Is “Buyer Beware” Alive and Well? An Overview of Massachusetts Real Estate Disclosure Law

by Rich Vetstein on June 21, 2011

in Condominium Law, Construction Law, Disclosures, Massachusetts Real Estate Law, Offer To Purchase, Purchase and Sale Agreements, Realtors, Safety

iStock_000003014021XSmal.jpgCaveat Emptor: “Let The Buyer Beware”

Caveat Emptor is an old common law rule which means “Let the Buyer Beware.” In plain English, it means that home buyers are on their own when it comes to the condition of the property. If there is a defect of any kind, it becomes the buyer’s problem, not the seller’s.

Most home buyers are unaware that in Massachusetts, with a few exceptions, the rule of Buyer Beware is still alive and well. That is why in the vast majority of transactions, buyers choose to have the property inspected by a licensed home inspector. And it’s also why there is a contingency in the offer or purchase and sale agreement giving the buyer the right to opt out of the agreement if there are serious issues.

But what happens if the home inspector misses a broken A/C unit, or the sellers concealed that the basement flooded, or the Realtor didn’t tell the buyers there was a Level 3 sex offender next door? These are all thorny disclosure issues.

Private Sellers: No Duty to Disclose

A private seller has no legal duty in Massachusetts to disclose anything about the property (except for the presence of lead paint). Yes, you read that correctly. He doesn’t have to say boo. Will that assist the buyer in selecting the home for purchase? Maybe not. But if the basement floods, the seller does not have to say anything about it.

A seller, however, cannot affirmative misrepresent a material fact about the property. That is, if the seller is asked a direct question, such as “has the basement ever flooded?” and he answers “never” when it has, he has lied and can be held liable for that.

Most agents will insist that Sellers fill out a Statement of Property Condition (see below) which will fully disclose just about every conceivable condition of the premises. However, the standard form does contain small print language purporting to limit the agent and seller from disclosure liability.

Real Estate Agents: Heightened Duty

Under Massachusetts consumer protection regulations governing real estate brokers, a broker must disclose to a buyer “any fact, the disclosure of which may have influenced the buyer or prospective buyer not to enter into the transaction.” This is somewhat of a subjective standard; what may matter to one buyer may not matter to another. If a broker is asked a direct question about the property, she must answer truthfully, accurately, and completely to the best of her knowledge. Further, a broker cannot actively avoid discovering the details of a suspected problem or tell half-truths. This is why most Realtors err on the side of full disclosure, as suggested in Bill Gassett’s blog.

As for that Level 3 sex offender living next door, I would advise the listing agent to disclose that fact. The Massachusetts Supreme Judicial Court has held that off-site physical conditions may require disclosure if the conditions are unknown and not readily observable by the buyer and if the existence of those conditions is of sufficient materiality to affect the habitability, use, or enjoyment of the property and, therefore, render the property substantially less desirable or valuable to the objectively reasonable buyer. I think a dangerous sex offender would be something a buyer would want to know about, wouldn’t you?

Home Inspectors

In 1999, Massachusetts joined a growing number of states that require home inspectors to be licensed. There is now a state Board of Registration of Home Inspectors. Home inspectors are now required to carry at least $250,000 of errors and omissions insurance. The board is empowered to suspend licensed home inspectors for violations of the statute or regulations and to impose civil penalties on persons purporting to conduct a home inspection without the required license.

A home inspector is one of the most important referrals your Realtor will give you. Most agents know which inspectors are great and which are terrible. If you are the unfortunate victim of an incompetent home inspectors, they can be sued civilly for breach of contract or negligence.

Massachusetts Sellers Disclosure//

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The Anatomy of a Massachusetts Quitclaim Deed

by Rich Vetstein on June 6, 2011

in Closings, Condominium Law, Deeds, Massachusetts Real Estate Law, Title Defects

images-10The deed is the cornerstone of property ownership in Massachusetts and throughout the country. In Massachusetts, there are three types of deeds: a quitclaim deed, a warranty deed, and a release deed. By far the most common deed used in Massachusetts is the quitclaim deed (scroll down for example below), and I’ll focus on that in this post.

Quitclaim Deed Covenants

The quitclaim deed is by far the most common and standard form of deed for Massachusetts residential real estate conveyances. Quitclaim deeds in Massachusetts are similar to “special warranty deeds” in other states. A quitclaim deed carries with it statutory quitclaim covenants by the seller as provided in Mass. Gen. Laws ch. 183, § 17: “The grantor, for himself, his heirs, executors, administrators and successors, covenants with the grantee, his heirs, successors and assigns, that the granted premises are free from all encumbrances made by the grantor, and that he will, and his heirs, executors, administrators and successors shall, warrant and defend the same to the grantee and his heirs, successors and assigns forever against the lawful claims and demands of all persons claiming by, through or under the grantor, but against none other”.

Taking Title

How would you like to take title? This is an important question that buyers must consider. For single individuals, there really is no choice. You take title individually. For married couples, there are three choices: (1) tenancy by the entirety, (2) joint tenants with rights of survivorship, or (3) tenants in common.

Tenancy by the Entirety

This is often the best choice for married couples, and only husband and wife can benefit from this type of ownership. In a tenancy by the entirety form of ownership, if one spouse dies, the surviving spouse succeeds to full ownership of the property, by-passing probate. By law, tenants by the entirety share equally in the control, management and rights to receive income from the property. Property cannot be “partitioned” or split in a tenancy by the entirety. A tenancy by the entirety also provides some creditor protection in case one spouse gets into financial distress as creditors cannot lien the non-debtor spouse’s interest in the property. In the example, below you can see how the Obamas take title as tenants by the entirety.

