Massachusetts Real Estate Law

Listing Broker Hit With Triple Damages For Breaching Escrow Duties

by Rich Vetstein on December 14, 2010

in Massachusetts Real Estate Law, Purchase and Sale Agreements, Real Estate Litigation, Realtors

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

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

Quick Take-Away

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

Dispute Between Listing Broker and Buyer

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

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

Breach of Fiduciary Duty and Chapter 93A Violation

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

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

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Even In Hot Real Estate Market, Seller Entitled To Entire 5% Deposit When Buyer Lost Financing

by Rich Vetstein on December 10, 2010

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

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

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

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

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

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

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

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

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

Lesson To Be Learned

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

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

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

by Rich Vetstein on November 23, 2010

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

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

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

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

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

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

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New Massachusetts Homestead Act Set To Become Law

by Rich Vetstein on November 18, 2010

in Homestead, Massachusetts Real Estate Law

New Homestead Law Went Into Effect 3/16/11 (click here to download)

Automatic $125,000 Homestead For All Mass. Residents; Up to $500,000 In Homestead Protection

For less than $100, a Massachusetts homestead provides a simple and inexpensive asset protection device which shields a principal home from up to $500,000 in certain creditor’s claims. Now the Legislature has passed the long awaited revisions to the Massachusetts Homestead Act (Senate Bill 2406), giving homeowners expanded protection. Pending some minor amendments, the Governor is expected to sign the bill.

Here’s a summary of highlights of the amended bill:

  • All Massachusetts homeowners will receive an automatic homestead exemption of $125,000 for protection against certain creditor claims on their principal residence without having to do anything.
  • All Mass. residents are eligible for a $500,000 “declared homestead exemption” by filing a declaration of homestead at the registry of deeds. For married couples, both spouses will now have to sign the form–which is a change from prior practice.
  • If you already have a homestead recorded at the registry of deeds, you do not have to re-file it. You are all set, and have the full $500,000 protection.
  • Homesteads are now available on 2-4 family homes, and for homes in trust.
  • The existing “elderly and disabled” homestead will remain available at $500,000.
  • If you have a homestead as a single person, and get married, the homestead automatically protects your new spouse! Homesteads now pass on to the surviving spouse and children who live in the home.
  • You do not have to re-file a homestead after a refinance. There’s always been confusion here, with lenders requiring homeowners to either subordinate or release homesteads. Under the new law, homesteads are automatically subordinate to mortgages, and lenders are specifically prohibited from having borrowers waive or release a homestead.
  • Closing attorneys in mortgage transactions must now provide borrowers with a notice of availability of a homestead.

As part of all residential real estate transactions, I always ask clients if they would like me to prepare a homestead declaration for a nominal fee ($40 + $35 state recording fee). Now that the protections are enhanced and attorneys are obligated to disclose, every homeowner should opt to declare a homestead. Please contact us at 781-247-4250 if you would like a homestead recorded on your property.

More info: Secretary of State Homestead Guide

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Battle Between Massachusetts Closing Attorneys vs. Settlement Service Providers Argued Before SJC

by Rich Vetstein on November 2, 2010

in Closings, Massachusetts Real Estate Law, Title Defects

Breaking: SJC Rules In Favor Of Real Estate Attorneys

Billion Dollar Mass. Closing Industry At Stake

Today, the Massachusetts Supreme Judicial Court heard arguments in the closely watched case of The Real Estate Bar Association of Massachusetts, Inc. (REBA) v. National Real Estate Information Services, Inc. (NREIS). This case pits Massachusetts real estate closing attorneys versus out of state non-attorney settlement service providers which are attempting to perform “witness or notary” closings here in Massachusetts. At stake is the billion dollar Massachusetts real estate closing industry.

Unauthorized Practice of Law?

I wrote previously about the case in this post. Massachusetts’ long standing practice is for licensed attorneys to oversee and conduct the residential real estate closing process. NREIS’s business model is to outsource the vast majority of those functions to back office workers who aren’t trained attorneys. REBA argues that this practice violates Massachusetts common law and consumer protection statutes requiring that attorneys perform the most vital functions of a real estate closing transaction, such as certifying and analyzing title, preparing the deed, handling the transfer of good funds, where necessary, and conducting the closing.

The case was originally brought in federal court, where NREIS won and obtained a $1Million attorney fee award. But the federal appeals court overturned that ruling, and asked the Massachusetts Supreme Judicial Court to answer the question of whether and to what extent a residential real estate transaction and closing is the “practice of law” required to be performed only by a licensed attorney.

Questions From the Bench & Analysis

  • A favorable decision also upholds the notion that attorneys are vital to the conveyancing system, protect consumers, and cannot simply be outsourced to a non-trained drone. We’ve seen disastrous results when untrained folks try to perform legal tasks with the foreclosure robo-signing scandal. And the SJC may be sensitive to this having just heard the Ibanez foreclosure case.
  • Several of the justices weren’t buying NREIS’s argument that its non-attorney back office processors never make legal judgments, but instead simply “flag issues.” Justice Cowen raised several examples of situations requiring an attorney’s trained eye, such as analyzing a title examination, analyzing title defects, and ensuring that loan documents, the deed and mortgage are in the correct form.
  • Justice Cowen said that NREIS couldn’t delegate everything to a paralegal. At some point an attorney had to make the final call. And I think that is where the Court will end up on this case–hopefully!
  • Justice Gants and Spina both showed their studying of the conveyancing process in asking whether NREIS needed to have attorneys certify title (they do under state statute) and analyze a title rundown (yes, again).
  • Don’t bet against the SJC ruling against real estate attorneys in this case. After all, the justices are attorneys themselves. And they are humans. Whether they admit it or not, they are naturally inclined to favor their brethren of the bar.

