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massachusetts notary publicCourt Points Out Potential Problem with Standard Notary Acknowledgment Form

Could the the standard form notary acknowledgment clause used in virtually every recent Massachusetts deed, mortgage and other recorded instrument be defective in certain situations involving power of attorneys? That may be the result of a recent court decision by the First Circuit Bankruptcy Appellate Panel in Weiss v. Wells Fargo Bank (click for link to case).

The ruling is causing quite a bit of angst in the real estate conveyancing community. Since Revised Executive Order 455 – Standards of Conduct for Notaries Public was passed by Gov. Romney in 2004, notaries public and attorneys have been using the approved notary acknowledgment form providing that the document is signed “voluntarily for its stated purpose. ” In the Weiss case, however, the court held that the notary acknowledgment of an attorney-in-fact under a power of attorney was defective as it failed to indicate that the principal has signed under “his free act and deed.

The facts in the Weiss case are rather unique so it may have limited effect. But it should serve as a wake-up call for notaries public, attorneys and lenders that the better practice may be to use a notary public acknowledgment with the “free act and deed” language as was common before the 2004 notary rules.

Practice Pointer:  Going forward, I recommend that real estate attorneys, notaries public and lenders should consider using “free act and deed” language in notary public acknowledgments. See below for form language. 

Fact of the Case: Botched Notarization With Power of Attorney

In the Weiss case, a bankruptcy trustee for Chicopee homeowners attempted to use his “strong-arm” powers to void a refinance mortgage. The borrowers took out a refinance loan on their Chicopee home with Wachovia Mortgage. They signed a limited power of attorney to enable a one Shannon Obringer (who I assume was a bank employee) to sign the mortgage. The actual signing of the mortgage occurred in Pennsylvania by a Pennsylvania notary (I assume at Wachovia’s offices). You know this wasn’t going to end well….

The pre-printed notary acknowledgment form on the mortgage was the approved MA Executive Order form, which the notary partially completed as follows:

On this 11 day of June 2007, before me, the undersigned notary public, personally appeared Shawn G. Kelley and Annemarie Kelley by Shannon Obringer as Attorney in Fact, proved to me through satisfactory evidence of identification which was/were ________________ to be the person(s) whose name(s) is/are signed on the preceding document, and acknowledged to me that he/she/they signed it voluntarily for its stated purpose.

Although there was some ambiguity from the wording as to who actually appeared before the notary and the notary failed to fill out the identification form blank space, the Court held that these were not necessarily fatal. However, the Court ruled that the language in the notarization that it was signed “voluntarily for its stated purpose” was fatally defective because it did not sufficiently demonstrate that it was the borrowers’ “free act and deed” by the attorney-in-fact’s signature, as required by Massachusetts statutory and case law. The Court went on to void the mortgage in favor of the bankrupt debtor.

New Notary Public Acknowledgment 

Going forward, I would consider using a notarization acknowledgment with the older “free act and deed” language in power of attorney signing situations. The 2004 acknowledgment should be ok for typical individual notarizations. Of course, you should consult with your title company, lender and/or attorney before notarizing in any tricky situations.

If you have any questions about notarization after this court ruling, please contact me at rvetstein@vetsteinlawgroup.com or 508-620-5352.

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Joseph-S.-Berman-198x300Governor’s Council Crucifying Berman Over His Affiliation With Jewish Social Justice Organization

I rarely get involved in politics or judicial nominations, but recents events surrounding the judicial nomination process at the Governor’s Council of well-respected Boston attorney Joseph Berman has led me to take action.

As you may have read recently in the Globe and Herald, Mr. Berman’s Superior Court nomination is being held up by a group of councilors who have objected to his affiliation with the Anti-Defamation League, a storied Jewish social justice organization formed in the aftermath of the Holocaust. The councilors have severely criticized Mr. Berman for the ADL’s prior (and now reversed) stance on the Armenian genocide.

As Mr. Berman repeatedly explained at his hearing, he was a vocal critic of the ADL’s prior policy, advocated for its change, and considered resigning over the issue. I also believe the events in Armenia were genocide and that the ADL did a lot of damage over its policy. Led by Mr. Berman, the New England Chapter of the ADL, however, ultimately reversed its position.

Mind you, this is the same Governor’s Council with a member who voted no on the appointment of Barbara Lenk to the SJC because she’s openly gay.

As Massachusetts Lawyers Weekly has editorialized, the councilors have reached a new low, taking the position that membership in a social justice organization holding a controversial political stance disqualifies an otherwise qualified candidate from judgeship. Both the Globe and Herald have issued editorials extremely critical of the Council’s actions, calling it a “Ship of Fools” and “manufacturing madness.”

Before this controversy, I actually didn’t even know Joe personally, but I was so upset about what I read, that I started to do research and then write emails to the council members, as well as having a dialogue with Joe as well.  I also took the time to listen to the audio of the nomination hearing. I can tell you it is shocking, reminding me of a McCarthy era witch-hunt. Listen for yourself here.

Joseph Berman has a great reputation and superlative skills and experience.  Joe’s bio is here:  http://www.lgllp.com/joseph-s-berman/.  We need more judges like Joe who have a strong business and technology background as the bench has been increasingly populated with former district attorneys and public defenders who lack the skills and experience in today’s  complex technology and business world.

Sometimes you see an injustice and you think, “well, there’s nothing I can do.” I thought that as well, initially, then I was inspired to take action. But the Council won’t change their minds until they hear from you. That’s where you come in.

Please consider sending an email to the council members who are still opposing Joe’s nomination. You can simply cut and paste the email below or write your own.

I thank you in advance for doing something small to correct an injustice. Next post, we’ll be back to real estate!

************

To: ocipollini@aol.com, jubinville@comcast.net, twklaw@aol.com, jcaissie@caplettelaw.com, albanom@the-spa.com

Dear Councilors, I write to support the nomination of Joseph Berman to the Superior Court. I have reviewed Mr. Berman’s credentials and there is no question in my mind that Mr. Berman is eminently qualified to serve in the Superior Court, as the Governor and your fellow council members have concluded.

However, I understand there has been some controversy surrounding Mr. Berman’s affiliation with the Anti-Defamation League and its previous national political position on the Armenia Genocide. As the Boston Globe recently reported, Mr. Berman was a vocal critic of the policy and ultimately the ADL reversed its position. Regardless, you cannot hold one position of a national organization against one individual who is affiliated with it who does not share that same viewpoint.

We need more judges like Joe who have a strong business and technology legal background as the bench has been increasingly populated with former district attorneys and public defenders who lack the skills and experience in today’s increasingly complex technology and business world.

I would hope that you will reconsider your position on Mr. Berman and give a favorable vote in the upcoming hearing.

/s/ Name, address

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CFPB.pngCFPB Issues Long Awaited “Know Before You Owe” Mortgage Disclosures, Replacing Truth in Lending, Good Faith Estimate, and HUD-1 Settlement Statement

As part of a continuing overhaul of the home mortgage market, the Consumer Financial Protection Bureau today issued a final rule to bolster fairness and clarity in residential lending, including requiring a new good faith estimate of costs for homebuyers, Truth in Lending disclosure and a new HUD-1 Settlement Statement.

The new Loan Estimate will replace the current Good Faith Estimate (GFE) and the current Truth in Lending Disclosure (TIL). The new Closing Disclosure will replace the current HUD-1 Settlement Statement. The new forms are embedded below.

