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Recent Studies of Cambridge and San Francisco Prove It Not Only Doesn’t Work But Results In Gentrification, Displacement and Higher Rents

Rent control. Like a diseased zombie rising again from the dead after 25 years. Banned statewide by a voter referendum in 1994 and widely proven ineffective and counter-productive by economists, the debate over rental control is back in Massachusetts. As reported in the Boston Globe, a group of liberal urban lawmakers are readying legislation which would effectively override the 1994 voter ballot question, and allow cities and towns to impose rent control as a mechanism to curb rent increases and encourage affordable housing.

I’m all for a robust, healthy debate, so allow me to weigh in. The great thing about the 1994 vote banning rent control is we now have empirical data and a reliable study from prominent economists which has compared the Cambridge housing market during rent control vs. after rent control. We also have data and a similar study out of San Francisco. Both studies (and others from the past) have found that rent control did not work at all, and actually had the exact opposite effect — contributing to gentrification, displacement of tenants and income inequality.

Are rent control advocates and politicians aware of all this economic literature? I don’t know, but I do know that human beings are emotional creatures, and the debate over rent control has become very emotional. In fact, it reminds me of the climate change debate, but this time rent control advocates are behaving like climate change deniers. Faced with overwhelming evidence that rent control doesn’t work, these advocates continue to push the idea in a knee-jerk emotional reaction to the affordable housing crisis and high rent prices.

Study of Effect of Rent Control In Cambridge Market

Economists Autor, Palmer, and Pathak (2014), studied the effect of rent control on the Cambridge market. From December 1970 through 1994, all rental units in Cambridge built prior to 1969 were regulated by a rent control ordinance that placed strict caps on rent increases and tightly restricted the removal of units from the rental stock. The legislative intent of the rent control ordinance was to provide affordable rental housing, and at the eve of rent control’s elimination in 1994, controlled units typically rented at 40-plus percent below the price of nearby non-controlled properties. 

The economists found that newly decontrolled properties’ market values increased by 45%. In addition to these direct effects of rent decontrol, the economists concluded that removing rent control had substantial beneficial indirect effects on neighboring properties, boosting their values too. Post-decontrol price appreciation was significantly greater at properties that had a larger fraction of formerly controlled neighbors: residential properties at the 75th percentile of rent control exposure gained approximately 13% more in property value following decontrol than did properties at the 25th percentile of exposure. This differential appreciation of properties in rent control–intensive locations was equally pronounced among decontrolled and never-controlled units, suggesting that the effect of rent control had been to reduce the whole neighborhood’s desirability.

The economic magnitude of the effect of rent control removal on the value of Cambridge’s housing stock was large, boosting property values by $2.0 billion between 1994 and 2004. (And of course, that huge increase in property value translated to massive real estate tax revenue for the city). Of this total effect, only $300 million is accounted for by the direct effect of decontrol on formerly controlled units, while $1.7 billion is due to the indirect effect. These estimates imply that more than half of the capitalized cost of rent control was borne by owners of never-controlled properties. The economists ultimately concluded that rent controlled properties create substantial negative externalities on the nearby housing market, lowering the amenity value of these neighborhoods and making them less desirable places to live. In short, the policy imposed $2.0 billion in costs to local property owners, but only $300 million of that cost was transferred to renters in rent-controlled apartments.

To summarize in plain English, the economists concluded that rent control is a really bad idea, both in concept and in actual practice.

San Francisco: Another Failed Experiment

Economists came to the same conclusions when studying rent control in San Francisco. Its rent control law was different than Massachusetts’. It applied to buildings with five or more apartments and regulated rent increases, linked to the CPI, within a tenancy, but no price regulation between tenants. New construction was also exempt.

Economists Diamond, McQuade, and Qian (2018), concluded that San Francisco’s rent control ordinance encouraged condo conversions resulting in more owner occupied units (and less rental units) while encouraging rent controlled owners to defer maintenance and upkeep. As the economists found “it appears rent control has actually contributed to the gentrification of San Francisco, the exact opposite of the policy’s intended goal. Indeed, by simultaneously bringing in higher income residents and preventing displacement of minorities, rent control has contributed to widening income inequality of the city.”

Rent Control Just Doesn’t Work

In addition to the Cambridge and SF studies, there are many other articles by economists critical of rent control. The Urban Institute concluded that [g]iven the current research, there seems to be little one can say in favor of rent control.” Lisa Sturtevant, Ph.D. recently surveyed 30 different peer reviewed rent control studies, concluding that rent control decreased the supply of available rental housing, does a poor job in targeting benefits and generally leads to higher rents in the uncontrolled market.

As these studies show, rent control in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood. When the government forces landlords to provide insurance to tenants against rent increases, it will ultimately be counterproductive. There are better ideas to address the affordable housing problem than rent control. We can do much better than this outdated, tired idea.

For a good summary of why rent control doesn’t work, check out the Masslandlords.net page on Rent Control.

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Accurate Court Data Shows The “Eviction Crisis” Is A Fallacy

You may have noticed the featured article in Sunday’s Boston Globe Magazine on the supposed “eviction crisis” in Massachusetts. Titled “As rents soar in Boston, low-income tenants try to stave off eviction,” investigative reporter Jenifer McKim cited inaccurate court statistics to create the false narrative that thousands of innocent tenants are being thrown out on the street by greedy landlords. Using this fallacy, McKim then advocates for a new legislative proposal giving all tenants (but not landlords) a “Right to Counsel” i.e, free legal representation courtesy of the Massachusetts taxpayer. I’m not a fan of the term “fake news,” but it is really justified here. Where do I begin?

McKim first claims that “eviction initiations in Massachusetts spiked in 2008, following the Great Recession. Each year since then, landlords have sued about 40,000 heads of household across the state seeking to evict them, according to data gathered by the New England Center for Investigative Reporting.”

Well, she’s totally wrong and does not know how to read court statistics. Take Fiscal Year 2018 for example. Housing Court publicly available data shows 29,684 summary process cases filed. Summary process is how Massachusetts defines an eviction case. There were about 10,000 other types of cases filed in Housing Court (code violations, search warrants, small claims and civil money actions) but those are not evictions. So she’s already off by 10,000 cases or 25% of her cited data. To the extent she’s using district court filings, one would have to determine whether those were residential or commercial. Commercial evictions are always filed in the district court. Making that important distinction would entail physically reviewing each case file which she didn’t do. So you can’t reasonably rely on that data either.

Second, one would also have to account for Housing Court’s recent expansion to statewide jurisdiction which has increased its filings while district court filings are down. Actually as you can see from the PDF linked above, summary process filings in Housing Court were trending down and level from ’14 to ’15, to ’16 and to ’17, but then slightly up for ’18 (by only 6% or so) because of the statewide jurisdiction enactment. Eviction filings in District Court were down about 10% in 2018. So McKim is being intellectually dishonest if she’s attributing the slight bump in Housing Court filings in ’18 as some sort of trend of increased evictions. The overall trend has been down and level, as you can see below in the chart I quickly created. Sure doesn’t look like a crisis to me…

Then McKim makes the most egregious inaccurate statement: “The state doesn’t track how many of these have resulted in actual evictions, but the Eviction Lab at Princeton University found that in 2016, there were roughly 15,708 forced removals in Massachusetts — an average of nearly 43 a day. That’s about double the number of evictions in 2005, before the housing bubble burst…”

This is another totally bogus statistic. She’s right, the state does not track the number forced removals (accurately called a levy on an execution for possession). Researching that would entail physically reviewing every single eviction case in the state — 6 separate Housing Court divisions and in our roughly 80 district courts. Did Princeton University send a small army of interns checking every case file for 2016? That’s the only way they could accurately conclude that there were 15,708 “forced removals,” however they are defining that. So I was curious and did some research. After some digging I found the Princeton Eviction Lab’s Report on Methodology, and no surprise, their researchers relied on online available statistics, and as McKim acknowledged, you cannot see if there was a forced move out from the basic online data. I can tell you that in my 20 years of experience handling thousands of evictions, forced move outs are around 1-2% of all cases. It is the rare exception indeed because it costs landlords no less than $3,000 for movers and storage costs. The vast majority of cases are either default no-shows or negotiated move out agreements.

So the truth is that there is nowhere near 43 forced removals per day in Massachusetts, as McKim claims. Not. Even. Close.

Also, the number of evictions has not “doubled” since 2005, as McKim states. In 2005, there were approximately 30,000 total eviction cases filed (and this includes commercial cases which cannot be carved out without reviewing the case files). In 2018, there were about 40,000 total cases filed (again, this includes commercial cases). So McKim is off by 20,000 cases. And of course, the vast majority of all eviction cases are resolved amicably between the parties, without the need for a forced move out. I find it incredulous that highly regarded Boston Globe investigative reporters would be so sloppy with these critical statistics which are publicly available online.

Lastly, Ms. McKim interviewed me for a solid hour on this story, but only used a small snippet of my extensive commentary on the issue, pertaining to how I’ve been physically threatened by tenants in Housing Court. Yes unfortunately this is true. But I’ve been practicing in the Housing Courts for 20 years now and I gave her a small treatise of information which she ignored for her article. Ms. McKim also extensively interviewed Doug Quattroci, the Executive Director of the largest trade association for landlords, MassLandlords.net. Mr. Quattroci has led our lobbying efforts to level the playing field for landlords and offered extensive data on the topics Ms. McKim was writing about. None of Mr. Quatrocci’s comments made it into the article. Contrast that with paragraph upon paragraph dedicated to the tenant side of the story. I e-mailed Ms. McKim about all of these inaccuracies and her response was “feel free to write a letter to the editor.” I gave her an “LOL” on that one!

Ms. McKim’s article was certainly not fair and balanced, in my humble opinion. I guess we can’t expect that from the Boston Globe these days, can we? How sad.

