New Law Will Resolve Thousands of Foreclosure Title Defects In Wake of U.S. Bank v. Ibanez Ruling
After a five year legislative struggle (in which I testified before the Joint Judiciary Committee), I’m very pleased to report that Governor Baker has signed into law the Act Clearing Title To Foreclosed Properties (Senate Bill 2015), embedded below. The bill will resolve potentially thousands of land titles which were rendered defective and un-transferable after the SJC’s landmark ruling in U.S. Bank v. Ibanez. The Ibanez ruling invalidated thousands of foreclosures across the Commonwealth due to lenders’ paperwork errors.
The problem addressed by the legislation is that scores of innocent buyers purchased these foreclosed properties, fixing them up, renting them out, etc., but they were unaware of the title defects — only to discover them once they went to refinance and sell. Title insurance companies have been bogged down trying to solve these defects, and in the meantime, many of these innocent folks are left with homes which cannot be sold or refinanced. The same bill passed the Legislature last year, but former Gov. Patrick, bowing to housing activists, vetoed it with a poison pill. After several amendments addressing housing activists’ concerns, a new bill was again passed, and just signed into law by Gov. Baker on November 25, 2015.
The bill, which is effective on Dec. 31, gives foreclosed owners a three (3) year statute of limitations to file a challenge to a foreclosure, after which the foreclosure is deemed to have been conducted legally. For foreclosures which have already been concluded, the new law has a one year waiting period, so that a defective foreclosure would be considered non-defective on Dec. 31, 2016. The bill does retain a homeowner’s right to seek compensatory and punitive damages for a wrongful foreclosure, provided it is within the statute of limitations. The bill also requires the Attorney General’s Office to spearhead more robust foreclosure prevention solutions with the HomeCorps Program and housing activists groups.
The passage of the bill is fantastic news for both owners and potential buyers/investors of foreclosure properties. There is a shadow inventory of defective title properties which will be able to go on the market.
Rent Control Thinly Disguised As “Just Cause” Eviction Proposal
Citing skyrocketing rents and lack of affordable housing, several activist pro-tenant groups in the City of Boston, with the assistance of the Harvard Legal Aid Bureau, have submitted a home-rule petition to the Boston City Council to create a wide-ranging “just cause” eviction protection for all Boston tenants. Harking back to the days of rent control, the petition would prohibit a landlord from evicting any tenant except for certain “just cause” grounds. These grounds and their related procedural impediments to eviction are shockingly socialist in nature, and in practice would make it nearly impossible (or cost prohibitive) to evict tenants, raise rents and sell occupied rental property in the City of Boston. Rental property owner groups are vigorously opposed to this proposal.
“Just Cause” Grounds for Eviction
The petition provides that landlords may only evict tenants for eight (8) specified reasons. The most troubling situations are outlined below.
Non-payment of rent. A tenant’s failure to pay rent must be “habitual” (which is left undefined) and “without legal justification.” Ordinarily, if a tenant fails to pay rent even once, the landlord may terminate the tenancy and evict. Under the just cause standards, the standard is significantly higher. What exactly is “habitual”? Two late payments, three, four? No one knows, but the petition puts the burden of proof on the landlord.
Damage by tenant. In order to evict, the tenant must have “willfully caused substantial damage to the premises beyond normal wear and tear and, after written notice, has refused to cease damaging the premises, or has refused to either make satisfactory correction or to pay the reasonable costs of repairing such damage over a reasonable period of time.” This would make it much more difficult to evict based on damage caused by a tenant.
Disorderly conduct. The tenant has continued, following written notice to cease to be so disorderly as to destroy the peace and quiet of other tenants at the property.
Illegal activity. The tenant has used the rental unit or the common areas of the premises for an illegal purpose including the manufacture, sale, or use of illegal drugs.
Failure to provide access. The tenant has, after written notice to cease, continued to deny landlord access to the unit as required by state law.
Rent Increases and No Fault Evictions
The most fundamental impact of the just cause eviction petition is how it attempts to severely curtail landlords’ legal right to raise rents and file no-fault evictions. Make no mistake about it, the underlying premise of the petition is rent control – to keep rents (even under market) from increasing and stabilizing “affordable housing.”
Resurrecting the old Boston Rent Control Board, landlords are required to participate in a City-approved mediation session with that agency before raising rents or even declining to renew an expired lease. The board is then required to notify all tenant advocacy groups in Boston of the situation. These groups are invited into every eviction or rent increase process. It will be one landlord against many tenants and advocates. There is no stated limit as to how long the mediation process can last, and after which a landlord still must go to Housing Court which can take anywhere from 6-12 months to complete a no-fault eviction under current law. A landlord’s failure to follow these requirements will result in the immediately dismissal of their eviction case and can also subject them to a $1000 fine by the City.
Moreover, in true socialist form, there are also substantial roadblocks to evicting tenants even where the unit will be used for the owner’s own personal residence. Owners are banned from evicting tenants who are 60 years old, disabled or have children in the school system and have lived in the premises for 5 or more years. (Landlords can only end tenancies after the school year is over.) Seeking to turn private properties into government subsidized elderly and disabled housing, the petition thereby creates lifetime tenancies for these classes of renters. This will greatly discourage investment and capital improvements for these properties many of which are double and triple deckers in struggling neighborhoods.
Rent Control Does Not Work
As counsel for landlords across Greater Boston and having testified at the State House in support of various landlord tenant legal reforms, I am strongly opposed to this proposal. This petition is the fourth attempt by Boston tenant advocates to bring back rent control, all of which have failed after voters rejected rent control state-wide in the mid-1990’s. The idea of rent control has been debunked as a failed policy by countless economists, and actually makes affordable housing stock shrink. A restrictive price ceiling reduces the supply of properties on the market. When prices are capped, people have less incentive to fix up and rent out their property, or to build new projects. Slower supply growth actually exacerbates the price crunch. Those landlords who do rent out their properties might not bother to maintain it, since both supply and turnover in the market are limited by rent caps; landlords have little incentive to compete to attract willing tenants. Landlords may also become choosier, and tenants may stay in properties longer than makes sense.
The problem of skyrocketing rents in Boston and affordable housing is complex and certainly worthy of out-of-the-box thinking. As an old city with little if any developable land left, Boston has always dealt with a supply vs. demand problem. Boston developers have long been required to pay into linkage funds designed to promote affordable housing. Mayor Walsh recently announced a plan to build 53,000 new housing units by 2030. The city’s colleges can also do a better job of creating new student housing. But even with all of this centralized planning, the influx of people to the city, drawn by jobs and Boston’s quality of life, have made this problem a very tricky one to solve.
However, rent control disguised as a just cause eviction proposal is not the answer. It’s not fair to make small property owners to bear the burden of creating affordable housing across the city. That’s just flat out Un-American. If we want more affordable housing, create economic incentives to build more, and encourage the City to buy their own properties and create housing. Rent control has never been a successful solution.
If and when the Just Cause Eviction proposal rears its ugly head in the Boston City Council again, email your local city councilor and the Mayor.
A copy of the Just Cause Home Rule Petition can be found below.
Landlord Stopped From Evicting Tenant Over $3.26 In Interest
Massachusetts has a well-deserved reputation as being a hostile jurisdiction for landlords. With a myriad of tenant favorable laws on the books, the proverbial playing field is often stacked against landlords. Exhibit A is the Security Deposit Law which provides a three month penalty, including payment of the tenant’s legal fees, against landlords who don’t follow its strict requirements.
One of the requirements of the Security Deposit Law is that annually the landlord must pay the tenant any accrued interest on the deposit. That’s what got landlord Garth Meikle in trouble with his tenant who was three months behind in rent.
Garth Meikle v. Patricia Nurse, SJC-11859
Meikle brought an eviction case in the Housing Court, and essentially won with the judge ordering the tenant to pay the past due rent, but deducting the security deposit plus the three dollars and change in interest. However, to the tenant’s rescue came the crusading Harvard law students from Harvard Legal Aid Bureau. Representing her for free, the students have taken her case all the way up to the Supreme Judicial Court. (Why is it that landlords are not offered the same free legal aid?). The tenant posted an appeal bond so she’s allowed to stay in the apartment while paying the rent during the pendency of the case.