The real estate industry will have 20 months to implement the new disclosures, by August 1, 2015. The CFPB website has a summary of the new rules and disclosures here.

Initial Impressions, Did The CFPB Finally Get It Right?

Overall, I would say that the forms are a major improvement over the existing disclosures, especially the Truth in Lending disclosure. I always joke that the Truth in Lending disclosure should be called “Confusion in Lending” (which usually gives the borrower a chuckle) as it’s nearly impossible to explain even for a trained attorney and sophisticated borrower. That may be rectified now with the new forms — although I still may employ the joke!

The new HUD-1 Closing Disclosure is a longer and more involved form, but it basically just reorganizes all of the information now contained in the current 3 page HUD-1 Settlement Statement, and it appears to be easier to read and explain at the closing table.

The CFPB says that the new forms will replace the existing forms, resulting in a decrease in pages to review — which is a minor miracle in and of itself. A common complaint from borrowers is the sheer number of forms and disclosures signed at the closing, so this is welcome news.

3 Business Day Rule May Be Problematic

As Bernie Winne of the Massachusetts Firefighters Credit Union testified at the announcement hearing today in Boston, the new requirement that the Closing Disclosure (new HUD-1) be provided to the borrower within 3 business days of the closing may pose a problem in some transactions and will certainly result in a major adjustment in current practices. There are often last minute changes in closing figures, seller credits, holdbacks, payoffs, etc., which result in last minute changes. Hopefully, the CFPB will realize this in the upcoming implementation period and relax the rules in certain circumstances. There has already been significant chatter on Twitter and the blogosphere about this new requirement.

Another encouraging note was CFPB Director Cordray’s comments today about the agency pushing for more electronic closings. Fannie Mae has done squat to push e-closings, so hopefully CFPB will take the lead in this important area!

Loan Estimate Disclosure

  • The new Loan Estimate will combine the disclosures currently provided in the Good Faith Estimate and the initial Truth in Lending statement.
  • Lenders must provide the Loan Estimate 3 business days after an application is submitted by a consumer, excluding days that the lender is not open (e.g., Saturdays).  However, it is not clear based from materials available thus far when a consumer has submitted sufficient information to constitute an “application.”
  • The Loan Estimate will conveniently provide for the monthly principal and interest payment, projected payments over the term of the loan, estimated taxes and insurance (escrows), estimated closing costs, and cash to close.
  • It will provide for a Rate Lock deadline.
  • The Annual Percentage Rate (APR) appears on page 3, despite requests by consumer advocates that it appear in a prominent location on the first page.  In addition, it appears that the Bureau did not adopt the proposal to revise the APR calculation to include more items in the finance charge and thereby potentially increase the number of loans that would fail the Qualified Mortgage’s points-and-fees test or would be treated as “high cost” or “higher priced.”

Closing Disclosure

  • The Closing Disclosure will combine the disclosures currently provided in the HUD-1 settlement statement and any revised Truth in Lending statement. It is now a 5 page document compared to the current 3 page document.
  • Critically, the Closing Disclosure must be provided at least 3 business days before the closing. Lenders and closing attorneys will have to adapt to this new requirement as currently we usually get the final HUD approved by the lender 24-48 hours before the closing.
  • Page 1 of the Closing Disclosure carries over much of the Truth in Lending information previously found in the TIL form.
  • Page 2 and 3 replicate the existing HUD-1 Settlement Statement (pages 1 and 2) outlining the fees and closing costs, adjustments, and commissions charged to the buyer and seller. It also contained a more extensive section on Cash to Close which will be helpful to explain.
  • Page 4 contains a nice easy-to-read section on the escrow account which is often challenging to explain to borrowers.
  • The last page is similar to the current page 3 of the HUD-1, providing a quick summary of the loan terms, interest rate, total payments and APR.

CFPB Loan Estimate

CFPB Closing Disclosure

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CFPB.png

Updated 11/20/13: CFPB Issues Final Mortgage Rules and Disclosure Forms (click here for more info)

A long awaited regulatory and compliance announcement may be coming to Boston next week.

The Consumer Financial Protection Bureau has announced that on November 20, 2013, it will hold a field hearing in Boston on the “Know Before You Owe: Mortgages” rules. Industry experts predict that CFPB will announce its long-awaited new Truth In Lending (TILA)-RESPA integrated disclosures final rule and forms.

The new rules and disclosures will result in another dramatic change in the Truth in Lending, Good Faith Estimate and HUD-1 Settlement Statement used by lenders and attorneys in residential purchase and refinance transactions. A new “Loan Estimate” would replace the current Good Faith Estimate (GFE) and the current Truth in Lending Disclosure (TIL). A new Closing Disclosure would replace the current HUD-1 Settlement Statement. Our prior post on the new closing disclosures can be found here.

The event will feature remarks by CFPB Director Cordray and testimony from consumer groups, industry representatives, and members of the public. The event will be held at the Back Bay Grand, Back Bay Events Center, 180 Berkeley Street, Boston, MA 02116. If I’m lucky enough to get an invite, I will be there and will report back on what happens.

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We had a great turnout today for our Massachusetts Real Estate Market Report, again presented and moderated by veteran real estate reporter Scott Van Voorhis of Banker & Tradesman and Boston.com. Scott writes for the well-known Boston.com Real Estate Now Blog which is an invaluable resource.

For this installment, we added a little twist, holding a panel discussion and interactive Q&A with Ali Corton of Real Estate Executives Boston West, Chuck Silverston of Prudential Unlimited in Brookline and Dee Reddington of Bank of Canton. Ali was representing the ‘burbs. Chuck was representing the urban, Boston-Brookline market, and Dee was giving the lender perspective. We were live tweeting the event at Twitter #marealestate where you can check out the live stream.

Some take-aways from the presentation and discussion were as follows:

  • As reported just about everywhere, the Massachusetts real estate market remains very strong
  • Year over year, 16% increase in both sales volume and sales prices
  • The government shutdown has had no demonstrative effect on the market, nor on the lending environment
  • Lack of buildable land, desirability of the Greater Boston market (as always) has resulted in high demand, low inventory environment.
  • Inventory is down 30% over 2012 (which was down over 2011), putting upward pressure on prices and demand. Bidding wars common for well-priced, good quality homes in desirable communities. This is creating a frenzied dis-equilibirum in certain markets which isn’t necessarily healthy.
  • The low inventory is the “new normal.” Get used to it.
  • Interest rates are forecast to dip down a bit heading into spring market 2014, with eventual rise through the remainder of 2014 and 2015.  Overall, the interest rate environment remains very favorable to buyers and the market as a whole.
  • First time home buyers must be open to fixer-uppers and not updated homes. Otherwise, they will be in very tough competition for move-in condition homes in the good towns.
  • Lenders are doing loans for low credit (FICO 620 range) borrowers. ARMs making comeback.
  • Chuck pointed out the “Patriot Effect” for open houses on Sundays. People are staying home to watch the game. Advises trying open houses on Saturdays.
  • Ali Corton says that Metrowest sellers are routinely getting asking price or very close to that right now, and will continue to do so while inventory remains low

We are interested in hearing your thoughts on today’s market. Feel free to post your comments below!

