All posts by etopkins

Closing a Deal is Like Catching a Fish–Leave As Little as You Can to “Chance”

We all marvel at the “deal-makers”, those people who we deal with, and envy, every day because their deals get done; their paydays really happen. After more than 41 years of practicing law in Massachusetts, I have learned the following things about closing deals, and I thought I would share them with you:

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     1. Deal Makers Have a Healthy Sense of Paranoia. They can see problems before they surface. They have decision trees in their minds well before the decision needs to be made. They are pro-active because the have thought through the ocnsequences of the deal for each participant. How much dose the Seller need to sell? How would delay affect the chemistry of the deal? What things can the “deak maker” do in advanec which will combat aribitrary or selfish behavior on the part of someone else in the deal?

     2. Dea

Behind in Your Mortgage: A Few Principles to Guide You

There are some rather complicated areas involving who is in front of whom in terms of real estate transactions, and you need to know these, especially if your mortgage payments are in arrears. Most of us have at least a first mortgage, and many of you have second mortgages, as well. If those are the only encumbrance on your home, it is reasonably simple to keep track of where you stand on these security instruments. The first mortgage comes first; the second mortgage has equity only if the principal balance of the first mortgage is less than the outstanding balance on the first mortgage.

These days, many first mortgages are “under water”. That means that the value of the dwelling is less than the principal balance of the mortgage note. It has been estimated that as many as one in four homes in America is in this position. I bring this up because some homeowners are trying to get a “short sale” approved to sell their home, move into a rental facility, and stop the noise of dunning calls from their mortgage Lender. The fact that there are so many homes “under water” and there is a high presence of second mortgages clouding resolution of the difficulties facing the home owner is a fact of our times. Many times the first mortgage lender will say “yes” to a diminished mortgage payoff, but the second mortgage lender will say no. The second mortgage lender, with no equity, has little to lose. Therefore, it is often the second mortgage lender who will prove the greatest obstacle in getting a short sale approved.

There are a few other “wrinkles” which you may wish to know about. The first is real estate taxes. Real estate taxes take priority over mortgages. Without this framework, few cities and towns would be able to survive. Many of you may be aware of the situation in Milton where a homeowner has accrued several hundred thousand dollars in back taxes, and faces a tax sale which will obliterate much of the equity which a mortgage lender has in the property. This is a unique situation, and, perhaps, one which could have been avoided by a more aggressive course of action by the Town. Normally, if a Town or other municipality brings a serious real estate tax deficiency to the attention of the mortgage Lender, the mortgage Lender pays the taxes to maintain its secured position. I am not familiar with all of the facts in the current delinquency. All I can say is if you are a person behind in mortgage payment and taxes, it may be in your interest to have your mortgage Lender pay the taxes, rather than be left in the situation which appears to currently obtain. The interest rate on delinquent taxes is Fourteen (14%)per cent per annum.

The last area which may be of interest is common area delinquencies for condominiums. A recent statute has made these items prioritized and Condominium Trustees can hold auction sales which knock out the secured position of Lenders. Again, if you are falling behind in this area, I urge you to contact your Lender, who may be willing to make these payments, too, to protect the Lender’s equity in your Unit.

Reverse Mortgages Revisited

Reverse Mortgages Revisited

There is probably more misinformation in existence about Reverse Mortgages than any other mortgage product in history. Much of the misinformation has been founded on fact. Reverse mortgages have, in the past, been extremely expensive mortgage products.

Lately, many of the premier players in the Reverse Mortgage market have been leaving the business. In some instances, this exit was occasioned by poor performance of the collateral in resale, so that large financial losses were absorbed. In others, the recession in land values made fewer and fewer properties attractive for Reverse Mortgages, because the former plethora of equity in the real estate no longer existed.