The SJC heard arguments this morning with third year Harvard Law student Louis Fisher arguing the case. (Damn lucky kid!).
The Harvard tenant lawyers are advancing the dangerous argument that a landlord who violates the security deposit law — even in the most minor of circumstances — cannot evict a non-paying tenant.
Scary right? If the Court accepts this argument then tenants will have yet another powerful tool to avoid eviction. The Security Deposit Law is so strict that most landlords make minor errors in holding the deposit. That’s why I have advised that landlords don’t even bother taking security deposits in the first place.
You can guess where I stand on the merits of the case. The security deposit is a separate financial matter between the landlord and tenant which has nothing to do about whether the tenant owes rent or the condition of the property. Those are the two primary issues in a non-payment eviction case. You don’t pay the rent without legal defense, you’re out. Period. Compliance with the security deposit law should have no bearing on a non-payment eviction. The Legislature did not intend otherwise, and regardless, that should not be our policy. Enough is enough already.
You know what else bothers me? These legal aid organizations take on these “test cases” to train law students and get them experience. After all when does a law student ever get to argue a SJC case? Is that really fair and just to small unrepresented landlords like Mr. Meikle who told the justices that his son and fiancee were hoping to live in the apartment?
The SJC should come out with a final ruling in the next few months. Check back here for future developments. In the meantime, I will keep on fighting the good fight for landlords.
Scroll Down For My Complimentary TRID Rider and Offer Timeline Cheatsheet
I’ve been doing a lot of speaking, and more importantly, thinking and collaborating with loan officers and Realtors, on the impact of the new TRID (Truth in Lending RESPA/Integrated Disclosure) on Massachusetts residential real estate transactions. I know everyone is pretty much burned out with all this TRID talk, but what I will give you in this post is some hands-on, practical advice (like how to fill out an Offer) and forms to help you navigate TRID — best practices, if you will.
Those who are unfamiliar with TRID, the major change is that the Good Faith Estimate is going away in favor of a new “Loan Estimate” and the HUD-1 Settlement Statement is going away in favor of a new “Closing Disclosure.” TRID provides for specific deadlines as to when the Loan Estimate and Closing Disclosure must be delivered to the borrower. If those deadlines aren’t met, closings can be delayed for up to 7 days. For my comprehensive post on the new rules click here.
Change In Deadlines
The first major impact to real estate transactions will be the length of time to complete a transaction. The general consensus is that post-TRID, 60 day closings (from accepted offer) will be the norm. Will lenders be able to do 45 day closings? Yes, but only if all parties have their act together, and that’s a big “If.” Thirty (30) day closings will be nearly impossible to achieve, in my opinion.
So what does this mean? It means that all deadlines need to be tighter and that items typically left for the week or two prior to closing (like final readings and fuel adjustments) have to be done earlier in the transaction and closing table adjustments will be impossible.
Deadline to Submit Info For Closing Disclosure
One of the most important new dates will be the date on which all parties must provide the information necessary for the Closing Attorney and the lender to prepare the final Closing Disclosure (new HUD-1). TRID requires that the new Closing Disclosure issue to the borrower 3 days prior to closing (if sent electronically) or 7 days prior to closing (if sent by mail). Lenders will require all information necessary to prepare the CD well before this deadline. This will vary by lender anywhere from 10-20 days prior to closing. Also, some lenders intend to issue the Closing Disclosure along with the Loan Commitment. Accordingly, in my opinion the best practice under TRID is to target 20 days prior to closing by which all information needs to be submitted to the closing attorney. All parties should agree to this date in their purchase and sale agreements.
And by all information, what do I mean? See the graphic to the right.
Final Utility Readings and Oil/Fuel Adjustments
Although the TRID rules specifically allow for some last minute changes to the Closing Disclosure without triggering re-disclosure and delay in the closing, most of the lenders which I’ve consulted with do not intend to authorize last minute changes to the Closing Disclosure which might trigger a re-disclosure delay.
Given this, the Mass. Real Estate Bar Association (REBA) has proposed language in its new TRID rider that all utility readings (water, sewer, oil/fuel) be completed and submitted to the closing attorney no later than 10 days prior to closing. The Closing Disclosure shall reflect payment and adjustments as of the reading date except for real estate taxes which shall be adjusted as of the closing date. No further adjustments will be made on the Closing Disclosure, but the parties are free to make their own estimates of utilities as of the closing date.
This is a change to current practice where it’s common that the final readings be done a day or two prior to closing. I’ve spoken to several agents about oil fuel in particular, and they all say they really don’t want to deal with the hassle under TRID, so they will be recommending to their sellers that they simply gift the oil to the buyer.
Opt for Buyer Credits Instead of Seller Repairs
Seller repairs will cause major hassle and potential delays under TRID. Under TRID, all property repairs must be fully disclosed in the purchase and sale agreement and to the lender. No more “side agreements” or “repair agreements” outside the PS Agreement. Most lenders will require an inspection of all repairs prior to closing and some will do the inspection prior to the issuance of the Closing Disclosure. This would also necessitate a much earlier walk-through by the buyer to inspect those repairs. If there are problems with the repairs, or the insistence on a holdback which would be reflected on the Closing Disclosure, this could delay the issuance of the Closing Disclosure, and therefore delay the closing.
Accordingly, the general consensus is that it will be much cleaner under TRID to forgo seller repairs and instead have the seller agree to a closing cost credit to the buyer. This will eliminate the lender inspection, additional walkthrough and potential of delays.
Also, a quick word about holdbacks at closing. We are not sure how lenders will handle holdbacks at the closing but many of us are of the opinion that lenders will not allow a holdback unless it’s disclosed on the Closing Disclosure. So that effectively means no closing table holdback agreements unless you want your closing delayed to re-issue the Closing Disclosure.
Use a TRID Rider/Addendum for all Offers
MAR, GBREB and REBA have all come out with their own TRID riders. In my opinion, the MAR/GBREB riders don’t sufficiently protect buyers from delays and they fail to address utility/fuel adjustments. The REBA rider is better, but could still use some improvement. So naturally I’ve drafted my own rider (and TRID timeline cheatsheet) which is embedded below. Feel free to use it to help you fill out offers. Whatever rider/addendum you chose, just use something, otherwise your buyer will be at risk of losing their deposit over TRID delays.
Recommend Attorneys Who Specialize In Conveyancing/Closings
Residential real estate closing work was already complicated and highly regulated. In a TRID world, the pitfalls for the inexperienced and non-specialists will be myriad. Now more than ever, Realtors and loan officers should partner with experienced attorneys who specialize in residential closings and are TRID ready and compliant. Do not allow your clients to use their cousin who is a lawyer and knows very little about real estate. It could be disastrous for you and your transaction.
If you have any questions about TRID, Offers, Purchase and Sale Agreements, Riders, etc., please feel free to contact me at firstname.lastname@example.org or 508-620-5352. I would be happy to help you navigate the TRID maze.
MAR and GBREB Release New TRID Addendum In Advance Of Oct. 3 Start Date
In anticipation of the upcoming October 3 start date for the new CFPB-TRID Rules (TILA-RESPA Integrated Disclosure), the Massachusetts Association of Realtors is advocating that several changes in existing practice be adopted as part of the MAR standard form purchase and sale agreement between buyer and seller. The changes, incorporated into a new Integrated Disclosure Addendum-Mortgage (embedded below and available to all MAR members by clicking here), will account for the risk of potential delays resulting from the new TRID rules, as well as impose a requirement on all parties to expedite providing information necessary to generate the new Closing Disclosure. For a comprehensive review of the TRID rules, click here.