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Real-Estate-AgentsReviewing this blog, it occurred to me that I’ve never written about real estate agency and designations, which is one of the more confusing aspects of real estate law. I think all the new disclosures and regulations imposed by the Board of Real Estate, while well-intended, have made this area unnecessarily complicated. I’ll try to explain agency in plain English.

Massachusetts Mandatory Licensee Consumer Relationship Disclosure

The Massachusetts real estate brokerage industry is highly regulated by both state law and regulations, as well as local and national codes of ethics. Under state regulation, once you sit down with a Massachusetts real estate agent to discuss a specific property, the agent should give you a form called the Massachusetts Mandatory Licensee Consumer Relationship Disclosure. The disclosure form describes the five types of agency relationships between and among buyer, seller, and agent:

Seller’s Agent – This is typically known as a listing agent. The real estate agent represents only the seller, not the buyer. The listing agent owes the seller undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality and accountability. However, a listing agent must disclose all known material defects in the real estate to buyers.

Open Houses:  Open houses are often the cause of disputes as to agency and commissions. Under Mass. regulations, at any open house the listing agent must conspicuously post and/or provide written materials explaining to attendees the relationship they may have with the agent conducting the open house. If a buyer is working with an agent (but the agent is not present at the open house) it’s a good idea to write the name of the agent’s name and leave the agent’s card at the sign-in, otherwise the listing agent could be considered the procuring cause of the buyer which could cause a dispute down the road.

Buyer’s Agent – A buyer’s agent works for the buyer only. The agent owes the buyer undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality and accountability. Like a listing agent, a buyer’s agent must disclose any known material defects in the real estate. Some agents are exclusive buyer agent’s and do not take on listings. An advantage of using a buyer’s agent is that you can be assured the agent will work only for you, the buyer, and will have no relationship with the listing agent’s office, as is common with designated and dual agencies described below.

Designated Seller’s and Buyer’s Agent – This type of agency occurs when a listing agent refers an agent working in the same office to represent the buyer. So, two agents in the same office are representing both sides of the transaction. The happens a lot when an unrepresented buyer is introduced to the property at an open house, and the listing agent will refer the buyers to a fellow agent in her office. This is usually the smart and prudent choice to avoid the conflicts inherent in being a dual agent representing both buyer and seller, discussed below. Both buyer or seller must agree to a designated agent agency in writing. The designated agent owes her client the same duties and obligations discussed above.

Dual Agent – A dual agent represents both sides of the transaction — buyer and seller –but can be a risky proposition. The upside for the agent is that he or she keeps the entire commission, but the agency can be fraught with potential conflicts of interest. Dual agency is allowed only with the express and informed consent of both the seller and the buyer. Written consent to dual agency must be obtained by the real estate agent prior to the execution of an offer to purchase a specific property. A dual agent shall be neutral with regard to any conflicting interest of the seller and buyer.

Non-Agent Facilitator – This is the rarest of all agencies. When a real estate agent works as a facilitator that agent assists the seller and buyer in reaching an agreement but does not represent either the seller or buyer in the transaction.

What is a “broker” vs. a “salesperson”?  Under the Massachusetts regulations governing real estate agents, a real estate broker runs the real estate office and is the broker of record, overseeing the transactions of all salespersons (agents). A broker must complete 40 additional hours of education and must work for a broker for at least three (3) years before they can move on to licensure as brokers. A broker is responsible for accepting and escrowing all funds, such as a deposit placed on the purchase of a home, and for finalizing transactions. A real estate broker must supervise any transactions conducted by a salesperson. Every local real estate office, even the large ones like RE/MAX, Century 21 and Coldwell-Banker, will have a broker/office manager in charge of the office. The small, independent real estate offices are typically operated by a single broker, with perhaps a handful of salespeople.

real estate salesperson is what most folks consider real estate agents. When a person first passes their real estate exam, they become a “salesperson.” A salesperson must be affiliated with, and work under, a broker, either as an employee or as an independent contractor, under the supervision of the broker. A salesperson can not operate his own real estate business. A salesperson also has no authority or control over escrow funds.

What Is A Realtor®? A Realtor is a real estate broker or salesperson who is a member of the National Association of Realtors and has agreed to conduct herself under the comprehensive NAR Code of Ethics. Not all real estate agents are Realtors. Membership in the NAR gives a Realtor full access to the entire Multiple Listing Service providing a national database of all sold and listed properties. Realtors can also file complaints against each other and the organization accepts complaints from consumers. Complaints can affect membership status and fines can be levied against agents who are found guilty of wrongdoing by a multi-member panel of their peers. The NAR does not have the ability to suspend a real estate licenses–that action can only be accomplished by the Mass. Board of Real Estate.

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RDV-profile-picture.jpgRichard D. Vetstein, Esq. is a Massachusetts real estate attorney with over 15 years of experience. If you have any questions regarding real estate agency, please contact him at rvetstein@vetsteinlawgroup.com or 508-620-5352.

Massachusetts Mandatory Licensee Consumer Relationship Disclosure

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1264061_10151658881066231_542869946_oShutdown and Debt Ceiling Negotiations Have You Worried?

Complimentary Breakfast Seminar!  Join us with veteran real estate journalist Scott Van Voorhis who will discuss the impact that the crisis in Washington D.C. is having on the Massachusetts and national real estate market, plus he will give his predictions for the early spring market.

When:  November 5, 2013

Time:  10AM-11:30AM

Where:  Avita of Needham, 880 Greendale Ave., Needham, MA

RSPV:  rvetstein@vetsteinlawgroup.com

Sponsors:  Titlehub Closing Services, Vetstein Law Group and the Law Offices of Marc Canner

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government shutdown I’ve been glued to CNN in recent days, watching incredulously as those buffoons in Washington grind our government to a halt. I though for sure that a midnight deal would have been struck, but I woke up this morning with the dreaded news that the government has indeed shutdown. I’ve been trying to get a handle all morning on how this is going to affect the Massachusetts and national real estate market, and here’s what I have so far. (Updated 10/1/13 at 4:30pm below).

Tax Transcripts/SSN Verification Delays

Virtually all federally back mortgage lenders request copies of borrower’s tax transcripts through the IRS and social security numbers through the SSA. According to my friend Rick Moore, loan officer at Lendmark Loans in Framingham, and media reports, the shutdown will apparently either stop or hinder the federal agencies’ ability to issue those verifications, resulting in mortgage approval delays across the board. I know that lenders were furiously ordering tax transcripts and SSN verifications last week, in preparation for the shutdown. If your loan is in the middle of underwriting, speak to your loan officer now. You may be facing a delay in getting a clear loan commitment and a resulting delay in your closing date.

Federal Housing Administration (FHA)
The shutdown’s impact on FHA loans appears to be not as bad as originally thought. HUD’s Contingency Plan states that FHA will endorse new loans in the Single Family Mortgage Loan Program, but it will not make new commitments in the Multi-family Program during the shutdown. FHA will maintain operational activities including paying claims and collecting premiums. Management & Marketing (M&M) Contractors managing the REO portfolio can continue to operate. You can expect some delays with FHA processing.

VA Loan Guaranty Program
Lenders will continue to process and guaranty mortgages through the Loan Guaranty program in the event of a government shutdown. However, borrowers should expect some delays during the shutdown.

Flood Insurance
The Federal Emergency Management Agency (FEMA) confirmed that the National Flood Insurance Program (NFIP) will not be impacted by a government shutdown, since NFIP is funded by premiums and not tax dollars. Changes to the flood insurance program scheduled to take effect on Oct. 1 will be implemented as scheduled.

