LEGAL CORNER

Stephanie M. Weaver, Board Counsel

LEGAL CORNER

 LEGAL ROUND TABLE

JUNE 17, 2009

We had a wonderful bunch of panelists for our 2009 legal roundtable, and for those that missed the presentation, or wanted a review of their subject matter, here are my notes on the program:

1.       Brian Yard, Law Offices of Brian M. Yard, LLC – spoke on the new mediation program that has been instituted in foreclosure actions here in Connecticut.  He provided the startling statistic that there have been 739 foreclosures in Litchfield County have been filed in Connecticut.  Of that number, 88 were not eligible for the program.  Of the rest, 226 took advantage of the mediation program.  It is offered to residential foreclosures, and to be eligible it has to be 1-4 families in which the property is also the primary residence of the mortgagor.  Second homes and commercial property are not eligible.  You must file for the program within 15 days of the return date.  The application for the mediation program does not stay the process, but a judgment cannot be rendered during the negotiations.  All parties must attend, so all signatories on the mortgage must attend, and the Lender or lender’s counsel.  There is a sunset on this program of July 1, 2010.  Fully one-third of those properties eligible for the mediation service have taken advantage. 

2.       Eugene Marconi, General Counsel to the Connecticut Association of Realtors – spoke on the changes to RESPA regulations.  There are new forms for the “Good Faith Estimate” that becomes mandatory January 1, 2010, although they may be used by Lenders prior to that date.  The new form de-emphasizes the annual interest rate in favor of featuring more prominently the other costs of the loan.  There will be a “shopping block” which will post ten different factors that a consumer would be wise to compare in shopping for a loan.  Attorney Marconi warned that our member’s clients may be looking to them when using this “shopping block” and comparing the strengths and weaknesses of a lender’s offer on a loan.  Also, the new form will be tied more closely to the HUD-1, so changes in quoted prices cannot deviate more than 10 percent.  Finally, an Alabama court has struck down the “administrative fee” that real estate agents were charging, because there was no “administration” involved.  Those types of fees will be more strongly scrutinized in the future. 

3.       Jerry Sanchy, Partner, Sullivan, Reis, Sanchy and Perlotto – spoke on rental agreements containing options to buy and rights of first refusal.  Most such agreements have tenants that seek to have a portion of the rental applied to the purchase price, although this is not a requirement.  He raised a good substitute idea to have a price for the right to have an option that is an upfront fee, rather than spreading a higher rental rate over the term of the lease.  He cautioned against long leases and therefore outstanding options, as financial and market circumstances may change dramatically over the long term.  A one year term is a customary period of time.  He reminded those present that Connecticut law prohibits taking more than a sum equal to two months rent as a security deposit for those under age 62, and one month for those tenants 62 and older.  Some considerations in drafting a lease with an option to purchase are: a.  Owners usually pay for repairs in rental arrangements, but this obligation may shift in a lease option; b.  may be an obligation to pay the premium on hazard insurance and certain utilities.  Also, you would want to specify a closing date usually 30 days after the exercise of an option, and building inspections and mortgage contingencies are not customary- due diligence by the tenant would have to be performed beforehand.  One very important clause to include would be that the lease would have to be in effect and the tenant current in all financial obligations to Owner before an option could be exercised.  Attorney Sanchy briefly touched on rights of first refusal, but cautioned that they often dampen an existing deal, since you have a ready willing and able buyer who has made an offer, and will be facing delays and possible loss of his deal with an existing right of first refusal in another party.  They should therefore be made very sparingly. 

4.       James Steck, Herbst & Herbst, LLC – spoke on updates in land use law.  He outlined the distinctions between the functions of the planning and zoning board, the zoning board of appeals, and the inland wetlands board.  He cautioned that there is huge variability in the regulations between the 169 autonomous towns in Connecticut, and urged a review to know what zone a property is in before it is contracted to purchase.  He talked about the time lines and the order of filing for approval to the various agencies as well.

5.       Judge Michael Magistrali, Michael Magistrali and Associates – talked about House Bill 6027, a reform bill of the probate court system that would take effect January 2011.  He pointed out that the probate court system is a quasi-state agency, not part of the municipal system, although they have state-mandated space within municipal office buildings, and not part of the Connecticut Judiciary System.  Our system was created by the Connecticut Constitution over 300 years ago.  The legislature can overhaul the system, and they have already done so by centralizing the accounting, rather than the previously autonomous system that existed prior to this date with probate courts collecting fees, paying salaries and expenses and turning overages over to the system.  Now everything is run out of the West Hartford centralized probate administrative office.  The mandate is now to reduce the existing 117 probate courts to a number between 44 and 50, merging many probate courts together, like exists today with the merger of the Salisbury, Canaan, Sharon, Falls Village probate courts to the Northwest corner probate court.  Our system, Region 1, is presently meeting to attempt to agree on a consolidated system that would reduce our individual courts to 2-3 courts, and Judge Magistrali believes the likely result will be three, located in Litchfield, Torrington and Litchfield.  There is another requirement that newly elected judges would have to be attorneys.  Currently they need only be electors in their jurisdiction.    Judge Magistrali also spoke on the business of being a probate court, and provided illumination of the logistics of running such a court. 

