Realtors

IMG_1490Yesterday my firm sponsored a very informative breakfast seminar with veteran real estate journalist Scott Van Voorhis of Banker & Tradesman and Boston.com who offered his predictions on the 2013 Massachusetts real estate market. The presentation included a lively question and answer session with the 40+ Realtors attending from all over the Greater Boston area. Here are some take-aways from the seminar (in no particular order):

  • “Bright and sunny early, but with a chance of severe job cuts later.” According to Mr. Van Voorhis, the Fiscal Cliff and upcoming Debt Reduction negotiations may be the biggest obstacle remaining in the path of a sustained real estate recovery. At stake are anywhere from 50,000 – 70,000 jobs in Massachusetts if the current slate of proposed budget cuts pass — to defense (i.e., Raytheon), health care, hospitals, and medical research, and tech sectors. If Massachusetts sees severe spending cuts by the federal government, the Route 128 corridor will be most impacted. The current impact is of “wait and see” with defense contractors and tech companies waiting to see how the federal budget battle with be resolved. They are putting new hires on hold and bracing for possible cuts. The fact that Congress will likely wait until the last minute to resolve these important issues doesn’t help the market any!
  • We’re back…. Median sale prices in many suburbs are now back to 2005 levels. Natick’s median price is $418,500, just off from its ’05 high. Needham has surpassed its ’05 record with a median price of $670,000. Burlington has broken its ’05 record at $407,000 median price. A major driver of the real estate recovery is the tech-sector, with Route 128 lab space expanding by 50%, or 3.5 million square feet of space, since 2007, enough to fill three Prudential Towers of space. Shire in Lexington and Genzyme in Framingham have led with way.
  • Tear-Downs On The Rise. Builders are doing tear-downs instead of large scale subdivisions, where financial risk is minimal. Early data indicates increasing market activity in tear-downs in Lexington, Newton and Needham, for example.
  • Low Inventory of Move-In-Ready Homes. The attending Realtors lamented about the dearth of move-in-ready homes in the sought after towns. As we know, there is hardly any buildable land in Massachusetts, and builders have not been doing subdivisions for several years. The agents say bidding wars are back in a big way for these properties, which creates problems with potentially low bank appraisals as the “comps” must catch up with new sales data. The low inventory also affects potential home sellers, especially the empty nesters who are “paralyzed” as one agent described, waiting on the best time to sell.
  • Buyers’ Lack of Vision. We discussed that the current generation of buyers would rather pay a premium for a move-in-ready home with the requisite gourmet kitchen with granite and stainless steel appliances, rather than pay less for a fixer-upper. Some Realtors have enlisted trusted contractors to scope out fixer-uppers along with buyers, so they can envision the potential of a lower priced home.
  • Condos Remain Strong Sector. Condominiums remain the new starter home for many buyers, especially singles. Inventory is strong and pricing remains affordable in many communities. With interest rates still at historic lows and the mortgage interest tax deduction still in place, purchasing a condo is much cheaper than renting. The consensus is that condos will remain a strong sector through 2013.
  • Short Sales Strong & Less Time Consuming. As noted by veteran short sale negotiator Andrew Coppo of Greater Boston Short Sales LLC, short sales are now becoming far less time consuming with the new Fannie Mae short sale guidelines in place since the summer. Mr. Coppo reports that short sales are taking merely 60 days to get approval, and Bank of America finally “getting it” by implementing its computerized Equator streamlined short sale system. Also, the Mortgage Debt Relief Act was extended through 2013, giving short sale sellers tax forgiveness for discharged debt. There are still lots of underwater and struggling homeowners, so 2013 will remain another strong year for short sales.

What are your predictions and thoughts for the 2013 Massachusetts real estate market? We would love to hear from you!

________________________________________________________

RDV-profile-picture-larger-150x150.jpgRichard D. Vetstein, Esq. is a Massachusetts real estate attorney who writes frequently about new legislation concerning the real estate industry. He can be reached at info@vetsteinlawgroup.com.

{ 2 comments }

2011-20121I always look forward to recapping the year that was, and bringing out the crystal ball to predict the year ahead. This year, like years prior, was an active year for Massachusetts real estate law, with several important court rulings, legislative developments, and emerging legal trends. The year 2013 is expected to be just as busy.

Eaton v. Fannie Mae and Fannie Mae v. Hendricks Foreclosure Rulings

Another year, another pair of huge foreclosure rulings by the Massachusetts Supreme Judicial Court. On June 22, 2012, in Eaton v. Federal Nat’l Mortgage Ass’n, the SJC held that lenders must establish they hold both the promissory note and the mortgage in order to lawfully foreclose. This posed major problem for the vast majority of conventional mortgages which lenders securitized and sold off on the secondary mortgage market, thereby splitting the note and mortgage among various securitized trusts and mortgage servicers. Responding to pleas from the real estate bar, the SJC declined to apply its ruling retroactively, thereby averting the Apocalyptic scenario where thousands of foreclosure titles would have been called into question. My prior post on the Eaton ruling can be read here.

The FNMA v. Hendricks case had the potential to change Massachusetts foreclosure practice, but the SJC rejected the challenge. The court upheld the validity of the long-standing Massachusetts statutory form foreclosure affidavit which provided that the foreclosing lender has complied with the foreclosure laws,rejecting the borrower’s claim that the affidavit was essentially robo-signed.

New Medical Marijuana Law Has Landlords, Municipalities Smoking Mad

Burned up Massachusetts landlords and anti-pot local pols are still fuming with concern over the state’s newly passed but hazy medicinal marijuana law. The law — rolling out Jan. 1 — mandates the opening of at least 35 medicinal marijuana dispensaries, and grants users the right to grow a two-month supply of marijuana at home if they cannot get to a dispensary because they are too sick or too broke. The new law also potentially opens landlords up to federal prosecution for violating the federal controlled substances laws. Many towns and cities are contemplating banning dispensaries or passing zoning by-laws regulating their locations. My prior post on the new marijuana law can be read here.

539wApartment Rental Occupancy Limits

In 2013, the SJC will consider the Worcester College Hill case which will significantly impact landlords renting apartments to students and in other multi-family situations. The question is whether renting to 4 or more unrelated persons in one apartment unit requires a special “lodging house” license which would, in most cases, make it cost-prohibitive to rent to more than 3 unrelated persons. (Lodging houses require a built-in fire sprinkler system, for example). The SJC will hear oral arguments in the case on January 7, 2013.

Foreclosure Prevention Act Passed

On August 3, 2012, Governor Deval Patrick signed the Foreclosure Prevention Act. The new law requires that lenders offer loan modifications on certain mortgage loans before foreclosing. Unfortunately, the law did not fix the problem with existing title defects resulting from the U.S. Bank v. Ibanez case in 2010. (Sen. Moore’s office plans to re-introduce Senate Bill 830 in 2013). My prior post on the new law can be read here.

SJC To Consider Realtor’s Liability for Erroneous MLS Info

Sometime in 2013, the SJC will issue a very important opinion in the controversial DeWolfe v. Hingham Centre Ltd. disclosure case where a Realtor was held liable for failing to verify the zoning of a listing on the Multiple Listing Service. The Court will also consider whether the exculpatory clause found in the Greater Boston Real Estate Board’s standard form purchase and sale agreement legally prohibits a buyer’s misrepresentation claim against the real estate agent. The Massachusetts Association of Realtors and the Greater Boston Real Estate Board have filed friend of the court briefs urging the SJC to limit Realtors’ disclosure obligations in the case. My prior post on the case can be read here.

Good Faith Estimate, TIL, and HUD-1 Settlement Statement To Change Dramatically

In the second major overhaul of closing disclosures in three years, the Consumer Financial Protection Bureau will be rolling out in 2013 a new “Lending Estimate” and “Closing Estimate” which will replace the current Good Faith Estimate, Truth in Lending Disclosure, and HUD-1 Settlement Statement. The changes are part of the Dodd-Frank Act, and has the lending and title insurance industries scrambling to figure out who should be ultimately responsible for the accuracy of closing fees and other logistics in delivering these new disclosures. My prior posts on the topic can be read here.

mw_1011_FISCAL_CLIFF_620x350Fiscal Cliff Anxiety Syndrome

The Year In Review would not be complete without mention of the dreaded Fiscal Cliff. As of this writing, President Obama and the House (which even rejected its own Speaker Boehner’s last proposal) have been unable to work out a deal to resolve the more than $500 billion in tax increases and across-the-board spending cuts scheduled to take effect after Jan. 1, 2013. If there is no deal, and the country goes over the fiscal cliff, the consensus is that it will have quite a negative effect on the economy and the real estate market in particular.

