All posts by Robert Bevans

New Residential Construction Contracts in Massachusetts–In this Case, Less May be Less

Uncategorized

First of all, I want to state my main premise when dealing with the new construction of homes. I insist that my clients do the research on the builder they have selected. There is no substitute for a great track record. I tell my clients to get at least two references of people for whom the builder has built a house, or performed substantial renovation work. This includes addresses and phone numbers. I tell my client to inform the builder that they intend to contact the former customers directly, either in person or by phone. They are going to ask questions like:

     1. How was working with this builder? Was he concerned about details? Did he get the house built on time? Did he come back promptly during the warranty period?

     2. Would you recommend this builder to your friends and family?

Assuming the answers to these questions are “yes”, I believe that, at the very minimum, the following elements need to be included in the Construction Contract:

     1. A commitment to build the home in accordance with the initialed plans and specifications.

     2. A delivery of an insurance certificate from the Builder which covers Builder’s Risks and Workman’s Compensation.

     3. An Arbitration Provision to cover disputes. Neither side can afford litigation in the course of building a new home.

     4. A commitment by the builder to deliver “lien releases” so-called before the final payment of the contract price is required.

     5. A One-Year Builder’s Warranty which sets forth in detail what is covered,and not covered, in terms of the quality of the work.

You would be surprised how “summary” some of the Construction Contracts my clients present to me from their builders can be.  In one instance, the terms of the contract were written on the clean side of an envelope. I cannot let my clients move forward on a six or seven figure project with a “handshake”. In the case of something as important as building a new home is, a comprehensive Construction Contract is essential. That is what I provide for my clients, or I do not get involved in their representation

Massachusetts Real Estate Investors–The LLC beats All the Others for Ease of Operations and Protection

Uncategorized, ,

As a practicing real estate attorney with more than 40 years of experience in Massachusetts real estate transactions, I have pretty much seen all permutations and combinations of investment entities. When I first started practicing, limited partnerships were in vogue. That entity became further refined when people started creating corporations to be general partners. Limited Partnerships, frankly, had limitations. There was difficulty allocating cash flow among the participants; there were worries that any participation by a limited partner might make that person subject to entity liability. Limited Partnerships are still in use in special situations. These generally involve large, large transactions in commercial contexts.

Through the years, many people have embraced the use of Nominee, or Dummy, Trusts. These entities have the basic advantage of anonymity, and not much else. Recently, most tax accountants are taking the position that the Nominee Trust must file an informational tax return and thereunder “pass-through” the income and depreciation to the underlying beneficiaries. At one point, this second expensive step was not required. The worst part about the Nominee Trust, from my point of view, is that there is no real certainty that the underlying beneficiaries would be insulated from liability for obligations of the Nominee Trust. I now use Nominee Trusts in only situations where the property is residential and liability and umbrella insurance coverage would appear adequate for normal risks.

This brings us to my “Entity of Choice”, the Limited Liability Company (the “LLC“). Until relatively recently, Massachusetts, in its typical fashion, refused to join the other 49 states in permitting Single MemberLLC’s. Fortunately, those days are over, and the Single Member LLC is permitted. For your information, before the change, we needed to enlist a family member or close friend to become a minuscule Member to comply with the statute.

Now that Single Member LLC’s are permitted, there is no reason to use any other entity (other than an owner being “penny-wise and pound foolish” regarding the cost. In Massachusetts, there is a $500 filing fee for the LLC. There is an additional $500 Annual Fee after filing. Be advised, that there is a way to have “serial” LLC’s to avoid some of these fees, but that will be the subject of a future post.