In any event, there is now a leaner group of mortgage lenders in the Reverse Mortgage field, and the landscape has changed, so that many Reverse Mortgages can be originated with much the same costs as conventional mortgages. Furthermore, now that there seems to be some stability in real estate values, especially in Massachusetts, this may be the time to consider Reverse Mortgages, not only for the traditional uses which the products have served but for some innovative uses not heretofore utilized.

Traditionally, Reverse Mortgages were a “mortgage of last resort”. A senior was in straitened financial condition and could not afford to purchase basic necessities, like food or, more importantly, various medications which were required for preservation of decent health. If that person had equity in his or her home, the funds generated by a Reverse Mortgage provided a lifeline for the person in question. Many times this person had equity in his or her home and nothing else. The person’s children were placed in the situation of making gifts to his or her parents or letting go of the inheritance which the parent wished to leave but could probably not afford to maintain.

Regrettably, those kinds of situations continue to exist and the Reverse Mortgage is one way to deal with them. On the other hand, there are some more positive uses of Reverse Mortgages, and you may wish to consider these, as well.

    1. Get a run-down, tired home in shape for selling. Suppose your home has plenty of equity (even no mortgage) but you do not have any spare funds to upgrade plumbing. electrical systems or a sound roof to attain a good price for your home. Using a Reverse Mortgage may be just the vehicle to take some money out of your home, address the major issues, and then market and sell your home for a fair price, not a price based on all the negatives which marketing an old house often produces.

    2. Take money out of your home and use the funds to make lifetime gifts to family members. Reverse Mortgages are not only for people who have financial problems. They can also be used by people whose financial situation is stable but who would like to make distributions of funds to family members while they are alive. None of their children want to live in the family home. Why not liquefy the real estate with a Reverse Mortgage and remove all the responsibility of selling the home after the person dies?

In the coming posts, I intend to explore other possibilities presented by Reverse Mortgages and how they can be utilized effectively. There has been a lot of “piling on” regarding this product, and I think there are times when Reverse Mortgages can be effective options for seniors.

As Easy as A, B, and C

2011 and 2012 are strange years because the US Congress has made an unprecedented move to eliminate Federal Estate taxes for all but the really privileged few. The threshold level of assets in your gross estate must exceed $5,000,000.00, if you pass away in either of those years, before you will need to pay any Federal Estate Taxes. That being the case, at least for Federal Estate tax purposes, the allure of the Revocable Trust, which was a standby for many middle and upper middle class individuals, has begun to lose its allure.

Briefly described, the Revocable Trust, especially when the person involved took the additional step after signing to put his or her assets into same was a vehicle which gave tax advantages and almost always reduced the expense and frustration of Probate. People used Revocable Trusts to take advantage of the then current Federal Estate tax exemption, which up until 2011 and 2012 was in the $3,000,000 range.

The post is written to express my view that the news of the death of the Revocable Trust as a valuable Estate Planning tool is extremely premature. I frequently recommend to my clients with estates over $1,000,000 that they consider putting Revocable Trusts into place. These are my reasons:

  1. Massachusetts Inheritance Tax starts at $1,000,000. That being said, there is no Inheritance Tax when a husband passes his assets to his wife, or a wife passes her assets to her husband. The tax only impacts people upon the death of the second to die. This follows the pattern utilized in the Federal Estate Tax system exactly. The problem of Massachusetts Inheritance Tax arises upon the death of the surviving spouse. There is no unlimited exemption, and all assets over $1,000,000 will be taxed by Massachusetts. The C Trust capture the credit.
  2. There is another, more practical advantage to the A, B and C Revocable Trust. The Trust can be used as a vehicle to accept the life insurance proceeds of the person who establishes the Trust. You may wonder why this is advantageous. For one thing, many people with younger children have life insurance for their family. The primary beneficiary is almost always the surviving spouse, and that makes perfect sense. What if a couple with adequate life insurance and small children was on a plane headed for California on September 11, 2011? Both spouses perish, and the young children come into a small fortune at the age of 18. My experience tells me that 18 is too young an age for children to have a lot of money. If the life insurance beneficiary is the Revocable Trust, the surviving spouse still gets use of the insurance proceeds, but the children do not get their principal until they are older and more mature.

