Purchase and Sale Agreements

images-13Compliance Concerns Unwarranted

Electronic signature technology has been quickly gaining steam throughout the U.S. real estate community, and has now arrived in earnest in Massachusetts. Electronic signature software lets you send legally binding documents and get signatures anytime, anywhere from any Internet-connected device. It’s mostly used in Massachusetts on Offers and Purchase and Sale Agreements. I’ve been using DocuSign, and with a little learning curve, it’s been fantastic.

Realtors and attorneys who use electronic signature software can simply email encrypted contracts to their clients for signatures, rather than deal with travel, signing 4 original copies, and coordinating all the signatures. It’s especially helpful for out of state clients.

The Massachusetts real estate industry, traditionally conservative and slower to adopt new technology, has been lagging behind more progressive states such as California when it comes to adopting electronic signature technology. Plus, it hasn’t helped that technologically challenged attorneys are often involved in the drafting of the purchase and sale agreement.

In my informal survey of Realtors, the biggest questions were (1) are electronically signed contracts legal and valid, (2) how does it work: and (3) will lenders accept them?

Are Electronic Signatures Valid For Massachusetts Real Estate Contracts?

The answer is yes. Under the Massachusetts Uniform Electronic Transactions Act (UETA), real estate contracts which are electronically signed in compliance with the law are legal and valid.

Electronic signature legislation was adopted over 10 years ago. In 2000, Congress enacted the E-SIGN law which validates certain contracts in electronic form and electronic signatures across the country. In 2004, Massachusetts adopted its UETA, codified in Mass. General Laws Chapter 100G, which is essentially adopts and updates the federal E-SIGN law. Lawmakers designed UETA and E-Sign to recognize that “a signature, contract, or other record relating to a transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form.” The Massachusetts UETA provides, simply, that “In a legal proceeding, evidence of a record or signature may not be excluded solely because it is in electronic form.”

For offers and purchase and sale agreements, I have formulated the following rider provision to ensure electronic signature validity and enforceability. Feel free to use it.

This Agreement may be executed by and through electronic signature technology which is in compliance with Massachusetts law governing electronic signatures, including but not limited to, DocuSign®.  Electronic signatures shall be considered as valid and binding as original, wet signatures.  Signatures, originally signed by hand, but transmitted via e-mail or fax shall also be deemed valid and binding original signatures.

How Does It Work?

There are several electronic signature systems out there, including EchoSign, eOriginal, and DocuSign, which I use. All three providers warrant full compliance with federal E-SIGN and state UETA law and their European counterparts.

Since I’ve been using DocuSign, here is a quick video overview how it works.

As the individual requesting that a document be DocuSigned, you control who signs by providing the signer’s email address and other contact information. The document is routed to the signer’s email with a request to sign. DocuSign records the signer’s IP address and a time stamp of the signing activity. In addition, a signer can opt to provide geo-location information at the time of signing. If you require deeper levels of identity management, DocuSign offers additional authentication options, including: access code, knowledge-based ID check and biometric phone identification, among others.

As you can see, in many respects, an electronically signed contract is more secure and less susceptible to fraud and forgery than a traditional “wet” signature.

Are Lenders Accepting Electronically Signed Contracts?

Most are now. In fact, starting in 2012, FHA and the IRS will formally allow electronic signatures on loan and tax documents. However, I hear that some short sale lenders are still requiring wet signatures.

This is always the problem with adopting new technology. It’s disappointing because electronic signatures have been legal and valid for 10 years now. The law was passed by Congress and now all the states. As more and more agents and attorneys embrace the technology, we will see objections falling by the wayside, just as we did with faxed signatures.

Agents, are you using electronic signatures, and if so, how has it helped your business and clients? Have you run into issues or objections from lenders or attorneys?

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate closing attorney who’s handled over 1,000 closings. Please contact him if you need legal assistance purchasing residential or commercial real estate.

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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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Benjamin Franklin once said famously that “the only certainties in life are death and taxes.” That’s certainly true in real estate practice. Today, I will go over how real estate passes when the owner dies  –  with a will or without a will – and how the probate process affects the real estate process.

Tenancy by the Entirety

Married couples in Massachusetts are recommended to hold real estate as “tenants by the entirety.” It’s a special form of joint tenancy for married couples. 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.

Death Without A Will—Intestacy Laws

Clients were often surprised to learn that when one spouse dies without a will, the law of intestacy in Massachusetts leaves a portion of the estate to the surviving spouse and a portion to the decedent’s children. This is changing as of January 2012 with Massachusetts’ adoption of the Uniform Probate Code. Under the “UPC,” if a spouse with children of the marriage dies, the surviving spouse gets the entire estate, including the marital home. If there’s no surviving “descendant,” or child, of the deceased, but a surviving parent of the deceased, the surviving spouse gets the first $200,000 of the estate, plus 75% of the balance of the estate. The laws of inheritance remain rather complicated to explain fully here. A good guide to the new Uniform Probate Code can be found here.