Under TRID, there will be a new settlement statement called a Closing Disclosure, which must be issued to the borrower at least 3 days prior to closing. If that does not occur, the closing will be delayed for up to 7 days. Lenders are requiring that the information contained in the Closing Disclosure (fees, closing costs, taxes, insurance, escrows, credits, etc.) be finalized no less than 7-14 days prior to closing, to give them enough time to generate the new Closing Disclosure in a timely fashion. As with any major regulatory change such as this, we can expect delays and speed bumps for closings occurring after Oct. 3.
The new MAR Addendum attempts to allocate risk and responsibility by providing that:
The buyer provides the seller with the name of the lender’s attorney as soon as practicable and no less than 14 days prior to closing
No fewer than 7 days prior to closing, the Seller and Buyer must provide all adjustments and figures (water/sewer, condo fees, taxes, oil in tank, etc.) necessary to prepare the Closing Disclosure. *I would change this to 14-20 days prior to closing.
The closing can be extended up to 3 business days in case of a TRID related delay. *I would change this to 8 days.
No party can sue each other for TRID related delays
Practice Pointer: I do not think the MAR form goes far enough to account for the potential delays arising out of TRID. For example, if the lender does not use e-sign technology the Closing Disclosure would have to be mailed, and the closing would be delayed for 7 days, not 3 days. Moreover, lenders are advising me that they want all Closing Disclosure information in by 20 days pre-closing, so they can turn around the loan commitment and Closing Disclosure at the same time and have a buffer in case of last minute changes. Most importantly, please use some form of TRID addendum to your Offers. Do not wait for the P&S.
Cape Cod Attorney Jennifer Roberts and Boston Attorney Howard Speicher Add Expertise At The Land Court
The Land Court is Massachusetts’ specialized court dealing with all things real estate and title. Established in 1898 and staffed with seven judges, the Land Court is the smallest of all the Massachusetts trial courts, but for real estate practitioners, it is the most important court in the state. Its judges, all of whom were practicing real estate attorneys, are widely regarded as experts in the intricacies of Massachusetts real estate law. The last year has seen a new justice appointed and another one on the way.
Recently nominated by Gov. Baker is Cape Cod attorney Jennifer S.D. Roberts. Ms. Roberts is Of Counsel at Orleans based firm of La Tanzi, Spaulding & Landreth, P.C., and has more than 30 years experience in civil litigation at both the trial and appellate level in construction, real estate, condominium, small business and probate litigation. Ms. Roberts also serves on the board of directors of Cape Cod Healthcare, Inc., the Cape Cod Foundation, and is the past president of the Barnstable County Bar Association. I don’t know Ms. Roberts personally, but judging by her resume and Cape Cod experience (see, e.g, the Cape Wind dispute), she seems like another fine choice for the Court. She appears to be the first woman from the Cape to be appointed to the Court. Roberts’ appointment must be approved by the Governor’s Council in the coming months.
Former Boston attorney, Howard P. Speicher, was confirmed last Fall, and now has almost one year on the Land Court bench. Judge Speicher previously practiced for 30 years at the Boston law firm of Davis, Malm & D’Agostine, P.C., where he focused on zoning, land use and permitting matters, and real estate transactions. Judge Speicher began his career with the City of Boston Law Department. Before becoming a judge, I met Mr. Speicher a few times at his firm and at bar events, and he’s very smart and generally a nice guy. I have not appeared before him yet at the court. I know he has deep knowledge of the complex maze of Boston Zoning which will be an asset to the court and to practitioners alike.
I’ll be keeping tabs on Ms. Roberts’ confirmation at the Governor’s Council which can sometimes be an unpredictable place for judicial nominees.
Landlord Sued for Wrongful Death After Assailant Shoots Four Guests At House Party, Killing One
A landlord’s worst nightmare is someone getting hurt, or worse, shot and killed on their rental property, and then getting sued for wrongful death. This was the situation facing a property owner in Dorchester in the recent case of Belizaire v. Furr, (Appeals Court 13-P-1908 Sept. 11, 2015). Fortunately for the landlord, the Court ultimately concluded that she was not legally responsible for the shooting because there was no reason to predict it would happen. Had the facts been different in this case, the landlord would not have been so luck to escape liability. After discussing this important case, I’ll talk about some ways that landlords can manage their risk.
Shooting at House Party, 5-7 Edson Street, Dorchester
The landlord owned a two-family in Dorchester which she rented out to several individuals. The landlord was fairly lax with written lease agreements, with some of the tenants having leases, but others not. On the night in question, the landlord’s son and one of the occupants (who were friends) hosted a party with a DJ, alcohol and dancing. Carl Belizaire attended the party as a guest. Late at night, an unknown assailant shot up the room, killing Belizaire and injuring three other guest. The assailant was never found or charged. There was no prior history of violence at the property.
Landlord Sued For Wrongful Death
Belizaire’s estate sued the landlord for wrongful death, alleging that she failed to keep the property safe. The Court first analyzed whether there was a tenancy or lease in place, because that would minimize the landlord’s liability and control over injuries occurring on rental property. The landlord’s failure to secure leases with the tenants at the property, particularly the tenant who threw the party, resulted in the court concluding that there was insufficient evidence to rule that there was a valid tenancy in place to shield the landlord from liability.
The Court, however, ultimately ruled that the landlord was not liable for the shooting because there was no evidence of prior shootings or similar violent incidents on the property. Although there was evidence of prior drug activity at the property, the court found this insufficient to support a finding of liability. There was no evidence of other large parties with uninvited guests similar to the one in question taking place on the property. Nor was there any evidence that the landlord was affiliated in any way with, or knowledgeable about, the assailant or any dispute that the assailant may have had with the victim. The evidence submitted suggests that the victim’s death was tied to events beyond the party at the rental property. As a general rule, a landowner does not owe a duty to take affirmative steps to protect against dangerous or unlawful acts of third persons. In certain exceptional circumstances, landlords may be liable for ignoring criminal activities that occur on their premises and were known or should have been known to them. That was not the case here.
Managing The Risks Of Property Ownership: Use Strong Leases and Set Up LLC’s to Hold Title
Many of my landlord clients often worry about liability issues at their rental property. They often ask me whether they can get sued over someone getting hurt on their rental property and what they can do to minimize their risk.
The landlord in this case made some catastrophic mistakes which, had the facts been different, could have resulted in a multi-million dollar liability. The first mistake she made was not securing written leases for all tenants and occupants at the rental property. The form lease that I have drafted contains a unique indemnification clause which would have help shield the landlord for liability for injuries caused by the tenants. The second major mistake made by the landlord was holding title to the rental property in her individual name, thereby exposing her personal assets to a lien or judgment. Although not always appropriate for every landlord, it’s a prudent idea to hold rental property in a limited liability company which would shield the landlord’s personal assets from liability. There is expense to set up the LLC and there is a $500 annual fee, but in my opinion, it’s well worth it relative to the risk of getting sued for wrongful death.
If you are a rental property owner and would like advice concerning your leases or would like to discuss setting up an LLC, please contact me at email@example.com or 508-620-5352. I would be happy to help you in any way.
Policy Changes Make It Harder To Insure Foreclosed/REO Properties
In the aftermath of the Supreme Judicial Court’s July 17th ruling in Pinti v. Emigrant Mortgage Company, which voided a foreclosure over a defective notice of default, two leading title insurance companies — First American Title and Fidelity/Chicago — have announced that they will be significantly changing the manner in which they underwrite foreclosed properties. These new policies will make it much harder to insure foreclosed properties, and may dramatically affect the sale and marketability of foreclosed/REO/bank owned properties.
The most drastic change comes from First American, which has the largest market share in Massachusetts. Under FATICO’s new policy (embedded below), lenders must obtain a judicial decree that the foreclosure was conducted in compliance with the Pinti ruling. (This applies only to foreclosures conducted after July 17, 2015). Because Massachusetts is a non-judicial foreclosure state (i.e, lenders do not need a judge’s approval to foreclose except for confirmation that the borrower is not in the active military), getting court approval for a foreclosure will require either a Superior Court or Housing Court action and will be expensive, lengthy and burdensome for lenders.