USDA Loans
For USDA loan programs, essential personnel working during a shutdown do not include field office staff who typically issue conditional commitments, loan note guarantees, and modification approvals. Thus, lenders will not receive approvals during the shutdown. If the lender has already received a conditional commitment from the Rural Development office, then the lender may proceed to close those loans during the shutdown. A conditional commitment, which is good for 90 days, is given to a lender once a USDA Underwriter approves the loan. If a commitment was already issued, the funds were already set aside and the lender may close the loan at its leisure. If Rural Development has not issued a conditional commitment, the lender must wait until funding legislation is enacted before closing a loan.

It is important to note that the traditional definition of “rural” for qualifying communities for assistance will be continued in effect during the shutdown.  We expect that language to continue the current definition will be included in whatever funding measure is eventually enacted.

Government Sponsored Enterprises
Fannie Mae and Freddie Mac will continue operating normally, as will their regulator, the Federal Housing Finance Agency, since they are not reliant on appropriated funds.

Treasury
The Making Home Affordable program, including HAMP and HAFA, will not be affected as the program is funded through the Emergency Economic Stabilization Act which is mandatory spending not discretionary.

Updated (Oct. 1 at 4:30pm). Memo from national mortgage lender:

“There has been no progress today toward a resolution to the government shutdown. Fortunately, the initial impact of the shutdown on mortgage originations has been small. The biggest concerns are obtaining transcripts from the IRS and social security verifications from the SSA. Certain Government produced economic reports will not be available. The Construction spending report due out this morning was not issued. The Non-Farm Payrolls report due on Friday may be affected. The impact on the mortgage market of this lack of data is difficult to anticipate.

At this time, Fannie, Freddie, and Ginnie say they will continue to operate as normal. VA says that they, too, will have no disruptions in services. FHA, however, expects delays due to reduced staffing. Origination companies, correspondent banks, and warehouse lenders may react differently as they access the risks associated with an extended shutdown.”

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flood-insurance-new-bedford-guideNew Flood Insurance Rates and Map Changes To Drown Homeowners With Premium Surge, Subsidies To End 

I was recently working on a sale transaction in Wareham which went under agreement with no issues. As is common in that coastal area, the property is in Flood Zone with a subsidized flood insurance annual premium of around $3,000 which the buyer was willing to live with. However, during the underwriting process, the lender advised that under new federal flood insurance map and rate changes, the property was not only in a higher flood risk elevation zone, but would also lose its subsidy upon a sale, with a new premium running a whopping $55,000 — a 1700% increase! Needless to say, the sale sank to the bottom of Buzzards Bay, and the current owner is left with a significantly devalued property.

The culprit for this storm surge is the Biggert-Waters Flood Insurance Act, which was passed after Hurricane Katrina. Under the new law, many homeowners will grapple with a double-whammy of costs — first, because their homes are no longer above base flood elevation, and second, the Act will eliminate the grandfathering of properties that were allowed to use old flood-risk data, and will end subsidies for certain types of properties. According to most projections, flood insurance premiums have the potential to increase by 25% per year for many, and for some, exponentially — like my Wareham client. Furthermore, many additional homes have been placed in the high-risk flood zone for the first time, and if the owners have mortgages, they will be required to buy flood insurance.

According to the Boston Globe, the changes will have widespread impact along coastal communities. For example, in Marshfield, roughly 1,500 homes are located in the expanded flood zone, and in Scituate, about 500, according to local officials. Coastal towns have been scrambling over the last several months to assist affected homeowners and petition Congress and FEMA to help, mostly to no avail.

Property owners have the right to appeal their inclusion in the flood zone, but they have barely more than six weeks left to do so. The deadline is Oct. 17 throughout the county. For an appeal to be successful, the owner would have to prove, with professional documentation, that the elevation is different from what the maps indicate. That’s a high burden and very costly to boot.

This situation has real potential to drown listings and sales along the affected coastal areas. I’ll be monitoring this looming storm in the weeks ahead. Stay dry!

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MA real estate agent independent contractor law

Fate of Long-Standing Massachusetts Brokerage Model Hangs In Balance

As first reported by David Frank in Massachusetts Lawyers Weekly, the critical question of whether real estate agents are governed by the state’s strict independent contractor law, which would entitle agents to minimum wage, overtime and benefits, is headed to the Appeals Court. According to Hillary Schwab, the attorney to a group of real estate agents who filed suit against Jacob Realty in Boston, “this is the first case in Massachusetts where the concept of employment misclassification and the real estate industry have ever been dealt with in the same opinion.” An unfavorable result at the Appeals Court would essentially turn the Massachusetts real estate brokerage model upside-down, as it has historically operated with agents considered independent contractors and paid on a commission-only basis. If brokerages were required to pay their agents minimum and overtime wages and provide all the statutory benefits afforded to employees, the real estate office as we know it would likely cease to exist.

Jacob Realty Agents Required To Adhere to Dress Code, Mandatory Office Hours

The Appeals Court will consider the case of Monell, et al. v. Boston Pads, LLC, (embedded below) brought by a group of disgruntled real estate agents at Jacob Realty. According to Curbed Boston, Jacob Realty is part of a larger network of Boston rental companies (Jacob Realty, NextGen Realty and Boardwalk Properties) with 150 rental agents, making them one of the largest rental offices in Boston.

As is customary in the industry, Jacob Realty classified the agents as independent contractors, paying them on a commission-only basis and making them responsible for payment of their own taxes and monthly desk fees. At the start of their employment, the agents signed non-disclosure, non-solicitation and non-compete agreements. They had to own day planners, obtain a cellphone with a “617” area code, adhere to a dress code, submit to mandatory office hours and to various disciplinary actions if they did not meet their productivity goals.

Lower Court Rules In Favor of Broker

Superior Court Judge Robert Cosgrove issued a ruling on July 15, 2013 that the agents should be considered independent contractors and not employees under the Massachusetts Real Estate Brokerage Act. But Cosgrove said it was difficult to read the brokerage law and independent contractor law consistently. The real estate statute explicitly provides that an agent may either be an employee or an independent contractor, he noted. In the same sentence, the law reiterates that agents must remain under the auspices of a broker. In contrast, the judge wrote, the independent contractor statute requires salespeople to be free from the control and direction of employers in order to be correctly classified as an independent contractor.

The problem arises when brokerages, such as Jacob Realty, ask its agents to do many of the things traditional employees must adhere to, such as required office hours, dress code, and performance benchmarks. This is especially so where courts have, in the last few years, strictly interpreted the independent contractor and wage laws in other industries. The more requirements imposed on agent, the more likely they should be treated as employees and not independent contractors, the argument goes.

What’s Next?

The case now heads up to the Massachusetts Appeals Court, and perhaps even the SJC — where the stakes will be much higher. This case is very hard to handicap because, as I said before, the courts as well as state and federal labor agencies have really been cracking down with the independent contractor law in favor of employees. Rest assured, I’ll be monitoring this case. I expect the MAR and GBREB will file friend of the court briefs and take a further appeal if there’s an unfavorable result. There will surely be lobbying efforts at the Legislature to preserve the historical independent contractor brokerage model.