Death With A Will — Testate

The basic rule is that if the owner dies with a will, which includes a power to sell real estate, the executor or administrator of the estate is generally authorized to convey title without further authority from the probate court. If the will does not provide for a power of sale, the executor will have to obtain a license to sell from the probate court.  If a final account has been filed and allowed, the heirs (in the case of an intestacy) or devisees (in the case of a will) are able to convey title.

Missing Probates

If the title examination turns up an interest that is not accounted for by a probate, and the death of the interested party occurred less than 25 years ago, a probate may need to be opened to convey the property. Deaths over 25 years old where a special affidavit has been filed, may pass without probate.

Federal & Massachusetts Estate Tax Liens

A federal and state estate tax lien arises immediately upon death and attaches at the time of death to the gross estate of the decedent. The gross estate includes all property, wherever situated, that the decedent owned or in which the decedent had an interest at the time of death. The threshold for federal gross estates for 2011 and 2012 is $5 Million for an individual and $10 Million for a couple. The Massachusetts estate threshold remains at $1 Million. For estates below those amounts, the executor must merely file a simple Affidavit of No Estate Tax Due. Estates over the thresholds must file the more complicated release of lien from the Department of Revenue which requires the filing of a full estate tax return.

Bought A House? Get A Will!

Julie Ladimer, Esq.

Danielle Van Ess

After every closing, I always have a chat with my new buyers about setting up a will and other estate planning vehicles. It’s very important on all fronts. For those in the MetroWest area, I recommend Julie McQuade Ladimer, Esq. of Framingham (email: jml@michaelgatlinlaw.com; Tel: (508) 788-0028. For those on the South Shore, I recommend Danielle Van Ess, Esq. in Hingham (email: info@dgvelaw.com; Tel: 781.740.0848. Both are very good and well regarded estate planning attorneys.

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Richard D. Vetstein, Esq. is an experienced real estate attorney who’s handled over 1,000 closings. Please contact him if you need legal assistance purchasing residential or commercial real estate.

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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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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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What happens if the property you have under agreement is wiped out by a tornado, burns down or is otherwise subject to a casualty?

Yesterday’s horrific tornadoes — which leveled parts of Springfield and Central Massachusetts — demonstrate the power and fury of Mother Nature and how little control we have over natural disasters. Our thoughts and prayers go out to everyone affected by the tornadoes….

The tornadoes were also a stark reminder to me that an extremely important part of my job as a real estate attorney is disaster planning. Although most buyers and Realtors don’t like to think pessimistically (and neither do I), we always have to plan ahead for the worst case scenario.

Which bring us to the topic of this post. What happens if the property you have under agreement is wiped out by a tornado, burns down or is otherwise subject to a casualty?

The Standard Form Casualty & Insurance Provisions

Let’s start with the basic concept that the buyer does not own the property until the closing occurs, money is exchanged and the deed/mortgage is recorded with the registry of deeds. The purchase and sale agreement is there to govern the parties’ relationship and the property from the time the offer is signed until the closing. The seller retains ownership and control over the property during this period of “under agreement.”

Seller Must Keep Property Insured

The standard form Massachusetts purchase and sale agreement contains two important provisions dealing with homeowner’s insurance and casualty. First, the standard form provides that the seller must keep the existing homeowner’s insurance coverage in place. A good buyer’s attorney will insert language that the “risk of loss” remains with the seller until the transaction closes, to ensure that if a tornado levels the home, that loss is the seller’s responsibility.

Opt Out/Election

Second, the standard form spells out what happens if there is a casualty. If the house is deemed a causualty loss, the buyer has the option of terminating the agreement and receiving his deposit monies back. However, the buyer has the option of proceeding with the transaction and can require the Seller to assign over to the buyer all of the insurance monies available. Depending on the amount of coverage available and the cost to re-built, this may not be a bad situation, but it’s the buyer’s call.

As a “belt and suspenders” measure, I also add the following provision to my purchase and sale rider to ensure that the buyer is protected in case of a disaster:

Notwithstanding any provisions of this Agreement to the contrary, in the event that the dwelling and/or other improvements to the Premises are destroyed or substantially damaged by fire or other casualty prior to the delivery of the deed, the cost to repair which exceeds $10,000.00, BUYER may, at BUYER’S option, terminate this Agreement by written notice to SELLER, whereupon all deposits made hereunder shall be forthwith refunded, all obligations of the parties hereto shall cease, and this Agreement shall become null and void without further recourse to the parties hereto.

Although natural disasters are rare, a certain amount of disaster planning must be done for every Massachusetts real estate transaction. Think of a real estate attorney as part of your insurance policy to protect you in a worst case scenario.

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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 info@vetsteinlawgroup.com.

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IMG_1621Ruling Mandates That Attorneys Take “Substantive Participation” In All Massachusetts Residential Transactions

The long awaited ruling from the Massachusetts Supreme Judicial Court in case of Real Estate Bar Association (REBA) v. National Estate Information Services (NREIS) has just come down. The ruling can be read below. The net effect of the Court’s ruling is to reaffirm Massachusetts attorneys’ long-standing role to oversee the closing process and conduct closings. For more background, please read my prior post, Battle Between Massachusetts Closing Attorneys vs. Settlement Service Providers Argued Before SJC.

