Purchase and Sale Agreements

Legislation Would Temporarily Allow Video-Conferencing Technology For Attorney Notaries

Update: 4/23/20 — The bill (now Senate Bill 2645), has passed both Senate and the House, and will soon be on the way to the Governor’s desk where he is expected to sign the bill. Click here for my new post: Legislature Passes Remote Virtual Notarization Act for COVID-19 Emergency.

Update: 4/22/20 — The Senate has passed a new revised version of the Bill, now it moves on to the House where it is expected to pass.

The real estate legal community, including yours truly, have been working and lobbying tirelessly to address the various impacts of the Coronavirus (COVID-19) Crisis on real estate transactions and closings. One of the first solutions we proposed is legislation allowing for remote or virtual notarizations of deeds, mortgages and other closing documents so that buyers and sellers can sign documents in the safety of their own homes on their computers. Due to the COVID-19 crisis, many folks are subject to the Governor’s Stay At Home Order or don’t feel safe traveling outside to an attorneys’ office for a real estate closing. Meanwhile, while the economy heads towards a recession, real estate is one of the few assets with available equity for consumers.

Under our proposed legislation, An Act Relative To Remote Notarization During COVID-19 State of Emergency (S.D. 2882), a licensed Massachusetts attorney may notarize legal documents using video-conferencing technology. There is a two-step process laid out in the legislation to complete the notarization process where the signer shows the attorney his/her state issued identification, sends the original signed documents back to the attorney, and then verifies the authenticity of the signed documents. Once that process is complete, the attorney can stamp the documents as notarized and must also complete and sign an affidavit attesting that all requirements have been met. Those notarized documents may then be recorded with the Registry of Deeds as valid, legal and binding recordable instruments. Additionally, the two video-conferences must be recorded and kept on file for 10 years. The bill would only be in effect during the COVID-19 State of Emergency.

The bill has widespread industry support from the Real Estate Bar Association (including the Probate Section), the Massachusetts Bar Association, the Massachusetts Association of Realtors and Greater Boston Real Estate Board. Twenty three (23) states have now passed remote notarization bills, including just recently due to the COVID19 crisis, including New York State, Vermont, Connecticut, Florida, Virginia, Texas, and Nevada. Moreover, a nationwide bill has been proposed by the American Land Title Association.

There are a number of technology companies that offer end-to-end remote notarization systems and are approved by national title insurance companies and lenders. They include:

To our real estate partners and colleagues, WE NEED YOUR HELP NOW! We need you to email or call your State Rep. and Senator and tell them you support our proposed legislation, An Act Relative To Remote Notarization During COVID-19 State of Emergency (S.D. 2882). To search for your state legislator, please click here.

Thank you! I will keep you posted as to developments and hopefully passage of the bill. Also many thanks to Attorneys Kosta and Nik Ligris on spearheading the bill!

Massachusetts Act relative to remote notarization during COVID-19 state of emergency. by Richard Vetstein on Scribd

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Closings May Proceed Forward Without Smoke Detector Inspection Certifications

Due to the Coronavirus Crisis, many local fire departments have been ceasing state mandated smoke detector inspections, which are required for real estate transactions to close. I’m happy to report that on March 20, 2020, after intense lobbying from the real estate industry, Gov. Baker issued an Emergency Order allowing for the deferral of inspections by local fire departments until the Coronavirus (COVID-19) State of Emergency is lifted. The Order is embedded below and can be found here: COVID-19 Order Permitting the Temporary Conditional Deferral of Certain Inspections of Residential Real Estate.

Inspections may be deferred only if the following requirements have been met:

  • The parties agree in writing that the buyer, not the seller, shall be responsible for installing approved smoke/CO detectors in the premises;
  • The buyer agrees as a condition of taking title to equip the premises with approved detectors immediately after the closing
  • The state required smoke/CO detector inspection must be conducted no less than 90 days after the Mass. COVID-19 State of Emergency is lifted.

We (real estate attorneys) are drafting up new compliance agreements and language for Offers and Purchase and Sale Agreement to comply with this new Order. Please email me at [email protected] for assistance.

Massachusetts Gov. Baker CO… by Richard Vetstein on Scribd

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Significant Impacts Hitting: Registry and Court Closures, Closing and Financing Delays, Social Distancing, School Closings, Quarantine Potential

As I was writing this post tonight, Gov. Baker ordered the shutdown of all schools through April 6, closed down restaurants and bars, and is banning gatherings over 25 people. Also announced tonight is the shut down of all Trial Court facilities on March 16 and March 17, which includes the Cambridge and Suffolk (Boston) Registries of Deeds. We are now hitting the tipping point, and going forward there will be substantial impacts on the real estate and legal industry.

I first wrote about the Coronavirus (COVID-19) global pandemic five days ago. Seems like an eternity ago. As of that writing (data as of March 9), there were 729 reported cases in the US, with 27 deaths. As of tonight March 15, cases have over quintupled with Johns Hopkins reporting 3,722 confirmed cases and 61 deaths. With the well publicized testing delays, the real number of cases are likely far higher.

Registry of Deeds Impacts

As mentioned above, Gov. Baker just ordered the closure of all Trial Court facilities for Monday March 16 and Tuesday March 17. Both Cambridge and Suffolk (Boston) Registries are housed in Trial Court facilities so they will be closed for those two days. I spoke to Maria Curtatone, Registrar of Deeds for Cambridge Middlesex South, and she indicated that this may well be the precursor to widespread shutdown of all registries of deeds and courts throughout the state. We will await further announcements on that.

Update (3/17/20) — Suffolk and Cambridge are closed to the public until at least April 6. Currently, they are both still processing electronic recordings for recorded land. All Land Court recordings and plans must be sent in by overnight or regular mail.

We have just received a chart below showing current Registry status:

I remain concerned, however, that all Registries will be forced to shut down and will not offer in person, mail or electronic recordings. If that occurs, we will see a potentially catastrophic impact to real estate in Massachusetts. Title insurance companies have assured its attorney agents that they will offer “gap coverage” in case recordings are delayed. This coverage offers insurance coverage between the time of the physical closing and the time of actual recording of documents at the registry. However, it remains to be seen how this will play out. Will mortgage payoffs still be processed even though deeds will not be recorded? Will sellers allow buyers to get keys and move into homes if deeds aren’t recorded and their sale proceeds are held in escrow? We will need to work through these issues.

I am also concerned if COVID-19 starts hitting closing attorney offices. If a lawyer or staff member is infected, it could result in the quarantine of their entire office, essentially shutting it down for some time.