Why This Case Is Important To Mass. Consumers

The purchase of a home is usually the most important investment most families will ever make. Home buyers and sellers, as well as lenders, rely on the training, professionalism, and integrity of attorneys to ensure that their property rights are protected. The reason that only lawyers can give legal advice is to protect the public. It gives the buyer and lender someone to hold accountable if there are mistakes. These multiple levels of protection permit buyers, sellers and lenders to confidently and reliably close loans worth hundreds of thousands of dollars every day. Non-attorney closings only hurt the consumer. In recent years, the real estate closing process has become as more complicated than ever. In “witness only” or “notary” closings, the non-attorneys who conduct the closings do nothing more than witness the execution of the closing documents, and cannot provide any legal guidance. What happens if an issue arises at closing requiring legal analysis? The closing attorney has the training to resolve it. The non-attorney closer will just sit there and can do nothing. Lastly, due to increased competition, there is no difference in cost between non-attorney closing companies and real estate attorneys.

In addition to the parties’ briefs, the SJC has received nearly 20 friend of the court briefs, virtually all of which support REBA’s position that NREIS is engaged in the unauthorized practice of law. SJC briefs can be found here. The webcast is found at the Suffolk Law School website.

The SJC should issue a final ruling in several months.

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Is A Real Estate Broker Obligated To Disclose Haunted Houses Or Paranormal Activity?

by Rich Vetstein on October 31, 2010

in Disclosures, Massachusetts Real Estate Law, Realtors

Disclosure Obligations For Haunted Houses

On Halloween eve, I thought I would delve into the spooky topic of haunted houses and disclosure issues. Massachusetts real estate brokers struggle to sell homes tainted by shocking murders, suicides, or even suspected “haunted houses” filled with paranormal activity. These “stigmatized” properties are particularly difficult to deal with as they raise unique valuation problems and disclosure issues.

No Disclosure Rule

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

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

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

(a) that an occupant of real property is now or has been suspected to be infected with the Human Immunodeficiency Virus or with Acquired Immune Deficiency Syndrome or any other disease which reasonable medical evidence suggests to be highly unlikely to be transmitted through the occupying of a dwelling;

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

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

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

An easy way to determine whether a house is truly “haunted” is to hire Ghostbusters. No seriously, Google the property address and the last few prior owners and see what comes up. If there was a murder or suicide–or even ghosts– it should reveal itself.

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Focus On The Foreclosure Mess: Title Insurance, Robo-Signing, & Ibanez

by Rich Vetstein on October 26, 2010

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

Two good questions came from my Boston.com real estate blog readers about the recent foreclosure mess.

“Are title insurance companies still insuring foreclosure properties?”— James In Cambridge

Answer: Yes, they are. Initially, the press reported that some major title insurers had temporarily stopped insuring foreclosure titles from JP Morgan Chase, Ally Financial, and Bank of America. However, my understanding is that all title insurers have resumed insuring all foreclosure properties in the wake of several major agreements between national title insurance companies and lenders. These warranty and indemnification agreements would essentially shift the risk of loss from irregular/defective foreclosures back onto the foreclosing lenders.

From the conveyancing side, I can definitely tell you that title insurers have advised their attorney agents to go through foreclosure titles with a fine tooth comb and to be especially diligent in examining and certifying foreclosure titles. Buyers of foreclosure properties should be prepared for delays in getting their transactions closed.

“How is robo-signing different from the Ibanez case situation”?–Scott

Answer:  “Robo-signing” and the Massachusetts Ibanez foreclosure case are two different situations, but the root of the problem — the complexity of the securitized mortgage industry and the sheer volume of foreclosure paperwork to be processed — remains a contributing cause of both problems.

“Robo-signing,” as one of the leading foreclosure defense attorneys has claimed to the Huffington Post, refers to how financial institutions and their mortgage servicing departments hired hair stylists, Walmart floor workers and people who had worked on assembly lines and installed them in “foreclosure expert” jobs with no formal training to sign sworn documents submitted to courts. According to depositions released in Florida and the Post, many of those workers testified that they barely knew what a mortgage was. Some couldn’t define the word “affidavit.” Others didn’t know what a complaint was, or even what was meant by personal property. Most troubling, several said they knew they were lying when they signed the foreclosure affidavits, and that they agreed with the defense lawyers’ accusations about document fraud.

This is obviously a major problem in states such as Florida which require a judge’s approval of a foreclosure based on sworn documents. However, Massachusetts is not such a state. Other than verifying the borrower is not in the military, Massachusetts state law doesn’t require any sworn verification that the foreclosure is kosher (if you will). That may change after lawmakers and the Attorney General’s office react this foreclosure mess. In fact, the AG announced this week she is investigating on of the largest “foreclosure mills” in the state for alleged non-compliance with the new tenant foreclosure law.