Drafting an A, B, C Trust is not super-complicated or super expensive. If any of the situations I have described to you apply to your situation, speak to your attorney or trusted advisor about setting up the Trust. You will be doing a lot of people whom you love a wonderful service.


Buying a Home—Assemble a team

If you have not gone through the process, you have no idea of how many “little things” are involved in purchasing a home. It really is not as easy as finding a suitable property, submitting an acceptable Offer, closing on your mortgage loan and moving in. At every step along the way, there are decisions and choices which need to be made. More importantly, these decisions need to be made at a time when there is more “pressure” on you than you can imagine, so you are not always at the top of your game, and you can make important mistakes which you wouldn’t make if you were treating a home purchase like any other project, which you analyze and dissect before the process begins.

In a word, you are best served by putting together your team of professionals as soon as you decide that you are in the market to purchase a home. This means interviewing, and selecting the right professionals, before, not after you settle on a property. These are the categories which need your selection:

Buyer’s Agent: Buyer’s agency is a relatively new concept, but it is designed for you, the Buyer. The Buyer’s Agent is working for you. The Buyer’s Agent will tell you what he or she thinks the property is worth. The Buyer Agent will negotiate your Offer to purchase. The Buyer Agent will help negotiate inspection issues which may arise after you get the report from the Inspector. Ask people you know who have bought homes recently for suggestions. Interview the prospective Buyer’s Agent. Ask how many homes he or she has closed on in the past eighteen (18) months. Speak to more than one person.

Real Estate Attorney: Interview more than one candidate. Make sure the person does real estate. Ask the person how many deals he or she is now working on. Does the attorney have enough time to give you effective representation? Will the attorney give you fixed fee pricing rather than bill by the hour? Will the attorney give you a discounted price if the attorney also does the title work and conducts the closing? Find out in advance what the attorney’s “all-in” pricing will be.

Home Inspector: Home Inspectors are licensed. Speak to more than one. Ask if there have been any Complaints filed against the inspector in the past year. Ask the inspector to give you the names of people for whom he or she has done recent inspections. Have the person lined up in advance of the need. If you do this, you will not need to accept “second-best” because you are under time pressure.

Professional: Believe it or not, rate is not all that important when you are purchasing a home. You can always “correct” your rate somewhere down the road. Reliability is the key ingredient here. Will this person’s company show up with the money on the date set forth in your purchase and sale agreement? Ask to speak with satisfied customers. They will let you know whether promises are kept.

A team in place will make the home buying process go much more smoothly. Take the time to prepare. Your team will help you through the rough spots.

Thinking Ahead–I will not permit any kind of utility “shut-offs” on my watch as BUYER’s Attorney, if I can Possibly Avoid Them

Recently, I wrote a post about the problems I encountered when a client of mine had serious closing problems because, by mistake, the dwelling in question had its electricity shut down, pipes froze and there was ensuing damage. Fortunately, for all concerned I had a financially viable SELLER who was motivated. Substantially all of the repairs have been completed in three (3) days and we are closing on the purchase today.

My client will be buying a dwelling, with three brand new radiators, a bunch of state of the art piping, newly, freshly painted drywall and, generally, an upgrade in condition from the “condition the premise are at the date of the home inspection, reasonable wear and tear excepted” In a word, my client has “lucked out”. They are good people who did not deserve all this last minute anguish so “good things happened to good people”.

The comments I received form the ActiveRain community on this situation were thoughtful, and I got to thinking how ironic it is that in Massachusetts, where I practice real estate law, and which is known for frigid winters, there is no real estate association or real estate bar association standard clause in the purchase and sale Agreement dealing with this type of situation.