Monell v. Boston Pads

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Or What Happens When Condo Docs Suck…

A recent case handed down by the Appeals Court illustrates the fundamental importance of careful condominium document draftsmanship concerning what amenities are included within the definition of a “unit” — and the unintended results when deficient documents get in the hands of judges.

The case is Sano v. Tedesco (Mass. App. Ct. Aug. 28, 2013) and concerned a Lynn condominium dealing with a large repair bill for its crumbling balconies. Half of the 8 unit building enjoyed their own private balconies. Faced with a substantial repair bill, the unit owners without balconies balked at paying the bill, arguing that the balconies were part of the units they served.

The problem was that due to poor draftsmanship, the master deed inconceivably made no mention of the balconies or the support beams. Left with little guidance, the court turned to the Mass. Condominium Act, which defines a unit as “a part of the condominium including one or more rooms, with appurtenant areas such as balconies, terraces and storage lockers if any.”  The judges ultimately came down the middle, ruling that each unit owner was responsible for repairs to their own balcony, but that the condominium trust was responsible for the support beams for each balcony. And even the three justice court panel couldn’t agree on that bizarre result! A dissenting judge thought that each unit owner should have been responsible for both the balconies and support beams.

I doubt any of the unit owners expected this peculiar result, with a split of responsibility over balconies and support beams. If the master deed was drafted properly in the first place with the balconies being designated as either a limited common area (with sole repair responsibility lying with the unit owner) or common area with an exclusive easement for each unit owner (with the responsibility on the condo trust), this confusing result would have been avoided. The moral of the story is make sure you hire a competent Massachusetts condominium conversion attorney who is experienced in drafting condo docs!

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hqdefaultSpecial Considerations For Drafting Two and Three Family Massachusetts Condominium Conversions Documents

Avid readers of this Blog know that I’m a huge Seinfeld fan. One of my favorite episodes was the “Serenity Now” episode where Kramer went a little nutty after being tormented by neighborhood kids, muttering “serenity now, serenity now” outside his toilet papered apartment. (Seinfeld buffs also know this as the episode where George beats Lloyd Braun in a computer sales competition). For your viewing pleasure, I’ve embedded the video below.

Serenity is a good topic when it comes to condominiums because condominium living can often bring out the worst in people. There have been some good ones in Massachusetts. I’ve written about the infamous case where a disgruntled unit owner dropped bags of dog poop labeled with the name of the condo board president in hallways and gave the “bird” to condo trustees. There are others, too many to mention here, where dysfunctional trustees have brought condominiums to financial ruin and chaos.

Despite this discordance, condominium conversions of two and three multifamily homes in and around Boston, Cambridge and Somerville continue to be a popular way to cash in on the hot real estate market. A lot of these homes are owned and occupied by extended families, some of whom stay in the new condominium, and some who leave for greener pastures. Smaller condominiums, however, can be a recipe for disaster without careful planning and drafting of the legal documents which govern them. I’m going to outline some important considerations in drafting Massachusetts condominium conversion documents which will put into practice the saying that “an ounce of prevention is worth a pound of cure.”

The Master Deed

The Master Deed is where it all starts. Condominiums are a “creature of statute.” That is, they are a special legal form of property ownership enabled only through a special law called the Massachusetts Condominium Act, General Laws Chapter 183A. The owner of the property must “submit” the property into the condominium regime through the recording with the registry of deeds of a master deed.

The Master Deed sets forth what is part of the units and what is part of the shared “common areas.” Units are typically defined as all of the interior space from the lower surface of finished ceilings, surface plaster of walls and the sub-floor in, while common area consists of the innards behind the walls and buildings, the roof, most common HVAC/plumbing/heating systems, yards, and exterior of the home, among other things.

The use of “limited common areas” are especially useful in two and three family condominiums. Limited common areas are technically common area space but reserved for the exclusive use of the unit owner which it serves. Examples include private decks, porches, roof decks, parking spaces, and storage areas. The drafter can be flexible and provide that limited common areas must be repaired by either the condo association or the unit owner.

The master deed will often impose restrictions upon the use of units or rights of first refusal for the trustees or other unit owners. Care must be taken here to ensure that the units remain marketable while also protecting the serenity of unit owners. Rights of first refusal are discouraged these days.

Declaration of Trust and By-Laws

The second component of creating a condominium is the Declaration of Trust, also referred to as the By-Laws. The declaration of trust creates the condominium trust association and a board of trustees which govern the condominium.

For smaller condominiums between 2 and 5 units, the key is crafting the provisions so as to prevent dead-locking on major decisions. I almost always provide for super-majority voting on all major issues. For 2 unit conversions, I recommend unanimous voting on all major issues. And for all condos I use a mandatory arbitration clause to mediate any deadlocks.

In the case of non-payment of condo fees, which can be financial disaster for two and three unit condos, I provide for the right of the paying unit owners to be granted authority and power to start condo lien proceedings against the non-payor and recover attorneys’ fees and costs.

The declaration of trust should also contain all of the unique rules and regulations of the condominium. Important note: If these are not attached and recorded with the declaration of trust, they are not binding on unit owners. Rules should be drafted in consultation with the owners and can cover anything from satellite dishes, pets, smoking, signs, preserving architectural integrity, noise, quiet hours, parties, trash, etc.

The declaration of trust should also have standard Fannie Mae/Freddie Mac provisions which will ensure that future buyers can obtain conventional financing on their units.

Annual Budget, Condo Fees and Real Estate Taxes

The condominium should have a written annual budget and monthly condo fees established. A separate condominium bank account should also be set up with checks, deposit slips, etc. For small projects, the budget can be rather simple, encompassing the master insurance premium, water/sewer, landscaping, maintenance, and a small capital reserve fund. The monthly condo fee is calculated as the annual budget divided by the number of units divided by 12.

With respect to real estate taxes on a condo conversion, the building will continue to be assesses as a single dwelling until the tax assessor catches up to the conversion. A tax letter agreement should be prepared so that real estate taxes are prorated and properly assessed and paid by each unit owner after the conversion until each unit becomes separately assessed.

Also don’t forget that in the City of Boston, a “Trager” excise tax of $500 per unit starting with the second unit will be assessed on all new conversions. The master deed must have a “Trager” stamp before being accepted for recording.

Unit Floor Plans and Site Plan

All new condominium conversions must have prepared unit floor plans, and in Boston, a surveyed site plan. Unit floor plans will detail each unit’s gross living area, and delineate common areas, limited common areas, exclusive use spaces, and units.

How Much Does All This Cost?

Even for two unit conversions, the cost is a fair amount. Legal fees range from $2,500 – $5,000 and upwards, depending on the complexity of the project and the attorney. Recording fees and Boston excise taxes run over $1,000 and upwards. Architect and survey fees range from $2,500 and upwards. And you always get what you pay for, so keep that in mind!

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RDV-profile-picture.jpgRichard D. Vetstein, Esq. is a seasoned Massachusetts condominium conversion attorney. Please contact him at rvetstein@vetsteinlawgroup.com or by phone at 508-620-5352.

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With an abysmal 20% compliance rate, the City of Boston Inspectional Services Department is giving Boston area landlords until August 31, 2013 to register their rental units under a new registration and inspection ordinance.  Under the recently-approved ordinance, every private rental unit in Boston was supposed to have been registered by Aug. 1.

According to Boston.com, since the registration period began on May 1, only about 26,150 units have been registered with the city, said department spokeswoman Lisa Timberlake. That represents less than 20 percent of the estimated 140,000 total units that are required to register.