Upcoming Event! On January 8, 2013, we are sponsoring a breakfast seminar with veteran real estate journalist Scott Van Voorhis, who will offer his predictions on 2013. Please email me to sign up. The Facebook Event invitation is here. The venue is Avita in Needham, 880 Greendale Ave., Needham, MA.

_____________________________________________________

Richard D. Vetstein is an experienced Massachusetts real estate attorney who hopes the White House and Congress can get their acts together and pass a compromise bill to avoid the Fiscal Cliff.

{ 0 comments }

High Anxiety Heading Into 2013

The term Fiscal Cliff should be as ubiquitous as “Merry Christmas” and “Happy Holidays” through the year-end, especially if President Obama and Congress cannot work out a deal to resolve the more than $500 billion in tax increases and across-the-board spending cuts scheduled to take effect after Jan. 1, 2013. If there is no deal, and the country goes over the fiscal cliff, the consensus is that it will have quite a negative effect on the economy and the real estate market in particular. (I debated using the word “disastrous” because there is a segment of commentators who say the housing market may survive a fall off the cliff).

There are four particular aspects of the Fiscal Cliff which could impact the real estate market.

1.  Expiration of Unemployment Benefits. Emergency jobless benefits for about 2.1 million people out of work will cease Dec. 29, and 1 million more will lose them over the next three months if Congress doesn’t extend the assistance again. Unemployed, even those receiving assistance, cannot and do not purchases homes. Democrats and President Obama want the unemployment benefits extended, but the Republicans are attempting to use this as leverage for their own fiscal cliff agenda. The real estate market will surely suffer if benefits aren’t extended.

2. Mortgage Forgiveness Debt Relief Act. The Mortgage Forgiveness Act is set to expire December 31. This tax break is critical for short sales, relieving homeowners from being taxed on any mortgage debt that was forgiven through a short sale, foreclosure or loan modification. If distressed homeowners are subject to tax on millions in debt forgiveness, short sales will likely decrease dramatically.

3. Mortgage Interest Tax Deduction. Once the sacred cow tax break for millions of middle and upper class homeowners, the mortgage interest deduction is reportedly on the chopping block. The National Association of Realtors and real estate groups have been apoplectic in urging no change to this important benefit to homeowners. Eliminating the mortgage deduction would raise taxes on all homeowners, and could dissuade renters from becoming homeowners.

4.  FHA/Fannie Mae Bailout. The Federal Housing Administration, the lender of choice for first-time homebuyers, is nearly insolvent and it could require a taxpayer bailout next year, according Edward J. Pinto, a fellow at the American Enterprise Institute. Pinto claims the 78-year-old agency is $34.5 billion short of its legal capital requirement. “If it were a private company, it would be shut down,” argues Pinto. These aren’t the only issues threatening the real estate market. Since Fannie Mae and Freddie Mac were taken over by the government in 2008, taxpayers have plowed  $180 billion into them to keep them operational. This mess needs to be fixed next year.

Well, if your stomach isn’t in knots, mine is. Luckily, we have some medicine for you!

On January 8, 2013, we are sponsoring a breakfast seminar with veteran real estate journalist Scott Van Voorhis, who will offer his predictions on what 2013 will bring. Please email me to sign up. The Facebook Event invitation is here. The venue is Avita in Needham, 880 Greendale Ave., Needham, MA.

_____________________________________________________

Richard D. Vetstein is an experienced Massachusetts real estate attorney who hopes the White House and Congress can get their acts together and pass a compromise bill to avoid the Fiscal Cliff.

{ 0 comments }

With the economy and housing market on the upswing, builders are finally building again. I’ve seen a definite uptick in new construction purchases. Buying a new construction home, however, is very different and much more involved compared to buying a previously owned property. In this post, I want to cover the various aspects of purchasing a new construction home, from selecting a builder, financing, legal, through construction and to the closing. As the Beatles song goes, I also have a little help from my Realtor friends in this post who have graciously offered some of their expert guidance. Follow our advice, and hopefully you will avoid becoming Tom Hanks and Shelley Long in the hilarious movie, The Money Pit!

Selecting and Working with a Builder

Choosing the right builder is obviously critical. You can search for builder licenses and state disciplinary history at the Mass.gov site here. (Search under Construction Supervisor). If the builder is not a licensed Construction Supervisor, they may be licensed as a Home Improvement Contractor (HIC) which can be searched at the Office of Consumer Affairs website here. If they hold neither license type, that’s a red flag. Also, look up the builder’s name in the Mass. Land Records site, and check whether they have any mechanic’s liens filed against them. That is another red flag indicating they may be undercapitalized and don’t pay their subcontractors.

Get a list of the last 5 homes the builder has constructed, and try to talk to those homeowners. Don’t rely on the builder’s list of references as no intelligent builder would give out a bad reference.

Hire A Buyer’s Agent

Besides conducting a town-wide survey, one of the smartest things you can do is hire an independent buyer’s real estate agent, preferably one with lots of experience in new construction. While buyers today can do a lot of their own due diligence and research on prospective builders, an experienced Realtor knows all the local builders in town and knows who builds castles and who builds shanty-shacks. A buyer’s agent will also provide a much-needed buffer between the builder’s sales agents and listing agent, many of whom unfortunately engage in high-pressure sales tactics and fast-talking. As buyer agent, Marilyn Messenger advises,

“Many buyers don’t realize that if they visit a new construction site without a buyer agent, they run the risk of having to work directly with the builder’s agent whose job is to work in the best interest of the builder. A buyer’s agent will watch out for the buyer’s interests.”

Amenities, Allowances & Upgrades

The builder should provide you with a detailed specification sheet with a standard panel of features and options for flooring, appliances, paint, trims, HVAC, and lighting, etc. These will be built into the purchase price. Most builders also have allowances for things like additional recessed lighting, upgraded stainless steel appliances, decking, and fancy hardwood floors. As Cambridge area Realtor Lara Gordon notes, the buyers’ ability to select design elements is one of the major advantages of new construction.

It’s imperative that all allowances be spelled out in writing and attached to the purchase contract documents, which I will discuss later. Change orders are common during the construction process, and these too should be memorialized in writing. They will be added to the purchase price or paid in advance.

Contract Documents

New construction purchases in Massachusetts follow the same basic legal process as already-owned homes. The parties first execute an Offer to Purchase which spells out the very basics of the transaction: down payment and purchase price, closing date, and financing contingency. A lot of builders ask for more than the standard 5% deposit, but I would push back on that in this market.

After the offer is signed, the parties will sign the Purchase and Sale Agreement. As a buyer, the detailed specifications, amenities and agreed upon allowances must be incorporated into the contract, along with the floor and elevation plans, if any.

The proposed purchase and sale agreement will likely track the so-called “standard form,” but the builder will typically add a detailed rider, which is completely different than the usual seller rider seen in existing home contracts. The builder rider will have provisions dealing with how change orders are handled, that the builder is not responsible for cracking due to climatic changes, and may attempt to hold the buyer’s feet to the fire with respect to getting his financing in place. A lot of builders will try to limit the availability of holdbacks at closing. I would push back on this important item of leverage for buyers. Some of the large national builders such as Pulte will even claim that their contracts are “non-negotiable.” This is nonsense. Everything is negotiable these days.

Hiring an experienced real estate attorney will tip the balance back to the buyer, and the attorney should have a comprehensive buyer rider in place to protect you in case there are title issues or you suddenly lose your financing. Because there are often delays with new construction, one of the most important rider provisions for buyers is a clause which will give buyer’s protection in case they lose their rate lock due to a delay.

Mortgage Financing

Most new construction buyers in Massachusetts will take out a conventional mortgage loan, with the builder responsible for financing the actual construction through his own construction loan. Some builders, especially national ones, will have their own mortgage lending for their projects, but they often don’t offer the best rates and terms. Sometimes, buyers will finance the construction through a construction loan under which the borrower pays interest only through the construction process, and is then converted to a conventional mortgage once the home is completed. I would counsel buyers to avoid taking on the financial responsibility of a construction loan. As with all lending, shop around and compare apples to apples.

Inspections & Warranties

For new construction, home inspections must necessarily be delayed from the usual timeframe (7-10 days after accepted offer) where the home is not yet completed, and buyers should absolutely reserve their right to perform the usual comprehensive home inspection prior to closing. (If the home is already done, get in there with the home inspector). During the construction phase, builders don’t want buyers on the construction site, for obvious liability (and annoyance) reasons, so resist the urge to buy your own hard-hat and hang out with the construction guys. Metrowest area agent Heidi Zizza of mdm Realty retells a funny story about a Natick woman who literally broke a window trying to gain entry into her under-construction home.

Contrary to popular belief, Massachusetts law does not require a 1-year builder’s written warranty for new construction, however, most builders will provide one, albeit littered with exceptions to coverage. Fairly recent Massachusetts case law does impose a 3 year “implied warranty of habitability” for certain undiscovered construction defects. Again, selecting a reputable builder in the first place is “the ounce of prevention worth the pound of cure.”