Joint Tenants

Like tenants by the entirety, a joint tenancy with rights of survivorship provide that the surviving spouse or joint tenant automatically succeeds to ownership, by-passing probate. You don’t have to be married to create a joint tenancy. These are common when siblings share property or as between elderly parents and their children. Unlike a tenancy by the entirety, joint tenants can “partition” or split ownership of the property through a court process.

Tenants in Common

The least used type of ownership, in a tenancy in common, there is no right of survivorship. So when a tenant in common passes, their interest goes to their surviving heirs and the property must be probated for further sale or mortgage. Most folks want to avoid probate like the plague. Like a joint tenancy, a tenancy in common can be split or “partitioned” by court order.

Purchase Price

All deeds must recite the consideration or purchase price paid. So if you are looking to hide the amount you paid for your home, forget about it. The purchase price is also used to calculate deed/transfer taxes due the seller which is $4.56 per $1,000. For more info about deed/transfer taxes read I Have To Pay Tax On Selling My Home?!

Legal Description

Every deed must adequately describe the property conveyed. In the diagram below, you can see the formal legal description called a “metes and bounds” description. This will often reference a plan of the land recorded with the registry of deeds or reference markers on the property such as stone walls, surveyor points, etc. The deed may also recite easements, restrictions, covenants or takings on the property. It will also recite the last prior deed to track ownership.

Drafting, Fees, Notaries, Etc.

In Massachusetts, local practice is for the seller’s attorney to draft the deed. The registry of deeds charges a fee of $125 to record the deed which the buyer pays. All deeds must be notarized by a notary public who must verify the sellers’ identification through a state issued driver’s license or acceptable form of identification. The notary must also confirm that the sellers are signing the deed voluntarily by their own free act and will. Once the closing is finished, the closing attorney will courier the deed to the registry of deeds, perform a final title run-down, and record the deed, mortgage and other documents. The sale is then official!

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Buyer & Seller Closing Checklist: What You Need To Bring To Closing

by Rich Vetstein on May 14, 2011

in Closings, Condominium Law, Insurance, Massachusetts Real Estate Law, Purchase and Sale Agreements

images-8Buyer’s Closing Checklist

The day has finally come and it’s time to close on the purchase of your property. You will need to bring the following to the closing:

  • Funds For Closing. If you need to bring cash to the closing, you must bring to closing a bank or certified check PAYABLE TO YOURSELF for the balance of the figure shown on line 303 on your HUD-1 Settlement Statement: Cash From Buyers. This is for fraud prevention, and you’ll endorse the check over to the closing attorney at the closing. The closing attorney should provide you with this number at least 24-48 hours prior to closing. Accordingly, if you need to move funds around from investments accounts, etc., do so well in advance of the closing, and be prepared to make a bank run to obtain that bank/certified check!
  • Homeowner’s Insurance Binder. At closing, you need a homeowner’s insurance binder showing the first year premium paid. If you are purchasing a condominium unit, you will need to provide us with the Master Insurance Binder, and depending on the type of loan you use, you may need an HO-6 policy covering the interior of your unit. The closing attorney will typically get an insurance binder ordered ahead of time, but this should be on your “to-do” list.
  • Your state issued driver’s license with picture or other picture identification. Some lenders now require a second form of i.d. Your closing attorney will advise you of this.
  • If a sale of your present home is required by your new lender, you must bring the HUD-1 Settlement Statement and a copy of the Deed from that transaction.
  • Good Faith Estimate. You should bring the Good Faith Estimate of closings costs that your lender originally provided to you during the loan application process. That way, you can ensure that the final closing costs match up to those originally quoted to you.
  • Draft HUD-1 Settlement Statement. You should have received a preliminary HUD-1 Settlement Statement from the closing attorney’s office. Due to lender delays, it is not uncommon to receive this the night before or the morning of closing, although this is obviously not ideal. Compare the prelim HUD to the HUD you are signing at the closing table.
  • Your Smile. Yes, bring your smile. It’s a happy day, and despite all the tumult and stress you are finally purchasing your home!

Seller’s Closing Checklist

Sellers will need to bring the following to the closing:

  • Massachusetts or state issued driver’s license
  • Keys to home and alarm codes/information
  • Smoke detector and carbon monoxide detector certifications from local fire department. Your Realtor should assist you with this.
  • Signed Deed from you to the buyers. Your attorney should have drafted the Deed.
  • Title V Inspection Report for septic system
  • Evidence of repairs (if applicable)
  • Final water/sewer bill and reading (paid) and final oil bill and statement from oil company as to amount remaining in tank. You will need to make the request at least 2 weeks prior to closing.
  • Copy of last paid real estate tax bill.
  • 6D certificate for condominium unit showing that condo fees are paid up.
  • It’s also a nice gesture to give the new buyers the name of your landscaper, septic company, private trash hauler, handyman, etc. I’m sure your workmen will appreciate it also.

Before you close, don’t forget to:

  • Fill out change of address forms
  • Notify utility companies of move out
  • Discontinue phone service and cable
  • Leave all appliance warranties and instructions in the house (these are usually left in a kitchen drawer so they will be easily found by the new owners)
  • Notify insurance agent of closing date in order to cancel present policy
  • If you are purchasing a new home at the same time, make sure you get a copy of the fully signed HUD-1 Settlement Statement

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Richard D. Vetstein, Esq. is an experienced Massachusetts Real Estate Attorney. For further information you can contact him at [email protected].

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Dealing With Dysfunctional Massachusetts Condominium Trustees & Homeowner Associations

by Rich Vetstein on May 10, 2011

in Condominium Law, Massachusetts Real Estate Law

images-12I’ve been getting a fair amount of calls these days regarding what I like to term dysfunctional condominium management. Usually these are smaller, self-managed condominiums, converted multi-family homes, etc. Sometimes, however, the problem of dysfunctional condominium management can plague larger condominiums.