Fidelity/Chicago’s new policy requires closing attorneys to “verify that any preforeclosure default notices were sent by the foreclosing Mortgagee on or before July 17 [and] verify that the attorney for the foreclosing Mortgagee has included a statement to that effect in a recorded Affidavit that is part of the foreclosure documentation.” Closing attorneys must also “determine that the mortgagors, or any parties claiming under them, are no longer in possession of the premises or otherwise asserting any rights.”
The question is whether the other title insurance companies will follow suit. As of this writing, Stewart, CATIC, Old Republic and Westcor have not adopted a new foreclosure underwriting policy. I will monitor if that changes.
Act Clearing Title To Foreclosed Properties
These underwriting changes only underscore the importance of the Legislature passing the Act Clearing Title to Foreclosed Properties, Senate Bill 1981. The bill would protect arm’s length third party purchasers for value, and those claiming under them, who purchase at the foreclosure sale or in a subsequent REO transaction. It is the result of years of negotiation, and represents an honest effort to balance the interests of third party purchasers with mortgagors who legitimately believe they have been wrongfully foreclosed upon. Lenders who have conducted defective foreclosures would remain liable to the mortgagors. This is the same bill that was passed by both branches of the legislature at the end of the legislative session last fall, but was sent back with poison pill amendments by Governor Patrick and died. The bill should be voted on by the Senate soon after Labor Day. If passed, it will be considered by the House shortly afterward.
Ruling Enables Foreclosed Owner to Live in Premises For Over 6 Years, Leaving New Owner with Defective Title
In a decision which could affect how title examiners and title insurance companies underwrite title to foreclosed properties, the Supreme Judicial Court has ruled that a lender’s defective notice of default is grounds to void and nullify a foreclosure sale — even after the property was purchased at auction by a third party without knowledge of the problem. The decision is Pinti v. Emigrant Mortgage Co. Inc. (SJC-July 17, 2015).
The defective aspect of the default notice was relatively minor. The notice was required to say that the borrower had the right to bring “a court action” to challenge the default or foreclosure. The actual notice instead referenced a “lawsuit for foreclosure and sale.” The problem is that in Massachusetts there is really no such thing as a lawsuit for foreclosure, because we are a non-judicial foreclosure state. In order to challenge a foreclosure, a borrower must bring an injunction proceeding in Superior Court. Over this minor discrepancy, the Court throw out a 3 year old foreclosure, leaving the subsequent buyer with defective title.
“This ruling is yet another reason why it’s absolutely critical to obtain owner’s title insurance for any home purchase–especially a foreclosure property.”
This ruling had a disastrous impact on the foreclosing lender and the buyer of the property at foreclosure (and his title insurance company, presumably). The borrower, who was represented by Greater Boston Legal Services, stopped paying her mortgage six years ago in 2009, and the lender foreclosed in 2012. A third party purchased the property (with the borrower in occupancy) shortly thereafter, then commenced eviction proceedings. It appears that the borrower has been able to live in the premises for the entirety of the litigation, presumably mortgage payment free. After this ruling, the lender will need to re-start foreclosure proceedings from square one.
Change In Title Exam Practices?
In a typical title examination involving a previously foreclosed property, the examiner and attorney will only look at the foreclosure notices and “green cards” — the certified mail foreclosure notices. In light of this ruling, the examiner may be required to look back even further to the default notices sent by the lender (which are not recorded with the registry of deeds) and ensure compliance with the mortgage and loan documents. Attorneys should consult their title companies for guidance on this ruling. (The ruling’s effect is prospective only; a title insurance company that I work with has already stated that they will not be changing their underwriting standards after Pinti).
Effect On Foreclosures
The SJC’s reasoning for requiring strict compliance with the default notice provisions in the mortgage was based on the fact that Massachusetts uses a non-judicial foreclosure process. That is, lenders do not need a judge’s approval to start foreclosure (with the except that they need Land Court approval that the borrower is not in the armed services). Accordingly, even the most hyper-technical defect in a default notice by the lender could render a foreclosure void.
Following a long series of pro-borrower rulings starting with the historic U.S. v. Ibanez decision, the SJC’s decision in this case is yet another cautionary tale to lenders that they must dot their “i’s” and cross their “t’s” before conducting a valid foreclosure sale.
Major Change To Current Practices | Expect Delays and Bumpy Road Starting Oct. 3
I just finished yet another closing where a national lender issued the closing documents the morning of the closing, and worse, issued a revised TIL (Truth in Lending) disclosure during the middle of the closing! Under the new TILA-RESPA Integrated Disclosure Rules (TRID) set to start on October 3, this too-common practice would have resulted in a closing delay of up to 7 days, to the dismay of everyone in the transaction.
The new TRID rules are game-changing regulations which threaten to disrupt and delay closings across the country. The new rules, already pushed back once due to industry outcry, go into effect in about 60 days on Oct. 3. I am very worried that lenders, Realtors and closing attorneys are not at all prepared for one of the most significant changes in how we do business. Experts are predicting that closings will be delayed, 60 day loan approvals will be the new normal, and new forms will bewilder buyers. “Expect a one- to two-week delay in closings,” said Ken Trepeta, director of real estate services of the government affairs branch for the National Association of Realtors, when describing the impact of TRID.
Currently, we are finishing one of the strongest spring markets in a decade, but I’m quite concerned that come Fall, the new TRID rules will put the fall market into an ice bath. The best thing that every real estate professional can do is get educated and get prepared now for these changes. August is typically a slow month, so use it to get ready. My team will be doing a roadshow Powerpoint seminar to any local real estate office to explain the new changes. Contact me at firstname.lastname@example.org for more info.
New Closing Disclosure Replacing the HUD-1 Settlement Statement: 3 Day Rule
Under TRID, there will be a new settlement statement called a Closing Disclosure, which must be issued to the borrower at least 3 days prior to closing. If that does not occur, the closing will be delayed for up to 7 days. We are hearing that lenders will require that the information contained in the Closing Disclosure (all fees, closing costs, taxes, insurance, escrows, credits, etc.) be finalized as early as 20 days prior to closing, to give them enough time to generate the new Closing Disclosure in a timely fashion and to account for delays.
What does that mean for us professionals? It means that everything will need to be pushed up and done faster than before. That goes for titles, CPL’s, broker commission statements, invoices for repairs, insurance binders, condo fees, recording fees, title insurance, everything. And it means we can all expect delays as everyone adjusts to the new timetables and rules.
Lenders will require the new Closing Disclosure (embedded below) be signed by the borrower at closing. However, although the Closing Disclosure was intended to replace the current HUD-1 Settlement Statement, the geniuses at CPFB neglected to put a signature line for the sellers on the new Closing Disclosure. I’m not making this up. And we are no longer supposed to use the “old” HUD-1 Settlement Statement. Thus, our title insurance companies are telling us that there may be three settlement statements signed at closing: a Closing Disclosure for the buyer, a Closing Disclosure for the seller, and a combined Closing Disclosure. ALTA has created a new Combined Settlement Statement which can be found here.
Bank of America was asked whether it would require the use of the ALTA model forms, and it stated in a June 9 memo that it prefers the ALTA model if a closing attorney chooses to use a settlement statement to supplement the Closing Disclosure (CD), but specified that the settlement statement figures must reconcile to the CD and a copy of the settlement statement must be provided to the bank. The bank also stated that all revisions to fees and costs will require bank approval and an amended CD. In other words, closing attorneys will not be allowed to revise fees and costs by simply supplementing the CD with a settlement statement.
60 Day Approvals/Closings The New Normal?
With any historic change to how lenders disclose fees and approve loans, there’s going to be a steep learning curve — and delays. You can count on that. Industry insiders say the days of 30 and even 45 day loan approvals may be over, at least temporarily. Sixty (60) day approvals may be the new normal, and agents should build the longer timeframe into their offers and purchase and sale agreements and educate their buyers and sellers accordingly.