COVID-19 Contingency Provision

In my previous post, I discussed a new COVID-19 Impact Clause for Offers Purchase and Sale Agreements. (Sample language below). It is imperative that these clauses are used in both Offers and PSA’s. It’s also very important that all parties and their attorneys work together cooperatively throughout this crisis, acknowledging that there will likely be substantial impacts and delays. The goal, as always, is to get to the closing and complete the deal, by any means necessary.

COVID-19 Impact Provision. The Time for Performance may be extended by either Party by written notice for an Excused Delay which materially affects the Party’s ability to close or obtain financing. As used herein an Excused Delay shall mean a delay caused by an Act of God, declared state of emergency or public health emergency, pandemic (specifically including Covid-19), government mandated quarantine, war, acts of terrorism, and/or order of government or civil or military authorities. Notwithstanding anything to the contrary contained in this Agreement, if the Time for Performance is extended, and if BUYER’S mortgage commitment or rate lock would expire prior to the expiration of said extension, then such extension shall continue, at BUYER’S option, only until the date of expiration of BUYER’S mortgage commitment or rate lock.  BUYER may elect, at its sole option, to obtain an extension of its mortgage commitment or rate lock. Notwithstanding the foregoing, said Extension shall not exceed [insert number of days].

Virtual and Remote Closings

Another impact that we are already seeing is that parties to the real estate transaction are afraid of traveling outside their homes right now (or even being visited at home) and being in contact with other people, especially those who are high risk. My colleagues and I are working on an emergency executive order for Gov. Baker to sign which would temporarily authorize remote or virtual closings using such technology as Zoom and Docusign.

For more information on this please read my new post, Massachusetts Remote Notarization Bill Filed in Legislature

Court Closings

Update (3/17/20): The Supreme Judicial Court today ordered that, because of the public health emergency arising from the COVID-19 pandemic, beginning tomorrow (March 18, 2020) and until at least April 6, 2020, the only matters that will be heard in-person in Massachusetts state courthouses are emergency matters that cannot be held by videoconference or telephone. Each of the seven Trial Court departments, in new standing orders to be issued today, will define emergency matters for their departments.  As a result of the SJC order, courthouses will be closed to the public except to conduct emergency hearings that cannot be resolved through a videoconference or telephonic hearing.  Clerk’s offices shall remain open to the public to accept pleadings and other documents in emergency matters only.  All trials in both criminal and civil cases scheduled to commence in Massachusetts state courts between today and April 17, 2020, are continued to a date no earlier than April 21, 2020, unless the trial is a civil case where the parties and the court agree that the case can be decided without the need for in-person appearance in court. Where a jury trial has commenced, the trial will end based on the manifest necessity arising from the pandemic and a new trial may commence after the public health emergency ends. Courts, to the best of their ability, will attempt to address matters that can be resolved or advanced without in-person proceedings through communication by telephone, videoconferencing, email, or other comparable means.

A link to the SJC Order OE-144 is here.

In addition to the closings on March 16-17, the Massachusetts Court System announced over the weekend major “triage” changes reducing the number of persons entering state courthouses. These rules are effective Wednesday March 18, 2020. A link to all of the new changes can be found here — Court System Response to COVID-19. A summary of each court and respective changes are as follows:

Superior Court — All jury trials postponed until April 22. Motions handled by individual judges with preference for telephonic hearing and postponement where necessary to limit number of people entering courtroom. Emergency matters may proceed normally. The new Standing Order 2-20 can be found here.

Housing Court — All cases including evictions (except emergencies) postponed until after April 22. Matters may be heard earlier upon a showing of good cause. New Housing Court Standing Order is here.

Probate and Family Court — Trials postponed until May 1. Motions and pre-trials heard telephonically or postponed until after May 1. Modification complaints won’t be heard until after May 1. New Probate and Family Court Standing Order 1-20 is here.

District Court — No jury trials until after April 21. All criminal appearances rescheduled for 60 days, and no earlier than May 4. Arraignments and Bench trials may proceed. The new District Court Standing Order is here.

Land Court — All trials postponed until after April 21. All other motions and proceedings shall be held telephonically at judge’s discretion. Registration of title documents should not be done in person. Mail or email is now preferred. (Not sure how that will work). New Land Court Standing Order 2-20 is here.

Appeals Court — Oral argument for March will be telephonic.

Supreme Judicial Court — Please see the Court’s website.

As you can glean from the changes, virtually all trials are being pushed out through the end of April. Motion hearings are court specific with telephonic hearings being substituted for in-person hearings. Of course, if the courts are all shut down, all bets are off. With no staff, the courts will not even be able to handle new filings. The system would just stop in its tracks, except for the most emergency of matters.

Lender/Financing Delays

This week we will see if there are any major disruptions to lenders’ ability to provide financing. I am seeing some smaller mortgage companies moving to remote employee staffing. I’m also hearing about appraisal delays. If there are government employee impacts such as at the IRS for processing tax transcripts, there could be delays with underwriting. I think it’s inevitable that we will be seeing lender delays moving forward.

Municipal Closings

I am also hearing of closings of municipal departments, which may affect the availability of final water/sewer readings and possibly smoke detector certificates. Title 5 inspections could also be impacted.

25 Person Social Gathering Restriction

New restrictions on crowd sizes that Gov. Charlie Baker issued on Sunday, March 15, could upend open houses. The restrictions banned gatherings of 25 or more people. Brokers seemed to anticipate a possible drop-off in attendance, even before Baker’s restrictions and despite strong numbers the past couple of weeks. “Next week may be a different story,” Jason Gell, a Keller Williams broker and president of the Greater Boston Association of Realtors, said on March 12. “Unfortunately, any decline in open houses or listings is likely to make the conditions for buyers even more difficult.”

Social Distancing, School Closures and Possible Lockdown

The impacts of COVID-19 are manifesting not necessarily in the actual infection and sickness of patients (which I’m not discounting at all) but all the measures we are taking to “flatten the curve.” I want to urge all my readers that COVID-19 could wind up being the worst global pandemic since the Spanish Flu and should be taken as seriously as life and death. If you can work from home, do that and don’t go into the office. If you can arrange for remote employee access, please do that. Take advantage of technologies like Zoom, Docusign and Dotloop. Please keep your kids at home. No playdates, family gatherings or hang-outs. They say we are only 2 weeks behind Italy and you see what’s going on there. Stay safe! More updates to follow as I get them.

-Rich

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Potential Impacts: Registry of Deeds Closings, Financing Delays, New Covid-19 PSA Clause, Housing Market Slow Down?

The Coronavirus (COVID-19) is a highly infectious respiratory virus, which originated in Wuhan, China, and has spread across the globe, wreaking havoc on financial markets, public health systems, schools, universities, and daily lives. As of March 9, there are 729 reported cases in the US, with 27 deaths. Here in Massachusetts, as of March 9, there are 41 cases with no reported deaths. Infectious disease experts predict that the virus will continue spreading across the United States, affecting just about every aspect of our lives.