As I often tell clients, condominiums often bring out the worst in people. Professionalism and respect get thrown out the door, and childish behavior rules.

The problems can range from poor to no financial management, unpaid monthly condominium fees, problems with the transition from the original developer to the association of unit owners, power hungry condo trustees, special assessments, and disputes over costly repairs and capital improvements. Here’s some advice for would-be condominium buyers and condo unit owners to prevent and deal with dysfunctional condominium management problems.

Dealing With A Dysfunctional Condominium Board of Trustees or Association

A. Financial Mismanagement

A condominium is supposed to run like a democracy with trustees being elected by the majority of unit owners, and subject to being voted out of office when they do a poor job. The procedures for elections and removal should be set forth in the condominium declaration of trust/by-laws. In the case of financial mismanagement, unit owners often may have difficulty enforcing the internal governance rules. At minimum, disgruntled unit owners should call a special meeting and attempt to removal or vote out trustees who are causing problems. If the internal governance doesn’t work, unit owners may seek legal action for “breach of fiduciary duty” against the trustees in the Superior Court. In egregious cases, the court can grant preliminary injunctions and other remedies to protect the unit owners from financial harm.

B. Unpaid Condominium Fees

With the down economy, unpaid condo fees have become a real problem, especially for smaller condos who rely on the monthly income to pay common area expenses. Fortunately, we have a strong Massachusetts condominium lien law with some teeth, called the “Super Lien Law.” Condominium associations can file a lien for unpaid condo fees against the delinquent owner, and the first 6 months of unpaid fees will have “super-priority” status over and above the mortgage(s) on the unit. The association can then foreclose on the lien and sell the unit at auction. Attorneys’ fees and collection costs can also be pursued. The condominium may even require that a unit owner’s tenant pay the association rent to pay down the unpaid fees. These are a very valuable enforcement mechanisms to ensure that condominiums get their condo fees paid. Often the mortgage lender will pay the condo fees on behalf of the borrower to avoid the super-priority lien.

C. Transition Issues

For new construction condominiums, the developer desires to have control over the condo management during the majority of the sell out process. This, however, can create conflicts with unit owners who have bought units. Typically, the condo documents will give the developer control over the association until 75% of the units are sold out or 3 years after the master deed is recorded, whichever is earlier. But what if the developer isn’t managing the finances properly or isn’t doing much of anything? Often the only viable remedy in this type of situation is a Superior Court lawsuit for breach of fiduciary duty against the developer-trustees.

Questions To Ask Before You Buy Into A Dysfunctional Condominium

  1. What are the condominium by-laws, rules & regulations? You or your attorney must read these condominium documents and make it a condition of your offer. Condominium by-laws and rules are supposed to provide a structure for good decision making. Make sure you carefully review the rules and regulations before buying.
  2. What is the monthly condominium fee and what does it pay for? The monthly condominium fee can range quite dramatically from condominium to condominium. The fee is a by-product of the number of units, the annual expenses to maintain the common area, whether the condo is professionally managed or self-managed, the age and condition of the project, and other variables such as litigation. For budgeting and financing you need to know the monthly fee and exactly what you are getting for it.
  3. 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.
  4. 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 the Boston 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.
  5. 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.
  6. 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.
  7. How many units are owner occupied? A large percentage of renters can create unwanted noise and neighbor issues, and result in a higher incidence of dysfunction. It can also raise re-sale and financing  issues with the new Fannie Mae and FHA condominium regulations which limit owner-occupancy rates.
  8. What is the condominium fee delinquency rate? Again, a signal of financial trouble. Plus lending guidelines want to see the rate at 15% or less.

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Richard D. Vetstein, Esq. is an experienced Massachusetts Real Estate Condominium Real Estate Attorney. For further information you can contact him at [email protected].

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Crazy Trustees, No Pet Rules & Leaky Roofs: Things To Consider When Buying A Massachusetts Condominium Unit

by Rich Vetstein on April 9, 2011

in Condominium Law, Massachusetts Real Estate Law

Buying a Massachusetts condominium unit is VERY different from buying a single family home. A lot of buyers don’t appreciate the difference, unfortunately, until they have lived in the condominium for a short time. From crazy condo trustees (remember the Del Boca Vista episode from Seinfeld?), pet rules and controversies, to leaky roofs — due diligence is critical before you buy a Massachusetts condominium.

Condominium: Special Type of Legal Ownership

From a legal perspective, a condominium is a special type of real estate ownership. When you purchase a condominium unit, you get complete legal title to the unit itself and an “undivided” interest in the common areas of the condominium project which is really everything other than the units. Common areas typically include the land underlying the project, the exterior walls, roof, elevator, building entrances and exits, lobby, interior stairways, swimming pools, recreational facilities and halls.

Common Areas & Financial Management

Each individual unit owner is responsible for everything within the walls of their unit, while the condominium association and its board of trustees are responsible for all the common areas and facilities. This is a critical part of a condominium. You are buying into the entire project as much as you are the unit, and your decision will impact your daily living and your ability to re-sell.

The management and maintenance of the condominium common areas are funded by the collection of monthly condo fees. The condo fees are used to pay for things like master insurance, property management, landscaping, water/sewer, snow plowing, pool cleaning, roof repairs, etc. Well run condominiums will also allocate a percentage of condo fees to a capital reserve fund to pay for expensive one-time capital repairs, usually leaky roofs, old boilers and big ticket items of that nature.

To borrow from a famous phrase, not all condominiums are created equally. Some condominiums are very well run; some are quite poorly run and underfunded. Buyers interested in purchasing a condominium unit must do their homework: not only about the condition of the individual unit they are interested in purchasing, but on the financial health and governance of the condominium as a whole.