Repairs and Walk-Throughs
Since lenders will require all fees and credits finalized 7-10 days prior to closing, this will significantly impact how we handle repairs and credits. Agreed upon repairs also affect how the appraisal is conducted which will further impact the timelines. Experts are suggesting that Realtors consider doing walk-throughs at least 14-21 days prior to closing instead of the typical day before or day of walkthrough, because all repair issues and credits should be set in stone at least 7-10 days prior to closing and changes in fees and credits on the day of closing will not be permitted by the lender. Some experts are even saying that agents should do two walkthroughs, one within the TRID timelines and one immediately prior to closing. Also, under TRID paid outside closing (POC) items will be discouraged by lenders.
Take-away: Realtors should be warned that repairs contained in the purchase and sale agreement will have the potential to delay closings under the TRID rules. Ensure that any repairs are completed 14-21 days prior to closing. Better yet, don’t have the seller make repairs at all; use closing cost credits instead.
No More Back to Back Closings?
Due to the high potential for delays caused by TRID, back-to-back or piggyback closings may be a thing of the past, at least for now. A delay with a closing obviously has a domino effect on a back to back closing. The best practice, at least for the first few months of the new TRID era, is to schedule closings at least 3 days apart. Seller/buyers will have to prepare for this reality with bridge loans, use and occupancy agreements, or temporarily staying with your nearest relatives.
Partner with Trusted and Verified Providers
Now more than ever, Realtors are going to want to partner with lenders and closing attorneys who have been vetted and verified as fully compliant with the TRID rules, so there will be minimal disruption and delay on their transactions. Realtors and loan officers should ask their closing attorneys whether they are compliant with the ALTA (American Land Title Association) Best Practices, which is quickly becoming the standard for TRID compliance. Under the ALTA Best Practices, the attorney will have passed an intensive initial due-diligence screening, a third-party internal audit, background and credit check, extensive review of applicant’s experience, business model and policy loss history, and licensing verification. The closing attorney should also have secure document encryption capabilities and privacy/technology policies in place. My office has been vetted and verified by Stewart Title which has a comprehensive website on the TRID rules. If your buyer wants to use his personal attorney who does not specialize in real estate, explain to him or her why that is a mistake which could ultimately delay the closing.
Bumpy Road Ahead?
In my opinion, the TRID rules are the biggest change to the industry in 20 years, and will be much more difficult to implement than the new GFE and 3 page HUD of several years ago. As discussed above, my team will be doing a roadshow Powerpoint seminar to any local real estate office to explain the new changes. Contact me at email@example.com to schedule your complementary seminar.
What is disparate impact theory you ask? Good question. In a disparate-impact claim, someone who alleges housing discrimination may establish liability, without proof of intentional discrimination, if an identified rental practice has a disproportionate effect on certain groups of individuals (i.e, minorities) and if the practice is not grounded in sound business considerations. Ok, now what does that mean in plain English?
Here’s an example. Let’s say you own several apartment buildings, and an upset tenant says that based on statistics for the last 5 years, you have evicted 75% more black tenants than white tenants, while the rate of nonpayment between racial classes have remain about the same. That’s a disparate impact claim. Surprising to most folks is that under a disparate impact theory, the claimant need not show some type of “smoking gun” evidence of direct racial discrimination, like something Donald Sterling would say, such as “we don’t like to rent to black folks.” If the claimant can back up his theory with statistical evidence, then he or she will have their day in court.
While accepting disparate impact as a viable Fair Housing claim, the Supreme Court imposed important limitations on the application of the theory “to protect potential defendants against abusive disparate-impact claims.” In particular, the Court held that a racial imbalance, without more, cannot sustain a claim, and directed lower courts to “examine with care” the claims at the pleadings stage. The Court emphasized the plaintiff’s burden to establish a “robust” causal connection between the challenged practice and the alleged disparities. Further, a defendant’s justification is “not contrary to the disparate-impact requirement, unless … artificial, arbitrary, and unnecessary.” Finally, “remedial orders” must “concentrate on the elimination of the offending practice” through “race-neutral means.”
Despite the limitation, this is a big win for fair housing advocates. Sec. 8 tenants, the MCAD and EEOC will have another powerful legal theory to use to crack down on discrimiminatory rental practices. Moreover, in the wake of the ruling, HUD just announced its the long-awaited Affirmatively Furthering Fair Housing (AFFH) rule, which will provide maps and data on historic segregation that cities will need to use to assess their progress in reducing segregation, increasing housing choice and promoting inclusivity.
The lesson to take back from this ruling is to ensure you have policies in place to treat every applicant and tenant the same way across the board. The existence of written procedures, policies and manuals are helpful in defense of these types of claims. Saying you follow “Equal Housing Opportunity” is one thing; you have do actually do it.
By-Pass Housing Court For Expedited Superior Court Restraining Order Procedure
I recently handled an interesting case involving an unauthorized family member taking up residence in my client’s rental unit. My client, a doctor, owns a very nice condo unit in the Theatre District in Boston. He and his family live next door in the adjacent unit. The client signed a one year lease with a wealthy foreign national from Jordan, a middle aged lady. Per the lease, the tenant was the only authorized occupant for this 1BR unit. There was no discussion about family members being authorized occupants, and my client would not have agreed to it.
My client comes to find out that the tenant’s 20-something year old son, who attends a local college, has taken up residence in the unit. To make matters worse, the kid hosts several loud late night parties reeking of marijuana and cigarette smoke. My client is incensed, and to add insult to injury, he is fined several thousand dollars for noise and lease violations by the condo association. My client attempts to take action against tenant and son, but they hire a well known tenant’s rights attorney who stonewalls the two attorneys hired by the client. The client finally hires me.
Typically, this type of case would be filed as a standard eviction case in busy pro-tenant Boston Housing Court. The tenant’s attorney is also well known there. Accordingly, I needed to find a way to bypass Housing Court and take away this lawyer’s home court advantage.
So I came up with an creative approach. I filed a restraining order application in Superior Court to remove the son as an illegal trespasser. Although Superior Court typically handles major civil cases, it does share jurisdiction with the Housing Court over trespass cases requesting equitable relief. I served the interloper with a formal trespass notice, then filed the Superior Court application a few days later. The judge granted the move out order, after which my client and I had the pleasure of taking a victory walk down Tremont Street to serve the move out order. We were able to have the management company immediately change the locks and remove all the kid’s possessions. He is now permanently barred from entering the building. And the best part was that he left his wallet and passport in the unit! My client is now preparing the unit for rent to a better tenant.
SJC Issues Long Awaited Ruling That Agents Can Be Classified as Both Independent Contractors and Employees, But Leaves Questions
The Supreme Judicial Court has just released its long awaited opinion in Monell, et al. v. Boston Pads, LLC, (link here), ruling that Massachusetts real estate and rental agents can remain classified as independent contractors under the state’s real estate licensing and independent contractor law. The ruling keeps the traditional commission-only independent contractor brokerage office model in place, with brokers allowed to classify agents as 1099 independent contractors, without facing liability for not paying them salary, overtime or providing employee benefits. A collective deep breath should be heard throughout the entire Mass. real estate industry this morning.
Although the ruling determined that real estate agents are exempted from Massachusetts’s independent contractor law, the Court left open whether future plaintiff employees could build a case on other legal theories, and the Court deferred to the Legislature to enact a bill to address any murkiness which remains with the law.
Despite the question left behind by the justices, Gregory Vasil, CEO of the Greater Boston Real Estate Board told Banker and Tradesman said that, “We’re pleased with the outcome.” “It preserves the right of choice for our members. It doesn’t change the industry, it doesn’t change the status quo. It’s pretty clear you can have both independent contractors and employees.”
Corrine Fitzgerald, 2015 president of the Massachusetts Association of Realtors and broker-owner of Fitzgerald Real Estate in Greenfield, agreed, calling it a “good decision.”