Henceforth, that will changes, at least for me. In my BUYER representation contracts, I intend to include the following:

“The SELLER agrees to maintain the premises from the date of this Agreement until the time that the BUYER receives the Deed and keys to the dwelling in substantially the same conditions as exist on the date of this Agreement. This not only includes maintaining the lawn and shrubbery in the usual manner, but insuring that all utilities leading to the premises are kept operational and not “shut off” under any circumstances. The parties agree that the financial and other damages to be suffered by the BUYER as a result of SELLER’s breach of this covenant will be difficult to ascertain, so in addition to the SELLER’s agreeing to bear the full expense of repair should the SELLER violate this covenant, the SELLER also agrees to pay the expenses, if any, for the BUYER to extend BUYER’s financing commitment and a “Break-up” fee of One (1%) of the Purchase Price set forth elsewhere in this Agreement”

I do not expect many SELLERS to agree to this. It would probably only happen if they, or their attorney, did not read my comments. On the other hand, I have told the SELLER, in advance that “shut-offs” are serious and not acceptable. Since I write posts frequently, I will inform you of my success here. Again, your comments were very helpful, and I would appreciate more, if you can find the time.

Care and Feeding of the “Ten”—Making Sure You Contact the Really Important People in Your Practice No Less Frequently than Once a Week

In a way, I am torn. I have totally “bought in” to social media, and I do not miss a day when I do not log in to Active Rain. I must admit that my ActiveRain experience would be truthfully designated as one for  “fun and profit”,  because I have only been on ActiveRain since last March, and I have developed a lot of friendships on the blogging site, quite unexpectedly,  I might add. I tweet once in a while and sort of keep up on Facebook and Linked-In, but not as much as I probably should. As one person aptly put it at the recent New York Rain Camp, which I attended, “There are only a certain number of hours in the day when I am awake!!!!!”

Having said all the above, I remain a traditional guy, with traditional values. My connections with the real estate industry in Massachusetts for the past forty years has taught me one thing. There are approximately TEN people in your professional life who make a difference to you, and you need to be in touch with them on a frequent basis, no less frequently than weekly, in my circumstances. These are the people who send you referrals; these are the people who are your “raving fans”. These are the people you cannot miss “connecting with” at least once a week.

My procedure for the TEN is quite simple. Every Monday morning I write their names down on a sheet of yellow legal paper. I look at my Outlook schedule and put in a contact with each of the TENsome time that week. I usually vary the approach. Sometimes it is an email just saying “hi–anything doing?”. Other times it is a call to their cell phone. Once in a while it is a handwritten note. I try to throw in impromptu visits “because I happened to be in the neighborhood” which, at times, is a small exaggeration since my intention was to drive “to then neighborhood”.

Anything to get into communication with these important people. Why, you ask? Because once the dialogue begins, good things almost always start flowing from it. “Gee, do you do that work?” “Oh, you know this person.” “Can you introduce me to Susie Jones? I really have been dying to meet her”. All of these “openings” can lead to “closings” and closings is what makes my world go around.

Like me, you will find that the membership in the TENis a shifting constituency. People who used to be sources of ideas and business are no longer as enthusiastic. Domestic problems and health issues can distract people. They may be losing interest. You can stay their friend, but they gradually shift out of the TEN. Compiling the list, and then reshuffling it from time time time, is a worthwhile exercise. If you are a record keeper like me, you will be amazed at how view these people are the twenty percent of your client who produce eighty per cent of your business. Treat them with the deference that such standing deserves.

That Old Stand-By “The Condominum Conversion”—Some “how to” Steps for a Real Estate strategy that Still Remains Viable

Even in today’s distressed real estate environment, there are times where a condominium conversion makes sense. I have been working on condominium conversions for more than twenty year. There follows a short summary of the process, with the thought that condominium conversion may make the best sense for your multi-unit Sellers. My firm, Topkins & Bevans, continues to assist  developers and individuals with condominium conversions. We have developed a team of engineers, financing people, accountants and marketing professionals which can take most of the anguish out of the process.  