Condominium finances also have a significant impact on whether your unit will qualify for certain loan programs. Please read my post, 10 Questions To Ask Before Buying A Massachusetts Condominium for more info on that topic.

Crazy Trustees

Condominium associations are usually run by a board of trustees ranging from 2 to 5 persons. Unfortunately it’s difficult to ascertain whether these individuals are sane and competent. What you can do as a buyer is request the last 3 years of condominium minutes to see what’s been going on with the condo. You should also request the budget for the last 3 years and have the trustees fill out a condominium questionnaire with detailed questions about the financial management. If no minutes are available, that’s a red flag of poor management. Watch out for larger condominiums that are self-managed, that is, not run by a professional management company. Managing a larger condominium is challenging work and a full time job.

No Pet Rules

Another critical part of a buyer’s due diligence is to review the condominium documents, the by-laws, rules and regulations. Here is an example of condo rules I found online from the Liberty Estates Condo in Uxbridge.

One of the most contentious rules in condominium governance is pets. Condominiums can legally regulate pets. They can prohibit them entirely, allow them, or adopt reasonable regulations to control them. Take the Liberty Estates pet rules:

If your dog has been known to get into trouble, this rule may pose a problem. Better to know ahead of time is my point.

Other important rules cover whether you can smoke, rent out the unit, decorations, paint colors, quiet hours, storage, parking, grills, decks, and signs.

And for fun, here’s that Seinfeld condo clip.

___________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts Real Estate Condominium Real Estate Attorney. For further information you can contact him at [email protected].

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Massachusetts Purchase & Sale Agreement Contingencies In A Changed Market

by Rich Vetstein on March 25, 2011

in Appraisals, Closings, Condominium Law, Fannie Mae, FHA, Massachusetts Real Estate Law, Mortgages, Purchase and Sale Agreements

The “Standard Form”

In Massachusetts, buyers and sellers typically use the standard form purchase and sale agreement created by the Greater Boston Board of Real Estate. This form has been around since the late 1970’s and last updated in 1999–which might as well be 100 years ago in real estate life. Along with the standard form, attorneys for sellers and buyers customarily add specialized Riders to the agreement which modify the standard form and add contingencies particular to the deal.

A Vastly Changed Landscape

The legal and mortgage financing landscape has changed so much in the last few years, with Fannie Mae and regulatory agencies issuing a new policy what seems like every other week, and short sale and REO transactions becoming much more prevalent. With the recovering market and new appraisal guidelines, some homes are not appraising out. Moreover, lenders have tightened underwriting requirements considerably. As a result, borrowers have more difficulty qualifying for mortgage loans, it takes longer to get a loan commitment, and there are often delays in getting the loan “cleared to close.” All these changes in the real estate landscape require re-thinking of the standard form purchase and sale agreement and the associated riders.

As experienced Massachusetts real estate attorneys, it shouldn’t come as a surprise to know that we are on top of the latest changes in the Massachusetts and national real estate landscape, and have adapted our legal forms accordingly. I’ll go through 3 recent changes that I’ve adopted in my practice.

Low Appraisal Contingency

These days, appraisals are administered is a completely different fashion. New rules – the Home Valuation Code of Conduct (HVCC) – hold appraisers to higher standards and sharply limit communication between appraisers and lenders. Mortgage professionals can no longer select their “hand-picked” appraiser now; there is basically a random lottery system to select the appraiser. The downside of this lottery is that the appraiser may not be very familiar with the town or neighborhood being appraised. So the appraisal may fall short of the agreed-upon selling price.

I always insist on this provision to protect a buyer against the risk of the property not appraising out.

Appraisal– The buyer’s obligations, hereunder, are contingent upon the BUYER’s lender obtaining an appraisal of the property in an amount at least equal to the purchase price of the premises.

What happens if the property doesn’t appraise for asking price? Sometimes you can ask for a second appraisal or bring different comparable sales to the appraiser’s attention and he can revise the appraisal. Sometimes, the parties must re-negotiate the purchase price. Talk to your lender and Realtor about the options. This provision, however, gives the buyer an “out” if a low appraisal cannot be overcome.

Condominium Fannie Mae Compliance

Tougher Fannie Mae and FHA condominium rules have made condo financing much more challenging. I add this clause to deal with this situation:

The Condominium, the Unit, and the Condominium Documents (including but not limited to the Master Deed and By-Laws/Trust) shall conform to the requirements of Federal National Mortgage Association (“FNMA” or “Freddie Mac”), Federal Housing Administration (“FHA”) or Federal Home Loan Mortgage Corporation (“FHLMC”) or other secondary mortgage market investor, and shall otherwise be acceptable to BUYER’s mortgage lender.

Rate Lock Expirations

Delays happen. There may be a title problem which the seller needs a few days or weeks to correct. But what if your rate lock will expire and you are facing a higher interest rate loan? This provision protects the buyer in this situation:

MODIFICATION TO PARAGRAPH 10: Notwithstanding anything to the contrary contained in this Agreement, if SELLER extends this Agreement to perfect title or make the Premises conform as provided in Paragraph 10, 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.

There are many other contingencies and new provisions that I use, but I cannot give them all away!

___________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts Real Estate Attorney. For further information you can contact him at [email protected].

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New Fannie Mae Condo Rules Over Pending Litigation Make Condos Harder To Sell

by Rich Vetstein on March 18, 2011

in Condominium Law, Fannie Mae, Massachusetts Real Estate Law, Purchase and Sale Agreements

Litigation Over Condominium Construction Can Derail Financing

It’s always humbling to be quoted in a major real estate publication such as Inman News. Last summer, I wrote about the nasty effect of the newer pending litigation Fannie Mae condo rules. Steve Bergsman, from Inman, was gracious enough to retell a story about how these rules left my client with a denial of his financing just days before his condo closing, leaving him living in a motel for weeks. (Another attorney represented him in the transaction, who I believe bordered on committing malpractice by not following my guidelines, below).