Update (3/17/20): Registry and Court Closings

Update (3/27/20): Impact on Rental Housing

Update (3/26/20): Remote Notarization Legislation

Here in Massachusetts, we are beginning to see significant impacts. Harvard University just cancelled all classes in favor of online instructions. Mayor Walsh has cancelled the St. Patrick’s Day parade. Some schools are closing temporarily and cancelling events. Companies are cancelling conferences and restricting travel. And of course, the stock market has dropped precipitously.

Likewise, in the real estate industry we are starting to see impacts as well. Despite the COVID fear factor, most agents are still reporting robust attendance at open houses and market activity, as confirmed by Curbed Boston. However, that may soon change as the virus gets increasingly widespread and the impacts to the financial markets begin to set in. I’m going to outline some potential impacts going forward, and I’ll update this post as developments emerge.

Registry of Deeds and Court Closings

Update (3/13/20): Suffolk and Salem Registry have shut down public closings. Only title examiners and attorneys are allowed access. They are still recording documents.

We are starting to see court and government building closings in other states. Federal courts in New York’s Southern District, including Manhattan, are restricting entry. No one will be allowed in who traveled within the past 14 days to China, South Korea, Japan, Italy or Iran, or who had close contact with someone who has. Trials have been postponed in Seattle and Tacoma courts.

No closings have been announced here in Massachusetts, but it’s a possibility. Virus impacts may result in Registries of Deeds and the Land Court being forced to closed or operate with a skeleton staff.

Fortunately, we have electronic recording capabilities here in Massachusetts. If the registries are closed, hopefully they will still allow for e-recording which should enable closings to keep on track. However, registry staff must still examine each electronically recorded document so there still could be impacts. We don’t know the fully extent of the impacts, if any.

Lender/Financing Delays

I have not yet heard of any major disruptions to lenders’ ability to provide financing. However, it’s not out of the realm of reason if companies are requiring their employees to work from home, etc. Further, if there are government employee impacts such as at the IRS for processing tax transcripts, there could be delays with underwriting. The same is true if appraisers cannot get out into the field and do their reports. I’ve already heard of at least one lender asking an attorney for a COVID-19 delay provision in a purchase and sale agreement, which brings me to the next topic…

COVID-19 Delay Clause In Purchase and Sales Agreement

Due to the various impacts and possibilities for delays as outlined above, we are already seeing requests for language dealing with the Coronavirus in purchase and sales agreements. As just mentioned, there may be lender delays affecting a buyer’s ability to obtain timely financing due to virus impacts. Buyers and sellers may be subject to quarantines, or if they are traveling, they may be stuck in a public health purgatory like the Princess Cruise ship. If Registries are closed and no e-recording is allowed, then closings will need to be cancelled or rescheduled. My colleagues and I are working on a new COVID-19 clause that will balance all of these concerns.

Our draft provision (subject to change) is as follows:

COVID-19 Impacts. The Time for Performance may be extended by either Party by written notice for an Excused Delay which materially affects the Party’s ability to close or obtain financing. As used herein an Excused Delay shall mean a delay caused by an Act of God, declared state of emergency or public health emergency, pandemic (specifically including Covid-19), government mandated quarantine, war, acts of terrorism, and/or order of government or civil or military authorities. Notwithstanding anything to the contrary contained in this Agreement, if the Time for Performance is extended, and if BUYER’S mortgage commitment or rate lock would expire prior to the expiration of said extension, then such extension shall continue, at BUYER’S option, only until the date of expiration of BUYER’S mortgage commitment or rate lock.  BUYER may elect, at its sole option, to obtain an extension of its mortgage commitment or rate lock. Notwithstanding the foregoing, said Extension shall not exceed [insert number of days].

Impact On The Real Estate Market

If you’re in the market for a house, all this uncertainty might have you worried about the housing market. Will it suffer a swoon similar to Wall Street? There are a few ways the virus could affect the housing market that you should be aware of. However, I think we can breath a sigh of relief, because a housing catastrophe on the scale of the 2008 financial crisis is almost certainly not going to happen.

The good news is that mortgage interest rates are still at historic lows. However, I’m also hearing that a lot of lenders are at full capacity with demand for both refinances and purchases so rates may be heading up in the very near future.

I think as we are heading towards a global recession and the continuing daily life impacts of the virus, we are going to see a slowing down of the real estate market in general. Uncertainty is the hobgoblin of the home buyer. Indeed, this is exactly what Lawrence Yun, Chief Economist at the National Assoc. of Realtors is saying:

I hope I’m wrong. Comment below or shoot me a line ([email protected]) and tell me what you’re seeing out there. I’ll keep you posted with any developments.

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Allen Seymour – Arraignment Brookline District Court

Summary Judgment Ruling In Favor of Forgery Victim Allows Case to Proceed to Trial

As I’ve written here, I have been representing three victims in a brazen and complex real estate forgery scam. The ringleader was Allen Seymour of Oxford, who used forged deeds, fake notary stamps and driver’s licenses to sell properties out from under homeowners, flipping their properties to wealthy investors, and pocketing the cash. Seymour targeted properties in Cambridge, Brookline, and Somerville. By accounts, he made off with over $2M in illicit sale proceeds. Seymour also worked with a group of accomplices including a Newton police lieutenant. The cases have been featured in several Fox News 25 segments. While Seymour remains in jail awaiting trial on 22 felony indictments, the civil cases have been ongoing for almost two years, and are heading towards trial.

I just received the first major court ruling in the cases from Superior Court Justice Douglas Wilkins. The ruling is noteworthy because it appears to be the first time a Massachusetts judge has issued a written decision dealing with the unique type of forgery that occurred in this case.

The Deed Forgery Scam

Forged Deed First Page
Forged Deed Second Page

The facts of the case are pretty surreal. My client is the owner of a three family property in Brookline, assessed at $1.5 Million. He was behind on his mortgage, and Seymour (using the alias “Rich Chase”) approached him with a foreclosure rescue scheme. Seymour had him sign a mortgage payoff authorization form which contained a separate signature page with a notary block – which would be used later to perpetrate the fraudulent scam. Ordinarily, mortgage payoff authorizations are not notarized. Behind my client’s back, Seymour took the notarized signature page of the payoff form and attached it to a quitclaim deed and recorded it with the registry of deeds. This deed “sold” the property from my client to Seymour’s accomplice for some 30% of its value, at $480,000. While this was happening, Seymour orchestrated a flip of the property for $750,000 to an LLC owned by Fred Starikov, the owner of City Realty in Boston. Starikov’s LLC then took out a $850,000 mortgage on the property from Bee Investments LLC. Seymour then made off with the sale proceeds, and tried to flee the country with a duffle bag of cash and a trash bag filled with Oxycontin. Fortunately, he was caught in South Carolina by the FBI, and brought back to Massachusetts to face multiple felony charges.