So, for rather short money, a person who owns investment real estate in Massachusetts can operate like a sole proprietorship (some caveats here, see below) and have all the insulation aspects of a corporation. Moreover, if desired, an LLC Operating Agreement can be precisely tailored to admit “partner” Members and give them unique benefits. The Massachusetts LLC has one, or more, Managers (really a combination chief executive officer and sole board of directors member) and any number of Members (think of shareholders). The Certificate of Organization for the LLC generally provides the Manager with plenipotentiary powers, including the power to deal with real estate. The only thing the Manager has to remember at all times is to sign all leases and other contracts as “John Doe, Manager of the LLC”

At Topkins & Bevans, the law firmof which I am the founding partner, we work with Massachusetts LLC’s virtually every day. Call, or email,  me with any  Massachusetts LLCquestions or concerns, and we will gladly address them for you. No charge for any of this until, we both agree there will be. Just part of being a good ActiveRain citizen.

Being a Landlord in Massachusetts–The Perils are Real!!!!

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We are far removed from the time when the Landlord held all the cards in Massachusetts residential leases.  it would be more accurate to say, “Landlord Beware!!!” Even before the recent economic downturn which Massachusetts has been experiencing began, Landlords hav been on the run. Evictions for non-payment are certainly not automatic or swift. if a family with children is involved, or a person with special needs is your tenant, you may be looking at a year or more to get people out, even if they are not paying rent.

A new scam by tenants has also arisen where the Landlord owns a Condominium Unit, and cannot keep up his mortgage or monthly common area payments. The tenant just stops paying the rent and makes a deal with the Condominium Trustees to pay the monthly fees directly to the Condominium Association. With the length of time that foreclosures are taking, this can put the tenant in a “cheap rent situation” for an extended period of time.

A word of caution to all prospective Landlords. Familiarize yourself with the rules of security deposits and collecting last month’s rent.

     1. Security Deposits.  a. Never, ever collect a Security Deposit without having a tenant sign a Condition Statement. If you leave the condition of the rental unit open to “discussion” when the tenant vacates, you are asking for a lawsuit. Once the tenant acknowledges that the rental unit is in perfect condition, or notes exceptions as they exist, the road to retaining all, or a portion, of the security deposit gets much easier.

 b. Make sure that the security deposit is placed in a segregated savings account with the tenant’s social security number being credited with the interest. A failure to so segregate these funds has been adjudicated as a consumer protection violation in Massachusetts, with consequent treble damage liability lurking.

     2. Last Month’s Rent.As long as it is so labeled, this payment can be used by the Landlord. The Landlord needs to understand that he or she MUST make annual payments of interest to the tenant on this prepayment. Failure to make these payments may also leave the Landlord subject to consumer protection penalties.

At Topkins & Bevans, we advise Landlords on how to proceed on a statewide basis. Do not hesitate to contact us with any questions you may have on lease drafting or operations. We are glad to provide timely and accurate responses.

Together We REALLY Can–The Combined Enterprise of the Buyer’s Agent and the Buyer’s Attorney in Condominium Purchases

Condominium

While there has been a marked increase in both new and conversion condominiums in Massachusetts, where I practice real estate law,and most other jurisdictions in ActiveRain nation, it is my sense that many people get involved in a condominium purchase without any real understanding of what they are getting into and the inherent risks involved in condominium ownership. I have written other posts about the inconsistencies of condominium governance and the difficulties condominiums experience in encouraging able and stable people to serve as Trustees and Officers. That will not be the subject of this post.

This post is designed to be more positive. I want to lay out some of the guidelines I have followed in representing Buyers of Condominium Units, and how I have been able to work together with committed Buyer Agents to do the best possible work in terms of due diligence and disclosure. It is this “teamwork” element that I want to stress. I am so grateful for the advent of Buyer’s Agency, because I now have a real ally on the Buyer’s side. There are no conflicts here; the Buyer’s Agent and I are on the same page.

•1.       Pre-Offer Stage. This is where the Buyer’s Agent can really shine. I suggest that the Buyer’s Agent accompany the Buyer to the Condominium and then knock on some doors. Speak to the current residents. Ask them how things are going with the Condominium Trustees. Do they keep you informed of meetings? Are minutes ever distributed? If you have day-to-day problems, are they addressed? More than anything, this due diligence will give your Buyer a sense of what he or she is getting into. Remember, if the people interviewed lie, or even embellish, they are going to have some really embarrassing moments making explanations for their imprecations in the elevator or the laundry room.