My legal advice for Realtors and condo buyers is to:

  1. Have the condominium association disclose whether it is involved in any type of pending litigation which could trigger the Fannie Mae guidelines.
  2. Get this information as early as possible, because it’s a deal killer.
  3. I always put a provision in my purchase and sale agreement rider in which the seller represents there is no pending litigation involving the condo.

Here is the Inman story, entitled New Rules Make Condos Harder To Sell (March 18, 2011):

Attorney Richard Vetstein told me this story: A client was going to buy a unit in a condominium development and thought he had it all wrapped up; he had an agreement in hand, deposit down and was two days away from closing.

Then he got a call from his lender, who said there were issues. “Issues?” the client asked. Essentially, his lender said there was active litigation involving the condominium building, and the loan would not be approved by underwriters.

Vetstein, of the eponymous Vetstein Law Group in Framingham, Mass., has done a considerable amount of legal work in the always colorful condominium world. Of the client in the story, he said, “Luckily, I was able to negotiate his deposit back, but he lost the deal, and since he had sold his prior residence, for awhile he was living in a motel. It just ruined his life for a couple of months.”

The episode didn’t make the seller of the condo unit any happier, either. Buyers these days are extremely hard to come by.

So what happened?

Recent changes to the Fannie Mae Selling Guide, including some alterations that went into effect March 1, make that afternoon leisure time on your personal veranda with the ice tea in your tumbler and a Robert Patterson paperback in your hand more chilling than comforting.

Condo watchdogs generally are focusing on two changes that could affect your pocketbook, either as a homeowner or home seller. The first has to do with newly converted, non-gut rehabilitation condo projects, while the second, which affected Vetstein’s client, has to do with the collateral damage of an ongoing litigation.

Fannie Mae now declares mortgage loans in progress on a condo involved in any type of litigation, other than minor litigation (i.e., disputes over rights of quiet enjoyment), ineligible for delivery, said Orest Tomaselli, CEO of White Plains, N.Y.-based National Condo Advisors LLC.

“There are different types of litigation, from slip-and-fall cases to structural issues, so Fannie split it all up and any project where the HOA is named as a party defending litigation that relates to safety, structure (or) soundness of functional use (is) ineligible,” Tomaselli said. “These projects will not be able to enjoy Fannie Mae project approval nor the financing that results from it.”

The Fannie Mae guidelines read: “Any project (condo, co-op, or planned unit development) for which the homeowners association or co-op corporation is named as a party to pending litigation, or for which the project sponsor or developer is named as a party to pending litigation that relates to safety, structural soundness, habitability or functional use of the project, remains ineligible.”

What this means is, if your neighbor has some personal beef with the homeowners association or developer because his plumbing doesn’t work or the front door of the building has a bad lock and sues, well, that can affect you because a potential buyer can not get a Fannie Mae loan. Sure, the buyer can go to a bank and get a different loan, but that would just be more expensive.

What happened with Vetstein’s client was that a crazy, litigious unit owner was suing the condo association and prior builder for minor leaks.

“It was something that really should have been resolved by the trustees, builder or even insurer,” Vetstein explained. “It didn’t involve a lot of money, but the lawsuit was out there, pending and not resolved. There was no waiver because the litigation fell within these parameters of structural soundness and safety. Fannie Mae said, ‘Sorry, there’s no gray area here.’ ”

The changes present a conundrum for HOAs. It’s not uncommon in cold-weather states to experience poorly worked roofs resulting in water penetration of condominium units. Condo owners get upset, the HOA gets upset, and everyone wants to sue the builder or roofer. Unfortunately, this triggers a Fannie Mae issue.

“There is nothing the condo association can do about someone suing over defective conditions, but it certainly does have control over who they sue,” Vetstein said. “The HOA needs to know a lawsuit will have a ripple effect.”

The other problem for condo owners is specifically for those who live in developments that essentially have been converted from rentals into ownership units, or as Fannie Mae officially labels them, newly converted, non-gut-rehabilitation condo projects.

Those developments have to go through a Project Eligibility Review Service, or PERS.

The Fannie Mae Selling Guide updates read: “Many buildings are converted to condominiums without the replacement of major components resulting in eventual increased costs to unit owners for maintenance and major repairs. In order to mitigate the additional risk that newly converted, non-gut-rehabilitation projects pose, all newly converted, non-gut-rehabilitation condo projects must be submitted to PERS for review and approval.”

The problem is the cost to the HOA. Fannie Mae charges $1,200 for the review, plus $30 for every unit in the buildings, said Tomaselli. So, if you’re looking at 200-unit building, that’s $7,200 that has to paid out.

In addition, the newly converted non-guts have to undergo a reserve study to determine over a 30-year period of time what the repair costs are going to be in regard to such items as elevators, roofs, mechanical and structural systems, and the exterior.

“The current guidelines require that only 10 percent of the budget be set aside for reserve. Once the reserve study is done, an accurate number is given on what the reserve should be — and those numbers can be tremendous,” Tomaselli said.

The main goal of a reserve study is accuracy. “This guideline requiring reserve studies for new non-gut-rehab condominiums will ensure accurate reserve funding enforcement that will eliminate special assessments in most cases,” said Tomaselli.

It’s not a bad thing for Fannie Mae because it is making sure homeowners are protected — but for developments, increased maintenance can loom large.

Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, “After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade,” has been ranked as a top-selling real estate investment book for the Amazon Kindle e-reader.