Lawsuit Asserts Claims for Forgery and Fraud

On behalf of the victim, I brought claims for quiet title and fraud, asserting that the quitclaim deed was a forgery. Under Massachusetts law, a forgery of a deed conveys no title. It is null and void, and title reverts back to the original owner as if the forgery never occurred. This is very important in these cases, because a forgery would also avoid the defense asserted by Starikov and his lender being a “bona fide good faith” purchase or lender. This defense, if successful, could allow them to keep title to the property. Starikov and his lender also asserted a claim for “equitable subrogation.” This theory is used to enable a lender to seek repayment of monies paid out in the transaction (typically mortgage proceeds) on the theory of unjust enrichment and mistake.

What is a Forgery?

Starikov and his lender filed a motion for summary judgment to dismiss the case prior to trial, arguing that the deed wasn’t a forgery because my client’s signature was “genuine” and on the deed itself, and asserting the good faith and equitable subrogation defenses. In what appears to be a case of first impression, Justice Wilkins held that the transfer of an altered signature page onto a deed was in fact a forgery under the common law definition. As he wrote in his decision:

Red Flags: Good Faith and Equitable Subrogation

Judge Wilkins also rejected the good faith purchaser and equitable subrogation defenses. As I argued, the judge recognized that there were several “red flags” with the deed and the purchase and sale agreement (which was also forged) which could have put a closing attorney on notice of the irregularities in the transaction. These red flags are properly considered at trial, the judge ruled.

What’s Next?

Overall, I’m very pleased with Judge Wilkin’s ruling. He understood the issues, and provided some much needed justice for my client. So now the case will proceed to trial (or settlement). I will keep you appraised of any further developments. I’ve embedded the entire opinion below for your reading pleasure.

Nelson v. Chandler Cazenove LLC (Middlesex Mass. Superior Court) Jan. 23, 2020 by Richard Vetstein on Scribd

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Parties Who Negotiated Past Purchase and Sale Agreement Deadline Waived It, Court Rules

The Massachusetts Appeals Court just came down with a ruling which should be a cautionary tale to everyone in the residential real estate business. It’s an interesting fact pattern, but not necessarily unusual. For those with short attention spans, the Court held that the standard deadline to execute the purchase and sale agreement is not necessarily a hard deadline. Rather, the deadline can be waived by the parties if they negotiate beyond the date, even without a formal extension in place. The Court also held that where the property is owned by several individuals, even if only one of those individuals sign the offer, this is not necessarily fatal to the deal.

Ferguson v. Maxim, Mass. Appeals Court, 18-P-1081 (Nov. 6, 2019)

In the case, the buyer, David Ferguson, and the seller, Joyce Maxim, signed the standard form Offer to Purchase put out by the Massachusetts Association of Realtors for the sale of residential property in Leominster. (For my post comparing the MAR form with the Greater Boston Real Estate Board, click here). It turns out that title to the property was actually held by a group of five individuals including Maxim, but we will get to that in a few. As is standard, the Offer provided that the parties would enter into a standard form purchase and sale agreement by a specific deadline. However, the seller’s attorney did not sent out a draft PSA until after the deadline, and negotiations continued well past the deadline without any issue raised by the parties or their attorneys. Both attorneys had suggested formalizing an extension of the PSA deadline at various times, but a formal extension agreement was never signed. At some point the seller’s attorney tried to cease the negotiations acknowledging that “we are well beyond our [PSA] date.” A week later, the buyer’s attorney tried to resurrect negotiations and save the deal. Further negotiations ensued between the parties, but they were abruptly stopped by the seller’s attorney who stated that the deal was for all intents and purposes dead.

Mr. Ferguson, the buyer, was naturally upset, and sued, seeking an order of “specific performance” to enforce the deal, based on well established law that an offer to purchase is a legally binding contract for the sale of real estate. (Read the case if you want to learn about various procedural issues that arose in the case with respect to the buyer’s obtaining a lis pendens and the seller’s special motion to dismiss under the lis pendens law.).

Two Important Take-Aways

The important take-aways from the ruling were twofold. First, the Court ruled that the typical deadline to execute the purchase and sale agreement is not always a hard deadline. Some people may be surprised to here that, but under Massachusetts law, a deadline in any contract can be “waived” by the parties words, actions, or conduct. Here, the Court said that a waiver of the deadline could be found where the seller’s attorney didn’t provide the draft PSA until after the deadline and the parties freely negotiated well past the deadline, even without a formal extension in place. Second, the Court also held that where the property is owned by several individuals, only having one of those individuals sign the offer is not necessarily fatal to the deal. If there is evidence that the signatory had apparently authority to sign for the others, or that the sellers ratified the offer, then the contract could be enforced. So now the buyer’s case will continue on for trial. Interestingly, during the pendency of the case, the sellers sold the property to another party. If the buyer is successfully, that new buyer is going to be very unhappy because his transfer will be voided! He may want to lawyer up himself.

Let’s Play Monday Morning Quarterback!

Now, what could have been done differently in this case to avoid the bad result for the seller? For starters, the seller’s attorney should have delivered the draft PSA on time. Once the parties started negotiations after the PSA deadline, they were in “no man’s zone” and that can only come back to hurt the sellers. Deadlines need to be taken very seriously, and sharp lawyers will always send out emails or other written reminders of them, and reserve their rights to terminate an agreement if the parties blow past a deadline without a written extension in place. The buyer’s attorney played this correctly, and didn’t push on the deadline issue because the law would favor his client on the waiver issue (which it ultimately did).

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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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Spring-Home-GreenOr Will Low Inventory Bring Rain Showers? | The Spring Market 2016 Expert Panel Report

Wow, what a difference a year makes! Last year we had one of the snowiest winters on record and a foot of snow on the ground. This year, we have 70 degree record temps with the Charles Esplanade filled with runners. The winter weather always affects the spring real estate market, and last year the market got started unusually late. So will this year’s warm winter usher in a hot real estate market? Or will the pesky low inventory rain on our parade?

