Real Estate Law Articles

A man agreed to buy a house on New York’s Fire Island for $1.2 million. He wrote a deposit check for $120,000, and signed a contract saying it was a cash deal and wasn’t contingent on his being able to arrange financing.

However, the man told the seller that he needed some time to deposit the $120,000 in his account, and asked that the check not be cashed right away.

The seller verbally agreed. After 12 days, though, the seller signed the contract and deposited the check. It bounced. [Read more...]

As more and more states allow medical marijuana use, landlords face the question of whether to allow tenants to smoke pot for medical reasons.

On the one hand, even if medical marijuana is legal under state law, it’s still technically illegal under federal law – even if the federal government is doing little or nothing to block the drug’s medical use.

On the other hand, landlords are generally required to make reasonable accommodations for disabled tenants, such as allowing grab bars in showers or service animals in an otherwise “no pets” building. Some tenants are arguing that allowing medical marijuana use is a type of reasonable accommodation.

However, this argument suffered a blow recently when the U.S. Department of Housing and Urban Development issued a memo stating that medical pot is not a reasonable accommodation of a disabled person.

The memo applies to landlords who accept “Section 8” subsidized housing. It says that these landlords cannot treat medical marijuana as a reasonable accommodation. However, it stopped short of saying that landlords have to evict such tenants – it left that decision to the individual landlords.

As more states move to decriminalize the drug, this question will likely only become more complicated.

Back in the old days, the typical homebuyer was a married couple. But today, there’s a huge increase in the number of unmarried couples who are buying a home together.

It might not sound very romantic, but it’s a good idea for such couples to think about what their financial obligations will be regarding the home, and what would happen if they were to split up at some point in the future.

For instance, you might want to consider signing a “cohabitation” or “domestic partner” agreement. [Read more...]

If you’re involved in the sale or lease of commercial real estate, very often you’ll be asked to sign a “letter of intent.” A letter of intent isn’t a formal lease or purchase agreement; rather, it’s a signed statement that the parties plan to negotiate a deal later that involves certain elements.

Because a letter of intent doesn’t seem like a contract – it seems more like a simple handshake acknowledgement that the parties hope to hammer out a formal agreement later – some people sign them without giving them a great deal of care.

This can be a mistake. Letters of intent are contracts in themselves, and can have serious consequences. [Read more...]

Starting October 1, 2011, large home mortgages on expensive houses are harder to get – because the U.S. government is trying to gradually play less of a role in the mortgage market.

Currently, government-related entities such as Fannie Mae and Freddie Mac guarantee or purchase the majority of home mortgages in the U.S. Lenders are much more willing to provide mortgages if they know the loan can be backed by these entities.

However, the U.S. doesn’t guarantee all mortgages – it only backs mortgages that meet certain criteria. In particular, there’s a size limit to how large a mortgage it will guarantee. [Read more...]

The Fair Isaac Corporation, creator of the FICO credit score, usually doesn’t reveal many details about how missing a mortgage payment will affect people’s scores. But the company recently issued a commentary to lenders that contained some unusually specific information.

FICO scores range from 300 to 850. Scores of 750 or higher generally qualify for the best credit terms.

Here are some of the newly released details:

• Being 30 days late on a mortgage payment – even if it was an accident – can lower a 780 score by 100 points. That’s a huge drop. [Read more...]

If a government entity wants to take all or part of your property by eminent domain, it’s required to pay you the land’s fair market value. Typically the government will send you a notice telling you what it thinks the land is worth, and offering to pay that amount. Its valuation will usually be based on an appraisal that it has commissioned.

Some property owners who get an eminent domain notice rush out and get their own appraisal, but this is often a mistake. It’s almost always better to talk with an attorney first before hiring an appraiser. [Read more...]

Do landlords have a right to limit the number of people who can occupy an apartment?

The answer, as often happens in the law, is, “It depends.”

In general, landlords own the property and they can decide how many people can live there. However, a landlord is not allowed to discriminate against tenants based on their “familial status.” (This rule was added to the federal Fair Housing Act back in 1988.)

What does “familial status” mean? It means that a landlord can’t refuse to rent to a family with children. So if a family with seven children wants to rent an apartment, the landlord can’t say “no” based on that fact alone. [Read more...]

