Blackacre 2.0 » negotiation

Something for Everyone on the S&P Networking Site

Kathleen A. Scanlon — Sun, 25 Jul 2010 18:35:37 +0000

Its summer I've been out having fun with my family at the pool, beach, BBQs etc. and unfortunately, my blog posts have become few and far between. However, I wanted to alert everyone to some new posts over at our S&P Networking site:

Events:

In person networking is vital – online networking often starts the relationship but in-person cements it. I posted several events in the NY metro area that are not be missed including the NYC Business Networking Event – Luxury Series (7/27) and Queens Real Estate Group Summer Soiree (7/28) among others. Extend your knowledge by taking a class – Dealing with Banks: REOs and Short Sales or a webinar such as Understanding Titles & Closings for Real Estate Investors .

Short Sales

Short Sales are now the focus of the real estate loss mitigation community and the banks have finally realized that a short sale is the premier solution as the return, dollar for dollar, is far superior to foreclosure and REO. Check out the webinar, Understanding Fannie Mae, Freddie Mac HAFA Short Sale Rules to make sure you are abreast of the new rules. Watch some of the new videos, like Internal Bank Form Gives Insight Into Short Sales vs Foreclosure or Citimortgage Changes Short Sale Policy Again! as the banks are constantly changing how the game is played. Visit the forums as some of our own gurus post their tips and experiences.

Remember, the S&P Real Estate Networking Site is a "members-only" site so apply for membership now (it is free!) for exclusive access.

Enjoy your summer!

Foreclosure Proceedings and the Right of Redemption in NY

Kathleen A. Scanlon — Fri, 12 Mar 2010 01:42:54 +0000

New York is a judicial foreclosure state and the process can take over a year to proceed from Summons & Complaint through judgment and then auction. A homeowner has a right to redeem up and until auction, but unlike many states, there is no right of redemption after Sale (but see Bill proposing to allow right of redemption for up to 1 year post Sale.).

The New York Court of Appeal recently opined in NYCTL 1999-1 Trust v. 573 Jackson Avenue Realty Corp., 13.N.Y.3d 573 (December 15, 2009) that the definitive requirement for redeeming real property during foreclosure proceedings is the “unconditional tender [to the foreclosing party] of the full amount due” before auction. This general rule in mortgage foreclosure proceedings also applies to the foreclosure of a tax lien.

However, note that the Courts will exercise their broad equitable powers to void judgments and even set aside sales (extending the homeowner's right of redemption), where homeowners are seeking to modify or reinstate their mortgages while the lender continues with the foreclosure action. Jimmy Lathrop, Esq., the Director of Foreclosure Intervention at the Brooklyn Bar Association Volunteer Lawyers Project, recently discussed in his blog post, three cases where the court found that the homeowner's good faith negotiations mandated an equitable solution and a possible complete bypass of RPAPL §1341 which defines the requirements and time frame of the borrower's right of redemption.

Contract Contingencies: Sale of Purchaser’s Current Residence

Kathleen A. Scanlon — Wed, 06 Jan 2010 04:34:41 +0000

While the first time home buyers are out in force looking to purchase a home, the reality is that a good part of the elusive purchaser pool is made up of homeowners looking to trade up to a new home. Which means, for the most part, they need to sell their current residence to be able to purchase a new residence. Contracts often contain certain contingencies which, if not met, allow the parties to unilaterally cancel a contract and the buyer recoup their down payment monies. One such contingency is conditioning contract performance on the sale of the Purchaser’s current residence.

In the seller’s boom market in years past, any prospective purchaser who would dare ask for this contingency would never even make it to the binder stage let alone contract. Contracts often crossed my desk that were missing mortgage contingencies, even though Purchaser needed a mortgage to complete the transaction – competition was so fierce that these buyers would agree to almost anything to cinch the deal. But that market has come and gone – we are in the midst of a buyer’s market and now the purchaser has some leverage.

Still, most real estate attorneys will balk on including a Sale of a Purchaser’s Current Residence (SPCR) Contingency in their Contract. The rationale is that the Seller has to take their home off the market and risk losing the opportunity to snag a qualified Purchaser who doesn’t need such a contingency. This is a very sound rationale and definitely makes sense in the Seller’s market. Here, however, there is some bargaining room as “qualified” purchasers aren’t lining up in droves so that the Seller’s risk is lessened.