Punch-Lists and Closing

There will inevitably be unfinished items right up to the closing. I’ve rarely seen a new construction transaction without a punch-list at closing. Some unfinished items will be serious enough to warrant an escrow holdback at closing (remember, I had said push back on this during P&S negotiations). Some lenders, however, will not allow a holdback, so the parties will have to negotiate and be creative at closing to ensure that all unfinished work is completed within a reasonable time after closing. If the home is part of a larger project/subdivision, this is usually not an issue. However, for “one-off” single site projects, getting the builder to come back and finish punch-list items after closing can be like pulling teeth. Again, having a real estate lawyer on your side and in control of the funds will give you leverage here.

Once papers are passed, the closing attorney will lastly ensure that there are no outstanding subcontractor liens on the property, which is one of most common hiccup at closings. For this reason and many others, it is imperative that buyers obtain their own owner’s title insurance policy, to ensure that title is clear, marketable and free of undiscovered defects and liens.

Buying new construction is often a long, drawn out, and stressful process for new buyers. Do your research. Be patient. And hire the best professionals on your side. Good luck!

________________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney who often handles Massachusetts new construction home purchases. If you need assistance with a new construction purchase or sale, please contact him at 508-620-5352 or at rvetstein@vetsteinlawgroup.com.

{ 10 comments }

My kids (ages 9 and 6) are really into Halloween this year, convincing me into spending over $100 on laughing tombstones, zombies and other decorations at iParty over the weekend. I love Halloween, and enjoy when people go all out on decorating their homes.

But what if your house is truly haunted? Or you are a broker trying to sell a home which may have a paranormal past, like the scene of a murder of suicide? How can you protect yourself from buying a haunted house?

In Massachusetts there’s a law for that! Seriously….

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.

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:

(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.


Thus, real estate agents have no legal duty to inform buyers that a house has a paranormal past. (I’m sure some agents would so inform their buyers, but legally buyers are on their own to discover these types of stigmas).

Of course in this digital era, an easy way to determine whether a house is truly “haunted” is to 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. Of course you can always hire Ghostbusters.

___________________________________________________

Richard D. Vetstein, Esq. is a Massachusetts real estate attorney. He is debating between dressing up as Darth Vader or the Pirate Jack Sparrow this Halloween.

{ 1 comment }

All Politics Aside, It’s Time To Bring Housing & Real Estate Back To the Forefront

In the most tweeted, Facebook-ed and instant polled Presidential Campaign ever, there is one topic which has been met with surprisingly deafening silence: the U.S. Housing and Real Estate Market. During last week’s debate, we heard a lot about tax plans and cuts, energy, health care and jobs, but nothing on the real estate market. Nothing…This year’s presidential candidates have mostly avoided discussing an industry that’s largely responsible for the last five years of economic pain. But why?

For sure, the subject of housing remains an extremely sensitive one. President Obama might prefer that the real estate market, whose imbalances sparked the financial crisis, to remain a ghost issue because of a lackluster record at combating the foreclosure epidemic. He is also blamed for not doing enough on the loan modification front with the dismal HAMP and HARP programs. Mitt Romney, meanwhile, might like to steer clear of the topic because a hard stance on housing could alienate voters whom he needs to win. I’m not here to debate one particular side or candidate, but rather to simply pose the question of why no talk on real estate?

Obama Falls Short of Expectations?

“Obama’s major housing initiatives have fallen short of expectations, and so Obama doesn’t have big victories to point to,” said Jed Kolko, chief economist for listing service Trulia. “The housing market is still struggling in many parts of the country, so this is not a problem that’s been solved.” The administration’s flagship relief program, the Home Affordable Modification Program (HAMP), has helped 1 million homeowners obtain lower interest rates, principal reductions, more time to pay their mortgages or any combination of the three. But that pales in comparison to the 3 to 4 million homeowners whom the program was supposed to help. Meanwhile, the Home Affordable Refinance Program (HARP), designed to help 5 million homeowners refinance their mortgages into lower interest rates, has benefited only about 1.5 million homeowners.

Romney Gun-Shy On Housing?

Romney’s housing platform includes the potential elimination of Fannie Mae and Freddie Mac, and that prospect may be just too scary and radical to everyday voters and homeowners who have relied on the government giants to stabilized the formerly free-falling real estate market. “To stake out what you think Fannie and Freddie’s future is is to alienate somebody,” commented Mark Calabria, director of financial regulation studies at the Cato Institute. “Realtors and home builders tend to be politically active — and Republicans,” noted Mr. Calabria. Indeed, Romney’s free-market stance on housing, if articulated bluntly, could unsettle many distressed homeowners as well. He has said that he believes that the housing market should naturally “hit bottom,” and has harshly criticized Obama’s relief programs.

Let’s Get The Housing Dialogue Going!

Over the past several months, I’ve enjoyed healthy (and even civil) political discussion on the issues on my Facebook feed. (Please join in!). The real estate market and housing always comes up, whether it’s in the context of folks not able to refinance their underwater mortgages, the loss of their equity, or the impact of unemployment on the general real estate sector. Granted, the real estate market has made significant gains since the bottom fell out in 2008, but folks are still hurting out there and it’s really been the Fed and its low interest rates which have largely kept the market from imploding. So, we should be talking about all the issues. And that means federally assisted refinancing for underwater mortgages, Fed policy on interest rates, and the future of the GSE’s. Oh and by the way, where did all that foreclosure crisis settlement money go? I have yet to hear about anyone who has received any assistance from that fund.

Well, if Obama and Romney aren’t going to talk housing and real estate, we can do it here on this blog. Feel free to post your comments, diatribes or soapbox speeches in the comment section below. You can use the Facebook comments too. Keep the debate civil please!

{ 4 comments }

School is back and summer is over. September 1 and the start of the new rental cycle is right around the corner. It’s time to review my best practices to get trouble-free, paying tenants in your Massachusetts rental property.

Screening Prospective Massachusetts Renters: What You Can and Cannot Ask

Landlords can legally ask prospective renters about the following:

  • income and current employment
  • prior landlord references
  • credit history
  • criminal history

Your rental application should include a full release of all credit history and CORI (Criminal Offender Registry Information). Use CORI information with caution, however, and offer the tenant an opportunity to explain any issues. Landlords should also check the Sex Offender Registry as they can be held liable for renting to a known offender. Use the rental application and other forms from the Greater Boston Real Estate Board.

Landlords cannot ask about the following:

  • race, color, national origin, ancestry, or gender
  • sexual orientation
  • age
  • marital status
  • religion
  • military/veteran status
  • disability, receipt of public assistance
  • children.

If you deny a renter’s application, it should be based on financial reasons, such as questionable credit, income or rental history. Stay away from reasons related to children, public assistance and the like. Be aware that this time of year the Massachusetts Commission Against Discrimination and Attorney General’s Office send out dummy rental applicants in an attempt to catch unwary landlords who deny housing for discriminatory reasons.

Students, especially undergraduates, often create problems for landlords. It’s important to meet with students personally before signing the lease and firmly explain a “no tolerance” policy against excessive noise, parties and misbehavior. Remember, under a two year old Boston zoning ordinance, no more than four (4) full time undergraduate students may live together in a single apartment.

Careful screening of tenants is far less expensive than the cost of evicting a problem tenant.

My Property Has Lead Paint. Can I Refuse To Rent to Tenants With Small Kids?

The answer is no, but many landlords do so (unlawfully) under the guise of financial reasons. The Attorney General has been cracking down on these practice:  Two Local Real Estate Firms Fined By Mass. Attorney General For Lead Paint Housing Discrimination.

Under the Massachusetts Lead Paint Law, whenever a child under six years of age comes to live in a rental property, the property owner has a responsibility to discover whether there is any lead paint on the property and to de-lead to protect the young children living there. A property owner or real estate agent cannot get around the legal requirements to disclose information about known lead hazards simply by refusing to rent to families with young children. They also cannot refuse to renew the lease of a pregnant woman or a family with young children just because a property may contain lead hazards. Landlords cannot refuse to rent simply because they do not want to spend the money to de-lead the property. Any of these acts is a violation of the Lead Law, the Consumer Protection Act, and various Massachusetts anti-discrimination statutes that can have serious penalties for a property owner or real estate agent.

For more information about Massachusetts rental screening, landlord-tenant law and evictions, please read these articles or contact me below. I would be happy to help you get good tenants.

___________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts real estate and eviction attorney. For more information, please contact him at 508-620-5352 or info@vetsteinlawgroup.com.