The Ibanez problem occurs when mortgage loan documentation recorded with the Registry of Deeds lagged far behind the actual ownership of the loan, due to complex mortgage securitization agreements and sloppy follow up. Land Court Judge Keith Long’s ruling effectively invalidated thousands of foreclosures which suffered from this newly recognized “defect.” The Ibanez situation is not a product of fraud, like robo-signing, in my opinion. In fact, the practice of recording mortgage assignments “late” was long accepted by the title examination community prior to the Ibanez ruling. So it caught a lot of folks off-guard.Getting title insurance on an Ibanez-afflicted property is near impossible these days, and the robo-signing controversy certainly doesn’t help alleviate  the risk tolerance of anxious title insurance underwriters.

To be sure, both Ibanez and the robo-signing controversy have reverberated through the real estate community, and have impacted foreclosure sales on a number of levels. If you are considering purchasing a foreclosed property, please contact us so we can guide you through the complicated process and protect your interests.

If you need assistance with foreclosure defense, I recommend Liss Law–Massachusetts foreclosure defense (www.lisslawboston.com) based in Brookline, MA

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Ibanez Foreclosure Case Oral Argument Recap

by Rich Vetstein on October 7, 2010

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis

I just finished watching the oral argument web-cast in the U.S. Bank v. Ibanez controversial foreclosure case before the Massachusetts Supreme Judicial Court. It was a bit anti-climatic, with the judges and attorneys spending an inordinate amount of time discussing the complex, mortgage securitization documents and process.

Here’s a recap of what caught my eye:

  • The justices had many questions about the Wells Fargo/Option One mortgage pooling and servicing agreement, private placement memo, and other mortgage securitization documents. If you’ve read the great book, The Big Short by Michael Lewis, you know how complex these agreements are. Some of the justices clearly weren’t following the complex securitization process and agreements. Justice Ganz characterized the securitization documents as “extraordinarily sloppy.” I wonder what Goldman Sachs and Lehman Brother’s $1,000/hour corporate attorneys would think of that comment.
  • The justices were searching for a document in the record evidencing that Option One Mortgage was holder of mortgage that was foreclosed, as the problem in this case was that Option One had an assignment executed “in blank.” That is, without the identity of a new lender who was purchasing the mortgage on the secondary market. They were really struggling with the problems in the documentation filed with the registry of deeds in this case, which was endemic as thousand of securitized mortgages were being foreclosed.
  • The attorney for the lenders spent most of his time attempting to explain the securitization process to the justices. I think that took away some of the impact of the public policy arguments he was expected to make.
  • Chief Justice Marshall referenced the friend of the court brief filed by the Real Estate Bar Association (REBA), asking an attorney for the foreclosed homeowner whether “the sky will fall if the Land Court’s ruling is upheld”? (Answer was n0). Likewise, Justice Ganz asked what are we to do about the seemingly innocent folks who bought these foreclosed homes unaware that the titles were defective. Justice Ganz and Marshall agreed that these purchasers could be “bona fide good faith purchasers” which under the law means they could be immune from claims challenging their title. That’s an encouraging line of reasoning for many people waiting on the outcome of this case.
  • There was also a discussion about changing the current common law which does not require recording of mortgage assignments, to require it. Justice Marshall asked how many states required recording of mortgage assignments, giving a hint of where’s she thinking on this.
  • Lastly, Justice Cordy, the former big firm attorney, was clearly on the side of the lenders, even going so far as to ask whether Mr. Ibanez waive his challenge to the foreclosure by not challenging it in lower court.

As with any appeal, the Court takes several months to decide the case and render a formal written opinion. But here’s how I think this could play out. The majority of justices were deeply troubled by the “extraordinarily sloppy” paperwork surrounding the securitized mortgage documents and assignments which is the root problem here. My guess is they probably think Land Court Judge Long is right about the lender’s compliance with the foreclosure laws. They also likely think that in the current foreclosure mess, the chain of ownership of these loans should be more transparent to the consumer and those searching titles. However, the justices don’t want to hurt thousands of innocent homeowners who bought properties out of foreclosure and fixed them up, etc. Chief Justice Marshal and Justice Ganz were clearly concerned about this, and their opinions typically carry substantial weight. So, to play this down the middle, the court could uphold Judge Long’s ruling, holding that all mortgage assignments must be recorded from now on. But the court would not make the ruling retroactive as is usual, so the innocent homeowners won’t be saddled with defective titles.

There are many folks waiting out this important decision, including several of my clients. I hope the SJC will strike the right balance.

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U.S. Bank v. Ibanez: Supreme Judicial Court Oral Argument Oct. 7 Preview

by Rich Vetstein on October 4, 2010

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis

Click for Ibanez Foreclosure Case Oral Argument Recap

The oral argument in the much anticipated U.S. Bank v. Ibanez companion cases is Thursday October 7, 2010 at 9:00AM at the Supreme Judicial Court, John Adams Courthouse, One Pemberton Square, Boston, MA.

If you cannot make it into Boston, you can watch the live webcast here.

Here is a link to the Ibanez-borrower side brief.

Here is the lenders’ brief.

The friend of the court brief from the Real Estate Bar Association is here.