Rental Agents Sue Jacob Realty For Overtime Wages
This lawsuit was brought by a group of disgruntled rental agents at Jacob Realty seeking to recoup lost overtime and minimum wages. As is customary in the industry, Jacob Realty classified the agents as independent contractors, paying them on a commission-only basis and making them responsible for payment of their own taxes and monthly desk fees. At the start of their employment, however, the agents signed non-disclosure, non-solicitation and non-compete agreements. They had to own day planners, obtain a cellphone with a “617” area code, adhere to a dress code, submit to mandatory office hours and to various disciplinary actions if they did not meet their productivity goals — requirements typically reserved for employees, not independent contractors.
Court Holds That Agents Can Be Classified Either as Independent Contractors or Employees
The SJC was tasked with balancing the independent contractor laws and the real estate licensing law — which in many critical aspects the Legislature left directly in conflict with each other. Justice Hines, writing for the Court, noted the difficulty in construing the two laws, stating that “the real estate licensing statute makes it impossible for a real estate salesperson to satisfy the three factors required to achieve independent contractor status, all of which must be satisfied to defeat the presumption of employee status.”
The Court ultimately concluded that a real estate agent could be classified as either an independent contractor or an employee, but that the agents at Jacob Realty were unable to demonstrate they were employees in this particular case. The Court, however left open for another case the ultimate questions as to whether all real estate agents should be classified as independent contractors. The justices said that “in light of the potential impact of that issue on the real estate industry as a whole and its significant ramifications for real estate salespersons’ access to the rights and benefits of employment, we think it prudent to leave that issue’s resolution to another day, when it has been fully briefed and argued. Should the Legislature be so inclined, it may wish to clarify how a real estate salesperson may gain employee status under the real estate licensing statute.”
This ruling is somewhat frustrating. The SJC punted on the major question that everyone in the industry has been waiting on for a year now. I love when that happens (insert sarcasm here). Whether the Legislature takes up this issue remains to be seen. In the meantime, brokers and office managers can sleep a little better tonight knowing that the chances they will be sued over employee classification has gone down considerably, but they still may be awoken someday with a nightmare in the hands of a creative plaintiff’s wage and hour attorney.
Court Halts Eviction For Distressed Homeowner, Validity of Foreclosure In Question (Wells Fargo v. Cook, Mass. Appeals Court May 19, 2015)
In response to the foreclosure crisis, HUD enacted regulations requiring lenders to provide distressed borrowers with a meaningful opportunity to settle their FHA-insured mortgages and obtain a loan modification during a face-to-face interview. In an effort to accommodate the hundreds of Wells Fargo clients facing foreclosure in Massachusetts, the San Francisco based lender held a mass “homeowner’s workshop” at Gillette Stadium in August 2008.
Three months behind on their Mattapan mortgage, Nancy Cook and her daughter showed up to the stadium with a little over $10,000 in cash, in anticipation of signing a repayment plan. After waiting in a long line, Cook received a ticket and sat down with a bank representative. Despite HUD guidelines requiring that loan representative have actual authority to settle accounts and enter repayment plans, the Wells Fargo representative said that he was unable to accept any payments at the event. The counseling session lasted only 15 minutes, but the reprepresentative promised that Ms. Cook would receive a loan modification package in the mail.
Ms. Cook did receive a Special Forbearance Agreement in the mail, which she accepted, and made the first three payments under the agreement. When she went to make the fourth payment, Wells Fargo rejected it, claiming that Cook owed it $2000 more than the scheduled payment. Wells Fargo then issued a default notice, accelerated Cook’s debt, and foreclosed her home.
Several years after completing the foreclosure sale, Wells Fargo brought an eviction case against Cook and her daughter, who at this time were represented by lawyers from Harvard University Legal Aid. (The reason for the long delay is unclear). Boston Housing Court judge Marylou Muirhead ruled against Cook, clearing the way for her eviction.
On appeal, Appeals Court Justice Scott Kafker halted Cook’s eviction, ruling that the Housing Court judge should reconsider whether the Gillette Stadium mass counseling event complied with HUD guidelines. Justice Kafker noted that a reoccurring theme of the HUD rules is to provide personalized consideration for each homeowner. That apparently was not done, said the justice, or at least there is a dispute as to whether the mass Gillette Stadium event could satisfy that guideline.
Of particularly interest to the real estate conveyancing community, the Court held that if the lower court ultimately rules that the counseling session was insufficient, the lender could be found in noncompliance with the mortgage terms and foreclosure power of sale, and its foreclosure could be deemed defective and invalid. A court holding to this effect could potentially invalidate completed foreclosures of FHA insured mortgages over whether the lenders complied with the face-to-face meeting requirements of the HUD guidelines. Ensuring a lender’s compliance with HUD rules is not typically part of a title examiner’s scope of examination. Lenders would need to provide an affidavit certifying that all pre-foreclosure counseling requirements were complied with. Accordingly, this is yet another reason why obtaining an owner’s title insurance policy is a prudent choice for all buyers of foreclosed properties.
Like Superman, A Use and Occupancy Agreement Can Save the Day, But Be Aware of the Risks!
Tom and Mary Ryan, and their two little kids, Abigail and Jake, are relocating from California to the Boston area so Tom can take a job with a local tech company in Burlington. They have already sold their California home, and have been living in a cramped rented condominium in Santa Monica for two months already. Their loan has hit some snags because Tom was out of work for half of 2013, and had some IRS issues, although he is on solid footing now with his new job. The closing is scheduled for the end of this week and they have their cross country movers booked and scheduled and their life is now packed in boxes. Just when they finish packing their last box, their loan officer calls with somber news. “Tom, unfortunately, our underwriting department is dealing with delays getting your tax transcripts from the IRS. We are going to have to push back the closing for about a week. I’m so sorry.” Canceling the movers will cost several thousand dollars, and they will have to cancel furniture shipments as well. To make matters worse, new tenants are supposed to move into Tom’s rented condo unit right after they leave.
While all characters appearing in this work are fictitious, and any resemblance to real persons, living or dead, is purely coincidental, Tom and Mary are in trouble. With the prevalence of back-to-back closings and unforeseen underwriting issues and title defects, these situations are not uncommon. And with new TRID closing disclosure rules coming online in August, which are bound to cause even more loan approval delays, we may be seeing more of these situations in the months to come.
Fortunately, there is a solution to this situation. The sellers are willing to let the Tom, Mary and family move into the home prior to the closing under a Use and Occupancy Agreement. This will enable the buyers to complete their move, move into the house, but before the actual closing. A use and occupancy agreement, however, is not without its risks and downside, which I will discuss below.
One of the most important aspects of a Use and Occupancy Agreement is what it is versus what it is not. The agreement should specify that it creates a mere license to occupy the premises, not a tenancy or a landlord-tenant relationship. This will make it easier to remove/evict the occupants if something goes wrong. In any event, if the sellers are forced to remove the occupants, they will still have to resort to judicial eviction proceedings, which in Massachusetts can potentially take several months. This alone is the biggest drawback of a Use and Occupancy Agreement. The seller should always put language in the agreement that the buyers will be responsible for all attorneys’ fees and costs in case of an eviction.
The parties have to agree on a rental rate, typically based on the fair market rent for the premises or the mortgage and carrying costs. Websites such as www.rentometer.com can give you an idea of what a fair rental rate should be. Your Realtor should give you guidance as well. The rent should be divided by 30 for a per diem basis. You can also charge penalty rent if the term is extended past the original deadline.
The sellers should also include general indemnification language providing that “during the period of occupancy, Buyers shall maintain the Premises in good, clean condition and shall not make nor suffer any strip or waste to the Premises, nor make nor suffer any unlawful or improper use of the Premises and Buyers agree to indemnify Sellers and save them harmless from all liability, loss or any damage arising from such additions, alterations, strip, waste or unlawful or improper use, any nuisance made or suffered on the Premises by Buyers, including their family, friends, relatives, invitees, visitors, agents, or servants, or from any carelessness, negligence or improper conduct of any person.”
Lastly, the buyers should do their pre-closing walk through before they move in under a Use and Occupancy, because once they move in, the home will be a mess for awhile. That way, everyone will be on the same page as far as the property condition goes on the date of move in.
