Ruling Enables Foreclosed Owner to Live in Premises For Over 6 Years, Leaving New Owner with Defective Title
In a decision which could affect how title examiners and title insurance companies underwrite title to foreclosed properties, the Supreme Judicial Court has ruled that a lender’s defective notice of default is grounds to void and nullify a foreclosure sale — even after the property was purchased at auction by a third party without knowledge of the problem. The decision is Pinti v. Emigrant Mortgage Co. Inc. (SJC-July 17, 2015).
The defective aspect of the default notice was relatively minor. The notice was required to say that the borrower had the right to bring “a court action” to challenge the default or foreclosure. The actual notice instead referenced a “lawsuit for foreclosure and sale.” The problem is that in Massachusetts there is really no such thing as a lawsuit for foreclosure, because we are a non-judicial foreclosure state. In order to challenge a foreclosure, a borrower must bring an injunction proceeding in Superior Court. Over this minor discrepancy, the Court throw out a 3 year old foreclosure, leaving the subsequent buyer with defective title.
“This ruling is yet another reason why it’s absolutely critical to obtain owner’s title insurance for any home purchase–especially a foreclosure property.”
This ruling had a disastrous impact on the foreclosing lender and the buyer of the property at foreclosure (and his title insurance company, presumably). The borrower, who was represented by Greater Boston Legal Services, stopped paying her mortgage six years ago in 2009, and the lender foreclosed in 2012. A third party purchased the property (with the borrower in occupancy) shortly thereafter, then commenced eviction proceedings. It appears that the borrower has been able to live in the premises for the entirety of the litigation, presumably mortgage payment free. After this ruling, the lender will need to re-start foreclosure proceedings from square one.
Change In Title Exam Practices?
In a typical title examination involving a previously foreclosed property, the examiner and attorney will only look at the foreclosure notices and “green cards” — the certified mail foreclosure notices. In light of this ruling, the examiner may be required to look back even further to the default notices sent by the lender (which are not recorded with the registry of deeds) and ensure compliance with the mortgage and loan documents. Attorneys should consult their title companies for guidance on this ruling. (The ruling’s effect is prospective only; a title insurance company that I work with has already stated that they will not be changing their underwriting standards after Pinti).
Effect On Foreclosures
The SJC’s reasoning for requiring strict compliance with the default notice provisions in the mortgage was based on the fact that Massachusetts uses a non-judicial foreclosure process. That is, lenders do not need a judge’s approval to start foreclosure (with the except that they need Land Court approval that the borrower is not in the armed services). Accordingly, even the most hyper-technical defect in a default notice by the lender could render a foreclosure void.
Following a long series of pro-borrower rulings starting with the historic U.S. v. Ibanez decision, the SJC’s decision in this case is yet another cautionary tale to lenders that they must dot their “i’s” and cross their “t’s” before conducting a valid foreclosure sale.
Major Change To Current Practices | Expect Delays and Bumpy Road Starting Oct. 1
I just finished yet another closing where a national lender issued the closing package and HUD approval the morning of the closing, and worse, issued a revised TIL (Truth in Lending) disclosure during the middle of the closing! Under the new TILA-RESPA Integrated Disclosure Rules (TRID) set to start on October 1, this common practice is prohibited, and my closing would have been delayed up to 7 days, to the dismay of everyone in the transaction.
The new TRID rules are game-changing regulations which threaten to disrupt and delay closings across the country. The new rules, already pushed back once due to industry outcry, go into effect in about 60 days on Oct. 1. I am very worried that lenders, Realtors and closing attorneys are not at all prepared for one of the most significant changes in how we do business. Experts are predicting that closings will be delayed, 60 day loan approvals will be the new normal, and new forms will bewilder buyers. “Expect a one- to two-week delay in closings,” said Ken Trepeta, director of real estate services of the government affairs branch for the National Association of Realtors, when describing the impact of TRID.
Currently, we are finishing one of the strongest spring markets in a decade, but I’m quite concerned that come Fall, the new TRID rules will put the fall market into an ice bath. The best thing that every real estate professional can do is get educated and get prepared now for these changes. August is typically a slow month, so use it to get ready. My team will be doing a roadshow Powerpoint seminar to any local real estate office to explain the new changes. Contact me at email@example.com for more info.
New Closing Disclosure Replacing the HUD-1 Settlement Statement: 3 Day Rule
Under TRID, there will be a new settlement statement called a Closing Disclosure, which must be issued to the borrower at least 3 days prior to closing. If that does not occur, the closing will be delayed for up to 7 days. We are hearing that lenders will require that the information contained in the Closing Disclosure (all fees, closing costs, taxes, insurance, escrows, credits, etc.) be finalized 7-10 days prior to closing, to give them enough time to generate the new Closing Disclosure in a timely fashion.
What does that mean for us professionals? It means that everything will need to be pushed up and done faster than before. That goes for titles, CPL’s, broker commission statements, invoices for repairs, insurance binders, condo fees, recording fees, title insurance, everything. And it means we can all expect delays as everyone adjusts to the new timetables and rules.
Practice Pointer: I suggest the following new provision to be inserted into the standard purchase and sale agreement rider: The parties agree that if there are any delays to the closing caused by compliance with the TILA-RESPA Integrated Disclosure Rules (TRID), which is outside the Buyer’s control, then the closing shall be extended for no more than 7 days, at no additional cost to Buyer.
What Forms Will Be Signed At Closing?
Lenders will require the new Closing Disclosure (embedded below) be signed by the borrower at closing. However, although the Closing Disclosure was intended to replace the current HUD-1 Settlement Statement, the geniuses at CPFB neglected to put a signature line for the sellers on the new Closing Disclosure. I’m not making this up. And we are no longer supposed to use the “old” HUD-1 Settlement Statement. Thus, our title insurance companies are telling us that there may be three settlement statements signed at closing: a Closing Disclosure for the buyer, a Closing Disclosure for the seller, and a combined Closing Disclosure. ALTA has created a new Combined Settlement Statement which can be found here.
Bank of America was asked whether it would require the use of the ALTA model forms, and it stated in a June 9 memo that it prefers the ALTA model if a closing attorney chooses to use a settlement statement to supplement the Closing Disclosure (CD), but specified that the settlement statement figures must reconcile to the CD and a copy of the settlement statement must be provided to the bank. The bank also stated that all revisions to fees and costs will require bank approval and an amended CD. In other words, closing attorneys will not be allowed to revise fees and costs by simply supplementing the CD with a settlement statement.
60 Day Approvals/Closings The New Normal?
With any historic change to how lenders disclose fees and approve loans, there’s going to be a steep learning curve — and delays. You can count on that. Industry insiders say the days of 30 and even 45 day loan approvals may be over, at least temporarily. Sixty (60) day approvals may be the new normal, and agents should build the longer timeframe into their offers and purchase and sale agreements and educate their buyers and sellers accordingly.
Repairs and Walk-Throughs
Since lenders will require all fees and credits finalized 7-10 days prior to closing, this will significantly impact how we handle repairs and credits. Agreed upon repairs also affect how the appraisal is conducted which will further impact the timelines. Experts are suggesting that Realtors consider doing walk-throughs at least 14-21 days prior to closing instead of the typical day before or day of walkthrough, because all repair issues and credits should be set in stone at least 7-10 days prior to closing and changes in fees and credits on the day of closing will not be permitted by the lender. Some experts are even saying that agents should do two walkthroughs, one within the TRID timelines and one immediately prior to closing. Also, under TRID paid outside closing (POC) items will be discouraged by lenders.