Cash is playing a more significant role in residential real estate sales right now than at any time in recent memory.

Consider the following:

• The median down payment on houses was 22% last year.

That’s according to a study by Zillow.com of sales involving conventional mortgages in nine major U.S. cities. It’s the highest figure ever since the data started being kept back in 1997.

By comparison, just three years ago the figure was 11%. And back in late 2006, it was only 4%.

The main reason for the change: Banks are tightening their standards and demanding larger down payments to qualify for mortgages. Banks are figuring that borrowers who can afford a larger down payment are less likely to default, and less likely to end up in a situation where they are “underwater” – meaning the value of their house falls to the point where they owe more than the house is worth. [Read more...]

The U.S. Department of Housing and Urban Development has proposed regulations that would ban discrimination against gay people in federally-assisted housing programs. The new rules would prohibit lenders from discriminating based on sexual orientation in offering FHA-insured mortgages. They would also prohibit discrimination in HUD programs including public housing, Section 8 vouchers, and multi-family housing assisted through HUD funding.

Currently, the Fair Housing Act prohibits discrimination in renting, selling and mortgage lending on the basis of race, color, national origin, religion, sex, disability and family status. The new rules say that “family status” includes the fact that someone is gay, lesbian, bisexual, or transgendered. HUD is accepting comments on the proposed rules and expects to make a final version official by the end of 2011.

While there is currently no federal law concerning discrimination against gays in housing, there are discrimination bans in effect in roughly 20 states and more than 150 cities and towns in the U.S.

A new type of reverse mortgage that could benefit some senior citizens has been approved by the Federal Housing Administration. In a traditional mortgage, you borrow money against your house and pay it back in monthly installments over time. With a reverse mortgage, you borrow money against your house, but you don’t have to pay it back until you die, sell the house, or move – which means you don’t owe anything as long as you stay in your home.

In most cases, to qualify you must be at least 62 years old. Reverse mortgages have been criticized in the past because they can involve high fees. For instance, in a traditional reverse mortgage, a borrower had to pay 2% of the loan amount as mortgage insurance. On a $250,000 mortgage, that amounted to a $5,000 fee. [Read more...]

The Federal Housing Administration has extended a program designed to make it easier for investors to “flip” foreclosed and other depressed properties by buying them, rehabbing them, and quickly selling them to homebuyers. Ordinarily, investors who buy a property with an FHA-insured loan are not allowed to sell the property until at least 90 days after the purchase. However, the FHA now says it won’t enforce this rule until at least the end of 2011.

The FHA is trying to encourage investors to quickly rehab depressed properties in order to stabilize home values and prevent neighborhood blight. Investors are often able to rehab and flip a foreclosed property in less than three months, the FHA says.

The FHA initially waived the 90-day rule back in February 2010. At the time, it said the waiver would only last a year, but it has extended it. During the first year of the waiver, some 21,000 homes with FHA-insured mortgages were resold within 90 days. The total value of those mortgages was more than $3.6 billion. Investors like the ability to resell within 90 days because it lowers their transactional costs and prevents properties from sitting idle, which can lead to vandalism and other problems.

The average office rent in the U.S. edged slightly higher at the end of 2010 – to an average of $22.09 per square foot. That’s an increase of only 0.2 percent, but it’s the first increase in almost three years, which suggests that the long slump in rental rates may be coming to an end as the economy slowly improves. Back in early 2008, the national average was above $25 per square foot.

The total amount of leased office space in the U.S. has also slightly increased. From the beginning of 2008 through September 2010, the total amount of leased office space in the U.S. fell an astonishing 137.8 million square feet. In the last three months of 2010, though, the figure increased by 2.5 million square feet –not much, but a clear change in direction.

The average vacancy rate is 17.6 percent, and is the highest since 1993. The situation varies greatly from market to market, according to Reis, Inc., a company that compiles these figures. Some markets are coming back strongly, while more overbuilt areas such as Phoenix and Las Vegas are still seeing low rents and high vacancies.

There’s been a spike in interest recently in 15-year mortgages, particularly for people who are refinancing.