To answer these questions, I’ve brought in a panel of top Realtors who will give you the report from the trenches, from the City to the ‘burbs. So without further ado, let’s hear from the experts.

danielsteamsidebar2The Sudbury & Wayland Real Estate markets are easing into the always anticipated “Spring market.” Like a slow motion game of Dominos, many soon-to-be sellers are waiting for a house they would potentially buy to come on the market before they commit to putting their own homes on. With that, inventory has been low, but is increasing at a steady pace now that it is March and Mother Nature doesn’t seem as eager to make a point as she did last winter. Buyers are actively looking and although not every Open House attendee is a serious buyer, the high numbers of attendees are typically a good indicator of an active market. 2016 is starting to form as a healthy Real Estate market. — Gabrielle Daniels Henken and Carole Daniels — Coldwell Banker, Sudbury. www.LiveInSudburyMA.com

Inman_Sep14_600x-144054In Cambridge and Somerville, we’re still dealing with the inventory shortage — I don’t think it would be hyperbole to call it a crisis — that we’ve had for the last several years. And although the mild weather has brought buyers out in full force already this year, the listings are just beginning to trickle on, so we’re seeing 9, 10, 20 parties competing for the same home. Hopefully it will be a bit less brutal as we get further into March, but for the foreseeable future, demand will continue to outpace supply here.  Lara Gordon–Gibson Sotheby’s Cambridge. www.cambridgeville.com

heidi-zizzaDear Sellers, please don’t wait until spring to list your house at the SAME time as everyone else! Inventory is historically low so list now while you can be a real stand out in the market. Chances are you will bear a higher price as well! The Metrowest market is a popular market that’s constantly strong and growing. Due to the fact that we have 3 major highways that touch Metrowest, it is a popular spot for commuters to Boston and Worcester alike. Metrowest real estate is also a great investment! Heidi Zizza, Broker/Owner, mdm Realty, Framingham, MA

High demand, low inventory and continued low rates create a healthy and fiesty market in MetroWesali-cortont! Investors still have great opportunities with multi-family properties and first time buyers who didn’t take a break this winter were able to achieve their housing goals without busting their budgets. Glad to report that TRID was just a small bump in the road and had far less direct impact on the financing process than expected. Ali Corton, Real Estate Executives Boston West www.liveinframinghamma.com

11426494_10205439742007723_5117613197280979861_nAt the risk of sounding like a broken record, in Winchester, Arlington, Stoneham, Melrose, and the surrounding towns, quality inventory is scarce, and when it hits the market it’s scooped up within days. Buyers must be crystal clear about what they want, and then develop the stamina of a marathoner. They must be willing to brave packed open houses, make rapid decisions about writing offers, endure having 1,2,3,4 great offers rejected before securing a property. Sellers with quality listings are being presented with 10,12,20 offers, all over asking, all waiving contingencies, all with heartfelt letters and photos from buyers who are pulling out all the stops to get a house. As agents in today’s market one of our most important roles is to support our clients, both buyers and sellers, to remain calm and focused during the frenzy of the market. Katherine Waters-Clark, Re/Max-Winchester-Arlington

I work primarily with buyers and in towns from Bolton, Westford to Shrewsbury and even as far as Gardner and Ashburnham, when a house comes on the market and is in good condition it is snapped up quickly with multiple offers. I have had clients submit written letters with their offers to try and help sway a seller to choose them. The rates are still low and the lack of inventory on the market is making a rather difficult market to guide buyers. 284083_1902949570525_2002933_nFirst time home buyers are overwhelemed with the speed things have to be done to get their offer picked. Sellers are in a good place when it comes to selling a home in this Spring Market. I just did an Open House in Metheun yesterday, I had 16 families come through and today our seller has 3 offers to choose from, this is going to be a great Spring Market.  Sherry Stone-Graham,www.baystate-homes.com

images.aspxThe condo market in Metrowest is starving for inventory. I received 8 offers on one unit on Spyglass Hill in Ashland and a couple on a garden style unit. My open houses on Spyglass Hill have had over 25 guests. We desperately need inventory. So many buyers with so few properties is allowing sellers to possibly get more money. It’s a fantastic time to sell. Annie Silverman, Realty Executives Boston West.

10014301_10152691646478077_8626708505441128924_oI service Franklin and the surrounding area and am also licensed in RI. Right now the inventory is still low so sellers are really getting the activity they desire when priced correctly. My most recent listing had 23 sets of people through and we received 5 offers and most were over asking. Buyers are also fortunate as there was also just a dip in the financing rates. Franklin and most surrounding towns are also eligible for 0% down financing so the time is now to make the most of the Spring Market! Amber Cadaorette, Keller Williams Realty Franklin / Wrentham.ambersoldmyhouse.com

Feel free to offer your comments here or on Facebook! And good luck with your listings or buyers!

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Best Practices In A New TRID World

by Rich Vetstein on October 18, 2015

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 [email protected] 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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TRID Rules Expected To Delay and Disrupt Closings

by Rich Vetstein on July 31, 2015

TRID-1

Major Change To Current Practices | Expect Delays and Bumpy Road Starting Oct. 3

I just finished yet another closing where a national lender issued the closing documents the morning of the closing, and worse, issued a revised TIL (Truth in Lending) disclosure during the middle of the closing! Under the new TILA-RESPA Integrated Disclosure Rules (TRID) set to start on October 3, this too-common practice would have resulted in a closing delay of up to 7 days, to the dismay of everyone in the transaction.

The new TRID rules are game-changing regulations which threaten to disrupt and delay closings across the country. The new rules, already pushed back once due to industry outcry, go into effect in about 60 days on Oct. 3. I am very worried that lenders, Realtors and closing attorneys are not at all prepared for one of the most significant changes in how we do business. Experts are predicting that closings will be delayed, 60 day loan approvals will be the new normal, and new forms will bewilder buyers. “Expect a one- to two-week delay in closings,” said Ken Trepeta, director of real estate services of the government affairs branch for the National Association of Realtors, when describing the impact of TRID.

Check out my latest article: Best Practices In A New TRID World

Currently, we are finishing one of the strongest spring markets in a decade, but I’m quite concerned that come Fall, the new TRID rules will put the fall market into an ice bath. The best thing that every real estate professional can do is get educated and get prepared now for these changes. August is typically a slow month, so use it to get ready. My team will be doing a roadshow Powerpoint seminar to any local real estate office to explain the new changes. Contact me at [email protected] for more info.

New Closing Disclosure Replacing the HUD-1 Settlement Statement: 3 Day Rule

Under TRID, there will be a new settlement statement called a Closing Disclosure, which must be issued to the borrower at least 3 days prior to closing. If that does not occur, the closing will be delayed for up to 7 days. We are hearing that lenders will require that the information contained in the Closing Disclosure (all fees, closing costs, taxes, insurance, escrows, credits, etc.) be finalized as early as 20 days prior to closing, to give them enough time to generate the new Closing Disclosure in a timely fashion and to account for delays.

What does that mean for us professionals? It means that everything will need to be pushed up and done faster than before. That goes for titles, CPL’s, broker commission statements, invoices for repairs, insurance binders, condo fees, recording fees, title insurance, everything. And it means we can all expect delays as everyone adjusts to the new timetables and rules.