This case pits Massachusetts real estate closing attorneys vs. out of state non-attorney settlement service providers which are attempting to perform “witness or notary” closings here in Massachusetts. At stake is the billion dollar Massachusetts real estate closing industry.

Quick Analysis

  • Massachusetts attorneys must be present for closings and take active role in transaction both before and after the closing. The substantive ruling from the court was a huge victory for Massachusetts real estate closing attorneys and their continued, long standing involvement in the residential real estate industry. The court requires “not only the presence but the substantive participation of an attorney on behalf of the mortgage lender.” This is what Massachusetts real estate attorneys have been fighting about for consumers in the face of out of state settlement companies who have tried to conduct closings with “robo-attorneys” and notaries who cannot explain complex legal documents to parties at the closing table. The court stated:

The closing is where all parties in a real property conveyancing transaction come together to transfer their interests, and where the legal documents prepared for the conveyance are executed, often including but not limited to the deed, the mortgage and the promissory note. The closing is thus a critical step in the transfer of title and the creation of significant legal and real property rights. Because this is so, we believe that a lawyer is a necessary participant at the closing to direct the proper transfer of title and consideration and to document the transaction, thereby protecting the private legal interests at stake as well as the public interest in the continued integrity and reliability of the real property recording and registration systems.

  • Applies to Both Purchases and Refinances. The court made no distinction between purchase and refinance transactions. The same essential functions of the attorney — examining and ensuring marketable title, handling the mortgage proceeds under the “good funds” law, and ensuring that the mortgage is properly recorded and the prior mortgage is discharged — are the same in both a purchase and refinance. Accordingly, in my opinion, the ruling applies to both purchase and refinance transactions.
  • No “Robo-Attorneys” Allowed. NREIS’ business model is to hire part-time, contract attorneys on an as-needed basis to conduct closings. Basically, these are kids right out of law school who get a call to drive to a closing they know nothing about for $100 or less a pop. Although they are licensed attorneys, these lawyers are really no different than the “robo-signers” in the foreclosure industry because they did not participate in the transaction from the start, they did not examine the title, or do anything to manage the transaction. Here’s what the court said about this practice:

Implicit in what we have just stated is our belief that the closing attorney must play a meaningful role in connection with the conveyancing transaction that the closing is intended to finalize. If the attorney’s only function is to be present at the closing, to hand legal documents that the attorney may never have seen before to the parties for signature, and to witness the signatures, there would be little need for the attorney to be at the closing at all. We do not consider this to be an appropriate course to follow. Rather, precisely because important, substantive legal rights and interests are at issue in a closing, we consider a closing attorney’s professional and ethical responsibilities to require actions not only at the closing but before and after it as well.

  • Analyzing title and rendering an opinion of clear and marketable title must be conducted by attorneys. Certifying good, clear and marketable title is the fundamental function of the real estate attorney in Massachusetts, and required by law for purchase transactions under Chapter 90, section 70. NREIS was attempting to out-source this function to out of state companies and non-lawyers, in avoidance of Mass. law.
  • Attorneys are required to draft deeds. The court held “because deeds pertaining to real property directly affect significant legal rights and obligations, the drafting for others of deeds to real property constitutes the practice of law in Massachusetts.”
  • Attorneys must effectuate the transaction. The court also ruled that only licensed attorneys have  duty to effectuate a valid transfer of the interests being conveyed at the closing. This includes ensuring that the deed and mortgage are properly recorded; that the exchange of funds is properly made and that prior mortgages and liens are properly paid off and discharged.
  • Title abstracts, title insurance and other administrative functions are properly delegated to non-attorneys. The court also correctly recognized, consistent with modern practice, that many functions in the real estate transaction don’t have to be performed by an attorney. Included in this exempted list of functions are the preparation of title abstracts by title examiners at the registries of deeds, the issuance of title insurance policies, and the preparation of closing documents & the HUD Settlement Statement. Real estate attorneys typically use title examiners and paralegals at lower costs to perform these functions.

The case will move back to federal court where it started for more fact-finding unless it can be settled. There were several unanswered questions because the record was not adequately established. It remains to be seen whether NREIS and its ink can adopt their business model to the SJC’s holding. It’s possible it can be done, but they will have to hire a group of attorneys to manage the system.

More CoverageCourt Weighs In On Lawyers and Closings, Boston Business Journal (argues that this is a blow to attorneys–completely disagree).

State Court Rules Attorneys Must Participate In Home Closings, Boston Globe (yours truly quoted)

REBA v. NREIS Decision

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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!

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

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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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This is a summary of a recent presentation given by Jon Ufland and Chuck Silverston of Prudential Unlimited Realty, Attorneys Richard Vetstein & Marc Canner of TitleHub Closing Services, and Mark Maiocca of Mortgage Network.

Selling & Buying Simultaneously

Many home buyers today still need to sell their current homes and use the sale proceeds for their next purchase. Often, there is a closing in the morning on the “sell,” and a closing in the afternoon on the “buy.” This is called a “piggyback” or “back to back” sale.