Take-away: Realtors should be warned that repairs contained in the purchase and sale agreement will have the potential to delay closings under the TRID rules. Ensure that any repairs are completed 14-21 days prior to closing. Better yet, don’t have the seller make repairs at all; use closing cost credits instead.
No More Back to Back Closings?
Due to the high potential for delays caused by TRID, back-to-back or piggyback closings may be a thing of the past, at least for now. A delay with a closing obviously has a domino effect on a back to back closing. The best practice, at least for the first few months of the new TRID era, is to schedule closings at least 3 days apart. Seller/buyers will have to prepare for this reality with bridge loans, use and occupancy agreements, or temporarily staying with your nearest relatives.
Partner with Trusted and Verified Providers
Now more than ever, Realtors are going to want to partner with lenders and closing attorneys who have been vetted and verified as fully compliant with the TRID rules, so there will be minimal disruption and delay on their transactions. Realtors and loan officers should ask their closing attorneys whether they are compliant with the ALTA (American Land Title Association) Best Practices, which is quickly becoming the standard for TRID compliance. Under the ALTA Best Practices, the attorney will have passed an intensive initial due-diligence screening, a third-party internal audit, background and credit check, extensive review of applicant’s experience, business model and policy loss history, and licensing verification. The closing attorney should also have secure document encryption capabilities and privacy/technology policies in place. My office has been vetted and verified by Stewart Title which has a comprehensive website on the TRID rules. If your buyer wants to use his personal attorney who does not specialize in real estate, explain to him or her why that is a mistake which could ultimately delay the closing.
Bumpy Road Ahead?
In my opinion, the TRID rules are the biggest change to the industry in 20 years, and will be much more difficult to implement than the new GFE and 3 page HUD of several years ago. As discussed above, my team will be doing a roadshow Powerpoint seminar to any local real estate office to explain the new changes. Contact me at firstname.lastname@example.org to schedule your complementary seminar.
What is disparate impact theory you ask? Good question. In a disparate-impact claim, someone who alleges housing discrimination may establish liability, without proof of intentional discrimination, if an identified rental practice has a disproportionate effect on certain groups of individuals (i.e, minorities) and if the practice is not grounded in sound business considerations. Ok, now what does that mean in plain English?
Here’s an example. Let’s say you own several apartment buildings, and an upset tenant says that based on statistics for the last 5 years, you have evicted 75% more black tenants than white tenants, while the rate of nonpayment between racial classes have remain about the same. That’s a disparate impact claim. Surprising to most folks is that under a disparate impact theory, the claimant need not show some type of “smoking gun” evidence of direct racial discrimination, like something Donald Sterling would say, such as “we don’t like to rent to black folks.” If the claimant can back up his theory with statistical evidence, then he or she will have their day in court.
While accepting disparate impact as a viable Fair Housing claim, the Supreme Court imposed important limitations on the application of the theory “to protect potential defendants against abusive disparate-impact claims.” In particular, the Court held that a racial imbalance, without more, cannot sustain a claim, and directed lower courts to “examine with care” the claims at the pleadings stage. The Court emphasized the plaintiff’s burden to establish a “robust” causal connection between the challenged practice and the alleged disparities. Further, a defendant’s justification is “not contrary to the disparate-impact requirement, unless … artificial, arbitrary, and unnecessary.” Finally, “remedial orders” must “concentrate on the elimination of the offending practice” through “race-neutral means.”
Despite the limitation, this is a big win for fair housing advocates. Sec. 8 tenants, the MCAD and EEOC will have another powerful legal theory to use to crack down on discrimiminatory rental practices. Moreover, in the wake of the ruling, HUD just announced its the long-awaited Affirmatively Furthering Fair Housing (AFFH) rule, which will provide maps and data on historic segregation that cities will need to use to assess their progress in reducing segregation, increasing housing choice and promoting inclusivity.
The lesson to take back from this ruling is to ensure you have policies in place to treat every applicant and tenant the same way across the board. The existence of written procedures, policies and manuals are helpful in defense of these types of claims. Saying you follow “Equal Housing Opportunity” is one thing; you have do actually do it.
By-Pass Housing Court For Expedited Superior Court Restraining Order Procedure
I recently handled an interesting case involving an unauthorized family member taking up residence in my client’s rental unit. My client, a doctor, owns a very nice condo unit in the Theatre District in Boston. He and his family live next door in the adjacent unit. The client signed a one year lease with a wealthy foreign national from Jordan, a middle aged lady. Per the lease, the tenant was the only authorized occupant for this 1BR unit. There was no discussion about family members being authorized occupants, and my client would not have agreed to it.
My client comes to find out that the tenant’s 20-something year old son, who attends a local college, has taken up residence in the unit. To make matters worse, the kid hosts several loud late night parties reeking of marijuana and cigarette smoke. My client is incensed, and to add insult to injury, he is fined several thousand dollars for noise and lease violations by the condo association. My client attempts to take action against tenant and son, but they hire a well known tenant’s rights attorney who stonewalls the two attorneys hired by the client. The client finally hires me.
Typically, this type of case would be filed as a standard eviction case in busy pro-tenant Boston Housing Court. The tenant’s attorney is also well known there. Accordingly, I needed to find a way to bypass Housing Court and take away this lawyer’s home court advantage.
So I came up with an creative approach. I filed a restraining order application in Superior Court to remove the son as an illegal trespasser. Although Superior Court typically handles major civil cases, it does share jurisdiction with the Housing Court over trespass cases requesting equitable relief. I served the interloper with a formal trespass notice, then filed the Superior Court application a few days later. The judge granted the move out order, after which my client and I had the pleasure of taking a victory walk down Tremont Street to serve the move out order. We were able to have the management company immediately change the locks and remove all the kid’s possessions. He is now permanently barred from entering the building. And the best part was that he left his wallet and passport in the unit! My client is now preparing the unit for rent to a better tenant.
SJC Issues Long Awaited Ruling That Agents Can Be Classified as Both Independent Contractors and Employees, But Leaves Questions
The Supreme Judicial Court has just released its long awaited opinion in Monell, et al. v. Boston Pads, LLC, (link here), ruling that Massachusetts real estate and rental agents can remain classified as independent contractors under the state’s real estate licensing and independent contractor law. The ruling keeps the traditional commission-only independent contractor brokerage office model in place, with brokers allowed to classify agents as 1099 independent contractors, without facing liability for not paying them salary, overtime or providing employee benefits. A collective deep breath should be heard throughout the entire Mass. real estate industry this morning.
Although the ruling determined that real estate agents are exempted from Massachusetts’s independent contractor law, the Court left open whether future plaintiff employees could build a case on other legal theories, and the Court deferred to the Legislature to enact a bill to address any murkiness which remains with the law.
Despite the question left behind by the justices, Gregory Vasil, CEO of the Greater Boston Real Estate Board told Banker and Tradesman said that, “We’re pleased with the outcome.” “It preserves the right of choice for our members. It doesn’t change the industry, it doesn’t change the status quo. It’s pretty clear you can have both independent contractors and employees.”