Practice Pointer: Click here to get my new TRID addendum/rider. 

What Forms Will Be Signed At Closing?

Lenders will require the new Closing Disclosure (embedded below) be signed by the borrower at closing. However, although the Closing Disclosure was intended to replace the current HUD-1 Settlement Statement, the geniuses at CPFB neglected to put a signature line for the sellers on the new Closing Disclosure. I’m not making this up. And we are no longer supposed to use the “old” HUD-1 Settlement Statement. Thus, our title insurance companies are telling us that there may be three settlement statements signed at closing: a Closing Disclosure for the buyer, a Closing Disclosure for the seller, and a combined Closing Disclosure. ALTA has created a new Combined Settlement Statement which can be found here.

Bank of America was asked whether it would require the use of the ALTA model forms, and it stated in a June 9 memo that it prefers the ALTA model if a closing attorney chooses to use a settlement statement to supplement the Closing Disclosure (CD), but specified that the settlement statement figures must reconcile to the CD and a copy of the settlement statement must be provided to the bank. The bank also stated that all revisions to fees and costs will require bank approval and an amended CD. In other words, closing attorneys will not be allowed to revise fees and costs by simply supplementing the CD with a settlement statement.

60 Day Approvals/Closings The New Normal?

With any historic change to how lenders disclose fees and approve loans, there’s going to be a steep learning curve — and delays. You can count on that. Industry insiders say the days of 30 and even 45 day loan approvals may be over, at least temporarily. Sixty (60) day approvals may be the new normal, and agents should build the longer timeframe into their offers and purchase and sale agreements and educate their buyers and sellers accordingly.

Repairs and Walk-Throughs

Since lenders will require all fees and credits finalized 7-10 days prior to closing, this will significantly impact how we handle repairs and credits. Agreed upon repairs also affect how the appraisal is conducted which will further impact the timelines. Experts are suggesting that Realtors consider doing walk-throughs at least 14-21 days prior to closing instead of the typical day before or day of walkthrough, because all repair issues and credits should be set in stone at least 7-10 days prior to closing and changes in fees and credits on the day of closing will not be permitted by the lender. Some experts are even saying that agents should do two walkthroughs, one within the TRID timelines and one immediately prior to closing. Also, under TRID paid outside closing (POC) items will be discouraged by lenders.

Take-away:  Realtors should be warned that repairs contained in the purchase and sale agreement will have the potential to delay closings under the TRID rules. Ensure that any repairs are completed 14-21 days prior to closing. Better yet, don’t have the seller make repairs at all; use closing cost credits instead. 

No More Back to Back Closings?

Due to the high potential for delays caused by TRID, back-to-back or piggyback closings may be a thing of the past, at least for now. A delay with a closing obviously has a domino effect on a back to back closing. The best practice, at least for the first few months of the new TRID era, is to schedule closings at least 3 days apart. Seller/buyers will have to prepare for this reality with bridge loans, use and occupancy agreements, or temporarily staying with your nearest relatives.

1416821334979Partner with Trusted and Verified Providers

Now more than ever, Realtors are going to want to partner with lenders and closing attorneys who have been vetted and verified as fully compliant with the TRID rules, so there will be minimal disruption and delay on their transactions. Realtors and loan officers should ask their closing attorneys whether they are compliant with the ALTA (American Land Title Association) Best Practices, which is quickly becoming the standard for TRID compliance. Under the ALTA Best Practices, the attorney will have passed an intensive initial due-diligence screening, a third-party internal audit, background and credit check, extensive review of applicant’s experience, business model and policy loss history, and licensing verification. The closing attorney should also have secure document encryption capabilities and privacy/technology policies in place. My office has been vetted and verified by Stewart Title which has a comprehensive website on the TRID rules. If your buyer wants to use his personal attorney who does not specialize in real estate, explain to him or her why that is a mistake which could ultimately delay the closing. 

Bumpy Road Ahead?

In my opinion, the TRID rules are the biggest change to the industry in 20 years, and will be much more difficult to implement than the new GFE and 3 page HUD of several years ago. As discussed above, my team will be doing a roadshow Powerpoint seminar to any local real estate office to explain the new changes. Contact me at [email protected] to schedule your complementary seminar.

More information:

Mass. Ass’n of Realtors Webinar on TRID with Ruth Dilingham, Special Counsel
National Ass’n of Realtors Webinar with Phil Schulman
Old Republic Title FAQ on TRID
CFPB Monitor TRID FAQ
CFPB Webinar Rebroadcast May 2015

CFPB Closing Disclosure by Richard Vetstein

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Superman's_classic_poseLike Superman, A Use and Occupancy Agreement Can Save the Day, But Be Aware of the Risks!

Tom and Mary Ryan, and their two little kids, Abigail and Jake, are relocating from California to the Boston area so Tom can take a job with a local tech company in Burlington. They have already sold their California home, and have been living in a cramped rented condominium in Santa Monica for two months already. Their loan has hit some snags because Tom was out of work for half of 2013, and had some IRS issues, although he is on solid footing now with his new job. The closing is scheduled for the end of this week and they have their cross country movers booked and scheduled and their life is now packed in boxes. Just when they finish packing their last box, their loan officer calls with somber news. “Tom, unfortunately, our underwriting department is dealing with delays getting your tax transcripts from the IRS. We are going to have to push back the closing for about a week. I’m so sorry.” Canceling the movers will cost several thousand dollars, and they will have to cancel furniture shipments as well. To make matters worse, new tenants are supposed to move into Tom’s rented condo unit right after they leave.

While all characters appearing in this work are fictitious, and any resemblance to real persons, living or dead, is purely coincidental, Tom and Mary are in trouble. With the prevalence of back-to-back closings and unforeseen underwriting issues and title defects, these situations are not uncommon. And with new TRID closing disclosure rules coming online in August, which are bound to cause even more loan approval delays, we may be seeing more of these situations in the months to come.

Fortunately, there is a solution to this situation. The sellers are willing to let the Tom, Mary and family move into the home prior to the closing under a Use and Occupancy Agreement. This will enable the buyers to complete their move, move into the house, but before the actual closing. A use and occupancy agreement, however, is not without its risks and downside, which I will discuss below.

One of the most important aspects of a Use and Occupancy Agreement is what it is versus what it is not. The agreement should specify that it creates a mere license to occupy the premises, not a tenancy or a landlord-tenant relationship. This will make it easier to remove/evict the occupants if something goes wrong. In any event, if the sellers are forced to remove the occupants, they will still have to resort to judicial eviction proceedings, which in Massachusetts can potentially take several months. This alone is the biggest drawback of a Use and Occupancy Agreement. The seller should always put language in the agreement that the buyers will be responsible for all attorneys’ fees and costs in case of an eviction.