{ 3 comments }

Feldberg v. Coxall: First Case To Apply New UETA (Uniform Electronic Transactions Act) To Real Estate Transactions

“This case involves the intersection between the seventeenth century Statute of Frauds and twenty-first century electronic mail.” –Justice Douglas Wilkins

Massachusetts courts have been grappling with the question of “when is a deal a deal” for a long time. With the vast majority of communication in real estate now done via email and other electronic means, it was just a matter of time before a court was faced with the question of whether and to what extent e-mails can constitute a binding and enforceable agreement to purchase and sell real estate. The real estate community has been waiting a few years for a case like this to come down, and now it’s here.

In Feldberg v. Coxall (May 22, 2012), Superior Court Justice Douglas Wilkins ruled that a series of e-mail exchanges between the buyer’s and seller’s attorney, the last one attaching a revised, but unsigned, offer to purchase, arguably created a binding agreement entitling the buyer to a lis pendens (notice of claim). This is also one of the first cases applying the new Massachusetts E-Sign law to preliminary negotiations in real estate deals.

This is a very interesting and important decision for anyone dealing in residential real estate in Massachusetts. The immediate take-away is that now anything sent in an e-mail can potentially create a binding deal, even if no offer or purchase and sale agreement is ultimately signed.

Vacant Lots In Sudbury

Feldberg, the buyer, was interested in purchasing 2 undeveloped lots in Sudbury owned by Coxall, the seller. The parties’ attorneys, via email, began negotiating the terms of the deal. (Apparently, brokers were not involved in the offer stage).

The buyer’s attorney e-mailed the seller’s attorney and attached a “revised offer with changes to reflect the conversations we have had today.” The revised offer appeared to be comprehensive inasmuch as it contained an agreed upon purchase price of $475,000 and a firm closing date. The email ended with the suggestion that both attorneys work “to have the final offer form finalized in time for my client [the buyer] to sign it and get deposits checks to you before the end of the day tomorrow.”

The seller’s attorney emailed back the next day, stating that “we must have a written approval letter from the bank today by 5pm and I think we are ready to go (I assume they will provide a closing date with the approval).  We are almost there.” That same afternoon, the buyer’s attorney provided a commitment letter from Village Bank with standard conditions.

Apparently, before the seller signed the offer, he backed off and refused to proceed with the transaction. The buyer sued, and sought a lis pendens, which is a notice of claim filed with the registry of deeds. In most cases, a lis pendens will prevent a seller from conveying litigated property to another buyer.

Statute Of Frauds Intersects With E-Mail

As Judge Wilkins eloquently noted, this case involves the “intersection between the seventeenth century Statute of Frauds and twenty-first century electronic mail.” The Statute of Frauds is the genesis of the saying “always get it in writing.” The ancient law, originating in England, provides that all real estate contracts must be in writing signed by the party (or agent) to be charged. In the “old” days, application of the Statute was quite simple. If there wasn’t a written agreement signed in wet, ink signatures, there was no binding deal. Now with e-mail it’s much more complicated.

As the judge noted, this is uncharted territory for the courts as there has been a dearth of precedent on point. The Massachusetts Uniform Electronic Transactions Act (UETA) provides that parties to a real estate transaction may consent to conduct the transaction electronically via email or electronic signature technology if they use such technology in their dealings (which everybody does these days). They even may even switch to a traditional hard copy agreement at the end of negotiations like Feldberg and Coxall did here. The UETA requires some form of “electronic signature.” The judge ruled that an email signature block or even the “from” portion of the email may constitute a valid electronic signature. Accordingly, the judge found that the buyer had made a sufficient case that a binding deal had been reached, despite the seller refusing to sign the hard copy offer. (Update: the case was settled out of court by the parties).

Take-Away: Emails May Come Back To Bite You

I think that some Realtors and even some attorneys have assumed that negotiations by email leading up to an offer are preliminary and not binding until the offer is actually signed by both parties. This ruling throws that conventional wisdom out the window.

What can you do to prevent your emails from creating binding obligations? Well, apart from not using email in the first place, one thing you can do right now is to insert a disclaimer in your email signature. Here’s one that I just came up with:

Emails sent or received shall neither constitute acceptance of conducting transactions via electronic means nor shall create a binding contract in the absence of a fully signed written contract.

Feel free to use it. Other than that, you need to watch what you say in your emails, especially when you represent a seller who is considering multiple offers. Make it clear and in writing from the outset that there is no deal until an offer is signed by both buyer and seller.

__________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney who’ specializes in real estate litigation. Please contact him if you need legal assistance purchasing residential or commercial real estate.

Feldberg, Et Al. v. Coxall ORDER on Plaintiff’s Emergency Motion for Endorsement of Memorandum of Lis Pende…

{ 7 comments }


Realtor Held Liable For Erroneous MLS Information

The Massachusetts Supreme Judicial Court has agreed to hear the case of DeWolfe v. Hingham Centre Ltd. which will consider two very important issues for the real estate community, especially agents. The first issue is the scope of a real estate agent’s duty to disclose and independently verify property information posted on the Multiple Listing Service (MLS). The second issue is whether the exculpatory clause found in the Greater Boston Real Estate Board’s standard form purchase and sale agreement legally prohibits a buyer’s misrepresentation claim against the real estate agent.

The case was originally decided by the Appeals Court, and I wrote a full post about it here. The original opinion can be read here.

In summary, the real estate agent, relying on what turned out to be erroneous information supplied by his client, listed a Norwell property on Multiple Listing Service (MLS) and newspaper advertising as “zoned Business B.” The property was not, in fact, zoned for business use; it was zoned residential, thereby prohibiting the hair salon the buyer wanted to open at the property. Despite the general disclaimer on the MLS system and in the purchase and sale agreement, the Appeals Court held that the Realtor could be held liable for misrepresentation and Chapter 93A violations due to providing this erroneous information.

This will be a very important case for the real estate brokerage industry, and we will be monitoring it. Oral arguments are expected to be held in late summer or early fall, with a final ruling coming a few months thereafter.

In the meantime, my advice remains the same:

  • Do not make any representations concerning zoning. Advise the buyer to go to the town/city planner or hire an attorney for a zoning opinion.
  • Never trust your client. I hate to say this, but when it comes to disclosures, it’s true.
  • Always independently verify information about the property from available public sources. Here, the agent could have simply gone down to the town planning office to verify whether the property was zoned commercial or residential. (The buyer or his attorney could have done so as well—this was a complete failure on all sides).
  • When it comes to zoning, which can be complex and variable, think twice before making blanket statements. Better to be 100% sure before going on record about whether certain uses are permissible. You can always get a zoning opinion from a local attorney.

*Hat tip to a new real estate blog on the scene, Disgruntled Neighbors by Attorney Andrew Goldstein, for bringing this to my attention.

~Rich

{ 5 comments }

Are There Liability Concerns For Accepting Back Up Offers?

My colleague Rona Fischman at the Boston.com Real Estate Now Blog had an intriguing question on the legalities surrounding accepting back-up offers. This question is especially timely with the rise of bidding wars in the Greater Boston real estate market. Rona asks:

I have been told that a back up offer cannot be presented to a seller because it is inducement to interfere with a contract in place (the accepted offer.) I have also been told that a back up offer must be presented, forthwith, like any other offer. Since I never list property, I don’t know which one is true. Can you give a legal and practical explanation for the blog?

Answer:  I do not believe that merely soliciting and presenting a back-up offer can give rise to a legal claim for interference with contractual relations as long as the seller does not break the existing contract with the buyer. Moreover, I believe that real estate agents have a legal and ethical obligation to present to their seller clients all offers made on the property, but it is the seller’s preference whether or not to solicit back up offers once he has already accepted an offer.

What Is a Back-Up Offer?

For those who do not know, a back-up offer is an offer made after the seller has already accepted and signed an offer to purchase with a buyer, in the hopes that the first offer will fall through and the seller will select the back-up offer. It is the seller’s decision whether to accept back-up offers at all. Back-up offers are common in bidding wars where there is frenzied competition for a well-priced property. Most buyers who submit a back-up offer will continue with their home search because the probability that their back-up offer is ultimately accepted is usually a long-shot.

Unlawful Interference with Contract?

Rona is worried that accepting back-up offers could expose an agent to liability for interfering with an existing contract. I don’t think she has much to worry about unless the seller tries to cancel the existing deal without legal right.

In the real estate context, the requirements to make out a valid claim for unlawful “interference with contractual relations” are the following:

  • There must be an accepted and signed offer to purchase between the buyer and seller which is sufficient to form an enforceable contract under Massachusetts law;
  • The competing buyer (making the back-up offer) must have knowledge of the contract;
  • The competing buyer must have intentionally induced or persuaded the seller not to perform its contractual obligations, i.e, not proceed with the transaction;
  • The interference was improper in motive or means; and
  • The plaintiff was legally harmed.