A  Massachusetts condominium can only be created by adherence to the provisions of Massachusetts Laws, Chapter 183A. The first professional to be involved is the engineer, or in some cases, an architect.  This professional needs to provide two separate documents.  The first is a site plan, which shows the footprint of the building on the land. If there are parking spaces to be conveyed or parking easement, they are indicated on the site plan.  Any easements or rights of way are also delineated.  The professional also needs to draft condominium floor plans, which configure the units which are being created.  If there are yards, decks or roof rights, these need to be shown on the condominium floor plans.  Common areas , including those for exclusive unit to certain units, are marked off.

Once the plans are developed, our firm gets into the action.  We draft the following two necessary documents which will accompany the plans described above: 

 •1.      Master Deed.  This document makes the property a condominium.  It references the Site Plan and the Condominium Floors plans.  It indicates the exact boundaries of each Unit.  It provides descriptions of any exclusive easements or rights.  Often, there is language in the Master Deed which makes FNMA and FHLMC able to purchase loans secured by the condominium units.  The Master Deed also sets forth the percentage of ownership and actual configuration of each Unit.  In effect, the Master Deed gives the purchaser necessary specific information as to what he or she is actually purchasing.

•2.      Condominium Trust.  This document sets forth the rules and regulations of condominium operations.  Condominiums are run by a group of Trustees, elected by the unit owners.  The Trustees meet periodically and make decisions concerning operations.  They contract for repairs, maintenance, insurance and snow removal.  They collect monthly fees, which are set, annually, and they make sure each unit owner is current in payment of necessary fees.  All of the details of these items are described in the Trust document.  Additionally, the Trust will control whether pets are permitted and also describe procedures which must be adhered to if you are renting your unit..  Most new Trust documents also set forth an arbitration procedure to be utilized if a unit owner takes issue with the actions of the Trustees.


After the documents are drafted and recorded, it is time to sell the condominium units you created.  There are tax ramifications which need to be addressed.  An accountant thoroughly familiar with the proper steps is essential.  Similarly, real estate professionals can market your units effectively and can actually be showing the units while the documentation is being completed.  You as the organizer need to obtain common area insurance and prepare an initial budget which will be used to determine the condominium monthly fee.  An experienced condominium attorney can help you accomplish all these steps at a pace which works for you.

There is work involved in a condominium conversion.  There are also cash outlays.  On the other hand, it is estimated that a two or three family dwelling converted into condominiums is still  worth no less than one hundred fifty percent of its value as an apartment dwelling.  With that kind of increase in value, especially in a difficult rental market, it behooves any property owner to consider condominium conversion.

Acts of God Between the Signing of A Purchase and Sale Agreement and the Closing–The Buyer Really Doesn’t have a Lot of Remedies

It happened last evening in a bedroom community north of Boston. The tenant who had rented the home my clients are purchasing had vacated the dwelling on January 31, 2010 and informed all affected utilities,including the electric company. For reason still unknown, the electric company immediately shut off the electricity. The pipes froze, and there is rather severe damage to the interior of the dwelling including a flooded basement.

The closing was scheduled for this afternoon.  It has been postponed until Thursday afternoon. The Lender’s rate commitment runs out on Friday. The more the parties look at the damage, the more certain we all are that the repairs and replacements will not be done for at least a week. My clients, the Buyers, have requested an extension of their mortgage interest rate. They are likely to receive same, but at a cost.

I protected my client from this eventuality in the purchase and sale agreement by saying that if for any reason, the Seller was not able to deliver the premises in substantially the same condition as they were in at the time of signing the purchase and sale agreement on the agreed upon closing date, and my client could not extend their interest rate at no charge, we could terminate the deal and receive our deposit back. This is not what my client wants to do. They want the house, and they are willing to pay for a thirty day extension. I had asked, in the course of the negotiations, for the Seller to agree to pay for this extension, but that request was not agreed to.