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Rent Escrow, Security Deposit Reform, and Elderly Housing Legislation Filed By Trade Group

Historically, Massachusetts rental property owners have struggled to overcome the coordinated and organized political lobbying of tenant rights and rent control groups at the State House. I remember just a few years ago I testified on Beacon Hill for the rent escrow bill against a small army of tenant advocates. That is now changing in a big way.

Previously splintered across many small groups, property owners have consolidated their lobbying efforts through a state-wide organization, MassLandlords.net. Created by Executive Director Doug Quattrochi, MassLandlords.net has hired a full time lobbyist, and has been instrumental in filing a record number of legal reform bills during the current legislative session. This is really important given that tenant rights groups have been very active recently in pushing just cause eviction, rent control and other socialist proposals.

Here is a summary of some of the bills backed by MassLandlords filed in the current legislative session:

H.D. 1191 – Rent Escrow (sponsored by Rep. Boldyga) — Tenants must pay rent into court if they are invoking rent withholding due to code violations or necessary repairs

H.D. 1194 – Elderly Tenants (sponsored by Rep. Boldyga) — Creating rental voucher program for elderly tenants (age 75+), protections during evictions

H.D. 1205 – Equal Counsel (sponsored by Rep. Boldyga) — Allowing rental companies to represent themselves in court without an attorney

H.D. 1192 – Late Fees (sponsored by Rep. Boldyga) — Changing late fees on unpaid rent to 10 days overdue from 30 days

H.D. 1202 — Tenant Sale Disclosure (sponsored by Rep. Boldyga) — Requiring property owners to notify tenants upon advertising of property for sale

H.D. 1457 — Security and LMR Deposit Reform (sponsored by Rep. Barrows) — Eliminating triple damage penalty and streamlining payment of deposit interest

H.D. 1474 — Rent Escrow (sponsored by Rep. Barrows) — Requiring tenants to pay monthly rent into escrow during pendency of any eviction action unless it would cause undue hardship

S.D. 231 – Rent Escrow (sponsored by Sen. Tarr) — Requiring rent escrow where tenant is withholding rent due to code violations

Whether these bills will advance through committee hearings to actual vote and passage is unknown. But this is a great start for the up and coming MassLandlords group, and I’ll be monitoring the progress of the bills in the coming months.

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Bumpy Ride Ahead — Expect Some Delays For Certain Loans

I asked my friend David Gaffin, Senior Mortgage Banker and Branch Manager at Fairway Mortgage – Hudson (DGaffin@fairwaymc.com), whether and to what extent the federal government shutdown is affecting real estate closings in Massachusetts. Here’s what he has to say.

Fannie Mae, Freddie Mac Loans — Mixed Bag on Impact/Delays

In general, the shutdown doesn’t impact loan processing at these agencies because they’re not funded by the government. If you’re a federal worker or contractor, however, and your lender cannot get a verbal verification of employment from your federal employer prior to loan delivery, your loan approval may be denied or delayed. Verification of employment is a key requirement to get a loan from Fannie Mae and Freddie Mac, and the agencies cannot buy loans in which a borrower’s employment — and ability to repay — hasn’t been fully vetted. Also, if you loan requires SSA or IRS tax transcript verification, there could be delays, as discussed below.

FHA Closings May Be Delayed

With fewer staff working at FHA, some borrowers may see a closing delay due to increased backlog. Systems and functions that will NOT remain available during the shutdown are:

  • Endorsements on HECM/Reverse mortgages (please watch for updates from reverse mortgage investors on any impact to those programs as a result)
  • Homeownership Center staff will be furloughed so they will not complete HRAP condo project approvals that have been submitted. They recommend holding all submissions until the shut down is over.
  • Loans with cases created during the shut down will have “holds” for the social security verification that happens in FHA connection. With the social security administration services also impacted this verification cannot occur.  Until this is resolved these loans with cases created during the shut down won’t be able to close until the shut down ends and we can remove the verification “hold.”

USDA Loans Will Be Impacted

It appears that the shutdown will have a significant effect on USDA loans.

  • Loans with a conditional commitment already issued by a RHS office before the shutdown will be able to close as normal.
  • Loans that have not been reviewed by RHS staff and had a conditional commitment issued before the shut down will NOT be reviewed until after the shut down. This will impact closings as can not close a USDA loan without the conditional commitment issued. Effectively, even though a conditional commitment issue, until reviewed cannot close. CLOSING DELAYS, RATE LOCK EXTENSION FEES POSSIBLE TO CONSUMER
  • Loans that have already closed but have not obtained the loan note guarantee prior to the shut down will also have that process delayed, potentially impacting secondary market operations.

SSA (Social Security Administration) Verification Impact

To process a mortgage application, lenders verify that your Social Security number is valid with the Social Security Administration. With significant delays expected in processing these requests, government-sponsored agencies have relaxed their rules to allow lenders to submit these reports prior to loan delivery rather than earlier in the loan process. If your Social Security number cannot be validated prior to this time, however, your loan could be denied.

  • Third party vendors used to verify social security numbers may not receive responses from SSA during a shutdown. This has the potential to impact closings
  • Borrowers may not be able to obtain income benefit documentation information in a timely manner during the shut down. This has the potential to impact closings

NFIP (National Flood Insurance Program)

  • FEMA has instructed the NFIP to issue flood policies during the shut down, a reversal of previous direction

Internal Revenue Service — Tax Transcripts Back Online

As part of the usual underwriting process, lenders request copies of a borrower’s tax transcripts from the IRS. Originally, the IRS suspended processing tax transcript information when the shutdown began, but as concerns about a prolonged shutdown heightened, trade groups – including the Mortgage Bankers Association – lobbied the IRS to reconsider. The IRS will resume processing lender requests for tax transcripts to verify income for mortgage applicants despite the government shutdown. In a letter released Monday to participants of its Income Verification Express Service, the IRS said it will begin working through the backlog of requests that have piled up since December 22 and that the employees involved will return to work. There still could be delays in obtaining tax transcripts.

Another issue brought to my attention concerns tax lien releases. There have been reports that the IRS is not issuing or delaying the issuances of tax lien releases, so that would impact a seller’s ability to deliver clean title.

_______________________________________________________________

If you have any further questions about the impact of the federal government shutdown on Massachusetts real estate and loan closings, feel free to contact David Gaffin directly at dgaffin@fairwaymc.com or Tel: 508-683-0383

 

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Attorney General Healy Announces Indictments Against Allen Seymour and Ex-Wife

As I’ve written here before, I have been representing three families victimized by convicted felon, Allen Seymour, in a brazen complex real estate forgery scam. As a result of the courageous testimony from my clients, I’m happy to report that a statewide Grand Jury has just handed down a 22 count indictment against Seymour on charges of forgery, uttering, larceny, and money laundering. Seymour’s ex-wife, Tina Seymour, was also charged with conspiracy to commit forgery.

Seymour, who used the alias “Richard Chase,” targeted elderly and unsophisticated homeowners. He used forged deeds and fake notary stamps to sell their properties out from under them, flipping them to wealthy investors, and pocketing the cash. Seymour targeted properties in Cambridge, Brookline, and Somerville. As claimed in my lawsuits, Seymour also worked with a group of accomplices including Newton police lieutenant, Francis Foley III, who was not indicted but remains under investigation and on paid leave from the force.

Allen Seymour fled the state and was apprehended in South Carolina in May, and is currently being held without bail pending probation surrender hearing scheduled for a later date. He will appear in Worcester Superior Court on Jan. 7, 2019 for a hearing regarding his probation surrender. Tina Seymour will be arraigned in Hampden Superior Court at a later date.

I have filed three civil actions in Middlesex Superior Court, seeking to quiet title and restore ownership to the victims. The cases are ongoing.

First American Title Company has issued a statewide Fraud Agent Alert concerning this scheme.

Boston 25 News reported on the indictment below

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Cases Subject of Attorney General and FBI Investigation, Oxford Man Under Arrest

Over the last month, I’ve been representing the victims in two significant forgery lawsuits, the likes and brazenness of which I have not seen in 20 years of practicing law. The matters are now the subject of criminal charges by the Attorney General’s Office.

As alleged in the two lawsuits, Allen J. Seymour, of Oxford, Massachusetts, is the alleged mastermind behind a sophisticated forgery scheme to defraud property owners out of their ownership to their homes. In one of the schemes involving a Brookline property, Seymour, using an alias, approached my client with a foreclosure assistance plan, getting him to execute a mortgage payoff form with an unusual second signature page. Unbeknownst to my client, that signature page was then attached to a quitclaim deed to a straw-person (an individual known as Kayla Turner, also of Oxford, MA), and recorded with the Norfolk Registry of Deeds. The straw-person then purported to sell the deal to local investors, with the sale proceeds wired to a bank account controlled by Seymour and his associates.

In another case involving a Cambridge property, a deed was forged using a fake notary public stamp, then sold to investors who took out a $2 Million mortgage loan against the property. My client found out about the scam when a locksmith arrived at his house, attempting to drill out his front door lockset. As alleged in the lawsuit and shown by records kept by the Secretary of State’s Office, the straw entity, the Dudley Group, LLC, used in the Cambridge transaction was managed by a Francis Foley III, who is a Lieutenant in the Newton, Massachusetts Police Department.

This is not Allen Seymour’s first run in with the law. He pled guilty in 2009-10 to a slew of federal and state crimes stemming from a similar foreclosure and mortgage fraud scheme in the Worcester County area whereby he defrauded homeowners out of millions of dollars. Seymour was arrested at a Florida airport in February 2008 with $1.37 million in cash hidden in his luggage. He was sentenced to six years in prison.

As a result of the lawsuits filed by my office and cooperation with the Attorney General’s office, Seymour was recently arrested in South Carolina. Seymour was arraigned in Brookline District Court on June 18, with bail set at $2.5 Million. Forgery (also known as uttering) of a deed is a felony with a maximum state prison sentence of 10 years.