Corrine Fitzgerald, 2015 president of the Massachusetts Association of Realtors and broker-owner of Fitzgerald Real Estate in Greenfield, agreed, calling it a “good decision.”
Rental Agents Sue Jacob Realty For Overtime Wages
This lawsuit was brought by a group of disgruntled rental agents at Jacob Realty seeking to recoup lost overtime and minimum wages. As is customary in the industry, Jacob Realty classified the agents as independent contractors, paying them on a commission-only basis and making them responsible for payment of their own taxes and monthly desk fees. At the start of their employment, however, the agents signed non-disclosure, non-solicitation and non-compete agreements. They had to own day planners, obtain a cellphone with a “617” area code, adhere to a dress code, submit to mandatory office hours and to various disciplinary actions if they did not meet their productivity goals — requirements typically reserved for employees, not independent contractors.
Court Holds That Agents Can Be Classified Either as Independent Contractors or Employees
The SJC was tasked with balancing the independent contractor laws and the real estate licensing law — which in many critical aspects the Legislature left directly in conflict with each other. Justice Hines, writing for the Court, noted the difficulty in construing the two laws, stating that “the real estate licensing statute makes it impossible for a real estate salesperson to satisfy the three factors required to achieve independent contractor status, all of which must be satisfied to defeat the presumption of employee status.”
The Court ultimately concluded that a real estate agent could be classified as either an independent contractor or an employee, but that the agents at Jacob Realty were unable to demonstrate they were employees in this particular case. The Court, however left open for another case the ultimate questions as to whether all real estate agents should be classified as independent contractors. The justices said that “in light of the potential impact of that issue on the real estate industry as a whole and its significant ramifications for real estate salespersons’ access to the rights and benefits of employment, we think it prudent to leave that issue’s resolution to another day, when it has been fully briefed and argued. Should the Legislature be so inclined, it may wish to clarify how a real estate salesperson may gain employee status under the real estate licensing statute.”
This ruling is somewhat frustrating. The SJC punted on the major question that everyone in the industry has been waiting on for a year now. I love when that happens (insert sarcasm here). Whether the Legislature takes up this issue remains to be seen. In the meantime, brokers and office managers can sleep a little better tonight knowing that the chances they will be sued over employee classification has gone down considerably, but they still may be awoken someday with a nightmare in the hands of a creative plaintiff’s wage and hour attorney.
Court Halts Eviction For Distressed Homeowner, Validity of Foreclosure In Question (Wells Fargo v. Cook, Mass. Appeals Court May 19, 2015)
In response to the foreclosure crisis, HUD enacted regulations requiring lenders to provide distressed borrowers with a meaningful opportunity to settle their FHA-insured mortgages and obtain a loan modification during a face-to-face interview. In an effort to accommodate the hundreds of Wells Fargo clients facing foreclosure in Massachusetts, the San Francisco based lender held a mass “homeowner’s workshop” at Gillette Stadium in August 2008.
Three months behind on their Mattapan mortgage, Nancy Cook and her daughter showed up to the stadium with a little over $10,000 in cash, in anticipation of signing a repayment plan. After waiting in a long line, Cook received a ticket and sat down with a bank representative. Despite HUD guidelines requiring that loan representative have actual authority to settle accounts and enter repayment plans, the Wells Fargo representative said that he was unable to accept any payments at the event. The counseling session lasted only 15 minutes, but the reprepresentative promised that Ms. Cook would receive a loan modification package in the mail.
Ms. Cook did receive a Special Forbearance Agreement in the mail, which she accepted, and made the first three payments under the agreement. When she went to make the fourth payment, Wells Fargo rejected it, claiming that Cook owed it $2000 more than the scheduled payment. Wells Fargo then issued a default notice, accelerated Cook’s debt, and foreclosed her home.
Several years after completing the foreclosure sale, Wells Fargo brought an eviction case against Cook and her daughter, who at this time were represented by lawyers from Harvard University Legal Aid. (The reason for the long delay is unclear). Boston Housing Court judge Marylou Muirhead ruled against Cook, clearing the way for her eviction.
On appeal, Appeals Court Justice Scott Kafker halted Cook’s eviction, ruling that the Housing Court judge should reconsider whether the Gillette Stadium mass counseling event complied with HUD guidelines. Justice Kafker noted that a reoccurring theme of the HUD rules is to provide personalized consideration for each homeowner. That apparently was not done, said the justice, or at least there is a dispute as to whether the mass Gillette Stadium event could satisfy that guideline.
Of particularly interest to the real estate conveyancing community, the Court held that if the lower court ultimately rules that the counseling session was insufficient, the lender could be found in noncompliance with the mortgage terms and foreclosure power of sale, and its foreclosure could be deemed defective and invalid. A court holding to this effect could potentially invalidate completed foreclosures of FHA insured mortgages over whether the lenders complied with the face-to-face meeting requirements of the HUD guidelines. Ensuring a lender’s compliance with HUD rules is not typically part of a title examiner’s scope of examination. Lenders would need to provide an affidavit certifying that all pre-foreclosure counseling requirements were complied with. Accordingly, this is yet another reason why obtaining an owner’s title insurance policy is a prudent choice for all buyers of foreclosed properties.
Like Superman, A Use and Occupancy Agreement Can Save the Day, But Be Aware of the Risks!
Tom and Mary Ryan, and their two little kids, Abigail and Jake, are relocating from California to the Boston area so Tom can take a job with a local tech company in Burlington. They have already sold their California home, and have been living in a cramped rented condominium in Santa Monica for two months already. Their loan has hit some snags because Tom was out of work for half of 2013, and had some IRS issues, although he is on solid footing now with his new job. The closing is scheduled for the end of this week and they have their cross country movers booked and scheduled and their life is now packed in boxes. Just when they finish packing their last box, their loan officer calls with somber news. “Tom, unfortunately, our underwriting department is dealing with delays getting your tax transcripts from the IRS. We are going to have to push back the closing for about a week. I’m so sorry.” Canceling the movers will cost several thousand dollars, and they will have to cancel furniture shipments as well. To make matters worse, new tenants are supposed to move into Tom’s rented condo unit right after they leave.
While all characters appearing in this work are fictitious, and any resemblance to real persons, living or dead, is purely coincidental, Tom and Mary are in trouble. With the prevalence of back-to-back closings and unforeseen underwriting issues and title defects, these situations are not uncommon. And with new TRID closing disclosure rules coming online in August, which are bound to cause even more loan approval delays, we may be seeing more of these situations in the months to come.
Fortunately, there is a solution to this situation. The sellers are willing to let the Tom, Mary and family move into the home prior to the closing under a Use and Occupancy Agreement. This will enable the buyers to complete their move, move into the house, but before the actual closing. A use and occupancy agreement, however, is not without its risks and downside, which I will discuss below.
One of the most important aspects of a Use and Occupancy Agreement is what it is versus what it is not. The agreement should specify that it creates a mere license to occupy the premises, not a tenancy or a landlord-tenant relationship. This will make it easier to remove/evict the occupants if something goes wrong. In any event, if the sellers are forced to remove the occupants, they will still have to resort to judicial eviction proceedings, which in Massachusetts can potentially take several months. This alone is the biggest drawback of a Use and Occupancy Agreement. The seller should always put language in the agreement that the buyers will be responsible for all attorneys’ fees and costs in case of an eviction.