Back in the boom days, we were doing piggyback transactions all the time, and lenders were able to offer special programs, like bridge loans, to facilitate these back to back transactions. The days of bridge loans, no-docs, and 100% financing may be over, according to Mortgage Network’s Mark Maoicca, but piggyback transactions are still going on, but in a changed market.

There are numerous factors and variables to consider when doing a piggyback transaction, from a legal, financial/lending and marketing perspective.  There can be at least 11 different people involved – buyer, seller, 2 agents, up to 3 attorneys, loan officer, appraiser, home inspector and contractor.

Sales/Marketing

There are a number of considerations on the sale/marketing side according to Jon Ufland and Chuck Silverton of Prudential Unlimited Realty. When to put your home on the market so as to ensure a quick sale? Statistics show that the most sales activity in the Greater Boston area occurs in March, April and May, with families trying to get settled before the summer and back to school season ends. December through February is the dead zone. Getting a pre-sale home inspection and comparable market analysis before putting your home on the market are two good tips suggested by Jon and Chuck.

Lending

According to Mark, lenders are no longer offering bridge loans or 100% financing, which helped cash strapped sellers to close on their new purchases. Also, home equity lines are tougher to qualify for. No income verification and stated income loans are just about long gone for the recently self-employed. Mark also says that the days of “washing the rent” on income properties is over. You need a 2 year history of rental income for qualification purposes. You also need to factor in the required real estate tax and insurance escrow reserve in your mortgage payment affordability analysis.

Bottom line, confer with your loan officer and financial planner as early as possible in the process before putting your house on the market! Get those financial ducks lined up before….

Coordination & Control

The piggyback transaction works best when one person takes on the role of “project manager.” It’s usually your real estate agent or attorney. Communication and coordination is the recipe for a successful piggyback transaction.

On the legal side, the overriding goal is to keep your buyer’s feet to the proverbial coals on the sale while protecting your deposit on the buy. It may seem like common sense, but it’s best to hire the same attorney to handle both transactions. An experienced attorney will line up the two mortgage contingency deadlines so that your buyer will obtain a firm loan commitment as soon as possible (with no contingencies, especially the sale of other property), and you have sufficient time on your purchase to get your own firm commitment while protecting yourself from any worst case scenarios like job loss, defective title, etc. The attorney should always be on top of these important deadlines so he or she can ask for extensions and otherwise exercise any opt out rights. Failure to do that can result in the loss of your deposit. Delays are common today in the tighter lending environment.

The Big Day

As the closing day approaches, everyone gets into high gear, with the agents coordinating smoke certs and pre-closing walk-throughs, the attorneys drafting preliminary HUDs, deeds, and coordinating wires, and loan officers sending closing packages. Speaking of wires, your attorney should be able to coordinate a wire of your sale proceeds into the IOLTA account of the purchase closing attorney, so you have good funds to close.

The closing day is about as hectic as you can get. I suggesting giving your attorney a power of attorney so he or an associate can attend the closing on the sale, get on record, coordinate the funds, and you can deal with moving and attending the purchase closing in the afternoon.

______________________________________________________

Jon, Chuck, Marc, Rich and Mark have all worked together as a team on piggyback transactions. Don’t hesitate to contact us if you need expert assistance.

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Are Electronic Contracts And E-Signatures On The Way?

Catching my eye this week was a recent New York Times article discussing a New York state court opinion regarding the legal effect of e-mail in real estate contracts.  The ruling reaffirmed that e-mail may carry the same weight as traditional ink on paper contracts.

It made me think about the future of real estate contracts and how they will look. Will the common practice of executing four original purchase and sale agreements be replaced by some type of electronic PDF document with electronic signatures? (I hope so. They are in the West Coast now). Same for the standard Offer to Purchase? What about the stack of disclosures and loan documents signed at closings? (There must be a better way). And mortgages are already being electronically recorded in several Massachusetts counties.

I wonder how closings will be conducted in 2021?

Congress and state legislatures have already laid the groundwork for electronic real estate contracts and e-signatures. In 2000, Congress enacted the E-SIGN law which validated certain contracts in electronic form and electronic signatures. In 2004, Massachusetts adopted the Uniform Electronic Transactions Act (UETA), which is essentially updates the E-SIGN law. Lawmakers designed UETA and E-Sign to recognize that “a signature, contract, or other record relating to a transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form.” The Massachusetts UETA exempts several types of contracts and disclosures (e.g., wills), but not real estate contracts.

Old Traditions & The Statute of Frauds

But old traditions are hard to change, especially when it involves real estate.  As every first year law student learns, Massachusetts real estate contracts are governed by the Statute of Frauds.  This doctrine, originated in old English common law, says that any contract for the sale of real estate must be in writing and “signed by the party to be charged therewith.”  One can make a compelling argument that secured electronic contracts and signatures serve the purpose of the Statute of Frauds by providing some objective evidence, other than word of mouth, that there really has been a binding deal.

I haven’t found any cases dealing with the interplay between the UETA and the Statute of Frauds.  And there’s something about that “wet” ink signature on real paper that gives people security and comfort.  The same is true for our beloved Greater Boston Real Estate Board standard form Offer and P&S.  We’ll have to see how the issue plays out in the courts.