•2.       Offer Stage. This is where the Buyer’s Agent and I can combine our efforts. The Buyer’s agent must be meticulous in terms of including everything that is included in the purchase in terms of appliances and other personal property. The Agent must make sure that the Buyer’s obligations are subject to the review of the Condominium Documents and Financial Information by Buyer’s counsel. Once the Offer is signed, I can almost always locate the Master Deed and Condominium Trust on-line. I will do this right away and alert my client to any aspect of the documents (pet’s policy, right of first refusal, policy on rentals) which I think is important. The Buyer’s Agent should be obtaining a current Financial Statement, Budget for the coming year and Minutes (if any) of the Condominium Trustees. I will review these, as well, and report any items which may be “red-flags”.

•3.       Purchase and Sale and Thenafter. There are certain basic items which I will include in my Buyer’s Rider. These include a statement about no future assessments and title representations which will be important at the closing table. My firm will obtain what is called a Municipal Lien Certificate which indicates the status of tax payments to the city or town where the Unit is located. Normally, the Buyer’s Agent will track down the 6(d) Certificate (statement that the Condominium is current in monthly condominium fees) and a Certificate of Insurance issued by the insurance carrier, who insures the Condominium common areas, which indicates the Buyer as an insured under that policy at 12:01 AM on the date of closing. The Buyer’s Agent often assists the Buyer in obtaining an HO6 Policy which protects personal property within the Buyer’s Unit and liability for occurrences within the Unit.

So, you can see how truly “joint” the enterprise between Buyer’s Agent and Buyer’s Attorney has become in terms of Condominium purchases. Together, we cannot solve all the problems which exist in Condominium governance. On the other hand, we can make sure that we have an informed, and prepared, consumer, and that knowledge can do nothing but make the experience more manageable.

Bridge as Life–Using Play of the Hand Techniques to Improve Your Negotiating

Customer Service, Marketing / Communication

My dad and mom taught me to play Bridge when I was a teenager. We had an instant game anytime we wanted with my older sister as the fourth. I play a lot of Bridge in college (probably too much, now that I think about it) and then have resumed playing as an adult with a regular group at my golf club. I have even played in a few duplicate tournaments from time to time.

Like all other card games, there is a certain element of luck involved in a Bridge game. Not so much in Tournament Bridge, but in the informal games that most of us play. That being said, I truly believe that there is also an important element of skill in the play of a Bridge hand. There are certain techniques that the declarer utilizes that demonstrate mastery of the game and almost always put the skillful player ahead of the others. It occurred to me that some of these techniques may be usable in real estate negotiations so I am chronicling them here.

•1.       The Endgame.  A clever declarer can make his or her contract if he puts the player to his left in a position where whatever he leads, the declarer wins. Picture the declare sitting South holding Ace-Jack of a suit, and his opponent sitting West holding King-Ten. If the declarer at the end of the game, can lose a trick to West when there are but two cards remaining, whatever of the two cards West leads (King or Ten), South will win both tricks. I would compare this situation to dealings with a stubborn seller, or listing agent. If you can get that person to be maneuvered into a situation where he or she is suggesting a solution to a problem, you have an advantage. You are never “bidding against yourself.” You always have a reference point to return to if things get heated. You remind the person what he or she once suggested. A lot of times, I like to embellish upon getting the other side into an “endgame” position by not responding in a telephone conversation after the person is finished. This makes the other side uncomfortable and starting to explain, and even modify, their position. That silence has helped me win many important advantages.