The parties have to agree on a rental rate, typically based on the fair market rent for the premises or the mortgage and carrying costs. Websites such as www.rentometer.com can give you an idea of what a fair rental rate should be. Your Realtor should give you guidance as well. The rent should be divided by 30 for a per diem basis. You can also charge penalty rent if the term is extended past the original deadline.
The sellers should also include general indemnification language providing that “during the period of occupancy, Buyers shall maintain the Premises in good, clean condition and shall not make nor suffer any strip or waste to the Premises, nor make nor suffer any unlawful or improper use of the Premises and Buyers agree to indemnify Sellers and save them harmless from all liability, loss or any damage arising from such additions, alterations, strip, waste or unlawful or improper use, any nuisance made or suffered on the Premises by Buyers, including their family, friends, relatives, invitees, visitors, agents, or servants, or from any carelessness, negligence or improper conduct of any person.”
Lastly, the buyers should do their pre-closing walk through before they move in under a Use and Occupancy, because once they move in, the home will be a mess for awhile. That way, everyone will be on the same page as far as the property condition goes on the date of move in.
Many attorneys advise clients never to agree to Use and Occupancy Agreements. I am not one of those attorneys. With any risk, it depends on the situation. The sellers need to be comfortable that any delays will be resolved favorably and quickly. Sellers also need to appreciate that despite any language in the agreement, it could take months to remove an occupant if things so south. As long as everyone understands the risks, a Use and Occupancy Agreement can be a life saver.
“In just five years as a rental, the other [unit] — which has hardwood floors, granite countertops, and a $1,200 dishwasher — has been a nightmare, with tenants who bounced checks, didn’t pay their rent, and threatened to call the building inspector over, among other things, a loose toilet seat, a missing outlet cover, and, I’m not kidding, a bedroom that is allegedly 0.389 of an inch too small. The tenant who detailed these horrific, slum-like conditions also threatened to take me to court over some food that had spoiled when the refrigerator broke — which is what prompted the intimidation tactics in the first place.”
As landlord groups have been arguing for years, one of the major problems with the current system is that Massachusetts has no rent escrow law. Under the present system, a tenant can withhold months of rent for any cosmetic or minor problem with the unit until the eviction case is resolved, leaving the landlord unable to pay their mortgage. We call that the “free rent trick.” As Ms. Gerhman correctly points out, “with an average judgment of about three months’ rent, this can be a real hardship for house-poor landlords. And once a landlord does evict a tenant who owes back rent, he or she must pay to move the tenant’s belongings out of the apartment in addition to three months’ storage costs.” As I was quoted in the article, many landlords opt for “cash for keys” deals to avoid huge losses during an eviction.
A rent escrow law would require any tenant who withholds rent to simply pay it into an escrow account until the unsafe conditions or code violations are repaired and the eviction case is resolved. After repairs are done, either the landlord and tenant agree on how the escrowed rent should be divided, or a judge orders a fair settlement. The “free rent trick” would be gone and landlords less likely to get left holding the money bag.
Sounds fair? Tell that to your state legislators who have been sitting on rent escrow bills for over a decade.
New rent escrow bills return to the Legislature this session as House Bill 1654 sponsored by Rep. Chris Walsh and House Bill 1112 sponsored by Rep. Brad Jones. Both bills are expected to get hearings at the State House this spring. I will keep you posted.
Personally, I think a fair legislative compromise would be for landlord groups to support the Housing Court Expansion bill under the condition that a Rent Escrow Bill is passed along with it. That would be a win-win for both sides.
In the meantime, please email and call your local state rep and senator and tell him or her you are in favor of these bills. If you have any tenant horror stories, make sure you include those as well. Also, consider joining your local chapter of the Massachusetts Rental Housing Association or Masslandlords.net. Both organizations will be coordinating legislative efforts on the rent escrow bill and other landlord legislation. Lastly, please share this article and the Globe Magazine article on your Facebook pages, Twitter feeds and email blasts!
Abate v. Fremont Investment & Loan: High Court Rules That “Try Title” Procedure Only Available After Foreclosure Auction Completed
After Deutsche Bank foreclosed his Newton home, Thomas Abate brought a lawsuit in the Land Court challenging the foreclosure under the “try title” procedure under General Laws chapter 240, sections 1-5. Seeking to invalidate the foreclosure, Mr. Abate utilized the popular defense of attacking the assignment of his mortgage from MERS (Mortgage Electronic Registration System) to Deutsche Bank. After several months of legal wrangling in the Land Court, Judge Robert Foster dismissed Abate’s challenges to the MERS assignment, and dismissed his try title claim. Abate then appealed to the SJC.
Prior to the SJC’s ruling, there was confusion in the foreclosure setting regarding the proper method to determine whether the property owner had legal standing to bring a try title case and whether the owner must bring the case before or after the foreclosure. Putting the proverbial nail in this particular foreclosure defense coffin, the SJC held that a borrower can only use the try title procedure after a foreclosure has been concluded, not before. The Court also ruled that lenders can seek to test borrowers’ legal theories and dismiss these claims very early in the proceeding on a motion to dismiss. The net result is a blow to foreclosure challengers — borrowers must wait until after a foreclosure is completed to bring a lawsuit; and it will be easier for lenders to dismiss claims challenging mortgage assignments and the foreclosures based on such assignments.
I asked preeminant foreclosure defense Attorney Glenn Russell for his thoughts on the ruling, and he said this:
Well from a homeowner’s perspective I have to say that I was hoping for a different outcome, however it’s not all bad. Bottom line, borrowers cannot use try title unless the auction happened, or they can make argument that there never was a legally valid mortgage, or one is trying to enforce a void mortgage, or one that has been discharged. The key thing is that a homeowner cannot bring a try title claim (standing under the “first step” of the try title action), unless the mortgage is foreclosed.
So after several key rulings in favor of foreclosure victims in the earlier part of the decade such as the seminal U.S. Bank v. Ibanez case, the SJC has issued several pro-lender decisions of recent vintage. Is this a sign of foreclosure fatigue or are the justices merely following the law? Maybe a bit of both…
With the economy improving as well, the net effect is likely to be less foreclosures and less legal challenges to them — which will only continue to boost an improving housing market.
Attorney General’s Office Accused of Smearing Local Landlords In Press
A Craigslist rental ad posted online for merely 8 days turned into a complete nightmare for a Melrose father and son who claim that Attorney General Martha Coakley’s office ran roughshod over their rights and tried to smear their reputations in the local newspapers. After a five year legal saga, the landlords, Nicholas Keramaris (pictured right) and George Keramaris, fought back and won, convincing the Appeals Court to overturn a $38,000 civil penalty and attorneys’ fees assessed against them.
“Apartment Is Not De-Leaded”
The Keramaris family trust owns a 20 unit apartment building in Melrose. All of the units originally contained lead paint, and five of the apartments have been deleaded. One of the leaded units became available for rent, and Nicholas Keramaris, who is also an attorney, researched the lead paint laws prior to posting an advertisement on Craigslist stating “Note that this apartment is not de-leaded, and therefore it cannot be rented to families with children under six years old.”
