Massachusetts Real Estate Law

Oh Fudge! Audit Shows Large Percentage Of Essex County Mortgage Assignments Are “Invalid”

by Rich Vetstein on June 29, 2011

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Title Defects

Ironically on the same day Bank of American is about to sign a historic $8.5 Billion settlement agreement over bad mortgages, somebody finally went through a registry of deeds to look at the effect of the U.S. Bank v. Ibanez decision and the validity of mortgage assignments in Massachusetts. This just came in off the Housing Wire and is scorching through the real estate newswires.

Audit Shows 75% of Mortgage Assignment Are Invalid In Mass. County

According to an audit performed by McDonnell Property Analytics, in the Salem, Mass. Registry of Deeds, 75% of mortgage assignments are “invalid.” About 27% of invalid assignments are fraudulent, McDonnell said, while 35% are robo-signed and 10% violate the Massachusetts Mortgage Fraud Statute.

McDonnell said it could only determine the financial institution that owned the mortgage in 60% of the cases reviewed. There are 683 missing assignments for the 287 traced mortgages, representing about $180,000 in lost recording fees.

“What this means is that the degradation in standards of commerce by which the banks originated, sold and securitized these mortgages are so fatally flawed that the institutions, including many pension funds, that purchased these mortgages don’t actually own them,” according to analysts at McDonnell. “The assignments of mortgage were never prepared, executed and delivered to them in the normal course of business at the time of the transaction.”

John O’Brien, register of deeds for Essex County in the northeastern corner of Massachusetts, urged state attorneys general for a third time to cease settlement talks with the nation’s largest servicers. In May, O’Brien sent a letter to Iowa Attorney General Tom Miller for this same purpose.

“My registry is a crime scene as evidenced by this forensic examination,” said O’Brien. “This evidence has made it clear to me that the only way we can ever determine the total economic loss and the amount damage done to the taxpayers is by conducting a full forensic audit of all registry of deeds in Massachusetts.”

Is This Audit Flawed Though?

Now, a few observations about this “audit.”

First, McDonnell Property Analytics is a company engaged in the business of stopping or delaying foreclosures and performing related audits. The company makes money when consumers hire them to perform audits of the mortgage paperwork when they are facing foreclosure. The owner of the company is on a crusade against the mortgage industry to expose the paperwork and robo-signing mess, not that that’s a bad thing. But there’s some built in bias here on this purported audit.

Second, there’s no indication of the methodology to determine whether a mortgage assignment is “invalid” or “fraudulent.” What does that mean exactly? What are the audit’s definitions of “invalid” and “fraudulent.” Same for “robo-signed.” Who is determined to be a “robo-signer,” and how is that determination made? I’d like to see the underlying assumptions here.

Based on what I’ve read so far on this “audit,” I’m not sure it would hold up in a court of law. The 75% invalid rate seems very high and questionable, in my opinion. But certainly, these are good questions to ask and analyze and bring to the forefront. It’s clear that Essex Registrar of Deeds John O’Brien wants to recoup all the millions in recording fees he’s lost to the securitization industry and MERS, and he’s the most outspoken of all the registrars of deeds on this problem. (Hmmm, I wonder if Mr. O’Brien has higher political aspirations?).

Well, this problem is big enough that BofA just threw $8.5 Billion to make it go away, and bank stocks are still anemic. So we’ll see how this ultimately plays out.

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The Jedi Master Mortgage Discharge Tracker

by Rich Vetstein on June 27, 2011

in Massachusetts Real Estate Law, Mortgages, Title Defects, Title Insurance

Don’t Let An Undischarged Mortgage Ruin Your Closing

Real estate attorneys are often confronted with difficult and complex title defects which need to be cured. With the refinancing boom of the last 10 years, sloppy, high-volume closing attorneys occasionally failed to obtain discharges of mortgage they were paying off at closing. Likewise, home equity closings at local bank branches were also notorious for not tracking down and recording mortgage discharges.

These undischarged mortgages and “missing” discharges from years ago rear their ugly heads when the homeowner goes to sell his property and a full 50 year title examination is undertaken by a competent closing attorney. Some of these missing discharges are from old banks and financial institutions which have gone bankruptcy, are now in FDIC receivership, or were merged with other banks several times. Some are with private lenders who are no where to be found. Of course, title must be cleared prior to closing or there is no closing!

This is when even the most experienced real estate closing attorney has to call in the cavalry. And that person is someone like Kurt Stuckel, Esq.

I like to call Kurt the Jedi Master Discharge Tracker. Operating out of a small office in little Pepperell, Mass., Attorney Stuckel handles and solves thousands of title requests every year for real estate attorneys and title companies throughout the Commonwealth. He’s handled several thorny issues for me in recent months – even one where I thought “there’s no way he can get this one” from the FDIC–and low and behold, he did. His fees are reasonable, and he makes the closing attorney look good in front of their clients.