In any event, we are now at that miserable state of affairs where in the middle of winter, the house which my clients have dreamed of owning has “clay feet” What is worse, with the exception of withdrawing from the purchase, there are no real remedies under Massachusetts law which protect my Buyer.

The event was not the fault of the Seller, at least it would be hard to attribute NStar’s negligence to the Seller in a court of law. Realistically, the Seller is suffering here as well, as the Seller struggles to assess the damage and fix what went wrong, all , at least initially, out of their pockets.

When the dmage is substantially rectified, and we close, I am anticipating requesting the following from the  Seller in connection with the home purchase:

     1. An assignment of insurance claims which the Seller may have with respect to the damage to the extent that same have not been paid to the Seller by the time of the closing date, as well as an affirmative covenant to assist my client with any subsequent claims.

     2. An assignment of any claims against NStar, if any, for shutting down the electricity without consent of the Owner and without contemplating the effect of such an action.

I would be very interested in hearing from any of you, either lawyers or other real estate professionals about any other ways I can protect my clients in this unfortunate situation. Perhaps, there is something obvious which I am missing.

Protection of Your Investment, Easy Allocation of Contributions of Partners–It is extremely hard to beat the “Limited Liability Company”

Anyone who owns a business venture should be concerned with certain basic truths.  It is a sad but true fact that our society is becoming more and more litigious every day, and more and more small business owners are finding themselves on the wrong side of law suits.  Right or wrong, the experience of defending a legal action is extremely stressful inflatable horse.

I have acted as a Massachusetts real estate attorney for more than 40 years. During that period, I have never had a client who “enjoyed” being sued and experiencing the expense and disruption of a lawsuit.  It makes sense to put a legal shield between yourself and the creditors of your business, whether real or contingent.  The  Limited Liability Company (“LLC”) is an entity completely separate from its members.

With proper planning, none of the members of the LLC should be personally liable for the debts of the LLC whether they arise in contract or tort. The LLC also offers some unique advantages for unmarried coupleswho own real estate together. This has been a subject of a recent post in which ActiveRain member showed much interest

The operating agreement of the LLC can be tailored to determine an “exit strategy” should the couple break up.  More importantly, the operating agreement can be fashioned in such a way as to recognize disparate contributions of equity or disparate payments on the mortgage, so there can be no problems sorting our who owns what and who is entitled to what tax deduction.  In many instances, the LLC can replace the use of joint tenancy agreements and tenancy in common agreements, which are often cumbersome and difficulty to administer and enforce.

Do you need to raise money for a real estate or venture capital project?  The LLC is a perfect vehicle.  Admitting new members is a simple process, and there are no limits to the number and/or character of additional investors.  They can include all types of individuals, corporations, trusts, pension plans, foreign investors (both out of Massachusetts and out of the country).  This is certainly not the case with the corporate structure that most closely rivals the LLC, the subchapter S corporation.

So, if your real estate transaction involves any group of people other than a married couple, I would strongly suggest an LLC. The planning, and protective, possibilities are endless, and the actuak working of the LLC easy to master. In the near future, my website, will contain examples  of many different types of Operating Agreements. I am sure you will find one among that group which can be adapted to fit your unique needs.

What Does It Cost?

The cost to set up and maintain an LLC are roughly comparable to setting up a corporation, (figure between $1,500 and $2,000 including filing fee and drafting of the articles of organization and operating agreement).  After the initial cost, however, the ongoing costs are minimal.  There is no need to hold an annual meeting of shareholders or directors.  The person designated as “manager” in the articles of organization can take actions on behalf of the entity without the approval of directors.  Moreover, in a single member LLC,  we at Topkins & Bevans have determined that there is no need for an operating agreement, so that the initial cost in that scenario is lower.