I have filed a civil action in both cases to quiet title to the property, asking the court to reverse the fraudulent transactions. Under the law, a deed procured by forgery conveys no title. The cases are complicated because there are many parties involved and there have been mortgages recorded against the properties which will need to be discharged.

Early estimates are that up to $1,500,000 in sale proceeds were taken in these fraudulent transactions. The investors who purchased the properties are also pursuing Seymour and his associates.

I was recently interviewed by Fox News 25 (see video below) on these cases which are sure to attract some local media attention. There are also reports of many more potential fraudulent deals that were pending. If you have any knowledge of these, please contact me at rvetstein@vetsteinlawgroup.com.

I will keep you updated with any important developments!

Related Links:  Read the Lawsuit in Anzalone v. Dudley Group LLC, Middlesex Superior Court; Nelson v. Chandler Cazanove LLC, Middlesex Superior Court

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New Judges to Serve Expanded Statewide Jurisdiction

In the 2018 Fiscal Year budget, the jurisdiction of the Housing Court expanded to full state-wide coverage, and with it, the Legislature created five new judgeships. Earlier this week, Governor Charlie Baker nominated five attorneys as new Associate Justices to the Housing Court:

Donna T. Salvidio of Worcester nominated as a Circuit Justice
Neil K. Sherring of Westwood nominated as a Circuit Justice
Joseph L. Michaud of Dartmouth nominated to the Metro South Division
Irene Bagdoian of Westborough nominated to the Metro South Division
Gustavo A. del Puerto of Salem nominated to the Northeastern Division

Each judge must be approved by the Governor’s Council before stepping onto the bench. While I do not know all the nominees personally, this group appears to have very solid experience and background. I look forward to seeing them before the Governor’s Council and hopefully on the bench.

Donna Salvidio currently leads the Condominium Law Practice Group within the Real Estate department at Fletcher Tilton PC in Worcester. Click here for her Firm Biography. Her work covers a full spectrum of real estate related matters, with particular emphasis on residential housing law, condominium law, property management, commercial leasing and transactional work. She has over 27 years of experience in residential housing law including landlord-tenant law and the development of affordable housing. Attorney Salvidio served as Board President of Worcester Community Housing Resources, Inc., a non-profit which creates and preserves affordable housing opportunities for low to moderate income households, and is currently a member of its Property Development and Management Committee. She also served on the Housing Court Committee of the Worcester County Bar Association and was a Commissioner of the Worcester Civic Center Commission for 10 years. Attorney Salvidio received her Bachelor’s Degree cum laude in Psychology from the University of Vermont and her Juris Doctor cum laude from Suffolk University Law School where she served as an editor of the Suffolk University Law Review. She currently resides in Worcester, Massachusetts.

Neil Sherring has 25 years of experience practicing law. Since 2001, he has been a partner in his own law firm Dakoyannis & Sherring, LLC, where he concentrates on landlord tenant and real estate related cases, personal injury claims, insurance disputes, and employment discrimination claims. Previously, he was a trial attorney at Mintz, Levin. Attorney Sherring also has a wealth of experience representing the Commonwealth as an Assistant Attorney General, Assistant District Attorney for  the Northwestern District of Massachusetts, Massachusetts Superior Court Law Clerk and Hearing Officer for the Division of Insurance. He has served as the Deputy Commissioner of the State Athletic Commission and has been a frequent lecturer at Suffolk University and Curry College. Within his community, he is a current Board Member of the Westwood Community Chest, where he has also served as President and Vice President. He earned his Bachelor’s Degree from Curry College and his Juris Doctorate from Suffolk University Law School. He resides in Westwood with his family.

Joseph Michaud has been practicing law for 25 years. He is currently an attorney partner at his own practice, the Law Offices of Joseph L. Michaud, where he specializes in residential and commercial real estate transactions and landlord-tenant matters. Attorney Michaud is also a decorated member of the United States Army, having served on active duty intermittently for the last 30 years as a Lieutenant Colonel in the Judge Advocates General Corps. He first enlisted as a Tanker in 1986, and went on to serve in both Desert Storm and Operation Noble Eagle. Attorney Michaud has earned 3 Meritorious Service Medals, 6 Army Commendations, a Joint Service Achievement Medal, a National Defense Medal, a Global War on Terrorism Medal, and an Outstanding Volunteer Medal. Attorney Michaud continues to serve his local community as Chair of the South Coast Chamber of Commerce in New Bedford and as a Board Member of the Veterans’ Transition House. He graduated with his Bachelor’s Degree from University of Massachusetts in Amherst and received a Master’s of Arts from Sam Houston State University. He earned his Juris Doctorate from the Franklin Pierce Law Center at the University of New Hampshire. Attorney Michaud is a lifelong resident of Dartmouth, MA. In his spare time, you can find him playing bass guitar in a local band.

Irene Bagdoian has practiced law in the Commonwealth for nearly thirty years. During the last decade, she has been a solo legal practitioner at her own law firm in Brockton, representing individuals and businesses in civil litigation matters related to housing, foreclosure, real estate, and consumer protection. She was one of the founders of the Brockton Housing Court Lawyer for the Day Program, which provides advice to unrepresented landlords and tenants, and has organized educational programming for volunteer lawyer programs in collaboration with the Southeastern Housing Court for the past nine years. Attorney Bagdoian is a member of the Steering Committee for the Tenancy Preservation Program and a Board Member of the Justice Center of Southeast MA. She graduated with her Bachelor’s Degree from Wheaton College in Norton, MA and received her Juris Doctorate from Boston University School of Law. She resides in Westborough with her husband, Paul Sangree.

Gustavo del Puerto has nearly 25 years practicing law in Massachusetts. He currently serves as Assistant Clerk Magistrate in the Northeast Housing Court. Prior to that, he practiced as a Senior Associate at Sassoon & Cymrot in Boston where he focused on commercial litigation, including the resolution of contract, business, and construction disputes, tort matters and the protection of creditors’ rights. Attorney del Puerto served as Counsel for the Chelsea Commission on Hispanic Affairs, Inc., where he also provided pro-bono work for immigration law. Attorney del Puerto earned his Bachelor of Arts from the College of the Holy Cross, and his Juris Doctorate from Northeastern University’s School of Law. He currently resides in Salem, MA.

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Landlord Attorneys Active In Court and In Legislature On Rent Escrow Issue

Massachusetts Lawyers Weekly Reporter Patrick Murphy just did a great write up of the current state of Rent Escrow in the Legislature and at the Housing Court. As reported by Mr. Murphy, attorneys representing residential landlords (like myself) are hopeful that this is the year the Legislature closes what is perceived to be a loophole that allows tenants to remain in possession of the premises rent-free during eviction proceedings. Bills moving through both the House and Senate would require judges to order tenants to pay rent into escrow during the pendency of a case upon motion by property owners. In the meantime, Housing Court judges including Marylou Muirhead (pictured below) are becoming more receptive to approving motions for rent escrow filed by landlord attorneys.

Free rent trickery?

As I’ve written on this Blog, the Massachusetts eviction system contains a loophole that allows tenants to avoid paying rent while a dispute is pending. Specifically, they point to G.L.c. 239, §8A, which authorizes tenants to raise defenses or counterclaims — such as those alleging the landlord’s breach of the terms of the lease or housing code violations — justifying the withholding of rent. In terms of the escrow of rent, the statute provides that the court, after hearing the case, “may” require the tenant to pay to the clerk of the court “the fair value of the use and occupation of the premises,” less any amount awarded on the tenant’s claims.

We call this the “Free Rent Trick” — where the tenant will stop paying rent and file a complaint with the local board of health over minor code violations, such as a broken window screen. Rent accrues as the landlord gets around to hiring a lawyer to file a 14-day notice to quit the premises and commence summary process. Three to five months of rent may have accrued before a case is typically heard, and tenants can extend the process another three to six months, depending on the court, by requesting a jury trial.

Rare win for landlords?

As Mr. Murphy highlighted in his article, I recently succeeded in obtaining a rare rent escrow order in Worcester Housing Court in a case in which months of back rent had accrued before I ever became involved in the matter. In Eda Ema, LLC v. Kirby, Judge MaryLou Muirhead (pictured right) ordered the tenant to begin making escrow payments of $975 a month, reflecting the terms of her lease. The tenant owed $12,675 in past due rent at the time the case was filed in January.

The case points to the plight of many landlords even if they are ultimately successful in obtaining a judgment against the tenant for back rent. Such judgments are often uncollectible. However, the escrow order I obtained in Eda Ema is a rarity in my experience, with several Housing Court judges and most District Court judges still resistant to ordering such relief.

Pending Rent Escrow Bills

Putting an end to the so-called “free rent trick” in Massachusetts is long overdue, according to my colleague Brighton landlord attorney Emil Ward who has drafted Senate Bill 778, calling for mandatory rent escrow.

Another bill, House rent escrow bill, H. 980, was filed in January 2017 by Middlesex Democrat Rep. Chris Walsh. The bill would amend G.L.c. 239, §8A, to provide that “the court after hearing shall require” the tenant to pay into escrow “the amounts due for use and occupancy, calculated according to the fair market value of the premises.”

Walsh said his bill is intended to help small landlords, many who have complained to him in the past about being victimized by the free rent ploy. He said he has heard complaints of tenants who knew how to “work the system,” invoking housing regulations to “essentially stop paying rent.”

While we haven’t been successful in getting a rent escrow bill passed, I’m hopeful that Legislators are finally listening to landlords’ legitimate concerns that the eviction playing deck is stacked against them.

As always, I will keep tabs on these developments.

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Property Owners — Shovel Early and Often!