If you are in need of excellent title curative services, please contact Kurt Stuckel, Esq. at 978.443.5241 or email at [email protected]. And tell him I sent you!

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U.S. Supreme Court To Hear Title Insurance Kickback Class Action Case

by Rich Vetstein on June 25, 2011

in Massachusetts Real Estate Law, RESPA, Title Insurance

L to R, bottom: Clarence Thomas, Antonin Scalia, John Roberts, Anthony Kennedy, Ruth Ginsberg; top: Sonya Sotomayor, Steven Breyer, Samuel Alito, Elana Kagan

U.S. Supreme Court To Hear Edwards v. First American Title
In a case closely watched by the title insurance and real estate settlement services industry, the United States Supreme Court has agreed to hear a class action which will decide whether consumers can sue under the Real Estate Settlement Practices Act (RESPA) over a title insurance referral arrangement that allegedly violated RESPA’s anti-kickback provisions. The case’s outcome could shield title insurers, banks and other lenders from litigation under RESPA and a wide range of federal and state laws. If First American wins this case, we could see title insurance companies in Mass. taking a much more active role in the operations of their favorite and most profitable agents.

The case is Edwards v. First American Title Co. For more coverage of the case, read the SCOTUS Blog summary here.

No Kickbacks

Class action attorneys file hundreds of cases each year on behalf of borrowers alleging violations of RESPA, which prohibits “any fee, kickback or thing of value,” in exchange for a business referral. RESPA also forbids that a “portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service” be paid for services that are not actually rendered to the customer. If a violation of the statute is proven, a court can award a plaintiff treble damages, or triple the amount, for any charge paid.

In a lawsuit filed in 2007, Denise Edwards claimed her title insurer, Tower City Title Agency LLC of Highland Heights, Ohio, entered into a “captive insurance agreement” with First American Title that was illegal under RESPA. The lawsuit said that because First American paid $2 million for a 17.5% minority interest in Tower City in 1998, it received the majority of the local agent’s referral business which violated RESPA. The suit sought class action status on behalf of all consumers who purchased title insurance through a title agency that was subject to an exclusive referral agreement with First American, and damages of up to $150 million.

The case went up to the 8th Circuit Court of Appeals which sided with Edwards that “the damages provision in RESPA gives rise to a statutory cause of action whether or not an overcharge occurred.”

Supreme Court Review

The Supreme Court will review the constitutional issue of whether consumers must prove they were actually injured under RESPA and other truth in lending laws. A favorable ruling for First American could mean a significant dent in costly class action suits under RESPA and TILA. Oral argument is expected in the Fall term, in October.

Massachusetts Impact: Cozier Agent Relationships?

Beyond curtailing or expanding consumers’ ability to bring all sorts of claims under RESPA and Truth in Lending (TILA), a favorable result for First American could enable title companies to get into much cozier relationships with attorney agents in Massachusetts.

Massachusetts is a so-called attorney agency state, where attorneys issue title insurance policies. Title insurance companies in Massachusetts cannot (yet) legally invest in or own law firms (although this rule is being challenged nationally). So we don’t have a “captive insurance agreements” or the like. Certainly, some attorney agents prefer to give their business to one or two particular title insurance companies, but to my knowledge, there’s no formal agreement among insurers and agents here in Mass.

If First American wins this case, we could see title insurance companies in Mass. considering captive insurance agreements and taking a much more active role in the operations of their favorite and most profitable agents. We will see….

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

by Rich Vetstein on June 21, 2011

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

Caveat Emptor: “Let The Buyer Beware”

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

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

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

Private Sellers: No Duty to Disclose

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

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

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

Real Estate Agents: Heightened Duty

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

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

Home Inspectors

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

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

Massachusetts Sellers Disclosure//

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The Massachusetts Land Court: One Stop Shopping For All Your Real Estate Needs

by Rich Vetstein on June 12, 2011

in Foreclosure, Massachusetts Real Estate Law, Mortgages, Permitting/Zoning, Real Estate Litigation, Real Estate Taxes, Title Defects, Zoning

The Real Estate Specialty Court

Established in 1898 and still staffed with only a handful of judges, the Massachusetts Land Court is the smallest of all the Massachusetts trial courts. But for real estate practitioners, it is the most important court in the Commonwealth.

The Land Court is known for its real estate expertise, and is the starting place for almost all foreclosures. Its judges, most of whom were practicing real estate attorneys, are widely regarded as experts in the intricacies of Massachusetts real estate law. Indeed, the diminutive Land Court has recently been at the forefront of national foreclosure law with Judge Keith Long’s seminal decision in U.S. Bank v. Ibanez which made national front page news for several days.

Registered Land

The Land Court was originally established to oversee the Massachusetts land registration system. Approximately 15-20% of all property in Massachusetts is registered land. Non-registered land is referred to as recorded land.