Under the new ordinance, rental units will be inspected by ISD every five years. Owner-occupied dwellings with 6 or less units are exempt from the inspection requirements (but still must register). Rented out condominium units must register as well.

For more information about the City of Boston Rental Registration and Inspection Ordinance, read our prior post here.

Landlords who fail to register will be subject to fines and other action from the city, officials said. But, the city will likely use discretion in deciding whether to discipline landlords, according to Brian Swett, Boston’s Chief of Environment and Energy. “We’ll have to make an assessment as we get closer to Aug. 31,” he said. “If there are folks who are willfully not registering their properties that’s different from someone who hasn’t been informed about this yet by our outreach.”

More Information:  Register your rental unit online at Cityofboston.gov or download an application from the same site. The City has also posted a Frequently Asked Questions Page here.

 

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2012_Blawg100_HorizBadgeFav-2Readers, I need your help again. Last year, I was honored to be selected on the prestigious American Bar Association Top 100 Legal Blawg List. This is kinda like the Oscars of legal blogs. Sort of a big deal…Anyways, I would love to receive the honor again this year! I would gratefully appreciate your vote.

VOTE BY CLICKING HERE

Our URL is www.massrealestatelawblog.com. My twitter handle is @richardvetstein.

A few of our other favorite legal blogs are:

Thank you very much!!!  –Rich

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HomeTheatreI had a interesting situation come up the other day during a pre-closing walk-through. Unbeknownst to me or the listing agent, the seller had removed wall-mounted speakers from the living room, leaving gaping holes with the built-in surround sound speaker wires hanging out. Needless to say, the buyers were not happy after the walk through. While we were able to amicably resolve the issue at the closing table, it underscored an important, but often overlooked, aspect of the sale process: how to best handle fixtures and built-in items.

What’s A Fixture vs. Removable Personal Property?

From a legal standpoint, when equipment, decorations, or appliances become affixed or fastened to the real estate, it becomes a fixture and is supposed to be transferred as part of the sale, unless there is an agreement providing otherwise. What are some of the factors determining whether something is a fixture?

Method of attachment. Is the item permanently affixed to the wall, ceiling or flooring by using nails, glue, cement, pipes, or screws? Even if you can easily remove it, the method used to attach it might make it a fixture. Examples include built-in surround sound wiring, lighting fixtures, built-in speakers into the wall, custom built-in cabinetry.

Adaptability. If the item becomes an integral part of the home, it cannot be removed. For example, a floating laminate floor is a fixture, even though it is snapped together. Built-in appliances are properly considered fixtures, especially custom items. That includes your Sub Zero refrigerator and Viking Range/Oven specially selected for the gourmet kitchen. Free standing appliances, however, are generally not considered fixtures.

There are, of course, plenty of gray areas with fixtures. Wall mounted flat screen TV’s, surround sound speaker systems, and decorative mirrors are a few coming to mind. These gray areas are the cause of most disputes surrounding fixtures. How do you handle them? Keep reading.

Disclose All Exclusions/Inclusions In Listing

The opportunity to address fixtures, inclusions and exclusions starts when the home is listed. As suggested by Sudbury, Mass. Realtor, Gabrielle Daniels, agents should identify all potential fixture issues ahead of time, and disclose them on MLS either as included or excluded in the sale. If the sellers want to take that new Bosch dishwasher with them to their new home, they had better disclose it ahead of time so the buyer knows ahead of time.

Carry Over To The Offer and Purchase & Sale Agreement

Referring to this as the “no-surprise” rule, Metrowest Realtor Jennifer Juliano correctly advises that the same exclusions and inclusions in MLS should be carried over and written into the Offer to Purchase with a reference to the MLS Listing Number, and the purchase and sale agreement. The standard form purchase and sale agreement addresses inclusions and exclusions with even greater detail, tracking the law of fixtures in Massachusetts. Below is the standard language in the Greater Boston Real Estate Board form:

Included in the sale as part of said premises are the buildings, structures, and improvements now thereon, and the fixtures belonging to the SELLER and used in connection therewith, including, if any, all wall-to-wall carpeting, drapery rods, automatic garage doors openers, venetian blinds, window shades, screens, screen doors, storm windows and doors, awnings, shutters, furnaces, heaters, heating equipment, stoves, ranges, oil and gas burners and fixtures appurtenant thereto, hot water heaters, plumbing and bathroom fixtures, garbage disposals, electric and other lighting fixtures, mantels, outside television antennas, fences, gates, trees, shrubs, plants, and ONLY IF BUILT IN, refridgerators, air conditioning equipment, ventilators, dishwashers, washing machines and dryer; and but excluding _______.

As you can see, the standard language provides by default that most commonly understood fixtures are part of the sale, such as furnaces, carpeting, and lighting fixtures. Exclusions must be written into the agreement, or by default they may be considered fixtures and included in the sale.

If items are left unaddressed in the agreements, you’ll have a situation similar to mine with the removal of surround sound speakers and a stressful walk-through. Feel free to post in the comments about your own thorny fixture situation!

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100316_photo_vetstein (2)-1Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. He can be reached by phone at 508-620-5352 or email at rvetstein@vetsteinlawgroup.com.

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7076759_ac0f_625x1000Do Your Due Diligence!

Condominiums remain hot in the Greater Boston area, often the new starter home for the young professional buyer. I am also seeing quite a lot of two and three family homes in the Boston, Cambridge, and Somerville area being converted into condominiums. While condos are usually a great investment, buying one requires some unique due diligence. You must be satisfied that the condominium project as a whole is financially healthy and that you are not buying into a major “money pit.”

The role of the buyer’s attorney in a condominium purchase is to review the condominium documents including the master deed, declaration of trust/by-laws, budget and meeting minutes, if any. The documents, however, only tell so much of the story. What’s really important is what may be lurking behind those documents. Here are some good questions to ask:

  1. How much money is in the capital reserve account and how much is funded annually? The capital reserve fund is like an insurance policy for the inevitable capital repairs every building requires. As a general rule, the fund should contain at least 10% of the annual revenue budget, and in the case of older projects, even more. If the capital reserve account is poorly funded, there is a higher risk of a special assessment.  Get a copy of the last 2 years budget, the current reserve account funding level and any capital reserve study.
  2. Are there any contemplated or pending special assessments? Special assessments are one time fees for capital improvements payable by every unit owner. Some special assessments can run in the thousands. Others, like theBoston Harbor Towers $75 Million renovation project, in the millions. You need to be aware if you are buying a special assessment along with your unit.  It’s a good idea to ask for the last 2 years of condominium meeting minutes to check what’s been going on with the condomininium.
  3. Is there a professional management company or is the association self-managed? Usually, a professional management company, while an added cost, can add great value to a condominium with well run governance and management of common areas. Self-managed condos tend to have a higher incidence of dysfunction.
  4. Is the condominium involved in any pending legal actions? Legal disputes between owners, with developers or with the association can signal trouble and a poorly run organization. Ask whether there are any pending lawsuits.

Purchase and Sale Agreement Tips

Regardless of the answers you receive, my practice is to insert a comprehensive condominium verification provision in the purchase and sale agreement. This will make the seller go on the record as to some important aspects of the condominium financial’s health and should go a long way to ensure that the buyer is not stepping into a huge special assessment or other major financial catastrophe. If issues arise prior to the closing, this provision will give the buyer an “out” to terminate the deal and return the deposits.