There are a few strategies that can be employed on a Purchaser’s behalf in this type of situation. If Purchaser is obtaining a mortgage and needs the funds from the sale of the current residence (or the removal of the debt obligation), this will often be a condition in the mortgage commitment. So, even if seller’s attorney won’t include an actual SPCR Contingency, the mortgage contingency clause will therefore indirectly include the SPCR contingency. I am not overly fond of this strategy because of its ambiguity. Ambiguity creates issues of fact which can lead to uncertainty and litigation. Also, please note, attorneys have caught onto this trick and include language that specifically states the contract is not contingent upon the sale of the purchaser’s home and that a mortgage commitment will be considered firm and unconditional (and therefore satisfy the requirements of mortgage contingency clause which causes its removal) even if it has a condition requiring the sale of Purchaser’s real property or the payoff of certain debts and liens.

I have a unique solution to this very problem and it is usually well received by other real estate attorneys. Modify the SPCR Contingency to include an escape clause for the seller. Allow the Seller to continue to market the property for the time the contingency is in effect. If a prospective buyer makes a bona fide offer, Seller gives notice to the Contract Purchaser of the offer and allows Contract Purchaser to either remove the SPCR contingency and continue with the Contract or cancel the Contract and receive a refund of the down payment monies. With this modification, Purchaser does not have to worry about jeopardizing their down payment and Seller does not have to take their house off the market and lose out on potential qualified buyers.

The modification of the Sale of a Purchaser’s Current Residence Contingency is a way to balance and satisfy the needs of both parties while removing an almost impossible roadblock to a potentially successful real estate transaction. Careful examination of the terms of the proposed contract and wording of the SPCR Contingency with modification language is key and should be left to the expertise of a real estate attorney.

Pt II: So You’re a Distressed Property Consultant: How to Stay Compliant with NY’s Foreclosure Prevention & Responsible Lending Act of 2008

Kathleen Scanlon — Wed, 14 Oct 2009 02:50:30 +0000

Back on July 29, 2009, I authored a discussion on what activities and/or circumstances would cause a service provider to be labeled a Distressed Property Consultant under New York’s Foreclosure Prevention & Responsible Lending Act of 2008. Please review that discussion and keep in mind the exceptions when it comes to the Homeowner as well as the Consultant. I promised a Part II to review compliance if you are a Distressed Property Consultant and, well, better late than never! If you know me personally, you are aware of the circumstances of the past few months and as such, I am sure understand the delay.

Section 265-b enumerates which activities are forbidden to Distressed Property Consultants:

1. Providing services without a written, fully signed contract with a homeowner;

2. Charging or collecting payment from a homeowner before completion of services;

3. Taking a Power of Attorney from a homeowner;

4. Keeping any original Loan Documents or any original documents relating to the distressed home loan;and

5. Inducing a Homeowner to executing a Contract that does not comply with the provisions of the Act.

The Contract

Section 265-b lists very specific requirements when it comes to the Contract for Distressed Consultant Services. First, it must be in writing and must contain the entire agreement of the parties. Therefore, oral agreements pre- and post-contract are not enforceable and the agreement is enforceable only as to those provisions contained within the four corners of the written Contract. Also, the proposed Contract must be provided to the homeowner, in advance, for his review.

Content & Form

The NY legislature laid out very specific requirements as to the form and content of the Distressed Consultant Contract. First, as to the font, it must be in at least 12 point type and in the same language that was used between the Consultant and the Homeowner to discuss the Consultant’s services. For example, if the parties conversed in Spanish about the proposed services, then the resulting written contract must be in Spanish.

The Contract must provide full disclosure. It must include:

1. the exact nature of the services to be provided by the Consultant and anyone who is associated with the consultant;

2. the total amount and terms of compensation for such services;

3. the name, business address, and telephone number of the distressed property consultant and the address (if different), phone & fax number or email address of the distressed property consultant where the homeowner can send communications to the consultant;

4. it must be dated and personally signed by the homeowner and the distressed property consultant before a Notary Public;

5. It cannot limit the liability of the Distressed Property Consultant nor waive any provisions under this Statute and cannot require arbitration of any dispute arising under the Contract;

6. it must contain a specific Right to Cancel:

a. 14 point boldface type;

b. Containing the following language with the Distressed Property Consultant accurately entering the date the right to cancel ends and his name -

NOTICE REQUIRED BY LAW

YOU MAY CANCEL THIS CONTRACT, WITHOUT ANY PENALTY OR OBLIGATION AT ANYTIME BEFORE MIDNIGHT OF _________________________ (FIFTH BUSINESS DAY AFTER EXECUTION).