As I sit here working from home watching the “Bomb Cyclone” storm make its way up the East Coast, the clicks on my blog searching for “Massachusetts snow removal law” are going as rapidly upward as the barometric pressure of this “Bombogensis” storm system. Massachusetts law underwent a monumental change back in 2010 with a Supreme Judicial Court decision overruling the 125 year old “Massachusetts Rule” which allowed property owners to leave “natural” accumulations of snow and avoid liability. Now, all Massachusetts property owners are under a legal duty to keep their property free from dangerous snow and ice. Moreover, cities and towns have been passing all types of new snow removal ordinances and by-laws regulating whether owners must shovel public/private sidewalks, and how long they have to clear snow. So let’s do a quick Frequently Asked Question post.

I own a rental property with a driveway and one common walkway and entrance. Am I responsible for shoveling snow on the driveway and/or walkway?

My opinion is the answer is yes. Under the previously referenced 2010 Supreme Judicial Court ruling, all property owners (rental or owner occupied) can be held liable for failing to remove snow and ice from their property. The old rule was that owners didn’t have to remove “natural accumulations” of snow and ice, but the court overruled that in favor of a general obligation to keep property safe for all visitors and guests. There are also many local town and city ordinances which likewise obligate property owners to keep snow and ice off their property and sidewalks. I will discuss some of those below.

Can I use a lease which provides that the tenant is responsible for snow removal. Is that legal and will that protect me from liability?

It depends on your particular property. Landlords have the primary responsibility for snow removal at a rental property. Under the State Sanitary Code, property owners/landlords must keep all means of egress free from obstruction — that cannot be negotiated away. As for the removal of snow and ice, the Code provides that the landlord shall maintain all means of egress at all times in a safe, operable condition and shall keep all exterior stairways, fire escapes, egress balconies and bridges free of snow and ice. Again, those obligations cannot be negotiated away.

A landlord may require the tenant be responsible for snow and ice remove in a lease provision only where a dwelling has an independent means of egress, not shared with other occupants, and a written lease provides for same. On its face, this exception only applies to entrance-ways and not driveways or parking areas. I am not aware of a court ruling on this particular Code provision, but if I were a landlord I would not risk being on the wrong side of a “test case” where someone is injured badly.

So, in the example above with an owner occupied two family with one common entrance and driveway, that lease provision would be illegal.

Even if the tenant is responsible for snow removal under a legal lease provision, the landlord could still face personal injury liability for slip and falls on snow and ice under the SJC ruling.  A guest or visitor who is injured due to untreated snow or ice will likely sue both the property owner and the tenant. The property owner must ultimately ensure that the property is safe for visitors.

How soon do I have to shovel the snow before I get in legal trouble?

The City of Boston’s policy is to give businesses 3 hours to clean snow, and 6 hours to residents. In Worcester, it’s 10 hours to clear snow. Those are the minimums. As with any dangerous condition, my advice is to shovel and treat snow and ice early and often. Even a thin coating of black ice can cause someone to slip and fall and seriously hurt themselves. (Admit it if you’ve dumped on your rear end like I have!). If you are an out-of-town landlord, you must hire someone to shovel your snow.

Am I required to shovel the public sidewalk in front of my house/business after a storm?

In most Massachusetts towns and cities, the answer is yes. Check your local town ordinances for guidance. The cities of Boston, Cambridge, Somerville, Arlington, Belmont, Newton, Lynn, and Worcester (among others) all require property owners and businesses to clear municipal sidewalks in front of their residences or businesses. Fines are assessed against non-compliance. In Somerville, for example, if snow ceases to fall after sunrise (during daylight hours), property owners must shovel sidewalks by 10 p.m, and if snow ceases to fall after sunset (overnight), property owners must shovel sidewalks by 10 a.m. You can also be fined for shoveling snow onto the street, blocking a curb cut or putting snow on municipal owned property.

In some more residential towns, the local DPW will clear the sidewalks, but the default rule is that property owners are generally responsible for clearing their own sidewalks and driveways.

Will my homeowner’s or CGL insurance policy cover any injuries from slip and fall on snow/ice?

Yes, usually. The standard Massachusetts homeowners insurance policy and commercial general liability insurance policy (CGL) will have liability coverage for slip and falls on property. Make sure you have ample liability coverage of at least $500,000 to 1 Million. (You can never have enough insurance!). As with any insurance question, it’s best to contact your personal insurance agent.

I’m just a regular homeowner. What if the mailman or delivery person slips on my walkway?

You may be liable if you left dangerous snow and ice on your walkway. The new law applies to every property owner in Massachusetts, not just landlords. Get some Ice-melt and sand and spread on your walkway. If it re-freezes overnight into black ice, you will remain liable.

Helpful Links

City of Boston Snow Removal Notice

City of Worcester Snow Removal

City of Newton Snow Removal

City of Framingham Snow Removal

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Tax Reform Act Not Nearly As Bad As Feared For Massachusetts Homeowners

With Paul Ryan and Mitch McConnell and their minions burning the midnight legislative oil, the Tax Cuts and Jobs Act of 2017 is set to pass with President Trump’s signature before Christmas. (Updated: President Trump signed the bill into law on Dec. 22).  Everyone is asking me the same question. How will the biggest change in US tax policy in 30 years affect the Massachusetts real estate market and homeowners? There’s been a ton of commentary that the Act is the second coming of the Apocalypse for the real estate market, but I’m not convinced. While I do have many concerns with the overall bill (bloating the deficit, etc.), my opinion is that it will be a small net positive for the real estate industry.

(Disclaimer: I am neither a tax attorney nor a CPA, and I don’t play one on TV, so consult your own tax professional for any tax advice).

Capital Gain Exclusion on Sale of Primary Residence – No Change 

Excellent news here. The long-standing rule has been that the gain (increase in value) of the sale of a primary residence is non-taxable up to $250,000 for a single person and up to $500,000 for a married couple, if you occupied the home for 2 out of the last 5 years. This provision has been a huge incentive for home sales for many years. In prior GOP tax reform bill drafts, the exemption was increased so that owners needed to reside in the home for 5 out of the 8 years preceding the sale. The National Association of Realtors argued that this change would have resulted in a 10% drop in home sales. In response to the NAR’s intense lobbying, the final bill does not include any changes to the capital gains exclusion.

So the current rule stays in place – you can exclude up to $250,000 as a single filer and $500,000 for joint married filer in capital gain on the sale of your primary residence if you lived there for 2 out of the last 5 years. This is really great news for the Massachusetts real estate market.

SALT – Real Estate Taxes and State Income Taxes — $10,000 Cap

This change is a “loss” to homeowners, especially those with high value properties and in wealthy towns. Currently, all real estate taxes paid in Massachusetts are 100% tax deductible if you itemize your deductions. In Massachusetts, those real estate tax bills can be quite large.

Under the Act, there is now a deductibility cap of $10,000 — which includes not only local real estate taxes but all state and local income taxes. This will be a huge hit to taxpayers in wealthy towns with high real estate tax bills. Going forward, taxpayers will only be allowed to deduct $10,000 of all real estate taxes and state/local income taxes. This is definitely a major “loss” for Massachusetts homeowners, especially those in towns with high real estate taxes. This change, however, may be offset by the increase in the standard deduction ($12,000 for single, $24,000 for married) and the boost in child tax credits, but if you live in Weston or Boston, for example, this is likely going to hurt.

Tax Tip:  If your real estate tax bill is over $10,000, consider pre-paying your real estate tax bill before 12/31/17, so you can still deduct it. According to the Boston Globe, most town assessors around the state are accepting such payments. Update (12/28/17): The IRS has issued a Formal Advisory on Real Estate Tax Pre-Payments. Click to read my full review here.

Mortgage Interest Deduction – Deductible Up to $750,000. No Deductions For HELOC/Vacation Homes 

Again, due to the NAR’s strong lobbying efforts, the GOP kept the mortgage interest deduction intact for the most part, but with caps, and equity lines and second mortgages losing their deductibility. I would say this is a net “win” for homeowners. Starting in 2018, homeowners can keep the mortgage interest deduction on a loan of up to $750,000, down from the current law’s limit of $1 million.

Individuals who take out home equity (HELOC) loans, however, will no longer be able to deduct that interest under the new bill. The same is true for second mortgages and vacation homes. No more interest deductions for those. So this change may impact the vacation home market, particular down the Cape and Islands. However, a rental property owner could offset this loss by renting out the home for a few weeks, per the new benefits for rental housing discussed below.

Importantly, these new rules only apply to new mortgages applied for after Jan. 1, 2018. Existing mortgages incurred on or before Dec. 15, 2017 will remain fully tax deductible. There is some IRS guidance on these new rules, so consult your CPA.

Rental Property Owners/Landlords — Thumbs Up! 

As Bloomberg News reports, the Tax Reform Act will be very good for rental property owners and landlords if they do business via pass-through entities — real estate investment trusts, partnerships, limited liability companies, and S corporations — all of which are set to get big tax breaks in the Act. Under the new rules, all pass through income for qualified entities will enjoy a 20% deduction on the owner’s individual 1040 return. For landlords who have greater than $157,500 (single) or $315,000 (married filing jointly) in qualified taxable income, they can select an alternative deduction of (i) the greater of 50% of all W–2 wages, or (ii) the sum of 25% of the W–2 wages plus 2.5% of the unadjusted basis immediately after acquisition of all qualified property.

Attorney’s Advice: I’ve always counseled clients to set up an LLC to hold title to rental property, both from a liability and tax planning standpoint. With the Tax Reform Act giving even greater benefit to pass-through entities, it makes even more sense to set up that LLC. If you need assistance setting up an LLC, please email me at rvetstein@vetsteinlawgroup.com.

Also for depreciation rules, the depreciable life term has been reduced — from 27.5 years to 25 years for residential property and from 39 years to 25 years for nonresidential property. In addition, while most other businesses will find their interest deduction limited under the Senate bill, that limitation doesn’t apply to landlords, who can continue to deduct their mortgage interest in full.