•2.       The Finesse. If you have Ace- Queen of a suit in your hand, and you think that the person sitting East sitting has the King, you can play a small card from the Dummy, and if East doesn’t play the King, the declarer plays the Queen from South and, in general, neutralizes the King so that it never wins a trick. This compares to a situation where you know that one of the parties to the transaction (maybe the husband or wife Seller) is very negative about the deal. You need to find a way to neutralize that person, by convincing the person you are dealing with directly (either listing agent or attorney) that this negative person can “kill this deal”. In effect you are using the old “finesse” technique to move the person to the sidelines where he or she cannot continue to be a problem.

•3.       The Squeeze. At the end of a bridge hand, a declarer with a bunch of winning cards can succeed by playing all of these winning cards to force the opponents to guess what to discard and what to hang on to. The result of the “squeeze” is to promote small cards into winners, if the opponents have not kept accurate track of the cards played. In real estate, the “squeeze” is available when we sense desperation on the other side. The skill involved here is to spend time to determine what your client or customer really wants, or needs, and then to make a longer list of demands, which eventually funnels into getting the important concessions your client really needs. You start out with a laundry list, and end  up with just the few essential items. The other side has been “squeezed” but gathers some comfort in the knowledge that they said “no” to a few requests.

If it sounds like I treat real estate negotiations as a game perhaps that is a correct observation. With the help of other real estate professionals on my team, I want to get the best possible result for my client. To me, that is what the game is all about.

Massachusetts Buyer Beware!!!! If there is a foreclosure in your back title, you may not be getting what you are expecting

Short Sales & Foreclosures, Uncategorized

Here is a tale of woe that is real, and may be repeated many times in the future for Massachusetts real estate scenarios. Well before I started representing my client, he purchased a home which had a recent foreclosure in its title. My client, now attempting to do a refinancing to take advantage of lower interest rates, has run into a seemingly “non-fixable” road block with regard to his home. The property in question had been foreclosed upon and purchased back by the bank at auction. My client subsequently purchased the property from the bank at a price in excess of $450,000. At the purchase closing, my client made a decision not to purchase an owner’s policy of title insurance as it was “too expensive.”

After the closing took place, the Massachusetts Land Court issued several decisions that, in part, retroactively invalidated certain foreclosures. My client, who informed me he had paid for substantial improvements to the property, had just learned his application to refinance the property had been denied as a result of the Land Court decisions. In sum, the underlying foreclosure by the bank had been rendered invalid and, therefore, there is a question as to whether my client even owns the property. The invalid foreclosure probably means that the person who was foreclosed upon still owns the property. Not all foreclosures will be affected.

The Land Court decision concerned a foreclosure where the original mortgagee had assigned the mortgage to another servicer but had not received an executed assignment for recording prior to the commencement of the foreclosure. That being the case, the Land Court held that the foreclosing party did not “own” the mortgage and could not foreclose on a mortgage that it did not own. The decision stressed that the assignment did not have to be “on record” before the foreclosure. It just needed to be in existence. It would appear that if my client had purchased owner’s title insurance, he would at least have “insurable title” to his property. Insurable title would probably be enough to permit a refinancing of the property. That would be much better than the current condition.

On the other hand, “insurable title” is NOT “marketable title”, and even if there was an owner’s policy in place, my client may have insurmountable problems selling this property in the future, if the person examining the title realizes that the proper steps were not taken in terms of the foreclosure. People attempting to sell homes which have foreclosures in the title may be faced with the unpleasant prospect of obtaining a confirmatory deed from the former owner who may be “long gone” or “hard to find” and then paying a large sum to obtain same. Given the circumstances, and the justifiable reliance these people had on the strength of the owner’s policy, many title insurance companies may be willing to pay the fee to the former owner just to straighten out the really difficult position the current owner (who paid a premium for an owner’s policy) now find himself in.

Without an owner’s policy, a seller of real property with this problem is facing the difficult, and expensive, prospect of cleaning up this title problem, all on his or her own dime. The lesson learned here, at least in Massachusetts, is that if you are aware that a customer of yours is purchasing a home which has a foreclosure in its title history, you need to be extremely careful about moving forward. I have recently contacted my state senator to see if he could sponsor legislation which would cure this problem. In my eyes, the good faith purchaser for value should always prevail over the person who did not pay his or her mortgage and was, accordingly, foreclosed upon. I urge all of you Bay Staters to consider similar kinds of initiatives with your elected officials, so we can prevent this situation from becoming extremely disruptive to our already fragile real estate market.