The purpose of the registered land system — modeled after the Australian Torrens system — is to make land titles as clear and defect-free as possible. To register land, property owners have to go through a fairly rigorous process where a land court title examiner searches and certifies title and a formal plan of the land is approved. All defects and title issues are fully vetted and resolved, if possible, and upon registration, the land is deemed free of defects except noted by the examiner, including claims of adverse possession.

Registered land is freely transferable, and there is no discernible difference in examining title to registered land, other than recording which involves a few more steps than non-registered land.

Foreclosures

The Land Court is widely known as the starting point for the vast majority of foreclosures in Massachusetts. Although Massachusetts is considered a “non-judicial” foreclosure state — that is, where a mortgage holder does not need a court order to foreclosure — the state has held onto the U.S. Soldier’s and Sailor’s Civil Relief Act which gives military members protections against foreclosure. In Massachusetts, mortgage holders bring a “Soldier’s and Sailor’s Act” proceeding in the Land Court to ensure that the property owner is not an active military member. Once the Land Court issues a judgment, the foreclosure can move forward. A Soldier’s and Sailor’s proceeding is not the forum in which to challenge a foreclosure. A homeowner needs to file a separate lawsuit in Superior Court or Land Court to do so.

Quiet Title, Partition and Title Disputes

In the last 20 years, lawmakers have widely expanded the Land Court’s jurisdiction to hear more types of cases. Today, the Land Court regularly hears cases involving zoning and subdivision appeals, quiet title and actions to try title, disputes involving mortgage priorities, tax takings, adverse possession, real estate contract disputes, petitions to partition, and more. I do most of my litigation work in the Land Court’s civil session.

Strategically, certain cases are better off in the Land Court and vice-versa. An important distinction with Land Court is that there are no jury trials. Thus, if you want a jury trial, the case should be filed in Superior Court, not Land Court. For cases which are based on the interpretation of contractual language or complex real estate legal issues, Land Court is probably a good choice. For cases which have an “emotional” component and less complex, a Superior Court jury session is probably the better choice.

New Permitting Session

Most recently, in 2007, the Legislature created a special Land Court permitting session to hear zoning and subdivision appeals for larger projects involving over 25 units or over 25,000 square feet of gross floor area. With the goal to expedite zoning disputes which have roadblocked development, cases in the new session will be assigned to a single judge for the life of the case and will be assigned one of three expedited tracks. For the first time, these tracks provide deadlines for both getting to trial (ranging from six to 12 months) and for receiving a decision after trial or summary judgment (ranging from two months to four months).

Land Court decisions aren’t widely available, but recent rulings can be found here.

If you have a complicated real estate dispute, your attorney should always seriously consider bringing the claim in the Land Court where the judge will understand the issues and keep tight control over the case.

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Richard D. Vetstein, Esq. is an experienced Massachusetts Land Court Attorney who has litigated numerous cases in the Massachusetts Land Court. For further information you can contact him at [email protected].

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The Anatomy of a Massachusetts Quitclaim Deed

by Rich Vetstein on June 6, 2011

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

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

Quitclaim Deed Covenants

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

Taking Title

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

Tenancy by the Entirety

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

Joint Tenants

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

Tenants in Common

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

Purchase Price

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

Legal Description

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

Drafting, Fees, Notaries, Etc.

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

View this document on Scribd

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Massachusetts Tornado Disaster: Hope For The Best, Plan For The Worst In Your Purchase and Sale Agreement

by Rich Vetstein on June 2, 2011

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

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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Wetlands, Swamps and Buffer Zones: A Primer on Massachusetts Wetlands Protection Law

by Rich Vetstein on May 20, 2011

in Massachusetts Real Estate Law, Permitting/Zoning, Septic/Title V, Wetlands

Overview of Wetlands Regulations

Massachusetts has one of the most restrictive wetlands and environmental codes in the U.S. Simply put you cannot do anything — not clear, cut, fill, dump (not even leaves, grass clippings or dirt), alter, grade, landscape or build upon — any wetland resource area without a permit from your local town Conservation Commission.

The state Wetlands Protection Act and Rivers Protection Act impose stringent restrictions and oversight of real estate development in and near coastal wetlands areas, such as salt marshes, dunes, beaches, and banks, and inland wetlands areas, such as swamps, marshes, rivers, streams, ponds, and lakes. Many homeowners are often surprised to learn their property contains or is near protected wetlands or is within a restricted buffer zone which will impact their ability to construct an addition, deck, pool, driveway, or cut trees.

Check With the Local Conservation Agent First

A buyer and their Realtor should always research whether there are wetlands on or near the property. First, walk the property — the whole thing. I’m shocked at the number of times agents don’t do this. Next, check the state Geographic Information (Mass GIS) maps online which shows most wetland areas. Next, call over to the local Conservation Agent and pull out the local wetlands maps. The conservation agent should be able to answer most questions and will know whether there are conservation restrictions on the property.