There are other rules also favoring rental property owners, so definitely consult your CPA to prepare for 2018.

Thoughts and Comments?

As an attorney who has handled thousands of residential purchases and refinance loans, I’ve never been one to ascribe to the notion that the tax code has a ultimate determinative effect on whether a buyer is going to purchase a home or not. I’ve always believed that tax implications are one factor out of many in the home buying and selling equation. In my opinion, income, job security and consumer confidence play a larger role. I would doubt that the young couple searching for a starter home in Medway is going to say “geez, now that the SALT deduction is limited to $10k, let’s scrap this whole home buying idea.” If people have decided they want to buy a house, they will usually do so.

Overall, I think the Tax Cuts and Jobs Act of 2017 will have a net positive effect on the national and Massachusetts real estate market, despite the SALT cap and changes to HELOC/second mortgage deductibility. I’m hopeful that the increase in standard deductions and child tax credits will offset the mortgage deductibility and real estate tax changes. The no-change to the capital gain rules was critical and we have the NAR to thank for that. That was a game changer. And lastly, the rental and investment property market will get a big boost.

Rick Moore, Senior Mortgage Advisor with Zenith Mortgage Advisors in Holliston, is one local loan officer who is happy with the Tax Reform Act, both personally and professionally. “I think it’s a historic day, and I’m happy to have the extra money for some home improvement projects. Overall, if the economy will get a boost as expected by the administration, then that’s good for me as a loan officer. I’m looking forward to a very prosperous 2018!”

I do, however, worry about the addition of some 1.5 Trillion to the federal deficit as a result of the tax reform act. This is never good for long term stability of the economy and the housing market. It’s probably a safe bet to say that interest rates are going to rise to keep inflation at bay. I’m concerned that in exchange for some short term gain, we may be setting ourselves up for some long term pain. Only time will tell, but I hope Rick is right!

Feel free to post your comments below and on Facebook.

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Updated 11/10/17

Proposal Heads To State House Next

Once thought to be dead, the Boston City Council yesterday approved the first ever “just cause” eviction act in Massachusetts, known as the Jim Brooks Community Stabilization Act. The Act, which opponents dubbed a return to rent control, requires landlords owning 6 or more units to file a notice to quit/termination with the newly formed Office of Housing Stability, prior to starting an eviction. However, after intense lobbying by property owner groups, the council passed a watered-down just cause eviction provision which only applies to foreclosing owners/lenders. The vote was 10-3 in favor of the Act, with City Councilors Bill Linehan, Sal LaMattina, and Timothy McCarthy voted no.

City Rights Notice

The Act requires that a landlord or foreclosing owner provide a city-approved “notice of basic rights” and a list of tenant assistance organizations simultaneously with the issuance of a notice to quit/termination or notice of lease renewal/expiration. In the case of a lease non-renewal or expiration, landlords and foreclosing owners must provide another “City Termination Notice” to the tenant and the City, at least 30 days prior to starting a summary process (eviction) action. All of these notices must be filed with the summary process case, and the failure to provide these notices will result in eviction cases being dismissed. As with any notice to quit, the best practice is to have such notices served by licensed constable or deputy sheriff.

“Just Cause” Grounds for Eviction

The original version of provided that landlords could only evict tenants for nine (9) specified just cause reasons. However, the final version passed only applies to foreclosing owners/lenders, not to ordinary landlords. Some of the just cause reasons include

  • Nuisance/damage to unit
  • Illegal activity such as drug use
  • Refusal to pay reasonable rent
  • Failure to provide access.
  • Owner requires premises for housing for family member

What’s Next?

It’s not all bad news for property owners, however. The bill faces more hurdles before becoming law. It is a Home Rule Petition, so it must be approved by the entire State Legislature before it becomes law. That may prove to be quite difficult for proponents. The bill may also face court challenges because, as opponents argue, it’s an unlawful return to rent control, which was outlawed in the 1980’s, and fundamentally alters existing private contracts and the very nature of a tenancy at will relationship.

The Act is also somewhat of a compromise between property owners and tenant groups. Tenants wanted to require landlords to submit to mediation for rent hikes of more than 5%, but were not able to get support for it among city council members. Tenant groups also pushed for prohibitions on evicting elderly or disabled tenants and long term renters with children in the school system. The Mayor rejected those ideas as well.

Additionally, small landlords owning 6 or fewer units are exempt from coverage as are owner-occupants of multi-family dwellings and Section 8/federally subsidized housing providers.

The final text of the Act can be read here.

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marijuana-growing-green-rush-1217.jpgProperty Owners Should Get New Marijuana Policies and Lease Riders In Place Now

On December 15, 2016, the recreational use of marijuana became legal in the Commonwealth of Massachusetts, after voters approved Ballot Question 4 The Regulation and Taxation of Marijuana Act. Driving down the Pike this morning on my way to Boston Housing Court, I did not see any “Cheech and Chong” scenes in vehicles. That said, the new law will no doubt affect the legal relationship between landlords and tenants and will likely result in disputes as to what can and cannot be done with respect to cultivating, growing and using marijuana in and around rental property.

What is Legal and Illegal Generally?

  • Adults (21 or over) may possess up to 10 ounces of marijuana in their primary residence. A person may cultivate up to 6 marijuana plants for personal use, and up to 12 plants per household are allowed if more than one adult lives on the premises. Marijuana growing at home must be done discreetly and securely. Marijuana plants cannot be plainly visible from the street or any public area and must be cultivated someplace where there is a security device.
  • Outside the home, adults 21 or over can possess up to 1 ounce of marijuana.
  • Recreational marijuana cannot be sold in any form in Massachusetts without a retail license. A Cannabis Control Commission, yet to be named, will be responsible for issuing retail licenses.
  • Marijuana cannot be possessed, purchased, grown or used by anyone under age 21 (unless they have a valid medical marijuana permit), and it’s against the law to give away marijuana to someone under 21.
  • Using marijuana is illegal in any public place. You can’t, for example, walk down the street smoking a joint the way you would a cigarette. It’s also illegal to use marijuana in any place where tobacco is banned.
  • Possession of any amount of marijuana remains illegal on school grounds, public housing, and government buildings.

Can Tenants Use or Cultivate Marijuana In Rental Property?

The key provision in the Act provides that it is illegal to:

“prevent a person from prohibiting or otherwise regulating the consumption, display, production, processing, manufacture or sale of marijuana and marijuana accessories on or in property the person owns, occupies or manages, except that a lease agreement shall not prohibit a tenant from consuming marijuana by means other than smoking on or in property in which the tenant resides unless failing to do so would cause the landlord to violate a federal law or regulation.”

As I read the new law, landlords have the ability through a lease agreement to regulate the smoking and cultivation of marijuana in rental property, except that landlords cannot prohibit the consumption of marijuana edibles or any other form of non-smoking consumption.

New Marijuana Lease Addendums Should Be Implemented

Now, here’s the rub. Most current leases in effect right now do not have specific provisions dealing with marijuana use. Some leases have anti-smoking and nuisance provisions, which would arguably prohibit pot smoking, but it’s not clear whether that would apply to the discreet growing of marijuana. Under general contract law, there must be some additional legal consideration to significantly amend a lease agreement and curtail a tenant’s rights. Thus, there is a question as to whether existing lease provision would apply to the tenant use/growing of marijuana. Courts will have to decide these issues going forward. I would imagine that most landlords would not want to take on the risk of hundreds of tenants each growing 12 marijuana plants in their apartments. As I explain below, it is incumbent upon landlords to get marijuana policies and lease riders in place now and going forward on new leases. 

Practice Pointer:  If you are a landlord and you want to have a strict marijuana use policy, you must act now and have your tenants sign a new lease addendum for recreational marijuana use. The addendum should, among other things, provide that smoking and growing of marijuana is strictly prohibited, while consumption of edibles is allowed, provided that it does not create a nuisance. There should also be indemnification language in the rider as well. My office can assist you with drafting a marijuana lease rider.

e-cigarettes-being-used-by-teenagers-for-vaping-marijuana-pot-weedVaping = Smoking?

Marijuana consumption technology has come a long way since your college dorm room. I’ve been told that many serious users use vaping technology which heats and vaporizes buds, giving the user a much cleaner and less toxic high. A question which may come up is whether vaping is equivalent to smoking. Not being an expert on marijuana technology, I will leave that to the experts. My brief Google research says that vaping does still produce a slight odor of marijuana but far less than traditional smoking of a joint or pipe. I think it will all depend on how vaping impacts neighbors in an apartment building.

Utility/Water Usage

If a tenant begins growing and cultivating up to 12 marijuana plants as allowed under the new law, how will that affect utility and water usage? Under the State Sanitary Code, the landlord is obligated to pay for electricity and gas in each dwelling unit unless it is separately metered and there is a written document that provides for payment by the tenant. See 105 Code Mass. Regs. § 410.354. Concerning billing a tenant for water use, under the Tenant Metering Law, a landlord can only bill the tenant water usage if he satisfies many onerous requirements such as getting local certification and installing low flow faucets and shower heads. If you allow growing of marijuana in your rental property, make sure that the tenant does not hose you with a huge water/electric bill. Again, your new marijuana lease rider should address this issue, among other items.

_________________________________

100316_photo_vetstein-2-150x150.pngIf you need assistance with creating a new Massachusetts Marijuana Lease Addendum/Rider, please contact me at rvetstein@vetsteinlawgroup.com or 508-620-5352, and we would be happy to create a customized one for you!

 

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notary-public

SJC Decision Provides Clarity to Title Attorneys

Now that the summer is over, it’s time to get back to blogging! During the quiet summer months, the Supreme Judicial Court issued an important decision for real estate attorneys and the title community in Bank of America v. Casey (June 16, 2016) (link to case). The SJC confirmed that a statutory curative attorney’s affidavit may be recorded with the registry of deeds correcting a defective notary acknowledgment on a mortgage which otherwise could have invalidated the instrument. This is a very helpful decision, and should result in more titles (and properties) being cleared and sold.