But if you can purchase a Ferrari online through E-Bay, why can’t you buy a home using a secure electronic contract?  How do you think technology will affect real estate in the future? What would you like to see change in the industry?

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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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This post is a continuation of my discussion about the recent Massachusetts Appeals Court case of NRT New England, Inc. v. Moncure (click for link). Last week I talked about why the decision was very important in upholding the standard liquidated damages clause in the the typical purchase and sale agreement.

This week I’ll talk about the court’s ruling that the listing broker violated its fiduciary duties when it messed around with the escrow deposit.

Quick Take-Away

The important take away from this case for all real estate agents is that if you are holding a deposit as an escrow agent, don’t even think about messing with it even if there’s a legitimate dispute about your commission or other monies owed to you. It’s not your money! The best advice is to let the dispute run its course and continue holding the funds in escrow.

Dispute Between Listing Broker and Buyer

The facts of this case are a bit unusual. Listing Broker represented the seller in a purchase of residential property in Wayland, MA. Under the standard purchase and sale agreement, the buyer posted a $92,500 escrow deposit which Listing Broker held as an escrow agent. The same buyer apparently used Listing Broker on another transaction and owed it nearly $35,000 in fees.

The buyer lost its financing and defaulted on the contract, thereby forfeiting the $92,500 deposit. (I covered that in my prior post). Listing Broker took an assignment of the buyer’s right to the escrow funds, but didn’t tell its client that right away. Then Listing Broker tried to strong-arm its client by threatening litigation if he didn’t accept $2,500 and release the escrow deposit to Listing Broker.

Breach of Fiduciary Duty and Chapter 93A Violation

The court was none too happy with Listing Broker’s course of action here. The court reaffirmed that Listing Broker had a fiduciary duty — one of the highest duties under law — to hold the funds for the benefit of the seller and not to engage in any self-dealing. The court found that Listing Broker’s collection of a debt against the escrow deposit while it was acting as escrow agent was a clear breach of fiduciary duty.

The kicker was that the court imposed triple damages and an award of attorneys’ fees under the Massachusetts Consumer Protection Act, Chapter 93A. So Listing Broker is now on the hook for $277,500 plus thousands in legal fees. Ouch!

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This week the Massachusetts Appeals Court handed down an important decision involving the standard form purchase and sale agreement and a listing broker’s fiduciary duties as the escrow agent. The case is NRT New England, Inc. v. Moncure (click for link). I’m going to break this decision down into 2 blog posts because it’s a lot to cover.

Seller Entitled To Retain 5% Deposit When Buyer Couldn’t Close

The first important part of the decision is that the court upheld the “industry norm” 5% deposit under the purchase and sale agreement as “liquidated damages” when the buyer lost his financing and couldn’t close–even in a hot and rising market (2004) and even when the seller ultimately sold the home for a better price.

“Liquidated damages” is essentially an estimate of the anticipated damages a seller would incur if the buyer defaults and cannot close. The parties under a purchase and agreement agree on a number, typically 5% of the purchase price, as the liquidated damages that the seller is entitled to retain–in case the buyer is unable to close. (The buyer is usually protected under the financing contingency until she received a firm loan commitment).

The typical liquidated damages clause in the Massachusetts purchase and sale agreement looks like this:

If the BUYER shall fail to fulfill the BUYER’s agreements herein, all deposits made hereunder by the BUYER shall be retained by the SELLER as liquidated damages, which shall be the SELLER’S sole remedy at law or in equity.

In the NRT case the seller was scheduled to buy another property on the same day as the closing on his sale–a “back to back.” He needed the proceeds from the sale to use for his purchase transaction. However, when the buyer’s financing fell through, the seller was able to obtain a bridge loan, so he could close on his purchase. And he ultimately re-listed his property and sold it for a higher price. So the seller didn’t suffer that much in damages, certainly not equal to the $92,500 in escrow.

Nevertheless, the court upheld the seller’s entitlement to the entire $92,500 deposit. The court said that it wouldn’t take a “second look” at the liquidated damages amount, finding that the 5% was the industry norm in Massachusetts, and represented a reasonable forecast of damages in the event of a buyer’s default given the considerable risk associated carrying the expense of 2 mortgaged properties indefinitely.

Lesson To Be Learned

The lesson here for buyers is that in almost every case where a buyer defaults without legal excuse–say goodbye to that 5% deposit! And that could be a lot of dough down the tubes. So make sure you have an experienced real estate attorney review your purchase and sale agreement so you don’t find yourself in the same quagmire as the buyer in this case.

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Part 2 will be a discussion about what happened when the listing broker messed around with the seller’s deposit. Two words: triple damages. Uh oh.

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Welcome back Guest Blogger, Realtor Gabrielle Daniels Brennan, from Coldwell Banker Residential Brokerage, Sudbury, MA! Gabrielle and her mother-partner, Carole Daniels, just launched a fantastic blog, Living In Sudbury (www.liveinsudburyma.com), which our company, HubConnected, designed and created.