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Massachusetts Real Estate Law Year In Review & Outlook For 2011

by Rich Vetstein on December 27, 2010

in Condominium Law, Fannie Mae, FHA, Foreclosure, HUD, Massachusetts Real Estate Law, Purchase and Sale Agreements, RESPA, Short Sales

It’s that time again for our annual review of hot topics and top posts for the last year, 2010.

#5. The Great Flood of 2010. Ah, who can forget the flooding in the spring of 2010. I sure remember bailing out my flooded basement every 30 minutes through the night, into exhaustion. Good times… FEMA declared a “major disaster” and the IRS granted taxpayers in 7 counties an extension to file their taxes.

Read More: Federal Aid And Tax Extension To May 11 Available To Massachusetts Homeowners Affected By Flooding

#4. The Obama HAFA Short Sale Program. The Obama short sale program, announced at the end of 2009, was aimed to speed up short sales of homes and other loan modification alternatives to stem the rising tide of foreclosures. The Home Affordable Foreclosure Alternatives Program (HAFA) provides financial incentives and simplifies the procedures for completing short sales, a growing practice in which a lender agrees to accept the sale price of a home to pay off a mortgage even if the price falls short of the amount owed. By all accounts, however, the HAFA program has been a dismal failure.

#3. On Jan. 1, new RESPA rules went into effect, significantly changing the way lenders disclose settlement services, in particular closing attorneys’ fees, and title insurance. Read more: New RESPA Rules 2010: Disclosure of Settlement Services, Closing Attorneys’ Fees, And Title Insurance .

#2. Our popular primers on the Massachusetts Offer to Purchase and the standard form Purchase and Sale Agreement, checked in with over 16,000 reads. Great to see posts about buying a new home ranking so highly. An indicator of the recovery of the Massachusetts real estate market perhaps?

Read More:

#1–Fannie Mae & FHA Condominium Regulations:  Our series on the Fannie Mae and FHA strict new condominium lending rules were incredibly popular, combining for over 25,000 reads during 2010.  The new guidelines had condominium developers and associations, buyers and sellers in a tizzy, as Fannie and FHA imposed much tougher pre-sale requirements, condominium financial guidelines and the imposition of unit owner HO-6 insurance policies, among other requirements.

Read More:

Honorable Mention: With Old Man Winter upon us, our post on the changes in Massachusetts snow removal law is very popular:  Massachusetts Property Owners Now Have Legal Responsibility To Shovel Snow & Ice.

What To Expect In 2011

Final Ruling In the Ibanez Foreclosure Case

Early 2011 should bring the final word from the Mass. Supreme Judicial Court on the very controversial foreclosure case of U.S. Bank v. Ibanez which invalidated foreclosures across the state for sloppy paperwork. Thousands of property owners and their ownership rights to their homes hang in the balance. Click Here For Our Entire Series Of Post On the Ibanez Case.

Fate Of Real Estate Attorneys

Year 2011 should also bring the final word in the The Real Estate Bar Association of Massachusetts, Inc. (REBA) v. National Real Estate Information Services, Inc. (NREIS) case. This case pits Massachusetts real estate closing attorneys versus out of state non-attorney settlement service providers which are attempting to perform “witness or notary” closings here in Massachusetts. At stake is merely the billion dollar Massachusetts real estate closing industry.

What are your predictions for 2011?

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First Snow Brings Questions On Change In Snow Removal Law

by Rich Vetstein on December 21, 2010

in Condominium Law, Landlord Tenant Law, Massachusetts Real Estate Law, Premises Liability, Safety

Ice-slip-drinkProperty Owners Need To Clear Snow & Ice After Storms

As I was slipping and sliding in the first real snow yesterday, this blog got a spike in traffic about Massachusetts snow removal law. Back when we were sunning in 80 degree weather, the Massachusetts Supreme Judicial Court overruled 125 years of snow removal law and announced a new rule of law that all Massachusetts property owners are legally responsible for the removal of snow and ice from their property. The old rule was that owners could leave natural accumulations of snow and ice intact and escape liability for slip and falls. No longer.

The case is Papadopoulos v. Target Corp. and can be read here. You can read my prior post on the case here.

Impact To Massachusetts Property Owners: Shovel Early & Often

What this change in Massachusetts snow removal law means for all property owners, both residential and commercial, is that they need to be extra vigilant after snow and ice storms, and clear areas in which the public and visitors have access–early and often. Whether a property owner takes reasonable steps in removing snow and ice will be determined by judges, juries and later cases on an individual basis. If you cannot clear the snow and ice, hire a private company to do it.

Important: speak with your insurance agent about increasing the limits of your liability coverage. I recommend Nadine Heaps at Purple Ink Insurance out of Ashland, MA.

Read More: Shoveling Ruling May Face First Test–Boston Globe (12.25.10).

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The Great Condominium Smoke-Out: Associations Enacting Anti-Smoking Bans

by Rich Vetstein on November 23, 2010

in Condominium Law, Landlord Tenant Law, Massachusetts Real Estate Law, Safety

A Man’s Condo Unit May Not Be His Castle For Smoking…

As anti-smoking restrictions become increasingly widespread, smokers find the last place they can indulge freely is within the confines of their home. However, the saying that a man’s home is his castle may not extend to condominiums where condo associations are enacting bans against smoking in common areas and even individual units.

In Chicago, the 1418 N. Lake Shore Drive Condominium Association recently banned smoking in interior common areas and inside the units. Smoking is permitted in a unit, however, if it is restricted to a single room that has been equipped with an association-approved, self-contained air-treatment system. Last year, a Cape Cod condominium considered a smoking ban in living areas.