The parties have to agree on a rental rate, typically based on the fair market rent for the premises or the mortgage and carrying costs. Websites such as www.rentometer.com can give you an idea of what a fair rental rate should be. Your Realtor should give you guidance as well. The rent should be divided by 30 for a per diem basis. You can also charge penalty rent if the term is extended past the original deadline.

The sellers should also include general indemnification language providing that “during the period of occupancy, Buyers shall maintain the Premises in good, clean condition and shall not make nor suffer any strip or waste to the Premises, nor make nor suffer any unlawful or improper use of the Premises and Buyers agree to indemnify Sellers and save them harmless from all liability, loss or any damage arising from such additions, alterations, strip, waste or unlawful or improper use, any nuisance made or suffered on the Premises by Buyers, including their family, friends, relatives, invitees, visitors, agents, or servants, or from any carelessness, negligence or improper conduct of any person.”

Lastly, the buyers should do their pre-closing walk through before they move in under a Use and Occupancy, because once they move in, the home will be a mess for awhile. That way, everyone will be on the same page as far as the property condition goes on the date of move in.

Many attorneys advise clients never to agree to Use and Occupancy Agreements. I am not one of those attorneys. With any risk, it depends on the situation. The sellers need to be comfortable that any delays will be resolved favorably and quickly. Sellers also need to appreciate that despite any language in the agreement, it could take months to remove an occupant if things so south. As long as everyone understands the risks, a Use and Occupancy Agreement can be a life saver.

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how to handle criticismAttorney’s Obnoxious Conduct At Closing Factor in Large Award

Every now and then I have a contentious deal where I should be wearing a black and white referee’s shirt instead of a shirt and tie. I’m usually successful in getting everyone to calm down and close the transaction. The case of KGM Custom Home Builders v. Prosky (embedded below) recently decided by the Massachusetts Supreme Judicial Court is an example of how really bad behavior at a real estate closing can get a party into big legal trouble.

45 Acres in Mansfield for Sale

The Prosky family of Mansfield entered into an agreement to sell 45 acres of developable land to KGM Custom Builders. The sale price was linked to the number of buildable lots that KGM could permit. After spending over $300,000 in 5 years including weathering an appeal, KGM was able to obtain permits for 60 residential units. However, the Proskys received a better offer for the land and a dispute over calculation over the purchase price arose. Nevertheless, KGM was not willing to back down, and scheduled a closing. Repudiating the contract, the Prosky’s attorney informed KGM that it should calculate the liquidated damages provision in the contract because the sellers were not going to sell.

Closing Shenanigans

A closing was nevertheless scheduled at which the Prosky’s attorney showed up with a professional videographer as “defense strategy.” The parties’  attorneys started yelling at each other, and KGM’s attorney shut off all electricity to the building, but the videographer was able to tape with battery power. KGM’s attorney demanded that the Prosky’s attorney produce the closing documents he was supposed to have drafted. The Prosky’s attorney waived the documents in the air, and when the buyer’s attorney went to grab them, he pulled them back and asked if could read them from 2 feet away. KGM, with funds on hand, was ready, willing and able to close, and took the Prosky’s attorney’s antics at the closing as not engaging in good faith, and walked out. At the end of the closing, one of the sellers asked the videographer, “can you explain to me what just happened”? (I would love to see this videotape!).

Anticipatory Repudiation, Breach of Good Faith and Fair Deal, or Both?

Naturally, KGM sued the sellers. The trial judge ruled the sellers had engaged in anticipatory repudiation but he calculated the sales price in favor of the sellers at over $1M, giving the buyer the option of going forward with the deal or taking the liquidated damages because the buyers had also breached the covenant of good faith and fair dealing with their attorney’s antics at the closing. The buyer elected damages, and the judge awarded nearly $500,000 in permitting costs and attorneys’ fees. The sellers weren’t happy with this, so they appealed.

On appeal at the SJC, the legal issue was whether the law allowed the trial judge to provide the buyer with this favorable election of remedies. With few exceptions, outside of the commercial law context, Massachusetts has not generally recognized the doctrine of anticipatory repudiation, which permits a party to a contract to bring an action for damages prior to the time performance is due if the other party repudiates. One such exception occurs where a seller of land informs the “holder of an enforceable option” to purchase that he plans to sell the land to a third party. The high court ruled that this case fit within this exception and upheld the award of damages to the buyer. Naturally, the court seemed particularly upset about the behavior of the seller’s attorney at the closing. In fairness, the SJC did slash the attorneys’ fee award by $120,000, but with statutory interest accruing for several years now, the end result will likely be the same — the sellers are out a lot of cash.

Fortunately, these types of antics are very much the exception rather than the rule at Massachusetts closings. There is really no excuse for this type of unprofessional behavior at a closing, no matter how contentious the dispute. If a party is going to elect to terminate a deal, go ahead and do it without the theatrics. After all, what you say and do at a real estate closing may come back to bite you and your client.

KGM Custom Home Builders v. Prosky (MA SJC 5/30/14)

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

What’s A Fixture vs. Removable Personal Property?

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

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

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

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

Disclose All Exclusions/Inclusions In Listing

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

Carry Over To The Offer and Purchase & Sale Agreement

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

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

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

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

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

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7076759_ac0f_625x1000Do Your Due Diligence!

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

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

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

Purchase and Sale Agreement Tips

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

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

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

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

If you have any questions about purchasing a Massachusetts condominium unit, please contact me at [email protected]

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

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

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

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

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

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

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

Limiting Seller’s Financial Exposure

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

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

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

Protecting The Buyer

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

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

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

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

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Richard D. Vetstein, Esq. is a Massachusetts real estate closing attorney with offices in Framingham and Needham, MA. He can be reached at [email protected] or 508.620.5352.

 

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

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

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

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

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

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

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

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Escrow Holdbacks: A Lifebuoy For A Troubled Closing

by Rich Vetstein on May 13, 2013

2691601505_c65b897bcc.jpgYou have been eagerly awaiting the closing of your new construction home, but alas, the builder has not been able to complete the landscaping, walkway and driveway by the closing and there is a two page punch-list of other incomplete work. You have already hired a moving company and packed all of your family’s stuff. Anxious thoughts race through your mind…Can we close on time? What will my lender do about the incomplete work? Should I be in panic mode?

Throw Me An Escrow Holdback Agreement!

In this situation, your closing attorney should recommend an escrow holdback agreement which, if approved by your lender, will enable the transaction to close as scheduled. The parties will sign a standard escrow holdback agreement at closing, with an agreed upon portion of the seller sale proceeds held in escrow (usually by the closing attorney) pending completion of the unfinished work. Escrow holdbacks are fairly common in Massachusetts real estate practice. They can be used to address all types of situations which would otherwise delay a closing: approval of a new septic system, unfinished construction/repair work, missing mortgage discharges and title issues, or any other obligation the seller should have completed for the closing.