Having grown up in Sudbury and now settled there with her family, Gabby’s knowledge of the Sudbury and surrounding market is unparalleled. Plus, she re-defines “concierge” service, going so far as to ensure that her buyers meet their neighbors ahead of time, get local nannies, and find the right preschool. Gabby is writing today about the mutual respect buyers and sellers should have for each other during the real estate process.

Home Buyers And Sellers, You CAN Just Get Along!

Once upon a time there was a newlywed couple house-hunting in the suburbs. They held hands as they strolled into each house, they conversed with their real estate agent about every detail of their wedding and giggled like sixth graders whenever they spoke the words “husband” or “wife.”

Then, they found the house of their dreams. The dreams that mirror “happily ever after” — it was the house they imagined having babies (2 boys and 2 girls – the girls would be twins of course and would share a room painted with Benjamin Moore’s Cotton Candy).

The happy couple told their real estate agent that they wanted to make an offer for asking price, closing the exact day that the sellers wanted to close. They had enough money from their wedding gifts and unfortunate passing of Great Grandpa Charlie to pay for the house in cash. The husband dabbled in construction, so every item that appeared as a result of the home inspection would be “no big deal.”

Both sets of parents came to see the house and everyone oooh’ed and ahhh’ed instead of bringing up the fact that the kitchen wasn’t updated, or that the family room was a little smaller than what they had thought it would be, or that the garage was under the house. The parents all talked about how happy they were and they never said anything that remotely sounded like “YOU paid ____ for this??? Our house cost $37,000 when we bought it …” And then the sellers threw a welcome party for the buyers before they moved in – just to make the proper introduction to the neighborhood.

I’m sure you are thinking that this story is a work of fiction. Nope. Well, aside from the buyers volunteering to pay the asking price and the gushing in-laws, the concept of a truly pleasant real estate transaction doesn’t have to sound so foreign. Without compromising the financial objective of either party, the real estate transaction can be pleasant and satisfying to all parties involved.

The decision to buy or sell a home is as much a personal transaction as it is business. It’s an exciting one, and a process in which I truly love being involved. And although it’s certainly not as straightforward as a show on HDTV about finding the right house, it doesn’t have to be challenging. As much as buyers would like to say that they won’t buy with their hearts, that is crazy – of course they will. It’s a home. It’s where you live. It’s where your heart is. Your life is not one big business transaction.

Everyone remembers the details of their real estate transactions. Even if they bought or sold their house 12 years ago, they will tell you exactly how the buyers or sellers acted, the items negotiated during the home inspection, the credit they received, what they negotiated during the purchase & sale agreement, and the details that still make them happy or cringe.

They may not remember the date they bought their house, but they will remember everything about the closing.

I have been involved in scores of real estate transactions. When multiple persons are involved in the decision-making process for a major life event, so much can get lost in translation and people don’t always behave in a way that they, let’s say, would be proud of if a TV crew were following them around. In addition to the number of family members and friends who know EXACTLY what is best for you, there are many people involved in a real estate transaction — buyers, sellers, two real estate agents, two attorneys, possibly two paralegals, one mortgage broker, one appraiser, at least one inspector, and, sometimes, the nosy neighbor.

If my intention with this piece were to promote the value of experienced real estate agents, this would be the part where I emphasize that it is the role of the real estate agent to quarterback the entire team involved to ensure that everyone wins.

In general, buyers are excited to buy a house. When an offer is made, it is the beginning of negotiations with the seller with the goal of consummating the sale of the home.  In today’s market, prices have adjusted and many sellers are having an understandably difficult time grasping the reality of the market.

Because of the resources available in 2010, today’s buyers are also the most knowledgeable, well informed and cautious. The market value of a house is what a buyer is willing to pay. Without giving up any money on the sale side and overpaying on the buy side, there are so many ways in which to make the real estate transaction one that is not so painful.

My thoughts below may seem pretty uncomplicated, and that is my objective. It is easier to have a smooth and seamless transaction than it is to have one that feels more like an act of Congress. It is a business transaction, but the basis of the transaction is emotional. You certainly don’t have become new best friends, but cordial is always appreciated.

1. MUTUAL RESPECT. The tone of the entire transaction is set with the first round of communication between both parties.

*   BUYERS: Be respectful of the sellers and their real estate agent. This does not translate into paying more. It shows that you will be a pleasure to deal with. Appreciate your sellers. They have cared for and maintained the house you fell in love with.

SELLERS: Appreciate your buyers. They love your house enough to buy it. If you receive an offer the first day on the market, it is because your house was priced right and the buyers know the market. Don’t be greedy, it will backfire.

2. DON’T TAKE THE MARKET PERSONALLY

*   BUYERS: If a seller decides not to accept your offer, it has nothing to do with what great people you are and how many friends you have in common. It’s usually about the financial picture.

*   SELLERS: Most likely, you didn’t overpay for your house.  You paid what the house was worth when you bought it. It’s exactly what the buyers want to do now – pay what the house is worth in today’s market. I’m certainly not suggesting that you don’t get frustrated or upset if you are taking a loss or not netting what you had planned, just don’t take it out on your potential buyers. What you “want” and “need” to get for your house is irrelevant. Buyers will pay what they feel it is worth and their mortgage company will lend based on what they feel it is worth.