In addition to the merits of the Land Court’s ruling, watch for a discussion of whether the Land Court’s ruling will be applied retroactively, which will leave thousands of invalid foreclosure titles intact, or prospectively, which will minimize the damage of this decision. I’ve been predicting that the SJC will strike a balance by upholding the Land Court on the merits, but applying the ruling prospectively.

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50 Ways To Lose Your Home, And Only One Way To Protect It, An Owner’s Title Insurance Policy

by Rich Vetstein on September 28, 2010

in Massachusetts Real Estate Law, Title Defects, Title Insurance

Essential-Paul-Simon-395x298-staffpicks_0She said it’s really not my habit to intrude
Furthermore, I hope my meaning won’t be lost or misconstrued
But I’ll repeat myself, at the risk of being crude
There must be fifty ways to leave your lover
Fifty ways to leave your lover

“50 Ways To Leave Your Lover” (c) Paul Simon

50 Ways To Lose Your Home

As Massachusetts real estate closing attorneys, we are often asked by buyers-borrowers, “Why should we get an owner’s title insurance policy if you are already doing a title examination?” This is a really good question, and the perfect lead in to a conversation about of the coverages and cost of a Massachusetts owner’s title insurance policy. Do you know the Paul Simon tune, “50 Ways to Leave Your Lover”? Well, there are more than 50 ways to lose your home without an owner’s title policy. Simply put, don’t take the risk of foregoing title insurance. It’s not worth it.

Title Insurance Basics

Title insurance protects homeowners from financial loss in the event that certain covered problems develop regarding the rights to ownership of their property. While all borrowers of conventional mortgages will receive a certification of title by a Massachusetts real estate closing attorney that their title is “good, clear and marketable,” there can be a host of hidden, off-record title defects that even the most careful title search will not reveal. In addition to protection from financial loss, title insurance pays the cost of defending against any covered claim.

50 Ways to Lose Your Home

Like the Paul Simon song, there are at least 50 ways you can lose title to your home if you don’t get an owner’s title insurance policy. The vast majority of these situations will not be ascertained in a typical title examination.

  1. Forged deeds, mortgages, mortgage discharges/satisfactions
  2. Deeds executed by a mentally incompetent or insane person
  3. Deed from a minor subject to avoidance
  4. Unauthorized deed from partnership or trustee
  5. Deed by foreign person vulnerable to challenge
  6. Deed from a corporation unauthorized by by-laws or resolution
  7. Undisclosed divorce of person who conveys as sole heir of a deceased former spouse
  8. Deed signed by mistake or under financial duress
  9. Deed signed under defective power of attorney
  10. Foreclosure deed where underlying foreclosure was defective
  11. Ineffective release/discharge of prior mortgage
  12. Deed of deceased not joining all heirs
  13. Missing heirs claiming interest in property
  14. Transfer void under contract law
  15. Deed includes protected public trust wetlands
  16. Ineffective release of mortgage subject to bankruptcy avoidance powers
  17. Ineffective mortgage subordination
  18. Mistakenly indexed deed/release
  19. Undisclosed federal/state tax lien
  20. Undisclosed spousal/child support lien
  21. Undisclosed lawsuit affecting property
  22. Undisclosed restrictions/covenants
  23. Incorrect legal description
  24. Errors in tax records
  25. Erroneous tax release
  26. Misinterpretation of wills
  27. Deed without right of access to public way
  28. Access eliminated by foreclosure
  29. Defective notarization
  30. Forged notarization
  31. Improperly recorded or indexed deed/mortgage
  32. Deed acquired through creditor fraud
  33. Mechanic’s lien claims
  34. Incorrect property boundaries
  35. Encroachments of buildings
  36. Federal or state estate tax liens
  37. Preexisting violation of subdivision laws
  38. Preexisting violation of zoning laws
  39. Deed from joint owner without joint tenant joining
  40. Undisclosed right of first refusal
  41. Undisclosed easement affecting property
  42. Undisclosed party wall agreement
  43. Special assessment liens
  44. Adverse claim of vendor’s lien
  45. Discovery of un-probated will
  46. Claims for prescriptive rights, not of record
  47. Easement does not conform to recorded instrument
  48. Incorrect survey
  49. Deed following lawsuit where all parties of interest not joined
  50. Deed executed under falsified power of attorney

Getting an owner’s title insurance policy is simply a “no brainer.” I did the title to my own home in Sudbury, and I got an owner’s policy. It’s a one time premium paid at closing, and stays in effect as long as you own your home, through refinances and even the death of a spouse. Please contact us about carriers, rates and coverages.

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Taking Another Stab at Massachusetts Loan Modifications: Refinancing Underwater Mortgages

by Rich Vetstein on September 21, 2010

in Fannie Mae, FHA, Foreclosure, HUD, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages

The recent historic drop of mortgage rates has created a refinancing boom for qualified homeowners. Unfortunately, the refinancing wave washing over the country has paradoxically left dry homeowners who would most benefit:  those who are “underwater.” Underwater mortgages, or “negative equity” (i.e., they owe more on the mortgage than the property is worth) cause foreclosures and serves to bottle up the housing market. Thus, assisting homeowners who are underwater on their mortgage is good public policy. According to a CoreLogic study, there are currently 11 million mortgages underwater and another 2 million nearly at negative equity in the US housing market – a figure that comprises 28% of all residential properties with a mortgage. In Massachusetts, there are 225,000 properties with negative equity and another 52,000 with near negative equity.