A Melrose mother, who did not have a child under six and who did not attempt to rent the advertised apartment, filed a complaint with the MCAD about the ad. (This could have been a dummy renter employed to find fair housing violations). Once the landlords were notified of the complaint, they took the ad off Craigslist. It ran for a grand total of 8 days.
AG’s Office Steps In
Attorney General Martha Coakley’s Office then stepped in and filed a civil action for discriminatory rental practices, seeking penalties and damages under the state Consumer Protection Act, Chapter 93A. According to the Keramaris family, “from the day that the Assistant Attorney General assumed responsibility over the case, he insisted on collection of steep penalties as a condition for settlement. Also, the Attorney General’s office publicly smeared us through repeated press releases while the case was pending. Our request for the Attorney General’s office to stop issuing negative press releases was described as a “non-starter” for settlement negotiations. Therefore, this very simple case, which involved a relatively benign violation, dragged on for almost five years.”
Award Struck Down
Despite the fact that the ad ran for only 8 days and no one was actually harmed, the Attorney General was able to persuade a Superior Court judge to assess an aware of nearly $38,000 in penalties and attorneys’ fees. Unwilling to accept this unjust result, the Keramaris family appealed and got the justice they deserved.
Employing some well needed common sense, the three judge appellate panel concluded that although the ad technically violated the lead paint discrimination statute, any harm done was minimal and did not rise to the egregious level of a Consumer Protection Act violation. In a rare ruling, the judges ruled that the lower court abused its discretion, finding that this was nothing but a good faith mistake by landlords who were not intentionally setting out to violate the law. The Appeals Court ultimately stuck down the entire award, leaving the Keramaris family with justice, albeit after 5 long years and I’m sure thousands in legal fees.
Where’s the Discretion?
I have handled numerous rental discrimination cases involving the Attorney General’s Office. The one thing I can say is that they often have a very one sided view of cases and suffer from tunnel vision. They also hardly ever exercise their discretion to back down. It’s usually all or nothing. I would like to see them try to see both sides of the coin in future cases and be more open to negotiated settlements. Maybe this ruling will encourage that. I won’t hold my breath though.
And lastly, I’m curious if the Attorney General will issue a press release announcing that the Appeals Court overturned this award? I doubt it.
I was delighted to talk about recent legal issues surrounding home improvement contractors, including my best tips on selecting a contractor, on the Real Estate Radio Boston show hosted by Mortgage Banker Rick Scherer and Attorney Ali Alavi. Just click the Play button below to listen!
Tune into the show every Saturday night from 8pm-9pm on WBZ 1030 AM. They also have podcasts on the link above. It’s a fantastic show with very knowledgeable guests, and of course, great hosts in Rick and Ali.
This Saturday night it’s “Can’t Miss Radio” with Stan Humphries, the Chief Economist for Zillow. Tune in Saturday night 8pm on WBZ AM 1030.
Case is Good Reminder to Ensure That Contractors Register With State
With the record amount of snow, roof leaks and interior damage just beginning to hit Bay State homeowners, this spring should be a record season for Massachusetts home improvement contractors. But, according to a recent court ruling, contractors who don’t register as a licensed Home Improvement Contractor (HIC) could face serious liability under the state Consumer Protection Act (Chapter 93A) in any dispute with a homeowner. The case is Groleau v. Russo-Gabriele (Mass. Superior Court, Judge Douglas Wilkins). Such penalties could include up to triple damages and an award of the homeowner’s attorneys’ fees.
This case serves as a timely warning to both homeowners and contractors that contractors should always be registered with the state and that homeowners select a reputable, licensed professional for their projects. Below are my well-worn 10 Tips to Hiring A Home Improvement Contractor (published earlier on this Blog).
1. Pre-Construction Planning
Recognizing that even the most thought-out home improvement project tends to run up to 10% over budget, careful planning and budgeting before the work starts is paramount. There are almost always going to be contingencies and unknowns (like the mold in your walls that you never knew about) cropping up during construction so you need to allocate a sufficient reserve (10-15% should do) to cover these unknown risks. Once the budget is set, stick to it, even if it means foregoing that gorgeous Italian tumbled marble in the master bath. Also, come up with a written construction schedule.
2. Interview At Least 2 (But Preferably 3) Contractors and Obtain Written, Detailed Estimates From Each
I cannot tell you how many times homeowners select the first contractor to whom they were referred without vetting them through a proper bidding process. Interview 2, but preferably 3, contractors, be with them when they walk through hour home, and more importantly, get written, detailed estimates from each contractor. This is also your best opportunity to negotiate the best price as you can play each contractor against each other. Be aware that the cheapest bid does not necessarily equate with the best work.
3. Obtain 3 References And Check The Better Business Bureau
This is a critical, yet often overlooked piece of preventative maintenance. Most folks are referred to a home improvement contractor through a friend or family member, however, you should ask the contractor for at least 3 references. Call each of them, then ask each of them if they know anyone else who has worked with the contractor and call them too. (The contractor will always list their most “friendly” references). Ask them if the contractor performed quality work on time and within budget. Were there issues with scheduling, delivery of the correct materials, and the labor? This is your opportunity to get the real scoop. Search the Better Business Bureau for any complaints about the contractor. The BBB has a good resource for spotting contractor rip-off artists.
4. Check License/Registration Status Of Contractor
You should always select a licensed and registered home improvement contractor. They are regulated by the state and using them entitles you to the protection of the Massachusetts Home Improvement Law and Contractor Guaranty Fund if there is a problem. There are 2 types of home improvement contractor licenses in Massachusetts. A Home Improvement Contractor (HIC) license covers most types of typical home improvement work, except for structural work. Structural work must be performed by a contractor holding a Construction Supervisor License (CSL). You can search for Massachusetts HIC or CLS licensed contractors here. The license search also discloses any complaints against the contractor.
5. Sign A Written Construction Contract In Compliance With Massachusetts Home Improvement Law (General Laws Chapter 142A)
The Massachusetts Home Improvement Law provides the bare minimum of what is required to be in home improvement contracts over $1,000, but most contracts supplied by the contractor are non-compliant and terribly one-sided. Here’s what you need in your home improvement contract:
The home improvement contract must be written, dated, and signed by both parties. Make sure the contractor executes the agreement under the entity which is pulling the permits. Some contractors attempt to work under another contractor’s company or worker’s compensation policy–this is a red flag. If the contractor is not incorporated but is a “dba” (unincorporated doing business as), he must sign individually. The contractor needs to list his license number as well.
The home improvement contract must provide the start date of the work and the date of “substantial completion.”
The home improvement contract must provide a detailed description of the work and materials involved. I suggest incorporating that detailed estimate provided by the contractor discussed previously. (You can attach it as an exhibit or addendum to the end of the contract).
The contract must detail the scope of work, being as specific as possible. I cannot emphasize this enough. Itemize the exact type of materials involved (Andersen windows, California paint, Italian ceramic tile, etc.), and work to be performed (full kitchen remodel with installation of new flooring, appliances, etc.). If you are not specific in the contract, and there’s a problem later, your claim will be severely weakened, if not dead on arrival.