Under this legal definition, there is liability only where the seller unlawfully breaks the existing offer/contract with the first buyer. As a general matter, merely submitting a back-up offer (and not formally accepting it) will not support a legal claim because there has been no breach of the first contract.

A thornier question is what happens if the seller tries to wriggle his way out of the first offer in favor of a better offer? Those are the situations which often result in litigation and the filing of a lis pendens. I would advise any seller and their agent to consult an attorney before they try to break an offer or purchase and sale agreement with a buyer. On the other hand, if a buyer loses his financing and cannot proceed with the transaction, and therefore has defaulted on his contractual obligations, then it may be clear to accept a back up offer. It is always the prudent course to obtain a release and waiver from the first buyer before dealing with a back-up offer. I cannot stress this enough.

What Are Realtors’ Legal & Ethical Duties With Back-up Offers?

There are no specific legal rules surrounding back-up offers. The regulations governing real estate agents in Massachusetts provide that “All offers submitted to brokers or salespeople to purchase or rent real property that they have a right to sell or rent shall be conveyed forthwith to the owner of such real property.” If a listing agent is a Realtor©, they have an additional ethical obligation to “continue to submit to the seller all offers and counter-offers until closing … unless the seller has waived this obligation in writing.”

Back-up offers are on a slightly different footing than offers made while the property is still actively listed. I would say that if a prospective buyer makes an unsolicited back-up offer, that offer must be conveyed to the seller regardless of whether or not she has decided to accept back-up offers. The agent should not make the decision to decline an offer for the client. The seller may, of course, decide to not solicit back-up offers or to solicit them. Such a decision should be noted on the MLS. It’s always the client’s prerogative to solicit back-up offers. For agents, the safe practice is always to convey any offer which comes in, and to have the seller state in writing that she is refusing to accept back-up offers.

If you have any “war stories,” questions, or comments, please post them in the comment section below.

_______________________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. They can be reached by email at info@vetsteinlawgroup.com or 508-620-5352.

{ 3 comments }

I cannot believe I’m writing this post, but yes it’s true, the real estate market in Greater Boston, Massachusetts has now come full circle and bidding wars are back. Don’t believe me? Just read this Boston Globe article from today.

Now that bidding wars are back, buyers and sellers have questions, so we’ll try to answer them here. I’ve also asked a few local real estate agents to offer their expertise as well.

What Are The Legal Issues Surrounding Bidding Wars?

A bidding war arises when there are several competing offers for a listing at the same time. There are really no hard and fast legal rules with bidding wars. Contrary to popular belief, a private seller in Massachusetts is not legally obligated to accept the highest offer made during a bidding war. A seller can be as financial prudent or as irrationally arbitrary as she wants in deciding which offer to accept. A seller may decide to forgo the highest offer in favor of a lower offer due such factors as the financial strength of the buyer (i.e., a cash buyer), because the buyer waived inspections, or simply because the buyer wrote the sellers a lovely letter about how wonderful their home is! (Read on for one agent’s advice on letter writing).

Legally, an offer is simply an invitation to negotiate, and provides a buyer with zero legal rights to the property. An offer does not create a legally enforceable contract — unless it is accepted and signed by the seller.

For real estate agents involved in bidding wars, they have an ethical and fiduciary duty to get the highest and best offer for their sellers. There is nothing illegal about a seller or their agent creating a bidding war, so as to pit one bidder against each other. A listing agent is doing a good job for their client in creating such a market for a property. Ethically, a real estate agent must be truthful and honest when communicating with all prospective buyers and cannot make any material misrepresentations, such as lie about an offering price. Agents must present all offers to their clients, however, the ultimate decision to accept an offer always remains with the seller.

There are different ways to manage a bidding war, and again, there are no special legalities for it. Some agents will set a date by which all preliminary bids have to be in. If there are only two bidders, an agent can go back to the lowest bidder and ask if he or she would like to re-bid. An agent can continue that process until one of the bidders backs out. If there are more than two bidders, some agents will set a second round of bidding with a minimum price of the highest bid in the preliminary round. If no one bids in the second round, the agent can return to that high bid. Bidding wars are fast moving, so buyers need to be able to react quickly.

Generally, disgruntled buyers who lose out on bidding wars do not have a legal leg to stand on — unless their offer was accepted and signed by the seller or there is clear proof an agent lied about something important. That is why making your offer stand out in a bidding war is so important.

Buyers: How To Make Your Offer Stand Out In A Crowd

In a bidding war, buyers ask how can they maximize their chance to be the offer the seller accepts? Gabrielle Daniels, of Coldwell Banker Sudbury, offers this great advice on her blog, LiveInSudburyMa.com:

  • Make your offer STRONG. If you know that there are other offers on the property, make your offer financially strong as possible. If you believe the house is worth asking price, offer asking price. Forget about the TV shows that tell you to offer 90 percent of asking. That is ridiculous – UNLESS that is what the house is worth. Every situation is different. Every house is worth something different. There are no “general rules” about what to offer.
  • Be prepared. Have your pre-approval ready. Sign all of the paperwork related to the offer (seller’s disclosure, lead paint transfer, etc.) Write a check, leave a check with your agent. It is better than a faxed copy of the check. Don’t leave any loose ends.
  • Show some love to the house (and the seller). Write a letter to the sellers, tell them why you love the house and why you are the best buyer for the house. Sure, this is a business transaction, but it is one of the most personal business transactions in which you will be involved. Your real estate agent should be able to help you with this.

For more great tips for buyers involved in a bidding war, read Gabrielle’s post, Multiple Thoughts On Multiple Offers.

Sellers, How Can You Take Advantage of Bidding Wars

For sellers in a bidding war market, it all comes down to pricing, as Heidi Zizza of mdm Realty in Framingham explains on her blog, MetrowestHomesandLife.com:

I had a house listing in Natick this past year. The house valued out to around $620,000. We could have gone to market at $629,900 or $639,900 and had many showings that eventually would land us an offer around $610,000 or so. We figured that at that price it would take the average days on market which was (if memory serves correctly) close to 90 days. We decided to go to market at $599,900. The house got so much attention we had a HUGE turnout at the first showing/Open House and had 4 offers by that evening all competing and all over asking. The highest bid was $620,000 and we sold the property in one day. You too can do the same thing. Market your house at a price that is so attractive you will be best in show. Your buyers will let you know it, and you will definitely get an offer, maybe even several!

For those of us in the real estate business who have weathered the storm of the last 4-5 years, this is “all good” as we say! The more bidding wars, the better!

__________________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. They can be reached by email at info@vetsteinlawgroup.com or 508-620-5352.

{ 4 comments }

Tips For Massachusetts Real Estate Cash Buyers & Sellers

As Yogi Berra once humorously said, “cash is just as good as money.”

This is especially true in real estate transactions where a cash buyer is often perceived as better and less risky than a mortgage financed buyer. (Please note that we often encourage buyers to obtain a conventional mortgage where possible given the federal tax benefits through the mortgage interest deduction and also because of the low interest rates available).

What Is A Cash Buyer?

The term cash buyer means a buyer who plans to buy real estate without using a mortgage. The term can also apply to a buyer who plans on using a mortgage, but doesn’t plan on using a mortgage contingency with the purchase contract. (This carries significant financial risk, which we typically do not recommend except for rare instances).

Cash Deals On The Rise In Mass. and U.S.

Massachusetts cash real estate transactions have risen considerably in the last few years, as reported by the Boston Globe. Cash sales accounted for a surprising 34% of all Massachusetts residential real estate transactions in 2011, according to data provided by the Warren Group. According to the Globe, cash buyers include baby boomers downsizing to Boston condominiums with profits from the sales of their suburban houses, well-off parents purchasing homes for college-age children, and investors seeking discounted properties they can rent or sell. They are turning to cash for various reasons, including tighter lending guidelines that have made mortgages less attractive, dwindling bank financing for investment properties, and a volatile stock market that has sent people looking for other places to put their money.

Frequently Asked Questions For Cash Transactions

If you are a cash buyer, or considering selling to one, you may ask whether the transaction will proceed the same way as in a mortgage based transaction and whether there are any other special considerations involved. The short answer is that the transaction, for the most part, will proceed in the same manner, and often with a shorter time-frame than a mortgage financed deal, but there are a few special considerations that a cash buyer needs to be aware of, which I’ll outline below.

Do I Need A Real Estate Agent?

Absolutely. A cash buyer needs a real estate agent for the same reasons a financed buyer needs one. Those reasons include market knowledge and savvy; skilled negotiation; being a critical liaison between the parties; and keeping the transaction and all the players on target for a successful closing. Plus, as with all transactions in Massachusetts, including cash, the seller, not the buyer, pays for the real estate commission.