Condominium Verification Information.  The Seller represents that, to the best of his/her knowledge, the following information is true and accurate as of the date of this Agreement  and shall remain true as of the date of closing:

    1. The condominium documents provided to the Buyer and/or available for downloading on the ____ County Registry of Deeds are true, accurate and complete copies of all documents recorded with the Registry of Deeds as of the date hereof and that no other documents and/or amendments which adversely impact the Unit being purchased will be recorded which have not been presented to the Buyer.
    2. The current condominium monthly fees are $_____ per month.
    3. Seller has not received any notice of nor is Seller aware of any special assessments for the Unit, whether or not assessments are due now or in the future, and Seller is aware of no immediate pending improvements, repairs or replacements or plans therefore which would likely result in a supplemental assessment or significant increase in the monthly common expenses for the Unit.
    4. In the event there are any supplemental assessments owed with respect to the Unit on the closing date, Seller shall be obligated to pay such assessments in full prior to closing notwithstanding any agreement by the organization of unit owners to allow such payments to be made in installments but only to the extend Seller’s lender agrees to allow said payment on the HUD-1 Settlement Statement. Otherwise, Buyer may either agree to accept the obligation to pay said assessment or terminate the agreement by written notice to Seller within 5 days of receipt of notice of said assessment.
    5. The master insurance policy for the unit conforms with the requirements of the Condominium Documents.
    6. There is presently no litigation threatened or pending by or against the Seller, or the Condominium Association, which would cause the Condominium to not be in compliance with current secondary mortgage market guidelines.

The Seller shall promptly notify the Buyer of any change in facts which arise prior to the closing which would make any such representation untrue if such state of facts had existed on the date of execution of this Agreement.  The provisions of this paragraph shall survive delivery of the deed.

If you have any questions about purchasing a Massachusetts condominium unit, please contact me at rvetstein@vetsteinlawgroup.com.

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images-10Overview of  “Standard” Changes to the GBREB Form Purchase and Sale Agreement

Missing mortgage discharges, problematic  probates, “Ibanez” foreclosure issues and other title defects are always an unwelcome surprise to a seller, their Realtor and attorney. But they are unfortunately a common part of life in the real estate conveyancing world. The “standard” purchase and sale agreement form commonly used by Realtors and attorneys (Greater Boston Real Estate Board) provides for what happens in a transaction if a title defect is discovered and cannot be cleared quickly.

The GBREB form, paragraph 10, which is still in widespread use, provides as follows:

If the SELLER shall be unable to give title or to make conveyance, or to deliver possession of the premises, all as herein stipulated, or if at the time of the deed the premises do not conform with the provisions hereof, then any payments made under this agreement shall forthwith be refunded and all other obligations of the parties hereto shall cease, and this agreement shall be void without recourse to the parties hereto, unless the SELLER elects to use reasonable efforts to remove any defects in title, or to deliver possession as provided herein, or to make the said premises conform to the provisions hereof, as the case may be, in which event the Seller shall given written notice thereof to the Buyer at or before the time for performance hereunder, and thereupon the time for performance hereof shall be extended for a period of thirty days.

The standard provision is, unfortunately, outdated and problematic. Accordingly, experienced Realtors and attorneys are taught to modify this provision from the outset as follows:

If the SELLER shall be unable to give title or to make conveyance, or to deliver possession of the premises, all as herein stipulated, or if at the time of the deed the premises do not conform with the provisions hereof, then any payments made under this agreement shall forthwith be refunded and all other obligations of the parties hereto shall cease, and this agreement shall be void without recourse to the parties hereto, unless then the SELLER shall elect to use reasonable efforts to remove any defects in title, or to deliver possession as provided herein, or to make the said premises conform to the provisions hereof, as the case may be, in which event the Seller shall given written notice thereof to the Buyer at or before the time for performance hereunder, and thereupon the time for performance hereof shall be extended for a period of thirty days.

These standard modifications ensure that the Seller is initially responsible for clearing any title defects and gives them 30 days in which to do so. If the Seller cannot clear the title defect within 30 days, then both parties have the option of terminating the deal and all deposits must be returned.

Limiting Seller’s Financial Exposure

To limit the seller’s out of pocket expenses to clear title defects, real estate attorneys representing the seller will often insert language such as this at the end of paragraph 10:

Reasonable efforts shall be defined as the Seller’s expenditure of no more than $________, exclusive of all voluntary encumbrances which secure the payment of money which Seller shall be obligated to remove.

The dollar amount is typically anywhere between $1,000 – $4000 depending on the purchase price.

Protecting The Buyer

On the buyer side, what happens if during the 30 day extension cure period, the buyer’s rate lock expires and interest rates are floating up (like now)? Experienced buyer attorneys will often insert the following language in their  riders:

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

This language will ensure that the buyer doesn’t wind up floating up the interest rate river with an untimely rate lock expiration. This situation has come up rather frequently over the last several months as interest rates have increased dramatically.

This is just one, albeit a very important, part of how an experienced real estate attorney works up the purchase and sale agreement. I will do some more posts on other aspects of the P&S Agreement. Stay tuned!

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Richard D. Vetstein, Esq. is a Massachusetts real estate closing attorney with offices in Framingham and Needham, MA. He can be reached at rvetstein@vetsteinlawgroup.com or 508.620.5352.

 

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Signing or not signing?Bar Counsel Tightening Ethical Standards and Expectations

On the second anniversary of the SJC’s important ruling in Real Estate Bar Assoc. (REBA)  v. National Real Estate Information Services (NREIS), which banned “witness-only” notary closings in Massachusetts, the Office of Bar Counsel has issued an important advisory opinion to Massachusetts real estate closing attorneys. The advisory opinion can be found here.

In the advisory, Bar Counsel first reaffirms the SJC’s pronouncement of the critical and mandatory role that Massachusetts attorneys play in a real estate purchase, sale or refinance transaction. The core functions at a real estate closing — certifying good, clear and marketable title, ensuring that title is properly conveyed, and holding and disbursing funds under the good funds law — are all acts constituting the practice of law and must be handled by a licensed Massachusetts attorney. Accordingly, as the SJC held, Massachusetts attorneys must “substantially participate” in all facets of the real estate conveyance transaction.

Following the SJC’s requirement of “substantial participation,” Bar Counsel advises attorneys that they must closely manage and oversee each conveyance transaction:

“It is not the appropriate course for the lawyer’s only function to be present at the closing to hand legal documents that the attorney may have never seen to the parties for signature, and to witness the signatures…A witness only appearance by an attorney would necessarily be inadequate, professionally and ethically, except in the perhaps unlikely event that the attorney is first assured that steps constituting the practice of law are being or have been properly handled by other Massachusetts attorneys.”

There are some closing attorneys and conveyancing mills who hire inexperienced contract attorneys to run around the state to do closings. These attorneys are nothing more than glorified paralegals. Bar Counsel’s advisory opinion calls this unfortunate practice into serious question, unless the managing attorney can ensure that the contract attorney is familiar with the title and file (which is unlikely as Bar Counsel notes).

Bar Counsel is clearly tightening the ethical standards on real estate attorneys. And this is good thing for the profession and consumers alike.

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ar123517806003655.jpgIs One Better Than The Other?