3. WORK SMART. CHOOSE YOUR REPRESENTATION CAREFULLY.

*   Work with real estate agents and attorneys with whom you are comfortable and have trust. This isn’t the time to cut corners and do someone a favor. You deserve to have the best people on your team.

4. HICCUPS

*   Every transaction has their “thing” – something that needs to be clarified, negotiated, extended, explained. Know this ahead of time so when your own situation arises, you know that it’s normal and just needs to be dealt with.

5. NEIGHBORS

*   SELLERS: Keep in mind that the buyers are now going to have your former neighbors as neighbors.

*   BUYERS: Keep in mind that your soon-to-be neighbors are your sellers’ current neighbors.

PeopleSudbury Wayland MA Real Estate Homes like to talk, especially about real estate.

At the end of the day, it’s about common decency. It’s about mutual respect between the buyer and seller of the same house. As much as this is a business transaction, it is even more a personal one.

Gabrielle Daniels Brennan and her mother, Carole Daniels are The Daniels Team of Coldwell Banker Residential Brokerage in Sudbury. You may contact them by phone at 508-277-6956 (Carole cell), 617-320-8150 (Gabrielle Cell), or by Email to gabrielle.daniels@nemoves.com

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Agents: Don’t Mess With A Buyer’s Deposit

Yesterday an interesting case came down involving a nasty tug-of-war between listing brokers and an exclusive buyer’s agent, with the buyer’s six figure deposit caught in the middle. The case is Zang v. NRT New England and can be read here.

In the case, the seller signed the standard exclusive listing agreement with the listing broker which provided for a 5% commission, and cooperation with buyers’ brokers, with an equal split of the commission. Mr. Zang, a potential buyer, showed up at an open house for the condominium, unaccompanied by a broker.  The buyer made an offer through the listing agent, but an agreement couldn’t be reached.  The buyer then hired an exclusive buyer’s agent who submitted a second offer.  The offer was ultimately accepted by the seller, and the parties proceeded to sign a purchase and sale agreement.

The listing broker, however, was none too pleased that the buyer’s broker had entered the picture at the final hour looking for a commission. The listing agent even left a few amusing voicemail messages for the buyer, asking him whether “you think that it’s really fair that [the buyer’s agent] should come in at this late date and capture half of the commission… and what does Alan [one of the listing agents] get for all of his work? Nothing. But, you know, I guess that’s money in your pocket.”

The buyer posted a $122,500 deposit (10% of the purchase price) upon the execution of the purchase and sale agreement. The agreement provided that the listing agent would act as escrow agent and that a 5% commission would be paid by the seller to the listing agent and the buyer’s agent, split equally. In short, the seller’s net sales proceeds were to be reduced by $61,250, of which $30,625 was to be paid to the buyer’s agent at closing.

After the closing, however, the listing agent refused to pay the buyer’s broker his commission, and refused to disburse the remaining escrow deposit, essentially holding it hostage.  Big no-no, said the Appeals Court.  While the listing agent may have a legitimate dispute over the commission, the court ruled, its fiduciary duties as escrow agent took precedence. The listing agent had no right to retain the buyer’s money, and was contractually obligated to disburse it according to the purchase and sale agreement, period.  The court did not sanction this sort of self-help by the listing agent.  And the court let stand the buyer’s claims for 93A/consumer protection violation which carries triple damages and attorneys’ fees.

So the lesson for real estate agents here is don’t mess with a deposit even if you feel you have a legitimate beef over a commission.  It’s not worth it, and it will subject you to liability.

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iStock_000005550102XSmall.jpgToday’s strict lending and underwriting environment has resulted in quite a few delays and even losses of buyers’ financing for home purchases. Loan commitment deadlines are being pushed back due to underwriting delays, regulatory compliance and appraisal issues, among other delays. The worst case scenario for any borrower is the wholesale rejection of financing in the middle of a transaction.

What Is The Typical Mortgage Contingency Clause?

The Massachusetts “standard” form purchase and sale agreement contains a mortgage contingency clause which protects the buyer (and his deposit) for the period of time until he can obtain a firm loan commitment. The date is negotiated by the buyer and seller, and is usually around 30 days from the execution of the purchase and sale agreement, depending on the closing date. If the buyer cannot get a firm loan commitment by the deadline, he can opt out of agreement with a full refund of his deposit. Here is how a typical Massachusetts mortgage financing contingency clause operates:

In order to help finance the acquisition of said premises, the BUYER shall apply for a conven­tional bank or other institutional mortgage loan of $300,500.00 at prevailing rates, terms and conditions. If despite the BUYER’S diligent efforts, a commitment for such a loan cannot be obtained on or before October 15, 2010, the BUYER may terminate this agreement by written notice to the SELLER in accordance with the term of the rider, prior to the expiration of such time, whereupon any payments made under this agreement shall be forthwith refunded and all other obligations of the parties hereto shall cease and this agreements shall be void without recourse to the parties hereto. In no event will the BUYER be deemed to have used diligent efforts to obtain such commitment unless the BUYER submits a complete mortgage loan application conforming to the foregoing provisions on or before 3 days from the execution of this Agreement.