Smokers will surely cry foul over this, but condominiums are a special kind of property. As Massachusetts courts have ruled, “central to the concept of condominium ownership is the principle that each owner, in exchange for the benefits of association with other owners, must give up a certain degree of freedom of choice which he might otherwise enjoy in separate, privately owned property.” Condominium trustees are empowered to enact rules that are “reasonably related to the promotion of the health, happiness and peace of mind of the unit owners.”

With smoking, however, the issue become quite cloudy. Without legal precedent that smoking constitutes a private nuisance – which would give associations a green light to enact indoor smoking bans – an anti-smoking rule which is not made into a formal condominium document amendment may not be enforceable. Recorded amendments typically require 75% unit owner approval, and also give prospective buyers fair warning before they decide to buy a unit. For those associations that can muster a 75% vote, they may on their way to smoke free living bliss…

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Fannie Mae Advisory: Pending Condominium Litigation Can Derail Your Condo Financing

by Rich Vetstein on July 21, 2010

in Condominium Law, Disclosures, Fannie Mae, Massachusetts Real Estate Law, Purchase and Sale Agreements, Realtors

If the condominium project that you are buying into is involved in any pending litigation over construction or its common areas, chances are you will not be able to obtain a conventional loan under newer, strict Fannie Mae condominium lending guidelines. This is not good for condominium buyers, lenders, unit owners desiring to sell and condominium associations.

Fannie Mae underwrites the vast majority of mortgages in the United States today. Reacting to the condominium market meltdown, Fannie Mae (FNMA) substantially overhauled their condo underwriting rules, effective Jan. 1, 2009. The new rules require a 70% sell out threshold for new construction project, tough rules governing condominium finances, and new insurance requirements, among other tighter standards. The net effect is that condominium lending has gotten substantially more difficult to obtain, and the real estate industry and some lawmakers aren’t happy about it.

Pending Litigation Involving Safety, Structural Soundness or Habitability

The new guidelines exclude condominium financing for “projects in litigation, arbitration and mediation that arises out of a dispute as to safety, structural soundness or habitability.” Fannie Mae underwriters now look closely at any pending litigation involving the condominium, especially concerning its construction and common areas. I’ve seen several loans denied and canceled recently over pending condo litigation, regardless of the merits of the lawsuit. According to the Fannie Mae FAQ, if the litigation is minor and covered by insurance, lenders can ask Fannie for a waiver or exception.

So how can buyers and realtors protect themselves here?

  • First, prior to signing the purchase and sale agreement, make sure you ask the seller and the listing broker (preferably in writing to create a record) whether there is any pending litigation involving the condominium. Realtors should follow up with the board of trustees or management company. Attorneys can obtain access to the state trial court database to search for pending litigation.
  • If there is pending litigation, borrowers need to inform their lender, and get an answer whether this will affect the financing.
  • If you cannot get an answer by the signing of the purchase and sale agreement, use a clause in the agreement where the seller certifies there is no pending litigation (and assessments) affecting the condominium.
  • Buyers’ attorneys should also use a catch-all Fannie Mae contingency clause which gives the buyer an out if the condominium ultimately is Fannie non-compliant. This should give some additional protection to the buyer, especially where these issues often arise on the eve of closing and after the loan commitment deadline.

The Pendulum Has Swung The Other Way

What’s troubling about the new rules is that many condominiums are involved in litigation, some of which is meritless or frivolous unit owner suits. A lot of lawsuits are covered by the condominium master insurance policy so there is little risk of real loss. That Fannie Mae would summarily deny financing to these condominiums is disturbing to say the least. Overall, I believe that the pendulum has swung way too far. I wrote about this back when the rules were first implemented (still our most popular post), and it’s still true. But it’s the reality. Buyers and their advisers need to be aware of the situation.

Helpful Links:

Fannie Mae Condominium Review FAQ

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Pre-Closing Walk-Through Tips & Strategies

by Rich Vetstein on May 12, 2010

in Closings, Condominium Law, Massachusetts Real Estate Law, Purchase and Sale Agreements, Realtors

My Boston.com colleague, buyer’s agent Rona Fischman, has a great post today on walk-throughs, or pre-closing inspections. I’ve re-posted it here, along with my commentary (in italics) and my own tips.

The walk through is the last thing that the buyer does before closing. The buyers, plus the real estate agents, walk through the empty house to check that it is in the same condition as inspection day — except that the seller has moved out. I advise clients to do it immediately before closing. This gives the seller the most time to move out properly.  Rich’s Note: In the purchase and sale agreement, we always require that the seller leave the property in “broom clean” condition, free of all personal property and debris.

What can go wrong?

Planning: Sellers often underestimate the time and energy required to get everything out of the house. Then, as the deadline arrives, they get sloppy. The result is that the seller leaves a mess behind. Commonly it’s something like a pile of debris left in the basement, or some piece of furniture falls down the stairs and makes a hole in the plaster.

Here are some unusual ones:

1. A seller who was a landscaper had some plants that she was fond of. She was entitled to dig them up. But, she was in such a hurry that she left the yard looking like a crazed raccoon had attacked it. We brought pictures to closing. She came back and made it nice for the buyers.
2. A seller who coached a hockey team left the team equipment in a window seat. Although it was heavy, we hauled it to closing.
3. A seller who was cleaning up put his wallet in the kitchen cabinet. We found it on walk through and brought it to closing (the listing agent was not at walk through.)  Rich’s Note: The more serious situations are when sellers leave hazardous materials behind, such as old paint cans, chemicals, asbestos covered materials, or old insulation–often without the buyer even knowing they were in existence. This is often not discovered until after closing, and the best protection is to draft a contract provision where the seller represents and warrants there are no such materials, so the buyer can pursue the seller later.

