Real Estate and Bankruptcies in Uncertain Markets

What I’m seeing in my practice is that as prices are dropping in real estate, especially in residential properties, people are extremely uncertain with respect to purchasing properties. Sellers still haven’t faced reality as to the drop in value of their properties and many don’t even realize that with the de-valuation of the U.S. dollar they have lost and additional 20 percent in the value of their properties.

Just this week we had a bizarre case, which I guess isn’t so bizarre in this topsy turvy economic world that we find ourselves in today. A client of mine was selling his house and the closing was meant to take place this week. At the last minute, the purchasers e-mailed my client directly to keep the $50,000.00 deposit as they decided to not go ahead with the deal. After speaking to the attorney representing the purchaser, it was clear to me that the purchasers did not only get cold feet, but wasn't willing to take the risk associated with this real estate market. They’d been advised that house prices were going to drop once again and they’d be better off losing $50,000.00 now than tying themselves into such a weak market. You can imagine what a catastrophe it would have been if my clients had been in contract to purchase another house. Luckily that was not the case. You must advise people when they are selling a property and are intending to purchase another property that they really need to consider the risks as to whether to enter a contract simply based on the fact that somebody made a decision to buy their existing house and that person has a commitment from a bank to buy their house. Clients can lose a lot of money if they cannot sell their house to raise the funds needed to purchase their new house.

Things are financially weak in the United States and loans are hard to come by. What we are seeing is that the banks are still lending but the practice of lending has changed. While the banks are willing to take applications and are willing to quote 3.5 to 4.5% on 30 year interest rates for residential loans, that is all theory! In practice, banks have become extremely conservative to whom they lend and the facts are that many applications never reach a commitment stage, the loan commitments have many conditions, some of which are almost impossible to meet.

Why would a financial institution want to make loans at 3.5 to 4 percent for 30 years when they expect massive inflation in the future and the expect interest rates to rise way above that.

People do not feel secure today, the markets are not secure today, and the banks have little security today. We are seeing this also in our leasing practice. Many clients who are leasing properties are requiring that the landlord provides in the lease a good guy guarantee which basically means that if the tenant cannot perform under the lease the guarantor would not be liable provided notice is given and provided the property is turned over to the landlord.

Bankruptcies are growing month by month and people are just giving up on their debt. Many properties are underwater and the amount of monies owing on property are much more than the property will ever be worth in future years.

Rather than make financial decisions on your own, allow us to assess your situation in a free consultation. My experience and my professional qualifications in real estate, tax, bankruptcy and finance allows me to see the big picture and I don't want you to make mistakes.

Keep your credit score as high as possible!">

As a lawyer practicing in the United States of America, and dealing with credit issues in real estate transactions, business transactions and bankruptcy problems, credit is usually a major concern. In order to borrow as cheaply as possible, I am constantly advising people to keep their credit score as high as possible and try to push it up a notch whenever there is a chance. It is most important that you pay your bills on time in order to have a perfect payment history. One way of doing this in the modern world is automating your payments online. The second most important item with respect to your credit score is to make sure that you keep balances on credit cards and other revolving accounts below fifty percent (50%) of your credit limit. The lower the better. Never allow old cards to go dormant, but rather charge something even if it's just buying an ice cream once a month. When there is no activity, it lowers your score. So obviously, don’t open new accounts unless you are going to use them. Further when you are shopping for a car or a new mortgage it is not a good idea to allow every sales guy to run a credit report on you. Believe it or not, that just lowers your credit score.

Finally, it would not be a bad idea to request a free copy of your credit report from each of the three (3) major credit-reporting agencies at www.annualcreditreport.com. Study those reports and if there are any errors, then get them corrected immediately. Its also a good idea to request your free credit report in order that you can make sure there is no credit fraud involved with respect to your credit.

Mortgage Contingency Conditions In the Real Estate Contract".