The government has made attempts to address this crisis. Last year the Obama Administration created a loan modification program, the Home Affordable Refinance Program, to help refinance borrowers whose loans were worth up to 125% of their homes value. The program did not take hold, and only a relatively minor number of modifications/refinances occurred.

Writing in yesterday’s New York Times, former chairman of the President’s Council of Economic Advisors and current Dean of Columbia Business School Glenn Hubbard penned an intriguing column proposing easier refinancing of underwater mortgages.

Under the proposal, quasi-governmental entities like Fannie Mae, Freddie Mac, the FHA, and the VA would require loan servicers:

  • To send a short application to all eligible borrowers promising to allow them to refinance with minimal paperwork.
  • Servicers would receive a fixed fee for each mortgage they refinanced, which would be rolled into the mortgage to eliminate costs to the taxpayers.
  • The agencies would issue new mortgage-backed securities to cover the refinanced mortgages, using the proceeds to pay off the loans held in the existing securities.

The proposal also mandates that existing second lien holders provide a subordination agreement (which benefits the holder because it lowers the default risk).

The program would have immediate benefits: a distressed homeowner could save approximately 15% in their monthly mortgage payment, which would greatly help homeowner’s through the current crisis.

Is there a guarantee that this modification will become law? No, there is not, but it certainly makes sense for policymakers to move on it right away.

In the words of Glen Hubbard, “[i]f we can lower mortgage payments for struggling homeowners, it will reduce future foreclosures on federally backed loans, providing savings to the taxpayers.” And that’s a good thing for everyone.

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Don’t Touch That Deposit: Court Rules Escrow Duty Trumps Real Estate Commission Dispute

by Rich Vetstein on September 16, 2010

in Massachusetts Real Estate Law, Purchase and Sale Agreements, Real Estate Litigation, Realtors

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

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

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

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

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

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

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

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Pay Extra Attention To Mortgage Financing Contingency Clauses During Today’s Credit Crunch

by Rich Vetstein on September 6, 2010

in Massachusetts Real Estate Law, Mortgages, Purchase and Sale Agreements, Title Defects

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

What Is The Typical Mortgage Contingency Clause?

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

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

What If There Are Delays In Obtaining My Loan Commitment?

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

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

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

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

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

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

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

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

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

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

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

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

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Richard Vetstein Talks Real Estate Law On “Money Matters” Radio Show

by Rich Vetstein on September 3, 2010

in Massachusetts Real Estate Law, Real Estate Marketing

I had the pleasure of sitting down for a 1 hour radio interview on real estate law for Money Matters Radio. The podcasts for the show are below. (They are 30 minutes each, so be advised). The hour went by so fast!

There was a funny thing that happened during the interview. My dad was listening, and he texted me during the show, which buzzed my Iphone in my pocket. During a break, I told the host about my dad’s text, and then the host made sure he said “Hi” to my dad over the air. It was pretty funny. Well, without further adieu:

Click this link for Rich Vetstein’s Money Matters Radio Interview on Massachusetts Real Estate Law (Part 1). Topics: The Closing Process, Title Examinations, Title Insurance, Homeowners & Condo Insurance.

Click the link for Part 2 of the Interview. Topics: Real Estate Litigation, Foreclosures, and Short Sales.

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The Impact Of The Mortgage Reform & Anti-Predatory Lending Act On The Conventional Residential Lending Industry

by Rich Vetstein on August 25, 2010

in Disclosures, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages

The new Mortgage Reform and Anti-Predatory Lending Act, buried in the fine print of the much publicized Dodd-Frank Wall Street Reform and Consumer Protection Act contains strict new rules aimed at preventing another sub-prime mortgage collapse.

Overview: What Is The Impact To Mortgage Lenders and Originators?

The Mortgage Reform and Anti-Predatory Lending Act certainly changes the regulatory landscape for mortgage originators who focused on high-risk, sub-prime lending, setting tougher new standards and creating new federal remedies for consumers victimized by deceptive and predatory lending. Stripped down, the Act puts the onus on mortgage lenders and originators to ensure, based on verified and documentation information, that borrowers can afford to repay the loans for which they have applied. Pretty novel idea, huh?

The new law essentially codifies good underwriting practices by requiring consideration of a borrower’s “credit history, current income, expected income the consumer is reasonably assured of receiving, current obligations, debt-to-income ratio or the residential income the consumer will have after paying non-mortgage debt and mortgage-related obligations, employment status, and other financial resources other than the consumer’s equity in the dwelling or real property that secures repayment of the loan.”

I don’t see anything in these rules that a financially prudent lender wouldn’t have already implemented in its underwriting processes. Lenders should not be placing borrowers into loans they are doomed to fail.