Wetlands Areas & Buffer Zones

The state Wetlands Protection Act and local Wetlands Bylaws include a number of different types of wetlands, and wetland-related areas called “Resource Areas.” These include rivers and streams (“perennial” if they run year round, and “intermittent” if they dry up seasonally); lakes and ponds; the vegetated wet areas bordering rivers, streams, lakes or ponds (“bordering vegetated wetlands”); the 100-year floodplain along rivers and streams; and isolated areas that flood seasonally, such as vernal pools. The determination of wetlands is a science and very complicated.

The first 200 feet from the edge of a perennial stream are regulated as “riverfront area.” The first 100 feet from a vegetated wetland or stream bank are regulated as “buffer zone.” Some towns have even more stringent by-laws and buffer zones, so always check with your town’s conservation commission.

Any work performed within these resource areas and the 200 or 100 foot buffer zones are strictly regulated, and a permit (called an Order of Conditions) must be obtained by the local Conservation Commission before any work starts. The Conservation Commission may decide not to allow the project. Or it may allow it, with a myriad of conditions to protect the wetlands, including hay bales, silt fencing, wetlands replication areas, and other performance standards. Furthermore, disgruntled abutters may appeal the issuance of a conservation permit, so it’s a very good idea to get your neighbors on board before you appear before the conservation commission. It’s also a good idea to hire an experienced Massachusetts wetlands attorney to guide you through the process.

Aquifer Protection

Lastly, many Massachusetts towns rely on municipal wells as their public water supply. In response to threats and actual contamination of drinking water wells, towns have enacted aquifer protection districts. These areas are usually depicted as “overlays” on more customary zoning districts. The use of septic systems, underground fuel oil storage tanks, and other potential contaminants is often closely regulated in aquifer protection districts. Because of the costs of remediating contaminated public wells and locating alternative sources of potable water, state and local governments are taking other measures, such as restricting the size and use of septic systems to protect underground water resources.

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Exaction, Extortion or Illegal? Mandatory Dedication of Open Space Parcel Held Unlawful

by Rich Vetstein on May 16, 2011

in Construction Law, Massachusetts Real Estate Law, Permitting/Zoning, Zoning

Score One For Property Rights Advocates

Massachusetts has the well-deserved reputation of being one of the most challenging states to permit a new housing development due to its myriad of rules, regulations and zoning by-laws. Real estate developers seeking to build a new subdivision typically go through an arduous permitting process before the local Planning Board, Board of Selectmen, Board of Health, Conservation Commission, Zoning Board of Appeals and other town boards.

Open Space Set-Asides

In what has become very much en vogue and required in the last decade are towns requiring that the developer dedicate or deed some of its developable land for open space and recreational purposes. In the recent case of Collings v. Stow Planning Board(embedded below), the Appeals Court ruled that the planning board went too far in requiring that the developer set aside almost 6 acres of a 5 lot subdivision for open space and “environmentally significant areas with views.”

Now usually, the developers don’t like to sue town planning boards over these type of exactions or “give and takes” as they want to get their projects approved and “play ball” with the towns. Apparently, the Collings family stood their ground in this case and won a decent victory for other developers who are less inclined to sue town boards.

Ruling: Open Space Requirements Must Be Tied to Legitimate Subdivision Concerns

Generally, a planning board condition requiring the dedication of open space which in effect reasonably limits the number of buildable lots, imposed out of safety concerns arising from the length of the street, would not be illegal. The Appeals Court found that the Stow planning board did not limit itself to a reasonable open space requirement but went much farther and required dedication of open space for public use, including the actual transfer of that open space to the town or a land trust. The court ruled that the exactions also provided no additional benefit above and beyond the open space requirement that relate to the safety concerns that are the subject of the subdivision law and the street length requirements. “Although a planning board’s authority under the subdivision control law certainly encompasses, in appropriate circumstances, requiring open space, it does not extend to requiring the transfer of that open space to the public for reasons unrelated to adequate access and safety of the subdivision without providing just compensation,” the Court held.

This case is a wake up call to town planning boards who may be a bit power-hungry.

Collings v. Planning Board of Stow//

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

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

by Rich Vetstein on May 14, 2011

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

Buyer’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

_______________________________________________

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

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Dealing With Dysfunctional Massachusetts Condominium Trustees & Homeowner Associations