Many attorneys advise clients never to agree to Use and Occupancy Agreements. I am not one of those attorneys. With any risk, it depends on the situation. The sellers need to be comfortable that any delays will be resolved favorably and quickly. Sellers also need to appreciate that despite any language in the agreement, it could take months to remove an occupant if things so south. As long as everyone understands the risks, a Use and Occupancy Agreement can be a life saver.
“In just five years as a rental, the other [unit] — which has hardwood floors, granite countertops, and a $1,200 dishwasher — has been a nightmare, with tenants who bounced checks, didn’t pay their rent, and threatened to call the building inspector over, among other things, a loose toilet seat, a missing outlet cover, and, I’m not kidding, a bedroom that is allegedly 0.389 of an inch too small. The tenant who detailed these horrific, slum-like conditions also threatened to take me to court over some food that had spoiled when the refrigerator broke — which is what prompted the intimidation tactics in the first place.”
As landlord groups have been arguing for years, one of the major problems with the current system is that Massachusetts has no rent escrow law. Under the present system, a tenant can withhold months of rent for any cosmetic or minor problem with the unit until the eviction case is resolved, leaving the landlord unable to pay their mortgage. We call that the “free rent trick.” As Ms. Gerhman correctly points out, “with an average judgment of about three months’ rent, this can be a real hardship for house-poor landlords. And once a landlord does evict a tenant who owes back rent, he or she must pay to move the tenant’s belongings out of the apartment in addition to three months’ storage costs.” As I was quoted in the article, many landlords opt for “cash for keys” deals to avoid huge losses during an eviction.
A rent escrow law would require any tenant who withholds rent to simply pay it into an escrow account until the unsafe conditions or code violations are repaired and the eviction case is resolved. After repairs are done, either the landlord and tenant agree on how the escrowed rent should be divided, or a judge orders a fair settlement. The “free rent trick” would be gone and landlords less likely to get left holding the money bag.
Sounds fair? Tell that to your state legislators who have been sitting on rent escrow bills for over a decade.
New rent escrow bills return to the Legislature this session as House Bill 1654 sponsored by Rep. Chris Walsh and House Bill 1112 sponsored by Rep. Brad Jones. Both bills are expected to get hearings at the State House this spring. I will keep you posted.
Personally, I think a fair legislative compromise would be for landlord groups to support the Housing Court Expansion bill under the condition that a Rent Escrow Bill is passed along with it. That would be a win-win for both sides.
In the meantime, please email and call your local state rep and senator and tell him or her you are in favor of these bills. If you have any tenant horror stories, make sure you include those as well. Also, consider joining your local chapter of the Massachusetts Rental Housing Association or Masslandlords.net. Both organizations will be coordinating legislative efforts on the rent escrow bill and other landlord legislation. Lastly, please share this article and the Globe Magazine article on your Facebook pages, Twitter feeds and email blasts!
Abate v. Fremont Investment & Loan: High Court Rules That “Try Title” Procedure Only Available After Foreclosure Auction Completed
After Deutsche Bank foreclosed his Newton home, Thomas Abate brought a lawsuit in the Land Court challenging the foreclosure under the “try title” procedure under General Laws chapter 240, sections 1-5. Seeking to invalidate the foreclosure, Mr. Abate utilized the popular defense of attacking the assignment of his mortgage from MERS (Mortgage Electronic Registration System) to Deutsche Bank. After several months of legal wrangling in the Land Court, Judge Robert Foster dismissed Abate’s challenges to the MERS assignment, and dismissed his try title claim. Abate then appealed to the SJC.
Prior to the SJC’s ruling, there was confusion in the foreclosure setting regarding the proper method to determine whether the property owner had legal standing to bring a try title case and whether the owner must bring the case before or after the foreclosure. Putting the proverbial nail in this particular foreclosure defense coffin, the SJC held that a borrower can only use the try title procedure after a foreclosure has been concluded, not before. The Court also ruled that lenders can seek to test borrowers’ legal theories and dismiss these claims very early in the proceeding on a motion to dismiss. The net result is a blow to foreclosure challengers — borrowers must wait until after a foreclosure is completed to bring a lawsuit; and it will be easier for lenders to dismiss claims challenging mortgage assignments and the foreclosures based on such assignments.
I asked preeminant foreclosure defense Attorney Glenn Russell for his thoughts on the ruling, and he said this:
Well from a homeowner’s perspective I have to say that I was hoping for a different outcome, however it’s not all bad. Bottom line, borrowers cannot use try title unless the auction happened, or they can make argument that there never was a legally valid mortgage, or one is trying to enforce a void mortgage, or one that has been discharged. The key thing is that a homeowner cannot bring a try title claim (standing under the “first step” of the try title action), unless the mortgage is foreclosed.
So after several key rulings in favor of foreclosure victims in the earlier part of the decade such as the seminal U.S. Bank v. Ibanez case, the SJC has issued several pro-lender decisions of recent vintage. Is this a sign of foreclosure fatigue or are the justices merely following the law? Maybe a bit of both…
With the economy improving as well, the net effect is likely to be less foreclosures and less legal challenges to them — which will only continue to boost an improving housing market.
Attorney General’s Office Accused of Smearing Local Landlords In Press
A Craigslist rental ad posted online for merely 8 days turned into a complete nightmare for a Melrose father and son who claim that Attorney General Martha Coakley’s office ran roughshod over their rights and tried to smear their reputations in the local newspapers. After a five year legal saga, the landlords, Nicholas Keramaris (pictured right) and George Keramaris, fought back and won, convincing the Appeals Court to overturn a $38,000 civil penalty and attorneys’ fees assessed against them.
“Apartment Is Not De-Leaded”
The Keramaris family trust owns a 20 unit apartment building in Melrose. All of the units originally contained lead paint, and five of the apartments have been deleaded. One of the leaded units became available for rent, and Nicholas Keramaris, who is also an attorney, researched the lead paint laws prior to posting an advertisement on Craigslist stating “Note that this apartment is not de-leaded, and therefore it cannot be rented to families with children under six years old.”
A Melrose mother, who did not have a child under six and who did not attempt to rent the advertised apartment, filed a complaint with the MCAD about the ad. (This could have been a dummy renter employed to find fair housing violations). Once the landlords were notified of the complaint, they took the ad off Craigslist. It ran for a grand total of 8 days.
AG’s Office Steps In
Attorney General Martha Coakley’s Office then stepped in and filed a civil action for discriminatory rental practices, seeking penalties and damages under the state Consumer Protection Act, Chapter 93A. According to the Keramaris family, “from the day that the Assistant Attorney General assumed responsibility over the case, he insisted on collection of steep penalties as a condition for settlement. Also, the Attorney General’s office publicly smeared us through repeated press releases while the case was pending. Our request for the Attorney General’s office to stop issuing negative press releases was described as a “non-starter” for settlement negotiations. Therefore, this very simple case, which involved a relatively benign violation, dragged on for almost five years.”
Award Struck Down
Despite the fact that the ad ran for only 8 days and no one was actually harmed, the Attorney General was able to persuade a Superior Court judge to assess an aware of nearly $38,000 in penalties and attorneys’ fees. Unwilling to accept this unjust result, the Keramaris family appealed and got the justice they deserved.
Employing some well needed common sense, the three judge appellate panel concluded that although the ad technically violated the lead paint discrimination statute, any harm done was minimal and did not rise to the egregious level of a Consumer Protection Act violation. In a rare ruling, the judges ruled that the lower court abused its discretion, finding that this was nothing but a good faith mistake by landlords who were not intentionally setting out to violate the law. The Appeals Court ultimately stuck down the entire award, leaving the Keramaris family with justice, albeit after 5 long years and I’m sure thousands in legal fees.
Where’s the Discretion?
I have handled numerous rental discrimination cases involving the Attorney General’s Office. The one thing I can say is that they often have a very one sided view of cases and suffer from tunnel vision. They also hardly ever exercise their discretion to back down. It’s usually all or nothing. I would like to see them try to see both sides of the coin in future cases and be more open to negotiated settlements. Maybe this ruling will encourage that. I won’t hold my breath though.