I’m sure these new rules will result in a few more disclosures and forms, but I don’t see this making a major impact on the conventional residential lending industry. If mortgage professionals think otherwise, I’d love to here from you. Well, onto the details:

New Minimum Mortgage Affordability Standards

The new law essentially outlaws many of the characteristics of the classic sub-prime, predatory mortgage loan, by requiring that:

  • The mortgage provides that regular periodic payments do not result in an increase of the principal balance of the loan or allow the consumer to defer repayment of principal.
  • The mortgage does not result in a balloon payment (a scheduled payment that is more than twice as large as the average of earlier scheduled payments).
  • The income and financial resources relied upon by the lender have been verified and documented.
  • The underwriting process for a fixed loan is based on a payment schedule that fully amortizes the loan over the loan term, taking into account all applicable costs.
  • The underwriting process for an adjustable rate loan is based on the maximum rate permitted under the loan for the first five years and a payment schedule that fully amortizes the loan over the loan term, taking into account all applicable costs.
  • The mortgage complies with guidelines and regulations related to ratios of total monthly debt to total monthly income or alternative measures of a borrower’s ability to pay.
  • The mortgage has total points and fees amounting to no more than 3 percent of the total loan amount.
  • The term of the loan does not exceed 30 years.

It would appear that this new law would prohibit so-called “no doc” “no income verification” loans.

The new law also imposes on lenders a duty to verify amounts of income or assets that the lender relies upon to determine the consumer’s ability to repay the loan. Again, a novel idea…In order to “safeguard against fraudulent reporting,” lenders are now required to use IRS  transcripts of tax returns.

New Loan Origination Standards

The new law requires that lenders be qualified and registered as mortgage originators under the applicable federal and state laws. The significance of this registration procedure is that all loan documents will require the inclusion of the mortgage originator’s unique identifier, which is to be provided by the National Mortgage Licensing System and Registry. This will enable tracking of the bad guys.

“Steering Incentives” Prohibited

The Dodd-Frank Act will prohibit lenders from “steering” borrowers into more costly loans. It will prohibit mortgage originators from mischaracterizing the credit history of a consumer or the residential loans available to the consumer for purposes of making the loan. Mortgage originators are also prohibited from discouraging consumers from seeking a residential mortgage loan from another lender when the former is unable to suggest, offer, or recommend a loan that is not more expensive.

Predatory Loans Banned

Mortgage originators are prohibited from steering consumers to residential mortgage loans that have “predatory characteristics or effects.” “Predatory characteristics,” include equity stripping, excessive fees, or abusive terms.

Yield-Spread Premium Bonuses Outlawed

The Dodd-Frank Act also imposes new compensation limitations by prohibiting yield-spread premium bonuses, a practice, regulators argue, tends to increase the total cost of the loan to the borrower. Yield spread premiums (YSPs) are fees paid by a lender to a mortgage originator for placing a loan in a certain loan program.

Additional Liability for Mortgage Originators

The Act imposes liability on mortgage originators who fail to comply with these new minimum standards. It provides the penalty of triple damages plus the costs of suit and reasonable attorneys’ fees. Watch out for class actions here!

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Massachusetts Real Estate Values Down, But Real Estate Taxes Continue To Rise

by Rich Vetstein on August 22, 2010

in Abatement, Massachusetts Real Estate Law, Real Estate Taxes

Benjamin Franklin once famously said, “There is nothing certain in life but death and taxes.” And this is most certainly true for real estate taxes in Massachusetts which continue to rise despite declining home values.

As reported in the Boston Globe today:

Despite dropping home values, Massachusetts property tax bills continued to rise last year. Revenue-hungry cities and towns, looking for money to pay for new buildings and to maintain services, have continued to push up local taxes, often asking voters to approve property tax overrides even as real estate values drop further.

The double whammy of lower home values and higher taxes — a phenomenon that has hit Massachusetts homeowners for several years — frustrates taxpayers as they endure the rocky economy.

Massachusetts home values, after peaking in 2007, have dropped about 4.6% last year to an average of $373,702. Yet the average tax bill on a single-family home in fiscal 2010 increased about $140, a 3.3 % increase, according to figures released this month by the state Department of Revenue. The average tax bill for a single-family home was $4,390.

Taxpayers want to know why, and many have had enough. Part of the problem is that assessed values, which municipal assessors use to calculate real estate taxes, lag behind “true” market value. Rick Henderson, the assistant director of assessing in Dedham, points out that assessed values for fiscal 2010 are based on a home’s worth on Jan. 1, 2009, which was determined by home sales in 2008 in that community. A home’s actual value — different from its assessed value — might have declined significantly over the last two years, he said.

Taxpayers can file for an abatement to petition for a lower assessed value. Abatements are due within 30 days of the mailing of the tax bill, and are subject to very strict deadlines, so consult an experienced real estate attorney about an abatement.

The other problem is that local boards of assessors have consistently increased the municipal tax rates to bridge the shortfall in expected collections. For example, in Sudbury, the local assessors raised the residential tax rate from $14.27 in 2008, to $15.29 in 2009, to $16.08 in 2010. During the same period, average home assessed values dropped $33,000, so property taxes continued to rise. Proposition 2 1/2 does not limit the ability of assessors to increase tax rates; it only limits the aggregate tax levy brought in by a town. With the passage of local overrides of Prop 2 1/2, tax bills have increased dramatically in the last 10 years. In Sudbury, the average tax bill in 2000 was nearly $6,000. In 2010, it is $10,460–a 74% increase in 10 years time, or an average of 7.4% per year.