What If There Are Delays In Obtaining My Loan Commitment?

The buyer really has only two choices if the lender cannot deliver a firm loan commitment by the mortgage contingency deadline: (1) ask the seller for an extension of the loan commitment deadline, or (b) terminate the transaction. There is, however, a smart way to handle this situation.

I always couple a request for a loan commitment extension with notice that if the seller does not agree, then the buyer will exercise his right to terminate the agreement. That way, the seller has to make a tough choice: grant an extension or lose the deal. If the seller does not want to grant an extension, the buyer really has no other choice but to move on to the next home for sale.

Parties need to make mortgage contingency deadlines workable and don’t wait until the last minute to ask for extensions. See this post about a recent case for what happens when you don’t do this.

What If There Are Conditions In My Loan Commitment That I Cannot Control or Meet?

Loan commitments are often riddled with conditions which must be reviewed carefully with counsel. Sometimes, there are conditions that a buyer simply cannot meet or control. To account for this I always insert this clause in my Massachusetts purchase and sale agreement rider:

Application to one such bank or mortgage lender by such date shall constitute “diligent efforts.”  If the written loan commitment contains terms and conditions that are beyond BUYER’S reasonable ability to control or achieve, or if the commitment requires BUYER to encumber property other than the subject property, BUYER may terminate this agreement, whereupon any payments made under this agreement shall be forthwith refunded and all other obligations of the parties hereto shall cease and this agreement shall be void without recourse to the parties hereto.

This protects the buyer in case there are those uncontrollable conditions, and also limits the buyer’s efforts in applying for a mortgage to 1 application.

What If There Are Title Defects Which Delay The Transaction And My Rate Lock Expires?

Under paragraph 10 of the Massachusetts standard form purchase and sale agreement, the seller has the option (or the requirement, depending on the negotiation of the agreement) to cure any title defects, and has up to 30 days to do so. Sometimes, during this 30 day cure period, the buyer’s rate lock will expire. In this situation, I insert the following clause into the purchase and sale agreement:

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.  BUYER may elect, at its sole option, to obtain an extension of its mortgage commitment or rate lock.

This gives the buyer an “out” of the transaction if his rate lock expires.

As always, feel free to contact me, Richard Vetstein, for any questions about the Massachusetts purchase and sale agreement process.

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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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Overview: Lis Pendens, Latin for “A Suit Pending”

A lis pendens is Latin for “a suit pending.” Under the Massachusetts lis pendens law, a lis pendens is a notice endorsed by a judge certifying that there is litigation pending involving the title or occupancy rights to a property. Where real estate deals go sour, a court will often issue a lis pendens where a buyer seeks “specific performance” of a real estate contract in order to force a seller to go through with a transaction. Lis pendens are also common in other real estate cases such as boundary, title, zoning, and ownership disputes. The lis pendens is recorded at the registry of deeds against the property and its owner(s), creating a serious cloud on the title to the affected property. A lis pendens will, in many cases, effectively prevent the owner from selling the property until the claim is resolved–thus, earning its well-deserved reputation as dangerous arrow in a real estate litigator’s quiver.

Heavy Ammunition For Buyers

Since the Massachusetts Supreme Judicial Court held in 1998 that the standard Greater Boston Real Estate form Offer To Purchase is a binding contract, buyers have used the lis pendens with great success against sellers who unjustifiably try to back out of Offers to Purchase and Purchase and Sale Agreements. Aggressive buyer attorneys would often obtain a lis pendens without prior notice to the seller (called ex parte relief), and this would give buyers a huge advantage and effectively derail any pending sale of the property until the judge resolved the claim.

Recent Changes To The Law

In response to complaints that litigants were abusing the law with frivolous claims for lis pendens’, lawmakers amended the law in 2003. Now, claimants seeking ex parte relief must show there is a clear danger that the seller, if notified in advance, will convey, encumber, damage or destroy the property. Sellers also have a new remedy to stop frivolous claims: a “special motion to dismiss” which carries with it an award of attorneys’ fees and costs. The playing field is a bit more leveled now, yet the lis pendens remains a powerful tool for real estate attorneys.

Dealing With A Lis Pendens

Dealing with a meritorious lis pendens remains very difficult. Standard owner’s title insurance policies do not insure against them. Further, most title companies hesitate to affirmatively insure a lis pendens as they would effectively be underwriting the ultimate success of the lawsuit. Sometimes, however, coverage can be obtained for an additional premium and/or with some form of indemnification or security. In the absence of insurance, a lis pendens will remain a cloud on title until the claim is ultimately resolved in the courts, which these days can take many years. Given the high cost of litigation, a financial settlement is often the only way to resolve the matter in a cost-effective manner.

As an experienced real estate litigator who has obtained and defended scores of lis pendens’, please contact me with any questions about a Massachusetts lis pendens.

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Richard D. Vetstein, Esq. is an experienced and creative Massachusetts real estate litigator who loves to help property owners defend their contract or property rights in court. Please contact him at rvetstein@vetsteinlawgroup.com or 508-620-5352 for a no-obligation consultation.

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