Lender Approval Often Required

If you are using conventional mortgage financing, you will usually need to get your lender’s approval of the escrow holdback agreement, and it must be shown on the HUD-1 Settlement Statement. Some lenders and some loan programs will not allow an escrow holdback, so your closing may have to be pushed back. For incomplete new construction work, some lenders will require an inspection before allowing for the release of the escrowed funds, and they will typically require that 1.5 times the cost of the work be placed in escrow.

Builders Playing Hardball

Recently, I’ve seen some new construction builders refuse to agree to any escrow holdbacks in their purchase and sale agreements. This is ridiculous in my opinion, and should not be agreed to. Rarely does a new construction building complete a project without some unfinished work or punch list items. I typically counter with a language allowing an escrow holdback if the buyer’s lender insists upon it.

For these situations, “money talks”, and withholding seller funds is often the only way to ensure that the seller does what he or she has agreed to do.

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RDV-profile-picture-larger-150x150.jpgRichard D. Vetstein, Esq. is an experienced Massachusetts real estate closing attorney. If you have any questions about the Massachusetts closing process or escrow holdback agreements, please contact him at [email protected] or 508-620-5352.

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Email Disclaimers: Toothless, Useful, Or A Little Of Both?

by Rich Vetstein on February 2, 2013

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A Simple Email Disclaimer Cannot Hurt & Can Only Help

Boilerplate email disclaimers at the bottom of messages are so ubiquitous that most of us hardly notice them anymore. They certainly take up a lot of text space and can be annoying to some, but are they legally effective or just plain toothless?

In the real estate context, where Realtors and attorneys write in the language of contract everyday, I believe that a short and simple email disclaimer may help, and certainly cannot hurt, the sender (aside from annoying a snarky recipient or two). In this post, I will discuss a few common real estate situations where an email disclaimer could come into play, then give you the disclaimer that I use in my emails. Now I have my own disclaimer here: A court will determine each case individually, and there is no guarantee that any particular disclaimer will be effective in any given case.

Contract Negotiations

The most common situation where an email disclaimer could come into play is during real estate contract negotiations. For many agents and attorneys, e-mail has become the default mode of communication, replacing the telephone and the outdated fax. E-mail, however, can provide the “smoking gun” in litigation because it’s nearly impossible to delete permanently, and people tend to be more casual and less introspective before hitting “send.” And don’t get me started with texting, which is even worse.

Realtors must remember that under Massachusetts agency law they are agents with actual or apparent legal authority to bind their clients to the statements they make in emails and other forms of communication. Like the Miranda warnings given by the police, a real estate agents’ statements “can and will be used against them in a court of law.” The same is true for attorneys.

A case in point: In the recent well-publicized case of Feldberg v. Coxall, a Massachusetts judge ruled that a series of e-mail exchanges between the buyer and seller’s attorney, the last one attaching a revised, but unsigned, offer to purchase, could create a binding contract even though no formal written agreement was ever signed. This is also one of the first cases applying the new Massachusetts E-Sign law to preliminary negotiations in real estate deals. There have been cases in other jurisdictions holding that e-mails can result in a binding contract even though the parties may have assumed otherwise.

Practice Pointer:

“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.”

This is the new email disclaimer that I’ve formulated after the Feldberg ruling. It does two things. First, it provides that only a fully signed contract can bind the parties. Second, it attempts to counter the presumption in the E-sign Act of conducting the transaction electronically via email. It has not been tested in court yet, but again, aside from taking up some pixel space, it can’t hurt. Now remember, this type of disclaimer would favor a selling/listing agent, but not necessarily a buyer’s agent, because the buyer’s agent would typically want to enforce preliminary negotiations. So, caveat emptor (buyer beware).

Practice Pointer: “Subject to final client review/approval”

Another best practice that Realtors and attorneys should get in the habit of doing is to write “subject to final client review and approval” or words to that effect in the midst of email contract negotiations and draft agreements being circulated. This could sway a court from determining that a binding deal was formed, and plus, it gives you an “out” in case a client has last minute changes.

Confidential Communications

Attorneys love to use long confidentiality disclaimers in their email. Do they work? Occasionally. Do they matter in real estate? I still think so.

First, the concept of legal confidentiality is limited to those situations governed by legal privilege. There is an attorney-client privilege between lawyers and their clients, obviously. While there is no legal privilege between a Realtor and his/her client as for communications solely between the agent and the client, the attorney client privilege will likely attach to emails and communications between and among the real estate agent, the attorney, and the client provided that legal advice is being given. But a particular email does not automatically get confidentiality protection simply because the attorney is copied on it. Some courts have pointed to email disclaimers as a factor in upholding the confidentiality. But there have been many court rulings where judges have discarded the disclaimers.

While attorneys should absolutely have a confidentiality email disclaimer, do Realtors need one? I say yes, because sometimes emails between attorney and client wind up in Realtors’ inboxes and sometimes they get forwarded on purpose or by mistake when they shouldn’t, and that could waive any privilege which is attached and become the “smoking gun.”

Practice Pointer:

I use this simple email disclaimer:

CONFIDENTIALITY: This e-mail message and any attachments are confidential and may be privileged.

The best practice, of course, is to cleanse and delete portions of any email with attorney-client or confidential information before forwarding. And of course, THINK BEFORE YOU HIT SEND!

**Thank you to Cambridge MA Realtor Charles Cherney for suggesting this topic!

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RDV-profile-picture-larger-150x150.jpgRichard D. Vetstein, Esq. is a nationally recognized real estate attorney who writes frequently about legal issues facing the real estate industry. He can be reached at [email protected].

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realtor mag copyI wanted to share a recent article I authored for Realtor Magazine which was published in their January/February 2013 edition. The article is based on the Massachusetts court opinion in Feldberg v. Coxall, which I wrote about previously in this post. The court ruled that under recently passed electronic signature laws, emails between agents or attorneys could form a binding agreement even where there was no signed offer or written purchase and sale agreement. That’s a scary proposition for any agent! In the article, I suggest using a disclaimer in your email signatures to avoid having emails come back to bite you.

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Avoiding The Money Pit: Advice For Buying New Construction

by Rich Vetstein on November 29, 2012

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

Selecting and Working with a Builder

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

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

Hire A Buyer’s Agent

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

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

Amenities, Allowances & Upgrades

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

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

Contract Documents

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

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

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

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

Mortgage Financing

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

Inspections & Warranties

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

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

Punch-Lists and Closing

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

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

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

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

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