by Rich Vetstein on May 10, 2011

in Condominium Law, Massachusetts Real Estate Law

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

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

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

Dealing With A Dysfunctional Condominium Board of Trustees or Association

A. Financial Mismanagement

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

B. Unpaid Condominium Fees

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

C. Transition Issues

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

**Questions To Ask Before You Buy Into A Dysfunctional Condominium**

What are the condominium by-laws, rules & regulations? You or your attorney must read these condominium documents and make it a condition of your offer. Condominium by-laws and rules are supposed to provide a structure for good decision making. Make sure you carefully review the rules and regulations before buying.
What is the monthly condominium fee and what does it pay for? The monthly condominium fee can range quite dramatically from condominium to condominium. The fee is a by-product of the number of units, the annual expenses to maintain the common area, whether the condo is professionally managed or self-managed, the age and condition of the project, and other variables such as litigation. For budgeting and financing you need to know the monthly fee and exactly what you are getting for it.
How much money is in the capital reserve account and how much is funded annually? The capital reserve fund is like an insurance policy for the inevitable capital repairs every building requires. As a general rule, the fund should contain at least 10% of the annual revenue budget, and in the case of older projects, even more. If the capital reserve account is poorly funded, there is a higher risk of a special assessment. Get a copy of the last 2 years budget, the current reserve account funding level and any capital reserve study.
Are there any contemplated or pending special assessments? Special assessments are one time fees for capital improvements payable by every unit owner. Some special assessments can run in the thousands, others like the Boston Harbor Towers $75 Million renovation project, in the millions. You need to be aware if you are buying a special assessment along with your unit. It’s a good idea to ask for the last 2 years of condominium meeting minutes to check what’s been going on with the condomininium.
Is there a professional management company or is the association self-managed? Usually, a professional management company, while an added cost, can add great value to a condominium with well run governance and management of common areas. Self-managed condos tend to have a higher incidence of dysfunction.
Is the condominium involved in any pending legal actions? Legal disputes between owners, with developers or with the association can signal trouble and a poorly run organization. Ask whether there are any pending lawsuits.
How many units are owner occupied? A large percentage of renters can create unwanted noise and neighbor issues, and result in a higher incidence of dysfunction. It can also raise re-sale and financing issues with the new Fannie Mae and FHA condominium regulations which limit owner-occupancy rates.
What is the condominium fee delinquency rate? Again, a signal of financial trouble. Plus lending guidelines want to see the rate at 15% or less.

___________________________________

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

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Ibanez Aftermath: SJC Hears Arguments In Important Faulty Foreclosure Transfer Case

by Rich Vetstein on May 2, 2011

in Foreclosure, Massachusetts Real Estate Law, Title Defects

Update (10/18/11): The Court has issued its opinion, affirming the Land Court’s dismissal. For a full analysis, click here.

Update (9/10/11): The Court has suspended its rule for the issuance of the final opinion within 130 days of oral argument. Hopefully, the decision will come down soon.

_______________________________________

The Massachusetts Supreme Judicial Court heard arguments today in the case of Bevilacqua v. Rodriguez on whether a home buyer can rightfully own a property if the bank that sold it to him didn’t have the right to foreclose on the original owner, after the U.S. Bank v. Ibanez landmark ruling in January. This case, which national legal experts are watching closely, may determine the rights of potentially thousands of innocent purchasers who bought property at foreclosure sales that have been rendered invalid after the Ibanez ruling.

Land Court Ruling

The case started in the Land Court where Judge Keith Long (ironically the same judge who originally decided the Ibanez case) ruled that the buyer of property out of an invalid foreclosure has no right to bring a “try title” action to establish his ownership rights because he never had good title in the first place. Judge Long’s ruling can be read here.

“I have great sympathy for Mr. Bevilacqua’s situation — he was not the one who conducted the invalid foreclosure, and presumably purchased from the foreclosing entity in reliance on receiving good title — but if that was the case his proper grievance and proper remedy is against that wrongfully foreclosing entity on which he relied,” Long wrote.

Whose Side Are They On Anyways?

Given the importance of the case, the SJC accepted it on direct appellate review. The oral arguments can be viewed here.

The positions taken by the case participants were curious to say the least. While the mortgage lobby argued in favor of the homeowner’s right to clear his title, the state Attorney General’s office argued against that position. Doesn’t the Commonwealth have a vested interest in assisting the thousands of innocent home buyers who have been impacted by the sloppiness of the mortgage and foreclosure industry? Maybe Attorney General Coakley didn’t want to give the impression that she was favoring the mortgage industry? But she’s short-sighted if she doesn’t realize that Ibanez title problems have hurt a lot of innocent folks. These people have transformed foreclosed properties from blighted eyesores into nice homes.

Tough Options

The AG feels that existing remedies are sufficient to assist home buyers clear Ibanez related title problems. From the front line trenches, I can tell you, they are often not. The remedies are: (1) sue the foreclosing lender for damages, (2) sue to force the lender to fix the deficiencies with the original foreclosure and re-foreclose, or (3) obtain a deed from the original owner, if the person is still even around. Options 1 and 2 are a non-starters. Homeowners want their titles cleared, not a huge legal battle with the likes of a U.S. Bank. And what about the lenders who are bankruptcy and out of business? What do homeowners do then? Option 3 has worked in cases I’ve handled. But what if the previous owner is long gone? Homeowners are out of luck then.

There is also a potential solution under a “foreclosure by entry theory” where home owners can wait 3 years from the foreclosure where their title will ripen into good title. However, in many of bungled foreclosures I’ve seen, the lenders have performed the entry improperly, so that option doesn’t work. And who’s wants to wait 3 years to sell or refinance their homes?

A Workable Solution?