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Ibanez Foreclosure Case Update: Appellate Briefs Filed

by Rich Vetstein on August 19, 2010

in Foreclosure, Massachusetts Real Estate Law, Mortgages

The briefs in the US. Bank v. Ibanez foreclosure case in the Supreme Judicial Court have been filed.

Here is a link to the Ibanez side brief.

Here is the lenders’ brief.

The case is still set for oral argument in October, with a decision expected in late Fall, early Winter.

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The Pregnant Woman, The Newest Lending Credit Risk: Discrimination or Fair Lending?

by Rich Vetstein on August 10, 2010

in Housing Discrimination, HUD, Massachusetts Real Estate Law, Mortgages

By Karen Rabinovici, UConn Law ’12

It seems more outdated than hair scrunchies, something we witnessed years ago: discrimination against pregnant women seeking mortgage loans. Apparently it’s still going on and worse than ever which is why the U.S. Department of Housing and Urban Development (HUD) is investigating numerous cases of alleged pregnancy discrimination in lending. The New York Times recently wrote about it: Seeking a Mortgage, Don’t Get Pregnant.

Spurred by the financial crisis, lenders have created more stringent guidelines for granting loans to borrowers looking to buy homes, and have zoned in on pregnant women, essentially deeming them to be liabilities. Lenders are equivocating maternity leave with unemployment, which results in automatic disqualification or reduced buying power for a loan. Although some women on maternity leave can be entitled to temporary disability insurance, this disability insurance may not be used as qualifying income because it is allocated for a period of time less than three years. Women who are on maternity for only a few weeks are also affected, so the range of women denied loans is vast.

In the past, maternity leave was considered a break from work and was not taken into account when considering whether or not to grant a loan. In this financial climate, however, maternity leave has come to be viewed differently – as complete unemployment. So, lenders will not approve a loan until the mother is officially back at work. This subjects women to more red tape:  providing documents from their employers specifying the length of their maternity leave and the date of their return to work, as well as letters from their doctors, and other information deemed relevant.

These new guidelines have resulted in too many claims of discrimination from pregnant women to ignore, and thus has resulted in the HUD investigation. If HUD concludes that discrimination against pregnant women and new mothers is indeed taking place, this could be a violation of the Fair Housing Act, one purpose of which is to protect families.

Some results of all this are that families are forced to wait until the mother returns to work (possibly rushing maternity leave), families are altogether giving up on buying homes, or families are purchasing homes that they can afford on one salary.

Families are feeling punished for having babies, and the irony that most families are buying new homes in the first place because they are expecting children does not fail to come through.

While tougher standards for approving loans have become an obvious step to take by lenders, these types of resulting consequences walk a dangerous line between what needs to be done, and unfair treatment towards one group of people. In either case, the allegations of discrimination against pregnant women reek of the sexism that was rampant in the professional world decades ago.

What do you think? Are pregnant women being treated unfairly, or are they indeed a liability to lenders because of the income gap resulting from their maternity leave?

Related Articles:

Pregnant Women Losing Out On Home Loans, Change.org

Pregnant Women Denied Loans? Realtor.com

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Massachusetts Security Deposit and Last Month’s Rent Law: Traps For The Unwary Landlord

by Rich Vetstein on August 10, 2010

in Landlord Tenant Law, Massachusetts Real Estate Law

Rent Deposits: To Take Or Not To Take?

With the students invading Boston any minute now, it’s a good idea to review last month’s rent and security deposits – one of the most heavily regulated aspects of Massachusetts landlord-tenant law and fraught with pitfalls and penalties for the unwary, careless landlord. In my experience, landlords who handle rent deposits correctly are the exception, rather than the norm.

If you don’t really know the rules for handling last month’s and security deposits, DON’T TAKE THEM. The reason is that any misstep, however innocent, under the complex Massachusetts last month’s rent and security deposit law can subject a landlord to far greater liability than the deposit, including penalties up to triple the amount of the deposit and payment of the tenant’s attorneys’ fees.

Read More: Landlord Prevented From Evicting Tenant Over $3.26 In Interest

If a deposit is necessary, take a last month’s deposit, the requirements of which are less strict than security deposits. Here is an overview of the security deposit law:

Requirements For Holding A Security Deposit

The following steps must be followed when a landlord holds a security deposit:

  1. When the deposit is tendered, the landlord must give the tenant a written receipt which provides:
    • the amount of the deposit
    • the name of the landlord/agent
    • the date of receipt
    • the property address.
  2. Within 30 days of the money being deposited, the landlord must provide the tenant with a receipt identifying the bank where the deposit is held, the amount and account number.
  3. Within 10 days after the tenancy begins, the landlord must provide the tenant with a written “statement of condition” of the premises detailing its condition and any damage with a required disclosure statement;
  4. The tenant has an opportunity to note any other damage to the premises, and the landlord must agree or disagree with the final statement of condition and provide it to the tenant.
  5. The security deposit must be held in a separate interest bearing account in a Massachusetts  financial institution protected from the landlord’s creditors.
  6. The landlord must pay the tenant interest on the security deposit annually if held for more than one year.
  7. The security deposit may only be used to reimburse the landlord for unpaid rent, reasonable damage to the unit or unpaid tax increases if part of the lease. Security deposits cannot be used for general eviction costs or attorneys’ fees. Within 30 days of the tenant’s leaving, the landlord must return the deposit plus any unpaid interest or provide a sworn, itemized list of deductions for damage with estimates for the work. Only then can the landlord retain the security deposit.