It is really important to make sure that your real estate attorney explains to you the mortgage contingency provision in the real estate contract. Many contracts tend to have generic provisions but there is no reason why your attorney cannot amend the provision and tailor it to suit your particular situation. When negotiating the mortgage contingency provision of the contract, a mortgage contingency amount of eighty percent (80%) of the purchase price may be requested, even if the client may subsequently apply for or accept a smaller loan. A forty five (45) to sixty (60) day contingency period in which to get a firm mortgage commitment should be sought, remembering that loan application processing in some banks can be very slow. However, a shorter thirty (30) to forty five (45) day mortgage contingency period would be acceptable in the contract if the sellers’ attorney agrees to insert the provision assuring the granting of a reasonable extension of time if the loan commitment has not been secured by the agreed contingency date. You don’t want to be left in a situation where the seller finds another buyer or decides to take the house off the market and leave you high and dry. Even though he may not give you an argument in returning your deposit you have already expended money and time in securing a mortgage and in making plans to move forward with the purchase of the particular residential property, commercial property, co-op or condominium that you have set your dreams on.

There are a lot of different standard real estate contracts floating around out there and different attorneys use different versions of a contract. I have seen many contracts where there are no mortgage contingencies in the printed form but there is a specific tailored rider annexed to the original contract. It is important that that tailored rider is studied in detail and that your attorney explains it to you in detail. In many contracts the mortgage contingency clause is actually in the standard contract and if you read the paragraph in detail you see that you are committing to purchase the house as soon as you have received a “written commitment” without the word “firm,” “unconditional” or “fundable”. Now we all know that many lenders issue written commitments BUT the written commitment isn’t worth the paper its written on if it is followed by a long detailed page of conditions that you have to meet before you close on the loan. I personally am very careful to make sure that my client is not placed in a position where he has to go forward and purchase the property as an all cash transaction because the mortgage contingency clause isn’t worth anything.

Of course the purchaser can always file an action in court claiming that he is entitled to his deposit back if the mortgage is not funded by the financial institution however, I would much prefer that my client is not put into this expensive nerve-racking situation.

Personal Property Included and Condition of Property

I have a policy of trying to sit down and meet with my clients before they sign a binder with the real estate broker and the seller. Often, there are many items and issues that really should be discussed before the purchaser goes into contract. (This also applies to where I represent sellers and there are many tax issues they should be informed about before signing the contract of sale) One issue that comes to mind that a purchaser needs to watch out for is the property that is being left in the house, co-op, or condominium. In this day and age I usually advise my client to take a digital camera to the property and photograph the refrigerator, washer/dryer, air conditioners, chandeliers, carpeting, window treatments and fireplace equipment. I like to insert in my contracts that these items will be in "good working order" at closing and "as seen on premises". I have seen situations where for example, a refrigerator was on a list on inclusions but the sellers subsequently replaced a shiny new refrigerator with an old one that they probably picked up at a tag sale. It is best to specify “General Electric Profile refrigerator seen on premises.” The number of air conditioners and the rooms they are in should also be specified. In addition to listing items that will be included it would also be prudent to specify the items of personality that are excluded from the sale. You don’t want to get into the situation where the seller decided that he doesn’t want to take some old garbage half working refrigerator and at the closing the sellers attorney smiles at you and says: “Well, it says in the contract that all appliances will be left at the premises”. It never hurts to be specific and to deal with things in detail.

Real Estate Professionals: READ YOUR SURVEYS!

Today we had an interesting case in the office. A man in his fifties was referred to me for advice about a boundary line dispute. A boundary line is basically the property line around your property. What all real estate attorneys should do when they are retained to represent a prospective purchaser of property is to order a survey. Sometimes, it is possible to locate and old survey of the property and to have it updated to show any changes since the date that the survey had been prepared. Often, an old survey can not be located and it is the real estate attorney's job to order the new survey. But the job is not just to order the survey, then place it in a file and give a copy to the purchaser at closing. The actual job is to read the survey and explain it to the client. Now for over twenty years as a real estate professional I have seen all sorts of surveys and most of them have me raising questions and it is only fair to point out these questions and issues to the client who is making a huge financial decision to purchase a property and relying on his lawyer.