The high court is being asked to craft a judicial solution to this huge mess. To backtrack, there has been legislation filed on these matters, to much initial fanfare, but it is still making its way through the legislative sausage making machine. If anyone has an legislative update, please comment below.

So isn’t it a good idea to have some kind of streamlined judicial remedy to help innocent home purchasers clear these toxic titles? I think so, and here’s why. First, the previous owners won’t get harmed because they defaulted on their mortgage, and in the vast majority of cases have no financial means or interest in making mortgage payments and returning to their foreclosed homes. If they want back in the game, well, pay your mortgage. Second, the innocent home buyers who purchased these toxic foreclosure titles won’t be left holding the bag and having to sue the foreclosing lenders many of whom are out of business. They won’t have to chase old owners across the U.S. either, often being forced to pay these owners ransom money to sign a deed over. Third, the title insurance companies won’t have to pay out huge claims and hire pricey attorneys to fix these messes, thereby keeping premiums level. Lastly, good public policy favors enabling blighted foreclosed properties to be sold and rehabilitated.

Better yet, get the banks to fund the system.

Broad Effect

Bevilacqua’s case could affect the securitized trusts that bundled mortgages and sold securities to investors. Like the Ibanez case, the court’s decision may resonate with other states as they grapple with the rights of new home buyers who may hesitate to complete a purchase for fear of uncertain title. That may be especially so in states such as Massachusetts that don’t require court action to seize a house.

“The Massachusetts case will have significant repercussions in many states that allow nonjudicial foreclosure,” Alan White, a law professor, commented to Businessweek. “The decision in Bevilacqua will not only determine the fate of past foreclosure sale deeds, but hopefully provide guidance so that lenders and their lawyers can get it right going forward.”

The final ruling should be release in several months. We’ll report on it then. In the meantime, I will continue to help clear the titles of the true victims of U.S. Bank v. Ibanez.

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I Have To Pay Tax On Selling My House?! Massachusetts Deed Stamps & Property Transfer Tax

by Rich Vetstein on May 1, 2011

in Closings, Massachusetts Real Estate Law

“The only things certain in life are death and taxes.” — Benjamin Franklin

Massachusetts Deed Stamps / Transfer Tax

Much to every Massachusetts home sellers’ chagrin, there is a state tax on selling your home. Sometimes called deed stamps, transfer tax or excise tax, it’s a tax nevertheless, and sellers must pay it at closing. For every Massachusetts county except Barnstable and the Islands, the tax is $4.56 per thousand of the purchase price on the deed. For example, for a $500,000 purchase, the seller must pay $2,280 in taxes. That’s not chump change! In Barnstable County, the tax is $5.70 per thousand. Dukes (Martha’s Vineyard) and Nantucket counties charge an additional 2% land bank fee.

On the HUD-1 Settlement Statement, the transfer/deed tax will appear on line 1203.

The tax does not apply to transactions up to $100.00. That is why most “gift” transfers or between husband and wife recite consideration for $10.00 or the like, so as to avoid the deed/transfer tax.

Sellers, make sure you factor in this transfer tax, as well as the broker commission, when calculating the amount of your sale proceeds.

Click here for a handy Massachusetts deed / transfer tax calculator.

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REBA v. NREIS Ruling: Massachusetts Real Estate Attorneys Required To Conduct Closings; Notaries Shut Out

by Rich Vetstein on April 25, 2011

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

Ruling 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 Coverage: Court 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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Nearby Waste Water Treatment Plant Causes A Stink With New Home Buyers

by Rich Vetstein on April 21, 2011

in Disclosures, Massachusetts Real Estate Law, Realtors

Does A Massachusetts Seller and Realtor Have A Legal Duty To Disclose The Existence of a Smelly Waste Water Treatment Plant?

Dear Attorney Vetstein:

We purchased our first home in September. We were unfamiliar with the area and relied heavily on the realtor’s knowledge. After living there for a couple of weeks, we went outside to grill and there was a horrid stench to the air. We weren’t able to eat outside and couldn’t figure out where the smell was coming from. After a few times of this, we researched the area and found out that there was the town’s waste water plant behind what we thought was a house, but what was actually the office. We did a Google Earth search on the plant and it is quite large. We bought the house mainly for the large yard and were looking forward to bbq’s, planting a garden and in general spending a majority of our time outside as we had moved from the city.

Do we have any rights? Had the real estate agent or seller disclosed the existence of the smelly plant to us we would have never bought this house. We want to sell and fear that the home will be unsellable.

Your truly,

Worried About The Smell

Dear Worried,

While your Realtor did you no favors, I’m afraid that you (and your Realtor) should have driven around and investigated the neighborhood before you purchased this home.

Legally in Massachusetts, a private seller has no obligation to disclose anything to you about the home or nearby conditions. A seller can only get in trouble if he is asked a direct question and flat out lies about it. Since you did not indicate that you asked the seller the specific question of whether there were any nearby waste water treatment plants, you most likely won’t have any luck pinning this situation on the seller.