Defective Notary Acknowledgment

In 2005, Alvaro and Lisa Pereira refinanced their New Bedford property with Bank of America, N.A. The Pereiras individually initialed the bottom of each page of the mortgage agreement except the signature page, on which the full signature of each appears. Attorney Raymond J. Quintin, the closing attorney, also signed this page, as the notary to the Pereiras’ execution of the mortgage. The mortgage agreement contains a certificate of acknowledgment (acknowledgment) on a separate page. The Pereiras individually initialed the acknowledgment page at the bottom, but the acknowledgment itself is blank in the space designated for the names of the persons appearing before the notary public, and the Pereiras’ names do not appear elsewhere on the page. Quintin notarized the acknowledgment, affixing his signature and his notary public seal. 

Seven years later (which is unexplained in the ruling), Attorney Quintin signed and recorded an “Attorney’s Affidavit, M.G.L. Ch. 183, Sec. 5B” stating that he properly witnessed the Pereiras signing the mortgage and that “through inadvertence, the names of the parties executing this mortgage, Lisa M. Pereira and Alvaro M. Pereira, were omitted from the notary clause.” Parenthetically, these curative affidavits are quite common in the industry.

Approximately six months later, Mr. Pereira filed for bankruptcy and sought to be released from responsibility under the mortgage on the ground that the mortgage contained a material defect — the omission of the mortgagors’ names from the acknowledgment.

SJC–Attorney Affidavits Pursuant to G.L. c. 183, sec. 5B May Cure Defective Notary Acknowledgment

The Court first went over the general rule that a defective notary acknowledgment is usually grounds to void any recordable instrument altogether. Mass. General Laws chapter 183 section 5B provides a cure to this problem by providing that “an affidavit made by a person claiming to have personal knowledge of the facts therein stated and containing a certificate by an attorney at law that the facts stated in the affidavit are relevant to the title to certain land and will be of benefit and assistance in clarifying the chain of title may be filed for record and shall be recorded in the registry of deeds where the land or any part thereof lies.”

The Court then ruled that the curative affidavit recorded by the closing attorney cured the defect and validated the mortgage. The Court said the attorney’s affidavit must comply with the formal requirements of § 5B, attests to facts that clarify the chain of title by supplying information omitted from the originally recorded acknowledgement, and references the previously recorded mortgage. As long as it does that, the problem is solved.

This isn’t a “sexy” opinion, but it is nevertheless important to the real estate bar and community.

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Text Messages Enforceable As Written Contract, Court Rules

With the proliferation of email and texts as the primary method of communications in real estate negotiations, it was just a matter of time before Massachusetts courts were faced with the question of whether and to what extent e-mails and texts can constitute a binding and enforceable agreement to purchase and sell real estate. In a ground-breaking case, Land Court Justice Robert Foster ruled in a case of first impression that text messages may form a binding contract in real estate negotiations–even where a formal offer has not been signed by the seller. This is huge wake up call for the remaining industry people who still believe that electronic communications are not legally binding.

St. John’s Holdings LLC v. Two Electronics, LLC

The case (embedded below) involves a commercial real estate deal between two businesses both represented by commercial real estate brokers for the purchase and sale of an industrial park property in Danvers. Two Electronics, as seller, and St. John’s Holdings, as buyer, negotiated for several weeks exchanging two “Binding Letters of Intent” spelling out all material terms of the proposed purchase of $3.2 Million. Towards the culmination of the negotiations, the real estate brokers exchanged several emails and texts, with the seller’s agent sending an email that his client was “ready to do this,” then a text that —

“[the seller] wants you to sign first, with a check, and then he will sign. Normally, the seller signs last or second. Not trying to be stupid or to the contrary, but that’s the way it normally works. Can Rick sign today and get it to me today? Tim”

The buyer signed four copies of the final Letter of Intent and tendered the deposit check with the buyer broker, after which the buyer’s broker sent the seller’s agent another text — “Tim I have the signed LOI and check. It’s 424 [PM]. Where can I meet you?” Shortly thereafter, the two agents met, and the buyer’s broker tendered the buyer signed Letter of Intent along with the deposit check.

Unbeknownst to the buyer, that same day, the seller had received another offer on the property, and proceeded to sign that offer. The seller then refused to sign the Letter of Intent with St. John’s. St. John’s sued, claiming that the series of letters of intent, emails and text messages constituted a binding and enforceable contract.

Intersection of 17th Century Statute of Frauds with 21st Century Text Messages

In Massachusetts, the Statute of Frauds requires that contracts for the sale of real state must be in writing signed by the party (or agent) to be charged. In the old days of pen and paper, application of the Statute was quite simple. If there wasn’t a written agreement signed in wet, ink signatures, there was no binding contract. With the proliferation of e-mail and text communication, application of the Statute of Frauds has become much more nuanced.

In the case discussed here, Judge Robert Foster noted several recent judicial decisions holding that emails may be binding as well as the Uniform Electronic Transactions Act, under which parties may impliedly consent through their actions to make email and text transmissions binding and enforceable. Emphasizing the fact that the seller’s agent signed his name “Tim” at the end of the critical text message, the judge found that the text message was sufficiently “signed” under the Statute of Frauds to constitute a binding agreement at the culmination of the previous communications and unsigned letters of intent. The judge also found persuasive that the seller’s agent told the buyer’s agent to have the buyer sign the letter of intent first, and that’s exactly what the buyer did. Finding in favor of the buyer, the judge denied the seller’s motion to dismiss and issued a restraining order against the seller’s conveyance of the subject property.

Take Away: IMO, Watch What You Say!

This area of the law is really becoming a dangerous minefield. After the e-mail ruling came out a few years ago, I advised my clients to use the following disclaimer: “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 agreement.”

The problem, however, with text messages is that they are so short and informal. It’s not practical to use a legal disclaimer on texts, and there’s no technology that I’m aware of that would insert one into every text. You could always start off a negotiation with the caveat that electronic communications will not create a binding contract until a formal offer is executed. Also, it’s always a good idea to end every email/text with “subject to seller/buyer review and approval” when negotiating an offer. But, such boilerplate language can always be waived by subsequent conduct or actions.

This case reminds me of Lomasney’s First Rule of Politics:  “Never write if you can speak; never speak if you can nod; never nod if you can wink.” — and by winking that does not mean an emoji. ?

And always take screenshots of important texts…just in case.

This post is sponsored by Brian Cavanaugh, Senior Mortgage Banker, Mortgage Network

Cav Zillow

St. John’s Holdings LLC v. Two Electronics, LLC by Richard Vetstein

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criminal-background-checkWidespread Racial Disparities In Criminal Justice System Justifies New Policy

Last week the Obama administration released new controversial Fair Housing guidelines telling the nation’s landlords that it may be discriminatory for them to refuse to rent to those with criminal records. The U.S. Department of Housing and Urban Development (HUD) says refusing to rent based on a criminal record is a form of racial discrimination, due to racial imbalances in the U.S. justice system, despite the fact that criminal history is not a protected class under the federal Fair Housing Act.

“The Fair Housing Act prohibits both intentional housing discrimination and housing practices that have an unjustified discriminatory effect because of race, national origin, or other protected characteristics,” say HUD’s newly-released guidelines. “Because of widespread racial and ethnic disparities in the U.S. criminal justice system, criminal history-based restrictions on access to housing are likely disproportionately to burden African-Americans and Hispanics. While the Act does not prohibit housing providers from appropriately considering criminal history information when making housing decisions, arbitrary and overbroad criminal history-related bans are likely to lack a legally sufficient justification.” About 25 percent of Americans have some kind of criminal record, which can range from felony convictions to arrests that never led to charges.

HUD says that landlords may be allowed to bar those with criminal records, but they will have to prove that such a policy is necessary for protecting the safety of other tenants, and designed to avoid illegal discrimination. The new guidance recommends that landlords consider factors such as the severity of the criminal history and how long ago it occurred.

Practice Pointer: Blanket prohibitions denying applicants with criminal histories will get landlords into major trouble under the new HUD policy.

 HUD’s revised guidance discusses the three steps used to analyze claims that a housing provider’s use of criminal history to deny housing opportunities results in a discriminatory effect in violation of the Act.
  • Evaluating whether the criminal history policy or practice has a discriminatory effect
  • Evaluating whether the challenged policy or practice is necessary to achieve a substantial, legitimate, nondiscriminatory interest
  • Evaluating whether there is a less discriminatory alternative

Policy Places Burden On Small Landlords

I’m all for giving people a second chance at life, but the major problem with this policy is that it puts the onus and burden on the small landlord to do the criminal history check and then figure out how severe the offense is and what the underlying circumstances are. Also the policy does not advise a landlord exactly how old a crime is to be considered “too old.”

In Massachusetts, a CORI (Criminal Offender Record Information) report contains only the basic of information of the offense such as the date of arrest/conviction, disposition, court and sentence, if any. There is nothing in the CORI report showing the underlying facts of the crime and it does not include police reports. Thus, for a charge of open and lewd conduct, a landlord does not know whether this is a serious offense or just a college kid urinating in an alley. Under the new HUD policy, landlords now have the burden of playing criminal investigator and assessing whether a crime is not truly serious.

Also, please remember that under the so-called Mrs. Murphy exemption, the federal Fair Housing Act does not apply to owner-occupied rental properties of up to 4 units.

What Now?

So how are landlords going to navigate this new policy? Well, first I would expect that risk-adverse landlords will cut down or stop requesting criminal history information all together. Of course, this puts landlords in a dilemma because they retain a legal duty to keep residents safe, and if they rent out to a known sexual offender, for example, who attacks another resident, they can be sued for millions.