What Do I Do If A Tenant Claims I Violated The Security Deposit?

First, talk with the tenant about the situation. Most issues can be resolved amicably, usually with the return of the deposit with interest. That’s always my advice to landlords. If that doesn’t work, call me.

____________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts residential landlord – tenant attorney. You can contact him at [email protected].

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Massachusetts Flood Insurance: Why You May Need It Even If You Are Not In A Flood Zone

by Rich Vetstein on August 5, 2010

in Insurance, Massachusetts Real Estate Law, Short Sales

We are pleased to have yet another guest blogger: Debra McPhee, CIC, CPCU, Owner of Suburban Insurance Agency of Holbrook, MA, and a very qualified Massachusetts Flood Insurance Agent. Debbie is here to write about flood insurance, a timely topic given the recent March floods.

A flood can devastate your home and your financial security. Any flood—even a small one—can cause thousands of dollars in damages.  Even homeowners in low to moderate-risk zones are at risk. Up to 25% of all flood claims come from people living outside high-risk zones.

Flooding happens anywhere including right here in Massachusetts. Just recently, floods hit nearby towns. People discovered the hard way that when it comes to floods, no one is safe.  You don’t have to live near a major waterway to be flooded. Sudden severe storms can cause flooding. Just because it has never flooded in your area, doesn’t mean it won’t.

You might think that your Homeowners insurance covers flooding, but it doesn’t. It covers all kinds of things, but not flooding.  Flood insurance gives your home that crucial layer of protection your Homeowners insurance doesn’t provide.

What Is The Definition A “Flood”?

In simple terms, a flood is an excess of water on land that is normally dry. Anywhere it rains, it can flood.  A flood is a general and temporary condition where two or more acres of normally dry land or two or more properties are inundated by water or mudflow. Many conditions can result in a flood: hurricanes, broken levees, outdated or clogged drainage systems and rapid accumulation of rainfall.

Myth: Flood Insurance Costs Too Much

You might be surprised how inexpensive it is. The average flood insurance policy costs less than $570 per year. Most homeowners live in a moderate-to-low risk area and are eligible for coverage at a preferred rate with building and contents coverage for one low price. In fact, building and contents coverage starts at just $119 per year. If you live in a high-risk area, a standard rated policy is the only option for you. It offers separate building and contents coverage.  If your home is in a high-risk flood area and you have obtained a mortgage through a federally regulated or insured lender, you are required to purchase a flood insurance policy.

How to Purchase Flood Insurance

Flood Insurance is written through the National Flood Insurance Program (NFIP), a federal program authorized by FEMA.  Flood insurance is available to homeowners, renters, condo owners/renters, and commercial owners/renters. You need to contact a Massachusetts Flood Insurance Agent for a quote and/or application (all policies written by the NFIP are written through insurance agents).

Typically, there’s a 30-day waiting period—from the date you purchase the flood insurance—before the policy goes into effect. The waiting period, however, does not apply to a new home purchase or refinancing of a mortgage if the mortgagee requires flood insurance.

What is Covered by Flood Insurance – and What’s Not

The following is a summary of items covered and not covered by flood insurance.  For specific details as to what is covered, you have to refer to the actual policy.Massachusetts flood insurance agent

What’s covered under Building?

  • The insured building and its foundation.
  • The electrical and plumbing systems.
  • Central air conditioning equipment, furnaces, and water heaters.
  • Refrigerators, cooking stoves, and built-in appliances such as dishwashers.
  • Permanently installed carpeting over an unfinished floor.
  • Permanently installed paneling, wallboard, bookcases, and cabinets.
  • Window blinds.
  • Detached garages for up to 10% of the building limit; other detached buildings require a separate Flood policy

What’s covered under Personal Property?

  • Personal belongings such as clothing, furniture, and electronics
  • Curtains.
  • Portable and window air conditioners.
  • Portable microwave ovens and portable dishwashers.
  • Carpets not included in building coverage
  • Clothes washers and dryers.
  • Food freezers and the food in them.

What’s never covered by flood insurance?

  • Damage caused by moisture, mildew, or mold that could have been avoided by the property owner.
  • Currency, precious metals, and valuable papers such as stock certificates.
  • Property and belongings outside of a building such as trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs, and swimming pools.
  • Living expenses such as temporary housing.
  • Self-propelled vehicles such as cars, including their parts.

    Debra McPhee, CIC, CPCU

Limitations to coverage in a basement

  • Coverage in a basement is very limited. It includes cleanup expense and items such as furnaces, water heaters, washers and dryers, air conditioners, freezers, utility connections, and pumps.
  • There is no coverage for the contents of a finished basement and improvements, such as finished walls, floors, and ceilings.
  • Personal property located in a basement is not covered.

Please call me, Debra McPhee, CIC, CPCU at Suburban Insurance Agent at 781-767-3300 and let’s talk about your flood insurance needs. Don’t let a flood wash away your financial future.

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