Do I Need A Real Estate Attorney?

Yes, it’s not only the smart choice but it’s the law. Massachusetts law now provides that only licensed attorneys can conduct real estate closings. In mortgage backed transactions, the lender will assign a closing attorney (who is often the same attorney working for the buyer) to close the transaction. With a cash transaction, however, there’s no lender, and thus, no lender appointed closing attorney to rely on. So a cash buyer must select his or her own attorney to close the transaction.

A cash buyer’s attorney will act as the closing attorney and legal “quarterback” on the deal, having the ultimate responsibility for the vast majority of legal work on the transaction. Here is an outline of all the responsibilities which will fall upon the attorney for a cash buyer:

  • Reviewing and editing the draft Purchase and Sale Agreement (“P&S”)
  • Drafting a “Rider” to the P&S to provide additional protections to the Buyer
  • Negotiating the P&S with the Seller’s attorney
  • Keeping the Buyer updated throughout the negotiations
  • Advising the Buyer about the provisions in the P&S
  • For condominiums, reviewing the condominium documents, including the Master Deed, the Declaration of Trust, and the Operating Budget
  • Conducting a 50 year title exam;
  • Ordering the Municipal Lien Certificate and Seller’s Payoff Statement(s)
  • Reviewing the 6(d) Certificate, Smoke Cert and Unit Deed
  • Preparing the HUD Settlement Statement
  • Procuring an Owner’s Policy of Title Insurance and Declaration of Homestead
  • Preparing Documents for Closing
  • Conducting the Closing;
  • Receiving and Disbursing Funds at Closing
  • Conducting final title run-down then recording the Deed, MLC and Homestead.
  • Post closing issues: mortgage discharge tracking, payment of outstanding real estate taxes

Without an attorney, the cash buyer is simply lost. I would never recommend that the buyer hire the same attorney who is representing the seller. Not only is this a huge conflict of interest, but the seller’s attorney allegiance will rest with the seller, not the buyer.

Do I Need Title Insurance?

As we always recommend, yes! There are two types of title insurance policies: lender’s and owner’s. In a cash transaction, there will be no lender’s policy, and the owner should always opt to obtain an owner’s  owner’s title insurance policy. We’ve written extensively about owner’s title insurance here. It’s especially important in this day of paperwork irregularities with mortgage assignments and discharges, robo-signing, and botched foreclosures.

When Do I Need That Cash Again?

As with all transactions in Massachusetts, a cash buyer will put down between $500 – $1,000 with the Offer and 5% of the purchase price with the signing of the purchase and sale agreement. With no mortgage lender involved, the cash buyer must realize that at the closing they must have liquid funds for the remaining “cash to close” (usually hundreds of thousands) in the form of a cashier’s check or bank check at the closing. Accordingly, the cash buyer must make all investment withdrawals, transfers and receipt of gift funds well in advance of the closing date. Since cash deals proceed much quicker than financed deals, my advice to cash buyers is to have all necessary cash in hand and in a no-risk account when the purchase and sale agreement is signed. Don’t stick your cash in some stock fund which crashes weeks before the closing.

What Happens If I Have Second Thoughts or Don’t Have Enough Cash To Close?

This is where the cash buyer is at more risk than the mortgage financed buyer who has the benefit of a mortgage contingency. If the mortgage buyer cannot obtain financing within the agreed upon deadline, he can opt out of the deal with no penalty. By contrast, after signing the standard purchase and sale agreement, the cash buyer is locked in to going forward with the deal with little, if any, wiggle room to get out. Generally, if the cash buyer has to default, he will lose his deposit (5% of the purchase price). So for any cash buyer, make sure you don’t get any buyer’s remorse!

Best of luck on your Massachusetts cash real estate purchase

_____________________________________________________

Richard D. Vetstein, Esq. and Marc Canner, Esq. are experienced Massachusetts real estate cash buyer’s attorneys. They can be reached by email at info@titlehub.com or 508-620-5352.

{ 2 comments }

Six Year Litigation Odyssey Ends With $872,000 Payout

After six years of litigation over a deceptive bait-and-switch condominium purchase scheme, a Cambridge couple has forced the listing broker in the deal to pay them $872,000 in compensation. The case is Oleg Batishchev v. Brenda Cote and others (click to download).

The case started in 2005, after the first time home buyers paid $683,385 for a condominium unit from Perception Ventures LLC. The couple believed they were buying a newly renovated unit on the right side of the building. Victimized by what the trial judge called a “preposterous fraud,” the developer, the listing broker and the seller’s attorney tricked them into buying a unit on the left side of the building which was beset with such substantial and egregious workmanship defects as to render it virtually uninhabitable.

After a two week jury trial by Attorneys John Miller and Jonathan W. Fitch of the Boston firm Sally & Fitch, the developer and his agents were held liable under the Massachusetts Consumer Protection Act, Chapter 93A. The case dragged on through two appeals, and was finally concluded with the payment of $872,000 from the listing broker.

The couple had previously settled with the sellers’ lawyers for $150,000 and, following a one week jury trial on damages, had also received a damage award of more than $425,000 against their own closing attorney for her malpractice.

What troubles me most about this case is that the attorneys got caught up in this scheme, either intentionally (in the case of the seller’s attorney) or by failing to recognize the shenanigans going on (in the case of the buyers’ attorney). The lesson to be learned is that if there’s smoke, there’s usually fire.

For more information about the case, read Sally & Fitch’s press release here.

______________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts Real Estate Litigation Attorney who has litigated hundreds of cases in the Massachusetts Land and Superior Courts. For further information you can contact him at info@vetsteinlawgroup.com.

{ 0 comments }

The Offer to Purchase Has Become Much More Important

With a glut of distressed property still on the market and lenders realizing foreclosures aren’t very cost-effective, analysts are predicting a healthy spike in short sales for 2012. Short sales are quite unique in terms of deal dynamics, and should be handled differently than the typical transaction.

Massachusetts real estate attorneys and Realtors, however, are set in their ways when it comes to real estate contracts. For decades, we’ve been using the standard form Offer to Purchase and Purchase and Sale Agreement from the Greater Boston Real Estate Board or some variation thereof. We have also developed a predictable process in which the parties sign the Offer, conduct property inspections, sign the Purchase and Sale Agreement, obtain financing, order title, and get to closing.

With the recent proliferation of short sales, we have had to … yes, that dreaded word, CHANGE, the way we do things. Some agents and attorneys still do things the “old way” for short sale transactions, but they are doing themselves and their clients a disservice by doing so.

In this post, I will outline —  and explain — the “newer and better” way of handling the legal contracts in a Massachusetts short sale transaction.

The Offer to Purchase: Now The Operative Contract Document

We are seeing a shift to making the offer the operative contract in a Massachusetts short sale transaction. And for good reason. A short sale, by definition, is subject to a critical contingency: obtaining short sale approval from the seller’s lender(s). No short sale approval, no deal. Experienced short sale attorneys and real estate agents (and their clients) don’t want to spend the time and incur the expense of drafting a comprehensive (and contingent) purchase and sale contract when there is no guaranty of getting short sale approval. Furthermore, short sale lenders will accept a signed offer from the buyer during the approval process.

When we were first doing short sales, there were several instances where we drafted up purchase and sale agreements and then the short sale approval fell through. We had to charge the client for the drafting work or eat the cost. No one was happy.

The better way has proven to be the following:

  • Build all contingencies into the Offer to Purchase, namely, Short Sale Approval and Financing (we’ll talk about home inspections later)
  • Use a standard rider with short sale contingency language, with a deficiency waiver
  • Seller to use best efforts in obtaining short sale approval
  • Buyer agrees to be bound for set approval period  (60-90 days) in exchange for seller taking property off the market and not accepting back up offers. Negotiate deposit amount, usually 1% of purchase price. Buyer will obtain his financing and loan commitment during this approval period.
  • Negotiate extension rights, with corresponding protection for Buyer’s financing/rate lock
  • Upon short sale approval, purchase and sale agreement is signed within 5-7 days and full 5% deposit made
  • Closing within 30 days of short sale approval. (Most short sale approvals are only good for 30 days)
  • Waiver of home inspection or inspection prior to offer acceptance. Sellers should never agree to allow a home inspection contingency giving the Buyer a right to terminate. If the buyer doesn’t want to pay for an inspection up front, he is not a serious short sale buyer.

Change Is Hard…

I recognize that this is a departure from the “normal” way we document residential real estate contracts, but trust me, it’s a better way, and will actually decrease the time it will take to obtain short sale approval, because the parties are not waiting around for the P&S to be negotiated and signed and the buyer (and his attorney) don’t have to do unnecessary work.