The Realtor, while standing on different legal footing, is also most likely not to blame legally. 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 standard, however, doesn’t necessarily mean that a Realtor must disclose every single conceivable on-site or, in this case, off-site condition which may impact the buyer’s decision to purchase. The Massachusetts Supreme Judicial Court has held that off-site conditions may require disclosure only 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.” In that case, the court refused to hold a seller liable for the non-disclosure of toxic waste contamination at the nearby local elementary school which gave the seller difficulty selling previously.

The key factor here is that the waste water treatment plant is out in the open and obvious to anyone searching nearby. This situation underscores the importance of having a Realtor who knows the neighborhood and also doing your own basic due diligence, i.e, driving around the neighborhood.

I do sympathize with you plight. I’m not sure why the Realtor didn’t feel it was necessary (assuming he or she knew of the plant) to tell you about the stinky plant. It’s certainly something I would have wanted to know. You also didn’t tell me whether the Realtor was the listing agent or your own buyer’s agent. A listing agent’s duty is to the seller and getting the home sold. They do their best not to divulge too much info about the surrounding area, lest they get themselves in trouble (like this case). A buyer’s agent would be much more likely to advise you of problematic conditions like the plant (assuming they know about it). If they didn’t know about it, shame on them.

Sorry to deliver the “stinky” news…

Yours truly,

Richard D. Vetstein, Esq.

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An Ounce of Prevention Is Worth a Pound of Cure: Enhanced Owner’s Title Insurance Offers Valuable Benefits

by Rich Vetstein on April 13, 2011

in Massachusetts Real Estate Law, Title Defects, Title Insurance

When you find out you have a major title problem that prevents you from selling or refinancing your home, have fun explaining to your spouse that for a fraction of the cost of your home you could’ve prevented it by buying title insurance.

Enhanced Owner’s Title Insurance Coverage

Available for a few years now, enhanced coverage policies offer vastly improved protection for common title problems at about a 10% cost over a standard coverage policy. (These policies run about $4 per thousand of purchase price). Enhanced coverage policies now cover some of the most common title problems facing Massachusetts residents. Realtors and mortgage professionals should be aware of the benefits of an enhanced coverage policy, and should recommend that their clients opt for the increased coverage. It’s well worth the small cost in premium.

Additional Coverages:

Appreciation in property value. Standard policies do not increase their coverage amount in a rising market as a home increases in value. The enhanced policy will increase coverage by 10% per year for 5 years up to 150% of the original policy limit.
Encroachments/adverse possession. Standard policies, to most homeowner’s chagrin, do not cover encroachments like a neighbor’s fence, wall or structure over a property line. Enhanced policies provide coverage for such encroachments, and also cover adverse possession–which occurs when an encroachment exists for 20 or more uninterrupted years. For more info on Massachusetts adverse possession, please read our post “Good Fences May Make For Upset Neighbors”.
Zoning/Subdivision/Building permit violations. Enhanced coverage policies now provide coverage if the property is not zoned for residential 1-4 family use, in violation of subdivision regulations, or if there is a defect or lack of a building permit. This is a tremendous benefit for commonly arising situations.
Easements. Enhanced policies offer coverage for easement encroachment situations such as deeded driveways, drainage easements, utility easements, beach paths, walking paths, etc.
Expanded Insured. Enhanced policies will now transfer to a spouse who gets property in a divorce, inheriting heirs, related family trusts and their beneficiaries.
Expanded Access Coverage. Enhanced policies now guarantee that your home as adequate vehicular and foot access over adequate streets or roads if there’s a title defect rendering your lot “land-locked.”

Do I Really Need Title Insurance?

The decision to get an owner’s title insurance policy is one of the most important choices you make in connection with your real estate transaction.

As part of every real estate transaction, the borrower/buyer is offered the opportunity to get an owner’s title insurance policy. (For refinances and purchases, your lender will require you to purchase a “lender’s” title insurance policy.) An owner’s title insurance provides the most comprehensive protection available for most every known type of title problem which could affect your property rights. I’m proud to say that every single one of my buyer clients have benefited from an owner’s title insurance policy at their closings, at my strong recommendation.

One needs only to look at the recent controversies over “robo-signing” and the U.S. Bank v. Ibanez defective foreclosure sales, which has stripped thousands of Massachusetts property owners of their property ownership rights, to see why an owner’s title insurance policy could be the best decision a home buyer ever makes. The unfortunate souls who declined owner’s title insurance are now left without legal title to their homes and looking at the prospect of spending thousands of dollars in legal fees to resolve their title issues with no guarantee of success. With a title insurance policy, the title insurance company will hire expert title attorneys to solve title issues at no cost to you, defend against any adverse claims, reimburse you for covered damages, and most valuable, issue affirmative coverage to enable a pending closing to move forward.