The contract must provide the total contract amount and the timing of progress payments. Massachusetts law prohibits a contractor requiring an initial deposit of over 33% of the total contract price unless special materials are ordered. Any contractor demanding over a 33% deposit should raise a huge red flag . (I recommend setting up payments into thirds, with the first payment due at the start of work, the second payment due halfway through the work, and the final payment due at the satisfactory completion of the work.) The homeowner should always “holdback” up to 33% of the total cost until the work is done and done right.
To be safe, I recommend having an attorney review the contract. Proposed contracts which do not comply with the Home Improvement Act are a red flag.
6. Hold A Pre-Construction Meeting
Seems pretty obvious, but again frequently contractors jump into a job right after signing the contract without taking the take to meet again with the homeowner. Walk through the project again after the initial estimate. Discuss any changes and scheduling issues. Pin down the contractor as to exactly when the crew will be on the job. Talk about expectations for day end and clean up.
7. Verify Sufficient Liability Insurance and Worker’s Compensation Insurance
Obtain the contractor’s Worker’s Compensation Insurance Coverage sheet showing that it has worker’s compensation insurance in place as well as the coverage page for its Commercial General Liability (CGL) policy. Request that the contractor add you (and your spouse if you own the home jointly) as “additional insureds” on the policy with at least $1M in liability coverage in place. This should protect you if a worker injures himself on the project site.
8. Ensure The Contractor Pulls All Permits
Always have the contractor pull the building, plumbing and electrical permits. Owners who secure their own permits are ineligible for protection under the Home Improvement Law. If a contractor is reluctant to pull permits himself, it’s a red flag.
9. Document All Changes In Writing
I cannot tell you how many times that after signing a comprehensive written agreement, homeowners and contractors alike change the work and increase the contract price orally without any written documentation. This is a huge No-No and will get the homeowner into trouble every time. Ask the contractor for a “change order” to fill out and sign, or create one yourself. It should, at minimum, provide the original contract price, a detailed scope of the new work, its cost, and the updated total, signed and dated by both parties.
10. Carefully Monitor The Project And Keep Lines Of Communication Open
Seems like common sense, but don’t go on vacation during a home improvement project, lest you arrive home to a mini-disaster. Keep a log of daily activity that you can match up with the project schedule. Another common complaint is when the construction crew inexplicably fails to show up when you expect and is instead at another project. This happens a lot at the end of the project when the contractor is focusing on the next job. Email or write the contractor and get his firm commitment to finish your job or else you will withhold final payment. If there are any issues or problems, the best way to cover yourself is to document them. Email works great here as it is not too formal yet more than adequate to memorialize the event. Create a final punch list for all incomplete items and withhold final payment until it is completed.
I will be speaking at the upcoming Metrowest Resourceful Realtor Meeting on March 2, 2015 at John Harvard’s Brewhouse at Shoppers World, Framingham. Networking starts at 5:45PM with dinner and speakers starting at 6:30PM. Any licensed estate agent welcome.
I’ll be talking about the latest court rulings and legislation affecting Massachusetts real estate law, intermixed with a few colorful war stories from the front lines. Topics will include the status of the independent contractor office model, the new CFPB closing disclosures and settlement statements, and a rental housing update.
Also speaking is Sandy Krenz, a 30-year interior designer and consultant with Debsan Paint in Natick. She will talk about color and decorating trends.
This winter has been one of the snowiest on record, and there is another major snow event on the way. Judging from the astronomical number of recent clicks on this blog, it’s clear that people want to know all about Massachusetts snow removal law. The law underwent a monumental change back in 2010 with a Supreme Judicial Court decision overruling the 125 year old “Massachusetts Rule” which allowed property owners to leave “natural” accumulations of snow and avoid liability. Now, owners are under a legal duty to keep their property free from dangerous snow and ice. Moreover, cities and towns have been passing all types of new snow removal ordinances and by-laws regulating whether owners must shovel public/private sidewalks, and how long they have to clear snow.
It’s clear that it’s time to give you the most up-to-date information. So here is a fresh set of Frequently Asked Questions (and Answers) with links at the end to various city and town webpages on their snow removal policies. Good luck and stay safe!
I own a two family rental property with a driveway and one common walkway and entrance. Am I responsible for shoveling snow on the driveway and/or walkway?
The answer is yes. Under a 2010 Supreme Judicial Court ruling, all property owners (rental or owner occupied) can be held liable for failing to remove snow and ice from their property. The old rule was that owners didn’t have to remove “natural accumulations” of snow and ice, but the court overruled that in favor of a general obligation to keep property safe for all visitors and guests. There are also many local town and city ordinances which likewise obligate property owners to keep snow and ice off their property and sidewalks. I will discuss some of those below.
Can I use a lease which provides that the tenant is responsible for snow removal. Is that legal and will that protect me from liability?
It depends on your particular property. Landlords have the primary responsibility for snow removal at a rental property. Under the State Sanitary Code, property owners/landlords must keep all means of egress free from obstruction — that cannot be negotiated away. As for the removal of snow and ice, the Code provides that the landlord shall maintain all means of egress at all times in a safe, operable condition and shall keep all exterior stairways, fire escapes, egress balconies and bridges free of snow and ice. Again, those obligations cannot be negotiated away.
A landlord may require the tenant be responsible for snow and ice remove in a lease provision only where a dwelling has an independent means of egress, not shared with other occupants, and a written lease provides for same. On its face, this exception only applies to entrance-ways and not driveways or parking areas. I am not aware of a court ruling on this particular Code provision, but if I were a landlord I would not risk being on the wrong side of a “test case” where someone is injured badly.
So, in the example above with an owner occupied two family with one common entrance and driveway, that lease provision would be illegal.
Even if the tenant is responsible for snow removal under a legal lease provision, the landlord could still face personal injury liability for slip and falls on snow and ice under the SJC ruling. A guest or visitor who is injured due to untreated snow or ice will likely sue both the property owner and the tenant. The property owner must ultimately ensure that the property is safe for visitors.
How soon do I have to shovel the snow before I get in trouble?
The City of Boston’s policy is to give businesses 3 hours to clean snow, and 6 hours to residents. In Worcester, it’s 12 hours to clear snow. Those are the minimums. As with any dangerous condition, my advice is to shovel and treat snow and ice early and often. Even a thin coating of black ice can cause someone to slip and fall and seriously hurt themselves. (Admit it if you’ve dumped on your rear end like I have!). If you are an out-of-town landlord, you must hire someone to shovel your snow.
Am I required to shovel the public sidewalk in front of my house/business after a storm?
In most Massachusetts towns and cities, the answer is yes. Check your local town ordinances for guidance. The cities of Boston, Cambridge, Somerville, Arlington, Belmont, Newton, Lynn, and Worcester (among others) all require property owners and businesses to clear municipal sidewalks in front of their residences or businesses. Fines are assessed against non-compliance. In Somerville, for example, if snow ceases to fall after sunrise (during daylight hours), property owners must shovel sidewalks by 10 p.m, and if snow ceases to fall after sunset (overnight), property owners must shovel sidewalks by 10 a.m. You can also be fined for shoveling snow onto the street, blocking a curb cut or putting snow on municipal owned property.
In some more residential towns, the local DPW will clear the sidewalks, but the default rule is that property owners are generally responsible for clearing their own sidewalks and driveways.