Another important piece here is that the Buyer must get his financing in order, ready to go by the time short sale approval comes through. Lenders must recognize the unique short sale process and work with borrowers to get a firm loan commitment issued timely. Also, there’s no need for a lender to insist that the borrower have a signed purchase and sale agreement for underwriting approval. Under the process that I’ve outlined and under established Massachusetts case-law (McCarthy v. Tobin), the Offer is a legal and binding contract for the sale of the subject property and is sufficient for underwriting purposes. If it’s ok for the short sale lender, it should be ok for the buyer’s lender.

Help Is An Email Away

If you are a Realtor and need some guidance on the new Short Sale Offer, email me here and I will send you the form Rider. Also, if you need a referral for an excellent short sale negotiator, I highly recommend Andrew Coppo at Greater Boston Short Sales LLC.

__________________________________________________________

Richard Vetstein, Esq. is an experienced Massachusetts short sale attorney. For more information, please contact him at info@vetsteinlawgroup or 508-620-5352.

{ 6 comments }

January in the real estate industry is typically the time for the new year market outlook. For this coming year many of us have seen the template on the macro-economic data which most impacts the real estate industry: 8.5 % unemployment in the latest report, 30 year mortgage rates at record lows at or below 4.0%, and 15 year mortgage rates at or below 3.25%.

Rather than run a standard metrics-based market forecast this year, I decided to survey a cross-section of Massachusetts real estate realtors and mortgage professionals to hear from them on the upcoming spring and the 2012 real estate market in its entirety. Overall, each of the real estate professionals I contacted were optimistic. They tend to see the low interest rates and improving economy as the drivers of a busy 2012 housing market. Thus, here is a compendium of professionals I surveyed:

“I am optimistic that interest rates will remain low at least until the presidential elections. The uncertainty that has constrained spending and lending will keep things from taking off until there is a clearer picture of what policies will be in place (intervention and regulation vs. deregulation and free markets).

The increasing debt woes of EU members creates short term demand for our mortgage bonds and treasuries which drives down interest rates. This won’t be fixed overnight.

The housing collapse hangover continues to cause problems. The economy and in particular the housing market is still too weak to suffer increased interest rates. Rates will remain low until the cash on the sidelines is invested, employment improves and housing sees some recovery. The Fed has shown that they will move to buy mortgage backed securities and treasuries if we see rates start to rise and I can’t see them sitting on their hands if rates rise and threaten to derail this slow economic recovery.

This is an incredible time to buy a home with prices low and the cost of money so low as well.”

–Loan Officer, Bank of Canton, Boston, Brookline and Route 128 suburbs

 “I expect the 2012 real estate market in the greater Boston area to be stable. Overall, buyers will continue to have the upper hand but I don’t think we are going to see any precipitous drop in either sales prices or the number of sales. If interest rates remain low it continues to be a good time to get into the market knowing that you are getting in somewhere close to the bottom.”

–Realtor, Keller Williams, Cambridge,

 “As we embark on the new year there are many reasons to be optimistic. Rates are expected to remain at all time lows for the next 12 months and there is plenty of inventory for home buyers. More importantly, we are starting to see better listing prices from sellers who are clearly more realistic about what to expect. Contrary to what the media would have consumers believe, there is plenty of financing available for qualified buyers – and it doesn’t always require 20% down. First time buyers are surprised to see how affordable it is to own their own home, and with programs available with as little as 3% down and no PMI I expect to see a big surge in this demographic.”

–Loan Officer, Fairway Mortgage, Route 128 Suburbs

 “I see a slow start to the Spring, but a steady stream of inventory equal to purchasers. The best place to be is in a move-up, as buyers will find a greater gain on their more expensive home in spite of possibly losing a bit on the sale side. It seems that there are more foreclosures on the horizon with stable amounts of short sales, another way for a buyers to make immediate gains. Buyers will still dictate values, relative to condition and inventory. The mortgage guidelines have become stricter, so getting a pre-approval from a reputable lender is increasingly important. Sellers should request to see one immediately from a prospective buyer and buyers should be educated about the borrowing and the buying process.”

–Realtor, Realty Executives, Framingham,

 “I have an above normal number of pre-approvals for January.  I’m starting to see movement in the market.  A lot of high-end buyers.”

–Loan Officer, Citizens Bank, Route 128 Suburbs,

“Brookline real estate should receive a spike upwards during the spring market like it always does. It looks like the economy has improved slightly which could also help the confidence of the buyers.”

–Realtor, Coldwell Banker, Brookline

 “I see purchases up 40% for the year, and refinances down slightly.”

–Loan Officer, Mortgage Network, Route 128 Suburbs

 “With 2011 now behind us, real estate agents and others related to the housing industry are hoping that 2012 will bring a significant improvement to the number of units sold and at least stabilization, if not an increase in the median sales price.”

2011 ended with a nice up-tick in sales according to the National Association of Realtors, however, sales remain depressed, as are several of the realtors I spoke with in the Metrowest and Central Massachusetts areas. Central Mass, in particular, seems to have borne the brunt of the home sales price reductions and sales lag. Unit sales within the Route 128 belt have held up nicely, although many homes have experienced a 5-10% appraised value drop, year over year.

Interest rates have held steady at near record lows. While this is good news for first-time home-buyers and relocating workers, as home affordability is better than at any time in recent memory, many sellers are frustrated.

As home prices continue to drop, more sellers are finding themselves with little or no equity in their homes.  This not only makes them reluctant to price their home to market and sell quickly, for many of them, current rules on Loan to Value, are making them unable to take advantage of today’s low interest rates and refinance.

So what will 2012 bring?  A slight improvement in unit sales, and perhaps a bottom in home prices (I hope!).  Here are my reasons for this conclusion:

  1. Job creation – Over the past several months, it appears that the job market is improving.  The Massachusetts unemployment rate dropped to 6.8% in December.
  2. Continued Low Interest Rates – While we may see an increase in 30 year fixed rates during the next couple of months, as the national economy shows signs of improvement, I do not expect a dramatic rise in rates.
  3. Helping Underwater Homeowners –
  4. Homebuilder Sentiment – Nationally, homebuilding company optimism is making a strong recovery.  Locally, several builders I have spoken with think 2012 will be their best year ever.  Prices may be down, but in many cases so are cost of materials and labor.

There are a few other reasons for optimism including an increase in household formation, as well as talk of programs to rent REO properties, which may help reduce vacant homes and stabilize prices.

–Loan Officer, Greenpark Mortgage, Metrowest and Worcester County

We have a lack of inventory in the greater Franklin area. More buyers and renters than properties on the market. A lot of sellers I talk to are waiting “until later in the year” to list. They need to get started on their preparations now because “later in the year” will be here before you know it!

–Realtor, Hallmark Sotheby’s, Franklin/495 Area

“I feel that the market will be very good for buyers and sellers this spring.

Buyer can take advantage of the great rates and prices. It’s a great time to upgrade to a bigger and better home. It’s also a great time to buy an investment property since rents are on the way up.

On the listing side we need more inventory since most of the homes on the market now are stale and overpriced. I’m a strong believer that if the home is priced well it will sell fast.”

–Realtor, Keller Williams Realty

__________________________________________

Marc E. Canner, Esq. is an experienced Massachusetts real estate attorney with offices in Needham and Bedford, Mass. He is a principal of TitleHub Closing Services LLC and the Law Offices of Marc E. Canner.

{ 5 comments }

The home inspection is one of the most critical aspects of every Massachusetts real estate transaction. Virtually every buyer in a standard purchase transaction (meaning not a short sale, foreclosure, or bank-owned property) will opt to perform a home inspection, and for good reason. You need to know whether there are any serious structural, mechanical or other defective conditions in the home before you close.

As always, I’m going to focus on the legal aspects of the home inspection as it impacts the overall transaction.

Buyer Beware

Let’s start out with the legal framework for what, if anything, a seller and his real estate agent are required to disclose to a prospective buyer. Surprisingly to most buyers, a private seller has no legal duty in Massachusetts to disclose any type of information, good or bad, about the property (except for the presence of lead paint). This is called caveat emptor, or buyer beware. Real estate agents stand on a heightened legal footing. Under Massachusetts consumer protection regulations governing real estate brokers, a broker must disclose to a buyer “any fact, the disclosure of which may have influenced the buyer or prospective buyer not to enter into the transaction.”

Nevertheless, I always advise buyers not to rely or trust anything the seller or his/her agent says about the property. This is exactly the reason why most buyers will choose to get an independent home inspection.

Inspection Contingencies

The standard form Offer to Purchase (click for form) will include several inspection related contingencies: the general home inspection contingency, radon, lead paint, and pest contingencies. The buyer typically has between 5 and 10 days to complete these inspections. If the inspections reveals any problems requiring repair or remediation, the parties will negotiate repairs during this inspection period, and the agreement will be reflected in the standard purchase and sale agreement or sometimes a separate repair agreement which is signed around 14 days after the accepted offer. Typically, the Realtors do the heavy lifting on home inspection negotiations, and by the time it gets to the attorneys, there is an agreement in place.