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

by Rich Vetstein on April 9, 2011

in Condominium Law, Massachusetts Real Estate Law

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

Condominium: Special Type of Legal Ownership

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

Common Areas & Financial Management

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

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

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

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

Crazy Trustees

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

No Pet Rules

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

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

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

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

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

___________________________________

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

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60 Minutes Segment On Foreclosure Paperwork Mess & Defective Titles

by Rich Vetstein on April 4, 2011

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Title Defects

Last night, 60 Minutes did a compelling segment — Mortgage Paperwork Mess: Next Housing Shock? — on an important issue we’ve been covering here on the Blog . The segment details rampant forgeries by $10/hour bank “vice-presidents” and the pervasive robo-signing of bogus mortgage documents by “document mills” and “foreclosure factories.”

We’ve been particularly concerned about the thousands of Massachusetts residents who purchased foreclosed properties which are now left with defective titles due to the various errors and missteps of foreclosing lenders and their foreclosure attorneys. In the 60 Minutes segment, the new head of the FDIC, Sheila Bair, proposes a federal “Superfund” to clean up this colossal mess. That’s certainly a good idea. Innocent home buyers shouldn’t have to bear the burden of all the mistakes and shortcuts made by a banking industry too eager to process foreclosures at any cost.

More Coverage:

U.S. Bank v. Ibanez case

Defective Foreclosure Titles In Massachusetts: What’s Next?

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Truth In Lending Disclosure Statement: How About Confusion In Lending?

by Rich Vetstein on March 28, 2011

in Closings, Disclosures, HUD, Massachusetts Real Estate Law, Mortgages, Truth in Lending

Annual Percentage Rate (APR), Amount Financed, Finance Charge, and Total Payments…the Truth In Lending Disclosure Statement is one of the most challenging disclosure forms to explain to borrowers at a Massachusetts real estate closing. I like to call it the “Confusion In Lending” Statement because the form is what happens when the government attempts to recalculate your interest rate and closing costs in a way most human beings would not even consider.

To explain the Truth In Lending Disclosure, we’ll use a dummy form for a $500,000 purchase transaction with a $400,000 loan (20% down payment), a 30 year fixed rate loan at 5.00% at a cost of 1 point.

Annual Percentage Rate

The confusion begins. The Annual Percentage Rate, or APR, as you can see is not 5.00%, which is the contract interest rate for the loan. Why? Because the APR does not use the loan amount for its calculations but rather the “Amount Financed.”

Amount Financed

And the confusion continues. The Amount Financed is not the $400,000 loan amount, but is about $6,600 less than the loan amount. That is because the Amount Financed equals the loan amount ($400,000) less prepaid loan and closing fees and payments. Fees included in the amount financed are: points, lender fees such as underwriting, process, tax service, mortgage insurance, escrow company fees, prepaid interest to end of closing month, and Homeowners Association fees. All of these fees are added up and subtracted from the loan amount to reach the Amount Financed figure. Note that depending on when the loan closes in the month, and fees from third parties such as escrow companies the Amount Financed will vary and therefore so will APR.

How The APR Is Calculated

Now that we have the Amount Financed, we can calculate the APR. For a 30 year fixed loan such as this, the true loan amount is amortized for the loan period using the interest rate. In our example $400,000 amortized for 30 years at 5.00% has a payment of $2,147.29 per month paying principal and interest.

To calculate the APR, we use the same payment –$2147.29 every month for 30 years– to pay off an Amount Financed of $393,372.22 (loan amount less costs) to reach an APR of 5.141%. So the APR is higher than the interest rate because the Amount Financed is lower than the loan amount for the same monthly payment and term.

ARMs–Adjustable Rate Mortgages

If you are taking out an adjustable rate mortgage (ARM), you may as well just throw the Truth in Lending Disclosure out the window. The TIL is allowed to be based on the introductory interest rate through the entire life of the loan. Your adjustable rate mortgage, however, will reset its interest rate after 3, 5, 7, or 10 years depending on the type of product. There’s no way to predict where interest rates will be in the future, so the Truth in Lending Disclosure is inherently inaccurate for ARMs.

Explaining the Truth in Lending Disclosure is one of the many functions of a Massachusetts real estate closing attorney. In other states which aren’t required to use closing attorneys, they will not explain these complicated forms to you.

___________________________________

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

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Massachusetts Purchase & Sale Agreement Contingencies In A Changed Market

by Rich Vetstein on March 25, 2011

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

The “Standard Form”

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

A Vastly Changed Landscape

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

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

Low Appraisal Contingency

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

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

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

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

Condominium Fannie Mae Compliance

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

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

Rate Lock Expirations

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

MODIFICATION TO PARAGRAPH 10: Notwithstanding anything to the contrary contained in this Agreement, if SELLER extends this Agreement to perfect title or make the Premises conform as provided in Paragraph 10, and if BUYER’S mortgage commitment or rate lock would expire prior to the expiration of said extension, then such extension shall continue, at BUYER’S option, only until the date of expiration of BUYER’S mortgage commitment or rate lock.

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

___________________________________

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

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