6.       Art Oles, MAI, SRA – spoke on the differences between appraisals and broker price opinions.  He cautioned against the lack of standards and experience requirements for bpo’s.  Currently to be certified as a residential appraiser you need to have 2500 hours of experience, 24 months of time on the job and 200 hours of education.  To be a certified general appraiser, you must have 3000 hours of experience, 30 months of time on the job and 300 hours of education.  No such standards exist for bpo’s.  That means that in the areas that require skill and experience, such as weighting sales because of lack of comparables, an appraiser has a wealth of experience on which to rely in order to make those necessary judgment calls.  He cautioned that under the law, one may only give a bpo if there is an intention of getting a listing.  Anything else would be providing an opinion on the value of a property, for which you must be a certified appraiser.  Most people prefer an appraisal to a bpo, and resort to a bpo when they don’t want to wait/pay for an appraisal. 

7.       Katherine Webster O’Keefe, Law Office of M. Katherine Webster-O’Keefe – spoke on the First Home Buyer Incentive Program.  This program has recently been upgraded in 2009 to provide for an $8,000 credit on taxes that may be take the form of an interest-free loan at closing.  To be eligible, you must not have owned a residence three years prior to the purchase.  This applies to all buyers, so if one spouse has owned such a residence, they are ineligible for the program.  The residence must be located in the United States and there is a sunset on the law of December 1, 2009.  There is a phase out of eligibility if income exceeds $150,000.  Non-resident aliens are ineligible.  The home may not be acquired by gift or a related person, although a step relationship is not considered to fit in that exclusion.  You may not purchase it from a business entity in which you own 51% or more of an interest.  Such a buyer would have to repay the credit if they cease occupy the residence within 36 months of the purchase, and this repayment would apply even if the property burns down or is condemned.  Also, the repayment would have to be ALL repaid in the year the property becomes ineligible under these regulations.  As an interesting side note, if you transfer the property to your spouse as part of a divorce settlement, the transferee spouse is stuck with paying the credit back to the IRS!!

8.       Senator Andrew Roraback, Roraback and Roraback – commented on what didn’t pass – the conveyance tax exaction on the buyer, to supplement the one currently taken from the buyer was a huge bill that did not pass.  There are now new disclosures on the Property Disclosure Form that requires listing all leased property being transferred as part of the real estate purchase, such as gas tanks, hot water heaters and alarm systems, which are commonly seen leased property.  Also, there is also now a disclosure for being in a historic district, which can be an onerous regulatory overlay on the use of a property.  The legislature has also extended the 5 year statutory time period to complete subdivision and other improvements under development law to 6 years, a nod to the influence the economy has had on building projects.  Finally, he emphasized the dramatic problem our state currently faces, with a budget that should be in place by July 1st of this year, a projected 8 -9 Billion Dollar Deficit, representing fully 22 – 24% of the entire budget, and no real direction in how to resolve the issues, some two weeks from when the budget should be in place.

9.       Christopher Ashe, Instructor, learning Unlimited – provided a good historical background on the reason short sale approval has become so difficult.  He pointed out that prior to 1954, loans on real estate were usually of 5 years or less in duration, with only 50% of the fair market value loaned, and interest only with a balloon payment at maturity.  The FHA came into existence in 1934, and after that Fannie Mae, which created the secondary market for loans.  This meant that a Bank could loan money, package that loan with other loans and sell it on the market, receive money back for that sale, and lend again!!  It increased the amount of money available for loans by ten fold!  In 1968 Fannie Mae was sold into private hands, and HUD created Ginny Mae, and Freddy Mac was formed as well, all different responses to the secondary market, and which created mortgage securities, which were offerings for shares in mass loan packages backed by the governmental agencies.  In the 80’s and 90”s, the sub-prime market raised its head, and loan packages were that did not have the governmental backing and presented far more risk- with a corresponding higher rate of return for the higher risk.  These were called mortgage derivatives, and they shepherd in the recent economic crisis in the mortgage market.  Now, in order to get short sale approval, since loans are usually NOT owned by the initial lender, but rather have been sold in these large packages to groups of investors, approval must be given by a money manager in charge of the loans.  They respond to their investors who have competing interests – some have bet that the market will improve, and some have bet that it will not.  For many such money managers, it may make the most sense to do nothing at all, rather than to juggle these competing interests….Voila!!  No response to a short sale approval request!

NEWS AFFECTING REAL ESTATE BROKERS AND SALESPEOPLE

NOVEMBER 7, 2008

If there is a particular topic you feel Attorney Weaver should address which would be of interest/help to Members, please let us know. We will make certain Attorney Weaver receives the information......Thank you.