The attorneys can craft the language for repairs. I always insist that repairs are performed by licensed contractors with evidence of completion provided prior to or at closing. Also, buyers should know that repairs provided in the purchase and sale agreement may trigger a second property inspection by the lender’s underwriters which could add another layer of oversight into the deal.

If the problems are so serious that the buyer wants to walk away from the deal, there is a mechanism for where the buyer provides notice to the seller and a copy of the inspection report. It’s very important to provide proper notice in order to get the buyer’s deposit returned. An attorney should be consulted for this situation.

Home Inspector License Requirements

Since 1999, Massachusetts has required that home inspectors be licensed by the state Board of Registration of Home Inspectors. You can search for home inspector licenses here: Massachusetts Home Inspector License Search.

Buyers should recognize the limits of the home inspection. The state regulations requires inspection of “readily accessible” components of a dwelling. Most modestly priced inspections are visual inspections of the property. The inspector is trained to identify defects in the systems of a house but cannot be expected to have x-ray vision. Moreover, property inspectors are not generally trained civil engineers. Structural defects and weaknesses may not be readily apparent, and may require follow up by a licensed structural engineer. In many cases, however, evidence of inappropriate settling or structural failure can be observed during a visual inspection. An experienced inspector will summarize the “big picture,” but inspectors are not required to identify the exact nature and extent of structural deficiencies. Regulations specifying the elements of a dwelling to be observed and reported on by the home inspector may be found here at 266 C.M.R. § 6.00.

Condominiums

When you buy a condo, you not only buy the unit, but the common areas such as the common roof, mechanical and HVAC systems, grounds, etc. Good home inspectors will ensure that the inspection of a condominium includes the common areas as well as the unit itself. The common area inspection may reveal deferred maintenance needs and inadequately performed repairs that may result in increased condominium fees and special assessments.

Radon

The Environmental Protection Agency (EPA) has established an “action level” of 4.0 pico-curies per liter (4.0 pCi/l) of radon present in indoor air. Although not established as an unsafe level, this figure has been established as the point at which protective measures are recommended. Prospective purchasers and home inspectors frequently use commercially available canisters to collect radon data. This method is cost-effective but may not give accurate results. The canisters are ordinarily placed for twenty-four to forty-eight hours in the basement and on the first floor of the dwelling. The canisters must be placed away from drafts and should not be disturbed. After the test period, the canisters are sealed and forwarded to a testing laboratory. Sometimes, the radon results are not ready by the time the purchase and sale agreement has to be signed. In this situation, the parties can either agree to extend the deadline or agree to a radon contingency.

If the radon results come back over 4.0 pCi/l, depending on the language of the radon contingency, the buyer can typically opt out of the deal altogether or require the seller to install a radon remediation system. Often the sellers will attempt to cap the cost of the system.

Pests

Most home inspectors are also qualified to perform inspections for wood-boring insects, such as termites, powder post beetles, and carpenter ants. All properties should be inspected for such pests. Properties financed by certain government-sponsored loan programs, such as the Federal Housing Authority, require a pest inspection as a condition of obtaining a loan. It’s a good idea to ask the sellers if they have an existing pest control contract that can be transferred to the new buyers.

Lead Paint

The Massachusetts Lead Law requires the buyer to be given the opportunity to inspect for lead paint. The seller or broker is required to provide potential purchasers of homes built before 1978 with the notification package prepared by the Massachusetts Department of Public Health.

Sellers and real estate agents are required by law to disclose any information about known lead paint hazards in their properties, and to provide copies of any documentation relating to the lead paint status of the properties (i.e., a lead inspection report or risk assessment report). The seller must grant a ten-day contingency period from the date the buyer receives the property transfer notification to conduct a lead paint inspection. If the buyer discovers lead paint in the dwelling during the inspection period, the contingency required by the statute permits the buyer to withdraw from the agreement without further obligation.

Although a seller is under no obligation to actually abate the lead paint, a lead-free house may be more valuable and marketable. This is particularly true for multi-family properties where tenants with children under six years of age may trigger the abatement requirements of the law. Sellers are required to provide any documentation they have of the estimated costs to abate the lead paint. Should a seller refuse to make a price concession based on the presence of a lead paint hazard, a buyer could argue that any subsequent buyer also should be made aware of the hazards and related costs. As a result, the availability of a lead paint inspection and cost estimate can become a powerful negotiating tool for the buyer.

Lead paint testing is typically not done as part of a standard home inspection, and must be separately arranged by a certified lead paint assessor.

Mold and Mildew

Mold and mildew are tricky subjects for home inspectors. The presence of excessive amounts of mold spores has been linked to asthma and other respiratory ailments and is claimed to cause permanent injuries. Mold grows in warm, moist environments and can be present behind walls and ceilings, in heating and cooling ducts, and in other difficult-to-inspect parts of a house or condominium building. As noted, although a building inspector cannot peer behind walls, a thorough inspection can detect water penetration, which is the precursor and necessary condition for a mold problem. Where mold is suspected, a buyer can always request that his home inspector be allowed to drill small exploratory holes to test for the presence of mold/mildew.

_______________________________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. Please contact him if you need assistance with a home purchase or sale.

{ 7 comments }

images-13Compliance Concerns Unwarranted

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

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

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

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

Are Electronic Signatures Valid For Massachusetts Real Estate Contracts?

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

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

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

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

How Does It Work?

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

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

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

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

Are Lenders Accepting Electronically Signed Contracts?

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

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

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

_________________________________________

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

{ 6 comments }

Realtors: You Must Independently Verify Property Information

In DeWolfe v. Hingham Centre Ltd. (embedded below), the Massachusetts Appeals Court recently considered a Realtor’s duty to disclose and independently verify zoning information about a listing property.  The agent, relying on what turned out to be erroneous information supplied by his client, listed a Norwell property on Multiple Listing Service (MLS) and newspaper advertising as “zoned Business B.” The property was not in fact zoned for business use; it was zoned residential, thereby prohibiting the hair salon the buyer wanted to open at the property.

Despite the general disclaimer on the MLS system and in the purchase and sale agreement, the Court held that the Realtor could be held liable for misrepresentation and Chapter 93A violations due to providing this erroneous information.

The lesson to be learned for agents here is:

  • Never trust your client. I hate to say this, but when it comes to disclosures, it’s true.
  • Always independently verify information about the property from available public sources. Here, the agent could have simply gone down to the town planning office to verify whether the property was zoned commercial or residential. (The buyer or his attorney could have done so as well—this was a complete failure on all sides).
  • When it comes to zoning, which can be complex and variable, think twice before making blanket statements. Better to be 100% sure before going on record about whether certain uses are permissible. You can always get a zoning opinion from a local attorney.

_______________________________________________

Richard D. Vetstein, Esq. is an experienced real estate attorney who often advises real estate agents on their duties and ethical obligations. Please contact him if you need legal assistance regarding a Massachusetts residential or commercial real estate transaction.

Dewolfe v. Hingham Realty

{ 3 comments }

Social media and blogging is a foundation of my marketing plan. It’s been so successful for me that I have always tried to share the benefits with my referral partners — real estate agents and mortgage professionals. Along with my law partner Marc Canner, we started a company dedicated to assisting real estate agents with their own social media. We named the company, HubConnected–a little play on Boston and the theory that social media should be the “hub” of any agent’s marketing platform.

We just shot a new professional promotional video featuring some of our most successful agent-bloggers:

The blogs have been incredibly worthwhile for these agents as well as for the other 20+ other agents in our blogging network. One agent generated $8 Million in new sales revenue last year alone from her blog!

If you are interested in starting a blog or custom Facebook page, please contact Heather Allen at HubConnected (hallen@hubconnected.com) for more information.

I’m always around to bounce ideas off of too! Good luck and keep on truckin’!

Here is the YouTube link to the video.

________________________________________________________

Richard Vetstein is a social media expert for HubConnected LLC, in addition to being a nationally recognized real estate attorney. Rich was recently selected as a nominee for Inman News’ 100 Most Influential in Real Estate. Rich was a recent speaker at the Social E Conference in Newport, RI sponsored by the Warren Group/Banker & Tradesman.

{ 0 comments }

iStock_000003014021XSmal.jpgCaveat Emptor: “Let The Buyer Beware”

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

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

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

Private Sellers: No Duty to Disclose

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

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

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

Real Estate Agents: Heightened Duty

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

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

Home Inspectors

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

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

Massachusetts Sellers Disclosure//

{ 8 comments }

Real Time Analytics