Will my homeowner’s or CGL insurance policy cover any injuries from slip and fall on snow/ice?
Yes, usually. The standard Massachusetts homeowners insurance policy and commercial general liability insurance policy (CGL) will have liability coverage for slip and falls on property. Make sure you have ample liability coverage of at least $500,000 to 1 Million. (You can never have enough insurance!). As with any insurance question, it’s best to contact your personal insurance agent.
I’m just a regular homeowner. What if the mailman or delivery person slips on my walkway?
You may be liable if you left dangerous snow and ice on your walkway. The new law applies to every property owner in Massachusetts, not just landlords. Get some Ice-melt and sand and spread on your walkway. If it re-freezes overnight into black ice, you will remain liable.
City Universities Providing ISD With Addresses of Student Apartments
In the coming weeks, some Boston college students living off-campus and their landlords may be greeted by city inspection officers at their doors. Shrugging off privacy concerns, pursuant to a new city ordinance, the city’s 31 local colleges and universities have sent the city’s Inspection Services Department the addresses of their students who live off-campus. Of the 25,000 addresses it received, ISD will pay visits to the 580 it deems to be suspect of violating zoning codes. Boston.com reporter Julie Xie in her article “City Will Inspect Off-Campus Student Apartments, And It’s Legal” reported this new development.
They’ll primarily be looking for issues related to overcrowding. There are over 45,000 undergraduate and graduate students living off-campus in Boston, according to The Boston Globe. A 2008 city ordinance prohibits more than four undergraduates living together in one apartment.
The city’s crackdown comes in the wake of BU senior Binland Lee’s tragic death in 2013 from a fire in her overcrowded Allston apartment. Flames blocked the staircase from the third floor — her only egress. Scofflaw landlords and poorly managed units unsafe for students were the subject of the Globe’s “Shadow Campus” investigation last year. Now, an ordinance requires colleges to provide a list of where students live off-campus every semester. Another requires private rental units to register their properties annually, and inspections are performed every five years.
There is no question that some Boston landlords catering to the huge undergraduate population have skirted the law, creating dangerous living spaces for far too long. Regardless of the issue of occupancy limits, landlords need to comply with the sanitary and building codes so they don’t create fire traps for housing.
However, I have always had issues with the legality of the 4 undergraduate rule. I’m quoted in the article as saying that the no-more-than-four rule has always been somewhat suspect, arbitrary, and tough to enforce. Though neighbors do complain about late-night parties and loud college students, not all undergrads are troublemakers.” “Undergrads are not a protected class under any discrimination laws, and they’re transient, so it’s not like they’re going to come up with a lobbyist or fight for their rights in that way,” I’m quoted. “Colleges don’t want to get in trouble and they know they won’t get much pushback from Boston’s student body.”
In a David vs. Goliath case pitting a Demoulas family heir against an elderly Brandeis professor over a tony Back Bay townhouse, the Appeals Court has let stand a $1.85 Million jury verdict — one of the largest awards in a private condominium governance dispute. The case is also one of the first to successfully employ the Massachusetts Civil Rights Act in a private real estate dispute. With interest and an award attorneys fees of $1.9 Million, the judgment will swell close to $4 Million — providing a cautionary tale to condominium trustees who abuse their power for ulterior purposes. The case is Kettenbach v. Wodinsky, Mass. Appeals Court (Jan. 6, 2015), embedded below.
A Classic David vs. Goliath Tale
In 1996, Michael and Frances (Demoulas) Kettenbach bought a unit in the 5 unit townhouse located at 303 Commonwealth Avenue in the Back Bay. (Frances is the sister of Arthur T. Demoulas who was recently reinstated as CEO of Market Basket after a publicized family fight). With the goal to acquire all of the units and convert the building to a grand single family Back Bay residence, Kettenbach purchased three more units, leaving only the top floor unit owned by Jerome and Bernadette Wodinsky. The Wodinskys, who had owned their the fourth floor unit for over 30 years, didn’t want to sell.
According to the court’s ruling, Kettenbach enlisted Gary Crossen, a former prominent Boston attorney who was the Demoulas family’s trial lawyer in their epic family litigation in the 1990’s. When the Wodinsky’s made it clear they were not selling, Kettenbach and Crossen began to put the proverbial “squeeze” on them. Armed with the controlling interest in the condominium association, they summoned state inspectors to condemn the building elevator, leaving the 82 year old Wodinsky, who suffers emphysema, to make the daily climb up 86 stairs to his fourth floor unit. Instead of repairing the elevator, Kettenbach voted to replace it at a $275,000 price tag. When the roof leaked, rather than repair it, Kettenbach insisted on installing a new one – even though it was only 10 years old. He also completely replaced the building’s heating system and did a massive overhaul of the electrical system. The result was a $1 million special assessment, 20% of which Kettenbach attempted to impose on Wodinskys. Kettenbach also hired a private investigator who showed up at Mrs. Wodinsky’s workplace and threatened her with bankruptcy.
Staggering Jury Verdict
Not backing down, the Wodinskys sued, asserting claims under the little used Massachusetts Civil Rights Act, abuse of process, civil conspiracy, and the Consumer Protection Act, Chapter 93A. They won an early victory when a trial judge issued an injunction forcing Kettenbach to fix the elevator. The case went to trial in 2011 over 19 days, and the jury returned a whopping $1.85 Million verdict in the Wodinsky’s favor. Although the trial judge vacated the judgment on the Chapter 93A count, which would have given the Wodinsky’s triple damages, he left the judgment intact on all other claims. Both parties appealed.
Jury Verdict Upheld on Appeal
On appeal, Appeals Court Justice William Meade upheld the entire jury verdict and judgment, and awarded the Wodinsky’s their appellate attorneys’ fees and costs, which will balloon the judgment against Kettenbach to well over $4 Million and change. The justice held that there was ample evidence that:
Kettenbach and Crossen coerced, intimidated, and threatened the Wodinskys in an effort to force them out of their home. This evidence includes: the Kettenbachs’ active attempts to condemn and decommission the building’s only elevator; the excessive period of time during which the elevator was unusable, which forced the elderly Wodinskys to walk up and down four flights of stairs; Crossen and the Kettenbachs’ manipulation of the board’s voting process to the Wodinskys’ detriment; the Kettenbachs’ demand that the Wodinskys pay twenty percent of expensive, unneeded projects that were not lawfully voted upon by the board; the Kettenbachs’ instituting litigation against the Wodinskys to collect such payments while simultaneously forgiving the assessments of another owner who agreed to sell her unit; and the Kettenbachs’ hiring of a private investigator to visit Bernadette at her work place for the specific purpose of threatening the Wodinskys with bankruptcy.
Since a member of the Demoulas family is involved, you can bet that this case isn’t over yet, and that he will try to get the Supreme Judicial Court to hear this case. And he might be successful as this is a huge jury verdict and, as mentioned earlier, one of the largest involving the Massachusetts Civil Rights Act.
Expansion of Condominium Trustee Liability?