The first step in the purchase and sale of real estate in Massachusetts is the execution of an Offer to Purchase. Historically, agents and attorneys have used the Offer to Purchase Real Estate form generated by the Greater Boston Real Estate Board which has been around since the 1960′s. Recently, however, I’ve been seeing an increase in the use of the newer and more modern Massachusetts Association of Realtors Contract to Purchase Real Estate Form #501. I don’t think most Realtors, attorneys and consumers realize that these two forms have some critical differences, depending whether you are representing the buyer or seller. I’m going to outline the differences and similarities in this post.

  MAR GBREB
General Buyer Friendly Seller Friendly
Inspections Built-in, No $ Cap Addendum. Only Serious Issues, $ Cap
Mortgage Contingency Yes Yes
Representations Yes with waiver language No.

 

Buyer or Seller Friendly?

Both the MAR and GBREB offer forms are legally binding contracts to purchase and sale residential property in Massachusetts as I’ve written about here. They both have the basic and critical components for a deal:  identification of the property, price, deposits, good-through date, closing date, “good and clear record and marketable title” language, and P&S deadline, among other provisions.

The GBREB is clearly a more seller-friendly form, while the MAR form is definitely more friendly to buyers with some caveats that I’ll discuss below. Does this mean that if you are a buyer agent, you absolutely have to use the MAR form? No, but it may be a good practice to get into. Some agents are more comfortable with the older GBREB form, and that’s fine. They just should be cognizant of the differences in the two forms and how it may help or hurt their clients.

Inspection Contingencies

The first critical difference in the two forms is the inspection contingency. The MAR form has all inspection related contingencies (home inspection, pest, radon, lead paint, septic, water quality and drainage) built into the form, while the GBREB form uses a separate addendum for each type of inspection. The major difference, however, is what will trigger the buyer’s right to terminate the deal based on an inspection issue. The MAR form is extremely buyer-friendly, providing that the buyer may opt out of the deal merely if any of the inspection results are “not satisfactory.” You can drive a Mack truck through that open-ended language. The MAR form also has some often overlooked waiver language — (1) protecting Realtors from getting sued if the buyer does not conduct inspections, and (2) making it more difficult for a buyer to get out of the deal if she doesn’t provide timely notice of termination based on an inspection issue.

The GBREB form is far less buyer favorable, providing for an opt-out only for “serious structural, mechanical or other defects” the cost to repair of which is a dollar amount to be filled in (usually ranging from $500-$2500).

Mortgage Contingency

Both the MAR and GBREB forms give buyers a standard financing contingency, enabling buyers to obtain a firm loan commitment at “prevailing rates, terms and conditions” by an agreed upon date. The contingency language is almost identical in both forms, so there’s no issue here.

Representations/Acknowledgements

The MAR form has a modern provision confirming that the buyer has received all the various disclosures required by law, including the agency disclosure, laid paint, and Home Inspectors Facts for Consumers brochure. The GBREB does not have this provision. The MAR form also has some very agent-friendly waiver of representation/warranty language in this clause, providing that the buyer is not relying upon any of the Realtor’s representations, MLS or advertisting concerning the legal use, zoning, number of units/rooms, building/sanitary code status of the premises. However, I’m not sure this provision would pass legal muster in light of the recent SJC ruling in DeWolfe v. Hingham Centre holding an agent liable for misrepresentations concerning the zoning classification of property. Nevertheless, Realtors can use all the legal protection they can get in this litigious environment!

 Which Form Is Better?

There is no easy answer to this question. All things being equal, if I’m a buyer agent, I would go with the MAR form. (And buyer agents are typically the ones who are writing up the offers). The MAR form is more buyer-friendly while at the same time gives Realtors way more legal protection than the GBREB form. If I’m representing the seller and have the opportunity to select the offer form, I’ll go with the old-standby GBREB form for the simple reason that it will give the seller some more leverage in case of a home inspection battle. But I would still seriously consider trading up to the MAR form. I’ve embedded both forms below.

Agents, attorneys, readers what are your thoughts? Post in the comments below.

Also, if you are interested in joining the Massachusetts Association of Realtors or the Greater Boston Association of Realtors, click on the respective links. Both are great organizations and extremely helpful to new and established agents alike!

501 – Contract to Purchase Real Estate (c) 2012 – ID-WATERMARK

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nail in the coffinWhy A Massachusetts Real Estate Nominee Trust Is Worthless and Useless

Since the concept of currency and debt was created, debtors have been playing a cat-and-mouse game with creditors in order to avoid satisfaction of their debts. A ruling last week by the Massachusetts Appeals Court in Citizens Bank v. Coleman (May 15, 2013) is notable because it put the kibosh on a formerly popular estate planning practice in Massachusetts where a husband conveys property into a real estate nominee trust held by his wife. The problem, of course, was that the husband was being chased by a creditor holding a $600,000+ judgment, so any action he took with his assets would ultimately come under the judicial microscope. And that’s exactly what happened in this case, as the Court unwound the transfer and ruled in the bank’s favor.

Old Debts Come Back to Haunt Developer

In the 1980′s, Martin Coleman, a real estate developer, purchased two multifamily rental properties in Waltham. Coleman furnished all the cash to acquire these properties. In 1986, Coleman married his wife, Pamela, who began managing the properties. She dealt with all issues relating to the tenants (including rent collection and filling vacancies) and superintended the maintenance, repairs, and payment of bills. In 1988, Coleman defaulted on a $6.2 million construction loan, which he had personally guaranteed.

In 1989, Coleman transferred, for $1.00, title to both rental properties into two real estate nominee trusts, with Pamela named as the sole beneficiary of each trust. Pamela continued to assist with the management of the properties, but Martin paid for all the property expenses.

In 1994, Federal Savings Bank obtained a $600,000 plus judgment against Mr. Coleman which was subsequently acquired by Citizens Bank. Citizens sued the Colemans, attempting to “reach and apply” Pamela’s interest in the two Waltham properties to satisfy the large judgment.

Interfamily Conveyance = Resulting Trust = Creditor Wins


The Appeals Court ultimately ruled that Mr. Coleman’s conveyance into the nominee trusts was a “resulting trust” — essentially a fraudulent transfer to avoid satisfaction of the large judgment. With respect to transfers between husband and wife, the law presumes they are not designed to avoid creditors. This presumption, however, can be overcome through evidence that the conveyance did not result in any change in behavior or financial responsibilities between husband and wife, as compared to before the transfer. In this case, the evidence showed that Mr. Coleman still held himself out as the owner of the rental properties, nothing changed as to the wife’s property management duties, and the conveyance was not truly part of a legitimate estate plan, as the Colemans contended. The Court ruled that Citizens Bank will be able to sell the two Waltham properties at auction to satisfy the judgment which is likely now seven figures.

Moral Of The Story: Trash the Nominee Trust

Real estate nominee trusts were all the rage in the 1980′s and into the 1990′s. A series of court rulings, however, exposed serious flaws with the asset protection security these trusts were supposed to provide. They are now out of favor, yet, they are still being used. Perhaps this case will put the proverbial nail in the nominee trust coffin. Memo to estate planners: They don’t work, so stop using them. Go with a limited liability company instead.

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RDV-profile-picture-larger-150x150.jpgRichard D. Vetstein is a Massachusetts real estate attorney who is frequently consulted by property owners looking to shelter their assets. Please contact him at info@vetsteinlawgroup.com or 508-620-5352.

 

 

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