For those who still ask for criminal record information, they will have to offer an applicant the opportunity to explain the circumstances of their arrest/conviction before making a final decision. As with all rental application decisions, it’s best to make the decision rest on financial considerations such as credit, income, and employment.

If you need guidance navigating this new policy, feel free to contact me at rvetstein@vetsteinlawgroup.com.

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Charlie BakerNew Law Will Resolve Thousands of Foreclosure Title Defects In Wake of U.S. Bank v. Ibanez Ruling

After a five year legislative struggle (in which I testified before the Joint Judiciary Committee), I’m very pleased to report that Governor Baker has signed into law the Act Clearing Title To Foreclosed Properties (Senate Bill 2015), embedded below. The bill will resolve potentially thousands of land titles which were rendered defective and un-transferable after the SJC’s landmark ruling in U.S. Bank v. Ibanez. The Ibanez ruling invalidated thousands of foreclosures across the Commonwealth due to lenders’ paperwork errors.

The problem addressed by the legislation is that scores of innocent buyers purchased these foreclosed properties, fixing them up, renting them out, etc., but they were unaware of the title defects — only to discover them once they went to refinance and sell. Title insurance companies have been bogged down trying to solve these defects, and in the meantime, many of these innocent folks are left with homes which cannot be sold or refinanced. The same bill passed the Legislature last year, but former Gov. Patrick, bowing to housing activists, vetoed it with a poison pill. After several amendments addressing housing activists’ concerns, a new bill was again passed, and just signed into law by Gov. Baker on November 25, 2015.

The bill, which is effective on Dec. 31, gives foreclosed owners a three (3) year statute of limitations to file a challenge to a foreclosure, after which the foreclosure is deemed to have been conducted legally. For foreclosures which have already been concluded, the new law has a one year waiting period, so that a defective foreclosure would be considered non-defective on Dec. 31, 2016. The bill does retain a homeowner’s right to seek compensatory and punitive damages for a wrongful foreclosure, provided it is within the statute of limitations. The bill also requires the Attorney General’s Office to spearhead more robust foreclosure prevention solutions with the HomeCorps Program and housing activists groups.

The passage of the bill is fantastic news for both owners and potential buyers/investors of foreclosure properties. There is a  shadow inventory of defective title properties which will be able to go on the market.

The bill was sponsored by Millbury Democrat Michael Moore whose office (especially Julie DelSobral) worked tirelessly for the passage of the Act.

MA Act Clearing Title to Foreclosed Properties by Richard Vetstein

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Update: Hearing On Proposal Scheduled for March 14, 2016 at 4PM at Boston City Council Chamber Room

Rent Control Thinly Disguised As “Just Cause” Eviction Proposal

Citing skyrocketing rents and lack of affordable housing, several activist pro-tenant groups in the City of Boston, with the assistance of the Harvard Legal Aid Bureau, have submitted a home-rule petition to the Boston City Council to create a wide-ranging “just cause” eviction protection for all Boston tenants. Harking back to the days of rent control, the petition would prohibit a landlord from evicting any tenant except for certain “just cause” grounds. These grounds and their related procedural impediments to eviction are shockingly socialist in nature, and in practice would make it nearly impossible (or cost prohibitive) to evict tenants, raise rents and sell occupied rental property in the City of Boston. Rental property owner groups are vigorously opposed to this proposal.

“Just Cause” Grounds for Eviction

The petition provides that landlords may only evict tenants for eight (8) specified reasons. The most troubling situations are outlined below.

  • Non-payment of rent. A tenant’s failure to pay rent must be “habitual” (which is left undefined) and “without legal justification.” Ordinarily, if a tenant fails to pay rent even once, the landlord may terminate the tenancy and evict. Under the just cause standards, the standard is significantly higher. What exactly is “habitual”? Two late payments, three, four? No one knows, but the petition puts the burden of proof on the landlord.
  • Damage by tenant. In order to evict, the tenant must have “willfully caused substantial damage to the premises beyond normal wear and tear and, after written notice, has refused to cease damaging the premises, or has refused to either make satisfactory correction or to pay the reasonable costs of repairing such damage over a reasonable period of time.” This would make it much more difficult to evict based on damage caused by a tenant.
  • Disorderly conduct. The tenant has continued, following written notice to cease to be so disorderly as to destroy the peace and quiet of other tenants at the property.
  • Illegal activity. The tenant has used the rental unit or the common areas of the premises for an illegal purpose including the manufacture, sale, or use of illegal drugs.
  • Failure to provide access. The tenant has, after written notice to cease, continued to deny landlord access to the unit as required by state law.

Rent Increases and No Fault Evictions

The most fundamental impact of the just cause eviction petition is how it attempts to severely curtail landlords’ legal right to raise rents and file no-fault evictions. Make no mistake about it, the underlying premise of the petition is rent control – to keep rents (even under market) from increasing and stabilizing “affordable housing.”

Resurrecting the old Boston Rent Control Board, landlords are required to participate in a City-approved mediation session with that agency before raising rents or even declining to renew an expired lease. The board is then required to notify all tenant advocacy groups in Boston of the situation. These groups are invited into every eviction or rent increase process. It will be one landlord against many tenants and advocates. There is no stated limit as to how long the mediation process can last, and after which a landlord still must go to Housing Court which can take anywhere from 6-12 months to complete a no-fault eviction under current law. A landlord’s failure to follow these requirements will result in the immediately dismissal of their eviction case and can also subject them to a $1000 fine by the City.

Moreover, in true socialist form, there are also substantial roadblocks to evicting tenants even where the unit will be used for the owner’s own personal residence. Owners are banned from evicting tenants who are 60 years old, disabled or have children in the school system and have lived in the premises for 5 or more years. (Landlords can only end tenancies after the school year is over.) Seeking to turn private properties into government subsidized elderly and disabled housing, the petition thereby creates lifetime tenancies for these classes of renters. This will greatly discourage investment and capital improvements for these properties many of which are double and triple deckers in struggling neighborhoods.

Rent Control Does Not Work

As counsel for landlords across Greater Boston and having testified at the State House in support of various landlord tenant legal reforms, I am strongly opposed to this proposal. This petition is the fourth attempt by Boston tenant advocates to bring back rent control, all of which have failed after voters rejected rent control state-wide in the mid-1990’s. The idea of rent control has been debunked as a failed policy by countless economists, and actually makes affordable housing stock shrink. A restrictive price ceiling reduces the supply of properties on the market. When prices are capped, people have less incentive to fix up and rent out their property, or to build new projects. Slower supply growth actually exacerbates the price crunch. Those landlords who do rent out their properties might not bother to maintain it, since both supply and turnover in the market are limited by rent caps; landlords have little incentive to compete to attract willing tenants. Landlords may also become choosier, and tenants may stay in properties longer than makes sense.

The problem of skyrocketing rents in Boston and affordable housing is complex and certainly worthy of out-of-the-box thinking. As an old city with little if any developable land left, Boston has always dealt with a supply vs. demand problem. Boston developers have long been required to pay into linkage funds designed to promote affordable housing. Mayor Walsh recently announced a plan to build 53,000 new housing units by 2030. The city’s colleges can also do a better job of creating new student housing. But even with all of this centralized planning, the influx of people to the city, drawn by jobs and Boston’s quality of life, have made this problem a very tricky one to solve.

However, rent control disguised as a just cause eviction proposal is not the answer. It’s not fair to make small property owners to bear the burden of creating affordable housing across the city. That’s just flat out Un-American. If we want more affordable housing, create economic incentives to build more, and encourage the City to buy their own properties and create housing. Rent control has never been a successful solution.

If and when the Just Cause Eviction proposal rears its ugly head in the Boston City Council again, email your local city councilor and the Mayor.

A copy of the Just Cause Home Rule Petition can be found below.

Boston Just Cause Ordinance Draft Sept 2015

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Scroll Down For My Complimentary TRID Rider and Offer Timeline Cheatsheet

I’ve been doing a lot of speaking, and more importantly, thinking and collaborating with loan officers and Realtors, on the impact of the new TRID (Truth in Lending RESPA/Integrated Disclosure) on Massachusetts residential real estate transactions. I know everyone is pretty much burned out with all this TRID talk, but what I will give you in this post is some hands-on, practical advice (like how to fill out an Offer) and forms to help you navigate TRID — best practices, if you will.

Those who are unfamiliar with TRID, the major change is that the Good Faith Estimate is going away in favor of a new “Loan Estimate” and the HUD-1 Settlement Statement is going away in favor of a new “Closing Disclosure.” TRID provides for specific deadlines as to when the Loan Estimate and Closing Disclosure must be delivered to the borrower. If those deadlines aren’t met, closings can be delayed for up to 7 days. For my comprehensive post on the new rules click here.

trid 1 copyChange In Deadlines

The first major impact to real estate transactions will be the length of time to complete a transaction. The general consensus is that post-TRID, 60 day closings (from accepted offer) will be the norm. Will lenders be able to do 45 day closings? Yes, but only if all parties have their act together, and that’s a big “If.” Thirty (30) day closings will be nearly impossible to achieve, in my opinion.

So what does this mean? It means that all deadlines need to be tighter and that items typically left for the week or two prior to closing (like final readings and fuel adjustments) have to be done earlier in the transaction and closing table adjustments will be impossible.

Deadline to Submit Info For Closing Disclosure

trid 3 copyOne of the most important new dates will be the date on which all parties must provide the information necessary for the Closing Attorney and the lender to prepare the final Closing Disclosure (new HUD-1). TRID requires that the new Closing Disclosure issue to the borrower 3 days prior to closing (if sent electronically) or 7 days prior to closing (if sent by mail). Lenders will require all information necessary to prepare the CD well before this deadline. This will vary by lender anywhere from 10-20 days prior to closing. Also, some lenders intend to issue the Closing Disclosure along with the Loan Commitment. Accordingly, in my opinion the best practice under TRID is to target 20 days prior to closing by which all information needs to be submitted to the closing attorney. All parties should agree to this date in their purchase and sale agreements.