Getting back now to the fellow who walked into my office earlier today, his issue was that he had decided to rip down the fence between his property and his neighbors property and put up a nice new fence. What he also decided to do was to move the fence so that it was on the correct property line. His neighbor was not very happy about this decision. You see his neighbor has a narrow driveway and by moving the fence over one foot it made the neighbors driveway narrower. Hence, the two neighbors got into a dispute and my client was served with a summons in which his neighbor was claiming adverse possession. The first document that I asked my client to produce was a copy of the survey from when he closed on his house. He had no idea what a survey was and handed me a very pretty closing folder that had been prepared by the closing attorney. I sifted through the documents and low and behold there was a survey in there. Not to my surprise the survey showed that there was a fence between the two properties and that when he had closed on his house the fence was 1.4 feet on my clients property. What this meant is that the fence was protruding on my client's property so that the neighbor had the use of 1.4 feet of my clients property for his driveway. My client had closed on October 8, 2007 and the survey was dated October 2, 2007. What a shame that the survey had not been prepared and discussed with my client at least a few weeks before the closing took place.

It is the real estate attorney's job to get that survey prepared weeks before the closing to sit down with his client and to discuss anything that isn't legally correct. If a fence line on a survey is different from the property line by one foot or more then a purchaser's needs to contact the seller's attorney and request a boundary line agreement to be signed by the neighbor. If it is less than one foot, the purchaser can obtain title insurance. If the neighbor is unwilling to sign a boundary line agreement then the issue needs to come to light and the purchaser needs to be informed so that an educated and knowledgeable decision can be made as to whether the transaction should go forward.

So next time you are out house hunting and a real estate broker or an owner tells you that his property is 50' x 100' or his attached house is 20' x 45', don't just smile and accept it but be cautious and diligent. Take out a tape measure from your jacket and do a little measuring. When you hire your attorney request that when he obtains the survey that you want to be involved on any questions or issues with respect to fence lines, and/or easements that affect the property. Happy house hunting!

Selling or buying a property? Protect your asset!

As a real estate attorney having practiced in New York since 1991, I’ve come across all sorts of situations but this was a first for me. Just before we went to close on behalf of a seller who decided to move down South a few months before the closing was to take place, we got a frantic call from the purchaser's attorney that his client had just completed a final walk through of the house before the closing only to find homeless people living in the house. What a surprise it was when we located our client in Alabama and told her that she had homeless people in her house. The plot thickened when we called the real estate broker who represented the seller and she told us that she was a little embarrassed because the so called "homeless people" in the house were actually clients of hers who had sold their home a week earlier. She thought she was doing a good deed to let them come into the house to take a shower. Well clearly this was a very long shower and no one was amused! The closing was rescheduled and the broker organized for the "homeless people" to vacate the house and move elsewhere.

It is important when you are selling a house and you have made arrangements to move elsewhere, that you have a responsible person looking after your financial asset, probably your largest financial asset while it is vacant. It is not enough to trust the real estate broker who you probably met three weeks before you listed the house to take care of things. I would suggest that you have a family member take care of it or you speak to your attorney about this issue. There are so many things that can go wrong with a property that you own if you are not there to take care of it. You need to make sure that the gas has been turned off and it will not be a bad idea to make sure the water is turned off at the mains. A friend or some other responsible party should check on the house at least twice a week to make sure that everything is okay. You should also check your insurance policy with respect to coverage if the property is left vacant. There have been cases where major damage has occurred in a property and the owners have placed a claim with the insurance company only to find out that the claim has been rejected due to the fact that the insurance policy was written with the expressed term that somebody is to live at the property at all times. An insurance policy for a property which is vacant is a different type of insurance policy so unless the policy that you have is specific to the situation you may find that you were sitting with a property with no insurance.

As a seasoned real estate lawyer, I urge my clients to sit down with me even before they sell their property in order that we can address all these issues before they place their property on the market. While this article addressed a specific issue that arose from a recent situation there are just so many issues that are not only applicable to residential real estate but also to applicable to commercial real estate. Finally, if you are purchasing a property, please make sure you inspect the property right before closing. You don't need any surprises after having handed over the monies at the closing.

My new Realestate Blog

This is going to be an exciting new blog for all sorts of investors to read and gain knowledge to save money and time in buying and selling real estate in New York.