Sometimes the problem involves the way the house was working. Here are a few examples:

1. Easy: Old-style washing machine spigots often drip. A homeowner just doesn’t know it until they disconnect the machines.
2. Hard: Once, I went to a walk through where there was a washing machine in the kitchen. The kitchen sink had no water at walk through. We found out why: if we turned on the sink, the laundry hook up ran (they had no shut-off and were on the line with the sink.)
3. Easy: Sometimes drip-leaks start under sinks or downspouts fall off outside.
4. Hard: sometimes a gutter tears off the house or a tree comes down shortly before closing.
5. Only once have I seen heating that failed at walk through. It was a condo that had just gotten a new boiler. It was on warranty. The company that installed it fixed it that afternoon.

What is the remedy for a problem at walk through? Whether it is easy or hard, there is usually a solution that money can buy. Frequently, the attorneys write out a quick agreement to hold some of the seller’s money to pay for correcting whatever the problem is. Rich’s Note: This is called a “hold-back agreement” where a portion of the seller’s proceeds are held in escrow until the problem is fixed. Sometimes the seller than fixes it and gets the funds released. Sometimes the buyer fixes it and gives the seller the bill and any remaining money. It depends on what it is and who it is.

Rich’s walk-through tips:

  • Do not waive the walk-through! You snooze, you lose, if there are subsequent problems.
  • Always go with your agent.
  • Bring your camera, Iphone, etc. to document any issues
  • Turn on/off all major appliances to see if they are working properly
  • Check under decks–sellers often leave nasty stuff behind
  • Scour the basement, check for water seepage and stuff left behind
  • Check repairs if the sellers agreed to make any
  • Turn on and off every light fixture
  • Run water & look under sinks for leaks
  • Check garage door openers
  • Have broker test alarm system
  • Open and close all doors
  • Flush toilets
  • Inspect ceilings, wall and floors
  • Run garbage disposal and exhaust fans
  • Test heating and air conditioning (even if off season)

After The Walk-Through

When the buyer arrives at the closing, the first thing I always ask is how did the walk-through go? I can usually tell how it went by whether the buyers (and their agents) are smiling or frowning when entering the closing room. The good thing is that no matter how poorly it went, the attorneys are almost always able to draft a hold-back agreement or some other solution to enable the transaction to close as scheduled. This is just another reasons why buyers and sellers should have experienced real estate counsel at the closing.

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Massachusetts Purchase And Sale Agreement Basics

by Rich Vetstein on May 11, 2010

in Condominium Law, Massachusetts Real Estate Law, Offer To Purchase, Purchase and Sale Agreements

Signing or not signing?TRID Update: Please review our article on new changes with the PS Agreement 

As a real estate attorney, I always take the time to fully explain to our clients the intricacies of the Massachusetts Purchase and Sale Agreement.

The purchase and sale agreement is the governing contract between the Buyer and the Seller regarding the proposed property to purchase. Most Buyers submit an initial Offer to Purchase to a Seller, which spells out the terms of the contract.  The purchase and sale agreement supersedes the offer, and can be thought of as the “long form” contract. At first blush, the purchase and sale agreement, like most legal documents, can be difficult to read and comprehend.

Deal Terms

First, like all contracts, the purchase and sale agreement sets out the terms of the deal. These terms primarily are taken from the offer. This includes the names of the parties, the legal description of the property (taken from the current deed), the purchase price, the mortgage commitment date, the closing date, any Seller credits, and any agreed upon fixtures that will remain with the property or be taken by the Seller.

Title and Deed

Second, the purchase and sale agreement deals with the title to the property and the deed. It lays out the framework for a conveyance (a real estate transfer) in Massachusetts. The agreement spells out that the Seller conveys the deed to the Buyer in return for consideration, then the deed is recorded and the Buyer becomes the owner of the property. However, in Massachusetts, once the deed is recorded at the proper Registry of Deeds, then any title issues “run with the land.”  Thus, the new owner becomes responsible for any outstanding encumbrances or liens that were not properly discharged. In order to protect the Buyer, the purchase and sale agreement provides that the Seller must convey “good, clear and marketable” title. Acting as the buyer’s or lender’s counsel, or both, attorneys will review the title exam and work with the Seller’s attorney to clear any title issues, so that the buyer will receive a certification of title and an owner’s title insurance policy.

Seller Responsibilities

Third, the purchase and sale agreement lays out the responsibilities of the Seller. This includes maintaining insurance and upkeep on the property until closing, obtaining a smoke and carbon monoxide certificate at closing, paying the broker’s commission, obtaining a 6(d) certificate for a condominium, and requiring that the taxes be paid by Seller up until the closing date (through an adjustment to the HUD Settlement Statement). The agreement also provides that the Seller’s agent (either the realtor or the attorney) holds the buyer’s deposit in an escrow account.

Anything But “Standard”

There is a note of caution about the standard form Massachusetts purchase and sale agreement. The standard form provides several hidden advantages to a Seller, I’ve written about on this Blog. Thus, buyers must have an experienced attorney revise the agreement and flag those built in deficiencies. For example, if a Buyer were to default prior to closing, the standard form document provides no cap on the damages; a skilled attorney will know to cap the damages at the deposit. The same is true if a buyer loses his rate lock if there is a delay of the closing; a skilled attorney would use language to protect the buyer in this situation.

An experienced attorney will produce a Rider to the purchase and sale agreement that will have language that protects a Buyer’s deposit and provides an aggressive layer of due diligence. For example, if the Buyer is purchasing a condominium, the Rider should have the Seller make representations that the association is not contemplating any special assessments, there are no pending lawsuits against the association, and the budget is in good order. Other issues include seller repairs, septic system/Title V compliance, radon gas, UFFI insulation, lead paint, and buyers’ access to the property while it is under agreement.

Since the P&S is “anything but standard,” an experienced real estate attorney who review and negotiates the document will certainly add value to the closing process.

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