Although this was a particularly unique and egregious case, this ruling could be used to expand liability against condominium trustees to for state civil rights violations arising out of contentious governance and assessment disputes. I’m not so sure that the Mass. Civil Rights Act is the appropriate vehicle to address this sort of private claim, because I don’t see how it invokes traditional constitutional rights which the Act was intended to protect. The SJC will have to sort this out but if they don’t take this case, this ruling will be the law of the land. Either way, I will bet that we haven’t heard the end of this dispute.
We had another interesting year in Massachusetts real estate law. From that controversial $60,000 discrimination penalty for asking a prospective renter “where are you from?”, to the influx of Airbnb rentals, to the tragic murder of Realtor Beverly Carter during a showing, and finally Gov. Patrick’s disappointing scuttling of the title clearance bill.
With pro-business Charlie Baker in the Governor’s Office, the fate of the independent brokerage model with the Supreme Judicial Court, and significant regulatory changes to title and closing services, we should expect another eventful year in 2015. Without further ado, I give you my outlook for 2015:
The Charlie Baker Effect
Gov. Deval Patrick was no friend to the real estate industry, often kowtowing to ultra-liberal activists. Case in point was when he killed the title clearance bill which had broad support within the Legislature and would have helped hundreds of homeowners get out of toxic titles. A new era is here with Republican and former CEO, Charlie Baker. Hopefully the Governor Elect will be more supportive of homeowners, developers, real estate agents, lenders and others in the industry. On the legislative table this year will be comprehensive “smart” zoning reform (including 40B affordable housing development reform), another effort at the title clearance bill and maybe even landlord-tenant legal reform.
Will Realtors Be Treated As Employees or Remain Independent Contractors?
The SJC should decide the closely watched case of Monell v. Boston Pads, a class actionbrought by a group of disgruntled real estate agents at Jacob Realty claiming they should be treated as employees instead of independent contractors. Hanging in the balance is the fate of the historically independent, commission based real estate brokerage office model. An unfavorable result at the SJC would essentially turn this model upside-down, requiring brokerages to pay their agents minimum and overtime wages and provide all the statutory benefits afforded to employees. The real estate office as we know it today would likely cease to exist.
CFPB Compliance: New HUD-1 Statement, GFE, TIL, Back Office Procedures
The new Consumer Financial Protection Bureau rules, which go into effect this summer, have the potential to drastically change how loans are disclosed and transactions closed, affecting loan officers, Realtors and closing attorneys alike. Gone are the Good Faith Estimate, Truth in Lending Statement (TIL) and HUD-1 Settlement Statement, replaced with a longer Loan Estimate and Closing Disclosure. The disclosure timetables will be much, much stricter — the final Closing Statement must be given to the borrower no later than three business days before closing. Lenders and closing attorneys will have to work more efficiently and quicker to meet these new deadlines. Closing attorneys who are ALTA Best Practices Certified will have a competitive advantage over those who aren’t. Smaller firms could fall by the wayside.
Housing Court Expansion
This year will likely see the expansion of Housing Court jursidiction state-wide including in Middlesex, Norfolk and Barnstable counties. The Housing Court will be available in high density rental towns including Cambridge, Framingham, Brookline, Waltham, Dedham, Malden and Somerville.
I hope you all have a happy, healthy and prosperous New Year!
Sorry for the late notice, but I will be giving a presentation on Massachusetts landlord-tenant law to the Waltham Rental Housing Association, December 2, 2014, starting at 7PM at the Waltham Public Library, 735 Main Street, Waltham, MA, Trustee’s Room on the third floor. All are welcome. No charge.
Topics I will cover include:
Housing Court Expansion Proposal
Best practices for tenant screening
Up Front Fees
My talk will be about 45 minutes long, after which I will have a question and answer session. Light refreshments will be served. Look forward to seeing you!
Update: I’ve embedded my slideshow handout below. Please contact me if your organization would like to host a Free Landlord Tenant Law or Other Real Estate Legal Presentation!
In another court ruling against embattled homeowners facing foreclosure, the Massachusetts Appeals Court has ruled that a defective 150 day cure notice is not a valid defense to a foreclosure sale. The case is Haskins v. Deutsche Bank (click for link to case). The ruling will make it more difficult for distressed homeowners to challenge foreclosure and could accelerate the pace of pending foreclosures.
150 Day Cure Notice
The 2010 Foreclosure Prevention Act requires that foreclosing lenders provide a borrower with a 150 day right to cure prior to starting a foreclosure proceeding. The notice must identify the current “holder” of the mortgage. Before this ruling, some trial courts had ruled that a bank’s failure to strictly comply with those requirements was sufficient grounds to halt a foreclosure sale.
In the Haskins case, the borrower challenged his foreclosure on technical grounds because the cure notice incorrectly identified the holder of the mortgage as IndyMac Mortgage Services. IndyMac was the mortgage servicer and mortgage was legally held in a securitized trust operated by Deutsche Bank.
Justice Mark Green, a former Land Court judge and former banking general counsel, recognized that today the vast majority of residential mortgages are serviced by large mortgage servicers while owned and held in securitized trusts. Rejecting the borrower’s form-over-substance argument, Justice Green ruled that as long as the borrower receives an accurate cure notice with the correct loan balance information and payment address so the borrower can pay up and cure, an erroneous identification of the actual mortgage holder should not affect the validity of the pending foreclosure.
Massachusetts foreclosure defense attorney Adam Sherwin, who represented the borrower, put up a valiant fight in this case. However, with this ruling and several recent decisions before it, foreclosure defense attorneys have suffered several setbacks in the courts, making it more difficult for distressed homeowners to challenge and stop foreclosures.
About 30% of people in Massachusetts do not have access to the state’s Housing Court — one of Massachusetts’ specialized courts handling landlord-tenant disputes, evictions and sanitary code enforcement. The unserved areas include the largest county in the state, Middlesex County and most of Norfolk County, with high density rental towns including Cambridge, Framingham, Brookline, Waltham, Dedham, Malden and Somerville. Also unserved by a Housing Court is all of Cape Cod and the Islands and Chelsea.
Under a plan touted by Supreme Judicial Court Justice Ralph Gants, the Housing Court would be expanded to cover the entire state by July 1, 2015. “We believe that all residents of the Commonwealth, regardless of where they live, should have the opportunity to have their housing case heard by a Housing Court, and benefit from its specialized expertise in residential housing matters,” Gants said in a statement.
As an eviction and landlord-tenant attorney who practices quite a bit in both Middlesex County and in the Housing Court, I can say positively that this is a great idea. In Framingham District Court, for example, the Thursday eviction session can be standing room only with landlords and tenants often spilling outside into the hallway. The busy court is already swamped with criminal matters, and getting a trial date in an eviction case can take upwards of several months — certainly not “just, speedy and inexpensive” as mandated by the Uniform Summary Process Rules.
The Housing Court would be able to take the burden off the local, overworked district courts. With a few more full time judges and already with one of the lowest cost-per-case ratios of any court, they should be able to handle the increase in cases. The “X-factor” will be the overall cost, of course.
The Legislature is set to take up the proposal in early 2015. I’ll keep tabs on any developments.
Richard D. Vetstein, Esq. is a Massachusetts real estate attorney who helps people buy, sell, finance and litigate disputes involving Massachusetts real estate. Rich is the Chair of the Boston Bar Association's Title & Conveyancing Committee. For more information about him, click here. You can contact Attorney Vetstein at email@example.com or 508-620-5352.