_______________________________________ (THE”CONSULTANT”) OR ANYONE WORKING FOR THE CONSULTANT, MAY NOT TAKE ANY MONEY FROM YOU OR ASK YOU FOR MONEY UNTIL THE CONSULTANT HAS COMPLETELY FINISHED DOING EVERYTHING THIS CONTRACT SAYS THE CONSULTANT WILL DO.

YOU SHOULD CONSIDER CONSULTING AN ATTORNEY OR A GOVERNMENT-APPROVED HOUSING COUNSELOR BEFORE SIGNING ANY LEGAL DOCUMENT CONCERNING YOUR HOME. IT IS ADVISABLE THAT YOU FIND YOUR OWN ATTORNEY, AND NOT CONSULT WITH AN ATTORNEY RECOMMENDED OR PROVIDED TO YOU BY THE CONSULTANT. A LIST OF HOUSING COUNSELORS MAY BE FOUND ON A THE WEBSITE OF THE NEW YORK STATE BANKING DEPARTMENT, www.banking.state.ny.us OR BY CALLING THE BANKING DEPARTMENT TOLL FREE AT 1-877-BANK-NYS (1-877-226-5697). THE LAW REQUIRES THAT THIS CONTRACT CONTAIN THE ENTIRE AGREEMENT BETWEEN YOU AND THE CONSULTANT. YOU SHOULD NOT RELY ON ANY ORAL AGREEMENT OR PROMISE.

c. The date for the Right to Cancel: it is midnight of the 5th business day following the day the Contract was executed by both parties.

d. Notice of Cancellation:

1. must be in writing and delivered by the homeowner or the homeowner’s representative, to the Property Consultant to the address, fax or email address specified in the notice.

2. The Contract must include (2) copies of a Notice of Cancellation in the following form:

NOTICE OF CANCELLATION

YOU MAY CANCEL THIS CONTRACT, WITHOUT ANY PENALTY OR OBLIGATION, AT ANY TIME BEFORE MIDNIGHT OF _____________________________ (ENTER DATE).

TO CANCEL THIS CONTRACT, SIGN AND DATE BOTH COPIES OF THIS CANCELLATION NOTICE AND PERSONALLY DELIVER ONE COPY OR SEND IT BY FACSIMILE, UNITED STATES MAIL OR ANY ESTABLISHED COMMERCIAL LETTER DELIVERY SERVICE, INDICATING CANCELLATION TO THE DISTRESSED PROPERTY CONSULTANT AT ONE OF THE FOLLOWING:

NAME OF CONTRACTOR: ________________________________
STREET ADDRESS:______________________________________
CITY, STATE, ZIP:______________________________________
FACSIMILE:___________________________________________

I HEREBY CANCEL THIS CONTRACT

Name of Homeowner: ___________________________________________

Signature of Homeowner:________________________________________

Date:_________________________________________________________

e. Compliance with Notice of Cancellation: If a Distressed Property Consultant receives the Notice of Cancellation within the proscribed time frame, the Consultant must, within (10) days, return the original Contract and any other documents signed by the Homeowner to the Homeowner. Cancellation, of course, releases the homeowner from any obligation to pay the Distressed Property Consultant.

PENALTIES FOR VIOLATION

If a Distressed Property Consultant violates this Statute, the legislature has crafted the following penalties:

1. Court can declare Contract to be null and void;

2. If the homeowner incurs damages because of the violation, the homeowner can recover actual and consequential damages, as well as costs, from the Consultant;

3. If the Consultant intentionally or recklessly violates the provisions of this Statute, the Court can award to the homeowner treble (3x) damages, attorney’s fees and costs;

4. An application can be made by the Attorney General to issue an injunction forcing the Consultant to cease and desist from engaging in future distressed consulting activities without requiring proof that any person has been injured or damaged and also can require restitution; and

5. The court can fine the Consultant not more than $10,000 for each violation.

There you have it – if you are offering any type of services to a Homeowner who is behind on their mortgage, real estate taxes etc., first determine if you are a Distressed Property Consultant (and not a member of an exempt category) and if your Homeowner and their financial distress is covered by the Statute. If so, make sure you are in compliance by following the tenets outlined above. The penalties can be severe but at least now, you have an outline for a plan of compliance.

Seasoning and FHA’s Time Restrictions on Resales – a Legal Analysis