Throwing Out the Baby with the Bath Water–Make sure your “Associations” with other Professionals don’t bring you Down

closing, Uncategorized

I swear, it was not my fault. In my mind, every closing in which I,or my firm participated, was handled promptly and professionally. We even conducted the closings “on-site” to make it easier for the 30 or so purchasers of the Condominium Units. Toward the end of the process, I started to see what the problem was. The mortgage loan originator, who brought my firm to the deal, and introduced me to the very talented and helpful Realtor whose commitment to this project was total had totally “dropped the ball”. Phone calls were not returned by the originator; data was requested from Borrowers two, sometimes three, times for the same piece of paper or information. The level of frustration was high, and I could feel it as I closed successive loans.

The transactions are now completed, and the project is sold out. I often get future business from people whom I have met at closings. There has not been one from this set of closings. I thought my rapport with the listing Realtor was excellent. She and I had spoken about how she wanted to get me involved in future deals. She doesn’t even return my emails or phone calls.

It is apparent to me that I have been tossed down the drain by my association with this originator and this lender. Since I was the closing agent, I must be involved with the problem. As most of you know, that is not really the case. My law firm is independent from this, or any other, lender. We review the title, prepare the closing documents and conduct the closings. We operate under a set of ethical rules which are governed by our State Bar Association.

Regrettably, none of this seems to matter to the purchasers or the listing agent. The purpose of this post is not to rant. It is to caution all of you that you need to be extremely careful with whom you associate in your business dealings. Bad behavior, or negligence, on the part of the Realtor, mortgage professional or attorney or escrow agent can drag you down, even if you performed your part of the transaction flawlessly. My late, great father had an expression, “Tell me who your friends are, and I will tell you who you are” It would appear that the wisdom of this truism applies to our respective professional lives as much, or more, than our personal lives.

Condominium Trustee Meeting Minutes–Important Information Often Neglected

Condominium

The problem is this. Many condominiums are frightfully mismanaged. Nobody wants to serve as a Trustee, and so the people who do serve are either megalomaniacs or people who don’t have much business savvy, but have a lot of time on their hands. Meetings of Trustees are poorly attended. A kind of Peter Principal takes over–the least qualified, either from a business or ethical sense, are in charge. There are very few really responsive Condominium Management Companies. If you are involved with a good one, they find a way to charge for every possible service, which somewhat negates their effectiveness.

Well, my rant is now officially over. I have gotten this off my chest (41 years of frustration) and now I can go on with my post. If (and this is a big “if”) we find a well-managed Condominium which has regular meetings of Trustees, and keeps good minutes of same, we can do a much better job for our Buyer of a Unit in this Condominium than if these documents were not present,

When I can locate same, I ALWAYS review at least one year’s minutes to try to uncover any lurking assessments, or shrugging Unit owners. If there is consistent discussion about painting all the Units, or replacing the elevator, I better let my Buyer know that. He or she is almost definitely looking at an upcoming assessment, and it is extremely difficult to exact any help on this from the Seller since it is only in the “preliminary” stages. But, we can at least tell our client that it is coming.

Ditto, if there are discussions about Unit owners who are not paying their monthly fees. In Massachusetts where I practice law, there is a fool-proof method to get these fees, from the Lender if the Unit Owner will not pay.Most other states provide similar statutory relief.  If this Condominium has not been diligent in collecting delinquent fees, then it is poorly managed, and your Buyer will pay the price for this somewhere down the road.