And lastly, I’m curious if the Attorney General will issue a press release announcing that the Appeals Court overturned this award? I doubt it.
I was delighted to talk about recent legal issues surrounding home improvement contractors, including my best tips on selecting a contractor, on the Real Estate Radio Boston show hosted by Mortgage Banker Rick Scherer and Attorney Ali Alavi. Just click the Play button below to listen!
Tune into the show every Saturday night from 8pm-9pm on WBZ 1030 AM. They also have podcasts on the link above. It’s a fantastic show with very knowledgeable guests, and of course, great hosts in Rick and Ali.
This Saturday night it’s “Can’t Miss Radio” with Stan Humphries, the Chief Economist for Zillow. Tune in Saturday night 8pm on WBZ AM 1030.
Case is Good Reminder to Ensure That Contractors Register With State
With the record amount of snow, roof leaks and interior damage just beginning to hit Bay State homeowners, this spring should be a record season for Massachusetts home improvement contractors. But, according to a recent court ruling, contractors who don’t register as a licensed Home Improvement Contractor (HIC) could face serious liability under the state Consumer Protection Act (Chapter 93A) in any dispute with a homeowner. The case is Groleau v. Russo-Gabriele (Mass. Superior Court, Judge Douglas Wilkins). Such penalties could include up to triple damages and an award of the homeowner’s attorneys’ fees.
This case serves as a timely warning to both homeowners and contractors that contractors should always be registered with the state and that homeowners select a reputable, licensed professional for their projects. Below are my well-worn 10 Tips to Hiring A Home Improvement Contractor (published earlier on this Blog).
1. Pre-Construction Planning
Recognizing that even the most thought-out home improvement project tends to run up to 10% over budget, careful planning and budgeting before the work starts is paramount. There are almost always going to be contingencies and unknowns (like the mold in your walls that you never knew about) cropping up during construction so you need to allocate a sufficient reserve (10-15% should do) to cover these unknown risks. Once the budget is set, stick to it, even if it means foregoing that gorgeous Italian tumbled marble in the master bath. Also, come up with a written construction schedule.
2. Interview At Least 2 (But Preferably 3) Contractors and Obtain Written, Detailed Estimates From Each
I cannot tell you how many times homeowners select the first contractor to whom they were referred without vetting them through a proper bidding process. Interview 2, but preferably 3, contractors, be with them when they walk through hour home, and more importantly, get written, detailed estimates from each contractor. This is also your best opportunity to negotiate the best price as you can play each contractor against each other. Be aware that the cheapest bid does not necessarily equate with the best work.
3. Obtain 3 References And Check The Better Business Bureau
This is a critical, yet often overlooked piece of preventative maintenance. Most folks are referred to a home improvement contractor through a friend or family member, however, you should ask the contractor for at least 3 references. Call each of them, then ask each of them if they know anyone else who has worked with the contractor and call them too. (The contractor will always list their most “friendly” references). Ask them if the contractor performed quality work on time and within budget. Were there issues with scheduling, delivery of the correct materials, and the labor? This is your opportunity to get the real scoop. Search the Better Business Bureau for any complaints about the contractor. The BBB has a good resource for spotting contractor rip-off artists.
4. Check License/Registration Status Of Contractor
You should always select a licensed and registered home improvement contractor. They are regulated by the state and using them entitles you to the protection of the Massachusetts Home Improvement Law and Contractor Guaranty Fund if there is a problem. There are 2 types of home improvement contractor licenses in Massachusetts. A Home Improvement Contractor (HIC) license covers most types of typical home improvement work, except for structural work. Structural work must be performed by a contractor holding a Construction Supervisor License (CSL). You can search for Massachusetts HIC or CLS licensed contractors here. The license search also discloses any complaints against the contractor.
5. Sign A Written Construction Contract In Compliance With Massachusetts Home Improvement Law (General Laws Chapter 142A)
The Massachusetts Home Improvement Law provides the bare minimum of what is required to be in home improvement contracts over $1,000, but most contracts supplied by the contractor are non-compliant and terribly one-sided. Here’s what you need in your home improvement contract:
The home improvement contract must be written, dated, and signed by both parties. Make sure the contractor executes the agreement under the entity which is pulling the permits. Some contractors attempt to work under another contractor’s company or worker’s compensation policy–this is a red flag. If the contractor is not incorporated but is a “dba” (unincorporated doing business as), he must sign individually. The contractor needs to list his license number as well.
The home improvement contract must provide the start date of the work and the date of “substantial completion.”
The home improvement contract must provide a detailed description of the work and materials involved. I suggest incorporating that detailed estimate provided by the contractor discussed previously. (You can attach it as an exhibit or addendum to the end of the contract).
The contract must detail the scope of work, being as specific as possible. I cannot emphasize this enough. Itemize the exact type of materials involved (Andersen windows, California paint, Italian ceramic tile, etc.), and work to be performed (full kitchen remodel with installation of new flooring, appliances, etc.). If you are not specific in the contract, and there’s a problem later, your claim will be severely weakened, if not dead on arrival.
The contract must provide the total contract amount and the timing of progress payments. Massachusetts law prohibits a contractor requiring an initial deposit of over 33% of the total contract price unless special materials are ordered. Any contractor demanding over a 33% deposit should raise a huge red flag . (I recommend setting up payments into thirds, with the first payment due at the start of work, the second payment due halfway through the work, and the final payment due at the satisfactory completion of the work.) The homeowner should always “holdback” up to 33% of the total cost until the work is done and done right.
To be safe, I recommend having an attorney review the contract. Proposed contracts which do not comply with the Home Improvement Act are a red flag.
6. Hold A Pre-Construction Meeting
Seems pretty obvious, but again frequently contractors jump into a job right after signing the contract without taking the take to meet again with the homeowner. Walk through the project again after the initial estimate. Discuss any changes and scheduling issues. Pin down the contractor as to exactly when the crew will be on the job. Talk about expectations for day end and clean up.
7. Verify Sufficient Liability Insurance and Worker’s Compensation Insurance
Obtain the contractor’s Worker’s Compensation Insurance Coverage sheet showing that it has worker’s compensation insurance in place as well as the coverage page for its Commercial General Liability (CGL) policy. Request that the contractor add you (and your spouse if you own the home jointly) as “additional insureds” on the policy with at least $1M in liability coverage in place. This should protect you if a worker injures himself on the project site.
8. Ensure The Contractor Pulls All Permits
Always have the contractor pull the building, plumbing and electrical permits. Owners who secure their own permits are ineligible for protection under the Home Improvement Law. If a contractor is reluctant to pull permits himself, it’s a red flag.
9. Document All Changes In Writing
I cannot tell you how many times that after signing a comprehensive written agreement, homeowners and contractors alike change the work and increase the contract price orally without any written documentation. This is a huge No-No and will get the homeowner into trouble every time. Ask the contractor for a “change order” to fill out and sign, or create one yourself. It should, at minimum, provide the original contract price, a detailed scope of the new work, its cost, and the updated total, signed and dated by both parties.
10. Carefully Monitor The Project And Keep Lines Of Communication Open
Seems like common sense, but don’t go on vacation during a home improvement project, lest you arrive home to a mini-disaster. Keep a log of daily activity that you can match up with the project schedule. Another common complaint is when the construction crew inexplicably fails to show up when you expect and is instead at another project. This happens a lot at the end of the project when the contractor is focusing on the next job. Email or write the contractor and get his firm commitment to finish your job or else you will withhold final payment. If there are any issues or problems, the best way to cover yourself is to document them. Email works great here as it is not too formal yet more than adequate to memorialize the event. Create a final punch list for all incomplete items and withhold final payment until it is completed.
Richard D. Vetstein, Esq. is a nationally recognized real estate attorney and past Chair of the Boston Bar Association's Title & Conveyancing Committee. For more information about him, click here. You can contact Attorney Vetstein at firstname.lastname@example.org or 508-620-5352.