And by all information, what do I mean? See the graphic to the right. closing info copy

Final Utility Readings and Oil/Fuel Adjustments

Although the TRID rules specifically allow for some last minute changes to the Closing Disclosure without triggering re-disclosure and delay in the closing, most of the lenders which I’ve consulted with do not intend to authorize last minute changes to the Closing Disclosure which might trigger a re-disclosure delay.

Given this, the Mass. Real Estate Bar Association (REBA) has proposed language in its new TRID rider that all utility readings (water, sewer, oil/fuel) be completed and submitted to the closing attorney no later than 10 days prior to closing. The Closing Disclosure shall reflect payment and adjustments as of the reading date except for real estate taxes which shall be adjusted as of the closing date. No further adjustments will be made on the Closing Disclosure, but the parties are free to make their own estimates of utilities as of the closing date.

This is a change to current practice where it’s common that the final readings be done a day or two prior to closing. I’ve spoken to several agents about oil fuel in particular, and they all say they really don’t want to deal with the hassle under TRID, so they will be recommending to their sellers that they simply gift the oil to the buyer.

Opt for Buyer Credits Instead of Seller Repairs

Seller repairs will cause major hassle and potential delays under TRID. Under TRID, all property repairs must be fully disclosed in the purchase and sale agreement and to the lender. No more “side agreements” or “repair agreements” outside the PS Agreement. Most lenders will require an inspection of all repairs prior to closing and some will do the inspection prior to the issuance of the Closing Disclosure. This would also necessitate a much earlier walk-through by the buyer to inspect those repairs. If there are problems with the repairs, or the insistence on a holdback which would be reflected on the Closing Disclosure, this could delay the issuance of the Closing Disclosure, and therefore delay the closing.

Accordingly, the general consensus is that it will be much cleaner under TRID to forgo seller repairs and instead have the seller agree to a closing cost credit to the buyer. This will eliminate the lender inspection, additional walkthrough and potential of delays.

Also, a quick word about holdbacks at closing. We are not sure how lenders will handle holdbacks at the closing but many of us are of the opinion that lenders will not allow a holdback unless it’s disclosed on the Closing Disclosure. So that effectively means no closing table holdback agreements unless you want your closing delayed to re-issue the Closing Disclosure.

Use a TRID Rider/Addendum for all Offers

MAR, GBREB and REBA have all come out with their own TRID riders. In my opinion, the MAR/GBREB riders don’t sufficiently protect buyers from delays and they fail to address utility/fuel adjustments. The REBA rider is better, but could still use some improvement. So naturally I’ve drafted my own rider (and TRID timeline cheatsheet) which is embedded below. Feel free to use it to help you fill out offers. Whatever rider/addendum you chose, just use something, otherwise your buyer will be at risk of losing their deposit over TRID delays.

Recommend Attorneys Who Specialize In Conveyancing/Closings

Residential real estate closing work was already complicated and highly regulated. In a TRID world, the pitfalls for the inexperienced and non-specialists will be myriad. Now more than ever, Realtors and loan officers should partner with experienced attorneys who specialize in residential closings and are TRID ready and compliant. Do not allow your clients to use their cousin who is a lawyer and knows very little about real estate. It could be disastrous for you and your transaction.

If you have any questions about TRID, Offers, Purchase and Sale Agreements, Riders, etc., please feel free to contact me at rvetstein@vetsteinlawgroup.com or 508-620-5352. I would be happy to help you navigate the TRID maze.

TRID – Massachusetts Offer to Purchase Timeline and Addendum by Richard Vetstein

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Copyright Josh Reynolds 2010

Landlord Sued for Wrongful Death After Assailant Shoots Four Guests At House Party, Killing One

A landlord’s worst nightmare is someone getting hurt, or worse, shot and killed on their rental property, and then getting sued for wrongful death. This was the situation facing a property owner in Dorchester in the recent case of Belizaire v. Furr, (Appeals Court 13-P-1908 Sept. 11, 2015). Fortunately for the landlord, the Court ultimately concluded that she was not legally responsible for the shooting because there was no reason to predict it would happen. Had the facts been different in this case, the landlord would not have been so luck to escape liability. After discussing this important case, I’ll talk about some ways that landlords can manage their risk.

Shooting at House Party, 5-7 Edson Street, Dorchester

The landlord owned a two-family in Dorchester which she rented out to several individuals. The landlord was fairly lax with written lease agreements, with some of the tenants having leases, but others not. On the night in question, the landlord’s son and one of the occupants (who were friends) hosted a party with a DJ, alcohol and dancing. Carl Belizaire attended the party as a guest. Late at night, an unknown assailant shot up the room, killing Belizaire and injuring three other guest. The assailant was never found or charged. There was no prior history of violence at the property.

Landlord Sued For Wrongful Death

Belizaire’s estate sued the landlord for wrongful death, alleging that she failed to keep the property safe. The Court first analyzed whether there was a tenancy or lease in place, because that would minimize the landlord’s liability and control over injuries occurring on rental property. The landlord’s failure to secure leases with the tenants at the property, particularly the tenant who threw the party, resulted in the court concluding that there was insufficient evidence to rule that there was a valid tenancy in place to shield the landlord from liability.

The Court, however, ultimately ruled that the landlord was not liable for the shooting because there was no evidence of prior shootings or similar violent incidents on the property. Although there was evidence of prior drug activity at the property, the court found this insufficient to support a finding of liability. There was no evidence of other large parties with uninvited guests similar to the one in question taking place on the property. Nor was there any evidence that the landlord was affiliated in any way with, or knowledgeable about, the assailant or any dispute that the assailant may have had with the victim. The evidence submitted suggests that the victim’s death was tied to events beyond the party at the rental property. As a general rule, a landowner does not owe a duty to take affirmative steps to protect against dangerous or unlawful acts of third persons. In certain exceptional circumstances, landlords may be liable for ignoring criminal activities that occur on their premises and were known or should have been known to them. That was not the case here.

Managing The Risks Of Property Ownership: Use Strong Leases and Set Up LLC’s to Hold Title

Many of my landlord clients often worry about liability issues at their rental property. They often ask me whether they can get sued over someone getting hurt on their rental property and what they can do to minimize their risk.

The landlord in this case made some catastrophic mistakes which, had the facts been different, could have resulted in a multi-million dollar liability. The first mistake she made was not securing written leases for all tenants and occupants at the rental property. The form lease that I have drafted contains a unique indemnification clause which would have help shield the landlord for liability for injuries caused by the tenants. The second major mistake made by the landlord was holding title to the rental property in her individual name, thereby exposing her personal assets to a lien or judgment. Although not always appropriate for every landlord, it’s a prudent idea to hold rental property in a limited liability company which would shield the landlord’s personal assets from liability. There is expense to set up the LLC and there is a $500 annual fee, but in my opinion, it’s well worth it relative to the risk of getting sued for wrongful death.

_____________________________________________________

100316_photo_vetstein-2.pngIf you are a rental property owner and would like advice concerning your leases or would like to discuss setting up an LLC, please contact me at rvetstein@vetsteinlawgroup.com or 508-620-5352. I would be happy to help you in any way.

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title-insurance

Policy Changes Make It Harder To Insure Foreclosed/REO Properties

In the aftermath of the Supreme Judicial Court’s July 17th ruling in Pinti v. Emigrant Mortgage Company, which voided a foreclosure over a defective notice of default, two leading title insurance companies — First American Title and Fidelity/Chicago — have announced that they will be significantly changing the manner in which they underwrite foreclosed properties. These new policies will make it much harder to insure foreclosed properties, and may dramatically affect the sale and marketability of foreclosed/REO/bank owned properties.

The most drastic change comes from First American, which has the largest market share in Massachusetts. Under FATICO’s new policy (embedded below), lenders must obtain a judicial decree that the foreclosure was conducted in compliance with the Pinti ruling. (This applies only to foreclosures conducted after July 17, 2015). Because Massachusetts is a non-judicial foreclosure state (i.e, lenders do not need a judge’s approval to foreclose except for confirmation that the borrower is not in the active military), getting court approval for a foreclosure will require either a Superior Court or Housing Court action and will be expensive, lengthy and burdensome for lenders.

Fidelity/Chicago’s new policy requires closing attorneys to “verify that any preforeclosure default notices were sent by the foreclosing Mortgagee on or before July 17 [and] verify that the attorney for the foreclosing Mortgagee has included a statement to that effect in a recorded Affidavit that is part of the foreclosure documentation.” Closing attorneys must also “determine that the mortgagors, or any parties claiming under them, are no longer in possession of the premises or otherwise asserting any rights.”

The question is whether the other title insurance companies will follow suit. As of this writing, Stewart, CATIC, Old Republic and Westcor have not adopted a new foreclosure underwriting policy. I will monitor if that changes.

Act Clearing Title To Foreclosed Properties

These underwriting changes only underscore the importance of the Legislature passing the Act Clearing Title to Foreclosed Properties, Senate Bill 1981. The bill would protect arm’s length third party purchasers for value, and those claiming under them, who purchase at the foreclosure sale or in a subsequent REO transaction. It is the result of years of negotiation, and represents an honest effort to balance the interests of third party purchasers with mortgagors who legitimately believe they have been wrongfully foreclosed upon. Lenders who have conducted defective foreclosures would remain liable to the mortgagors. This is the same bill that was passed by both branches of the legislature at the end of the legislative session last fall, but was sent back with poison pill amendments by Governor Patrick and died. The bill should be voted on by the Senate soon after Labor Day. If passed, it will be considered by the House shortly afterward.

First American Mass. Foreclosure Policy

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