Other information, sometimes of a more positive nature, is also found in the minutes. If a lot of people are participating in taking on tasks, that is a good sign. There is a spirit of participation from many, and that usually works the best for Condominiums. If one or two individuals are doing everything, you may have a case of Condominia Tyranus, which generally means that your client will be subject to the whims and fancies of a few  people who may have nothing else to do, or, worse yet, love being “in charge”. if left to their own devices, these people can literally terrorize the people who live in the Condominium.

Bad Home Inspection–Don’t Let It Kill Your Purchase

Uncategorized

In times like these, the last thing any of us need is a bad home inspection. Many of you have labored long and hard to find the right home for your Buyer, negotiated the purchase price and other terms, made arrangements for financing,perhaps even had your Buyer engage an attorney for assistance with the sale agreement, only to see the results of the home inspection reveal substantial problems with the home.

I want to inform each of you that when I am representing a Buyer, the first thing I tell the Buyer is “the home inspection is not a second opportunity to negotiate the amount of the purchase price.” In most instances, the Buyer is purchasing a “used home”, and used homes probably do not have the most efficient electrical wiring or most modern air-conditioning system. There are certain negative aspects of the home inspection which must be accepted by either the Seller agreeing to rectify same, or a manageable closing cost credit.

What I am addressing here is a substantial in inspection problem. A material crack in the foundation, a roof that maybe has no more than six (6) months of useful life, a health and safety issue such as asbestos insulation being present. These types of inspection issues are material, and the Buyer is well within its rights to walk away when they present themselves.

The point of this post is to suggest that you still may be able to do your deal, if you use the inspection report wisely. The Seller wants to sell the home; the Seller has entered into an agreement indicating same. The Buyer may be willing to go further is major price concessions are given. I have worked on several deals the past year where the Seller made large price concessions once the home inspection was completed.

In Massachusetts, where I practice law, the Seller, and the Seller’s agents are generally not liable for defects in the home of which they are not aware. Once an inspection reports indicates major problems, the liability issue changes. The Seller now knows that there is a major problem, and that problem will need to be disclosed to every potential Buyer. Perhaps, you can convince the Seller to deal with your Buyer. This is a person who might be willing to go forward and complete the purchase, if the terms are sweetened to address the problem. In the situations like this where I have been involved, I have urged the Buyer’s Agent to present the Buyer as “the devil you know”. As I have indicated, this strategy has worked for my Buyers on several occasions in 2009, and I urge you to consider using it in 2010.

Year End Real Estate Tax Adjustments–A Great Marketing Opportunity to Reconnect With Your Buyer Customer

Marketing / Communication

In Massachusetts, where I have practiced real estate law since 1968, the fiscal year for local real estate taxes begins on July 1 and ends on June 30. Almost all cities and towns collect taxes on a quarterly basis, although there are still a few semi-annual holdouts. In any event, to the best of my knowledge, all cities and towns use an estimated tax for the first six months of the fiscal year, with the actual bill for Jul1 through June 30 being sent out in late December or early January.

Since this seems to be a consistent pattern through Massachusetts (and perhaps in other jurisdictions, as well), there is an opportunity for all of us to revisit those of our clients and customers who bought in the July 1 through December 31 period and re-calculate the correct tax adjustment for them. If the recalculation amounts to only a fe dollars, there is no need to contact the Seller for payment. If hundreds of dollars are involved, like in the instance I am currently working on, where a 2 Unit Condominium was formally taxed as a single family dwelling, and has been upgraded because of a zoning change, the exercise can prove profitable for the Buyer.

It would seem only natural that your Buyer will be eternally grateful to you for pointing this out to him, her or them. Many times at closing, I hear Realtors tell their customers that they will keep in touch. Here is a contact that may put dollars in your customer’s pocket. I know of one Realtor who sends his client a copy of the HUD-1 Settlement Statement for the transaction and encourages the customer to compare the tax adjustment with the “real” tax bill.

As an aside, with real estate prices falling in some sections of the country, it is possible that real estate taxes may have gone down. If this is the case, this adjustment may favor the Seller, and perhaps, the listing agent will want to bring the fact that money is owed to the Seller’s attention.