In general, the recent financial crisis has made people more wary of debt and more eager to pay it off. Back before the crisis, many people were happy to take on more debt and pay it off over a longer period of time. But today, a lot of people want to get rid of debt as quickly as possible, even if it means higher monthly payments.

Between 2007 and 2009, the percentage of people refinancing who opted for a 15-year mortgage doubled – from 9 percent to 18 percent. [Read more...]

As a general rule, borrowers have to obtain private mortgage insurance if their down payment is less than 20% of the value of the home. But what many people don’t realize is that there are a number of different options for the way this insurance, called PMI, is handled. Some of these could reduce your monthly payment or save you money in the long term.

PMI is a bigger issue than it used to be. For one thing, lenders are very strict about requiring it these days. Five years ago, at the height of the boom, some lenders didn’t always require PMI in every case where it was applicable, but that’s no longer true. [Read more...]

Here’s a real estate owner’s nightmare: After a couple built a brand new sixth floor atop their five-story townhouse, the city ordered them to remove the whole thing.

The building, on Manhattan’s Upper West Side, was within a “landmark” district. The city’s Landmark Preservation Commission decided that the addition didn’t comply with the city’s landmark rules, and ordered it removed.

The addition included a kitchen, dining room and terrace, and was designed to turn the fifth-floor rental unit into a duplex. [Read more...]

A little-known rule of law says that if you use someone else’s land for a long enough period of time, you can actually acquire legal title to it.

This rule is called “adverse possession.” In order to claim adverse possession, a person must use someone else’s property for a period of years. In some states, it’s just a few years, but other states require up to 20 years or more. During that time, the person’s use of the property must meet several criteria:

• They must demonstrate actual possession by changing the land in some way – building a fence, cutting trees, mowing – as opposed to just walking on it.
• Their use must be so open that it would be obvious to an observer that they’re using the property as their own.
• They must act without the owner’s permission, to the exclusion of the owner and in a way that’s contrary to the owner’s interests.
• They must use the land relatively continuously – as opposed to cutting a few trees once a year, say, and then leaving the property alone at all other times. [Read more...]

When two or more people own real estate, the relationship between the owners is known as a “tenancy.” There are a number of different kinds of tenancy. Understanding the differences is important, because different kinds of tenancy can mean different rules for whether an interest in the property can be inherited outside of probate and whether creditors can claim the property.Tenancy comes in three main forms: tenancy in common, joint tenancy, and tenancy by the entirety. Each form has its advantages and disadvantages.

Tenancy in common. With a tenancy in common, each owner has a percentage interest in the property and can transfer that interest however he or she wants. For instance, one tenant might own 60% of the property, another might own 35%, and a third might own the remaining 5%. The owner of the 5% can sell that interest, or leave it to someone in a will. The person who buys or inherits the land will then become a tenant in common with the other owners. The main advantage of a tenancy in common is that it allows the owners the greatest flexibility to transfer the property as they wish. [Read more...]

Sweeping changes to the way home mortgages are structured and approved have been passed by Congress and signed into law by President Obama. The changes are included in the recent financial regulatory reform law. Although the main goal of the law is to change the way Wall Street banks are regulated, a large section of it is aimed at mortgage reform.

Here’s a brief summary of the most important changes:

• One of the key goals is to reduce the number of “risky” mortgages that led to the recent housing bubble, such as mortgages that don’t require full documentation of the borrower’s income, mortgages that have “balloon” payments (large one-time payments at some point in the future), and “option ARM” mortgages that keep initial costs low by allowing borrowers to defer payments of principal and interest. [Read more...]

A Minnesota man sold part of his property, then planted trees along what he thought was the boundary line. He and his neighbors treated the trees as the boundary line for 23 years, until a new neighbor looked up the deed and discovered that the actual property line was six feet over the “tree line” onto the man’s side.

The two went to court, but the court sided with the man. [Read more...]

Many cities and towns have zoning rules that limit people’s ability to operate a business on their property. But sometimes it can be difficult to tell whether a homeowner’s activity is a business or a hobby. If there’s any doubt, you might want to talk with an attorney.

For instance, a New Jersey woman had a four-acre home on which she bred German Shepherd show dogs. She obtained a permit to build a storage building on her property. She used the building to house dogs, and she built dog runs outside it. [Read more...]

A condominium owner might have behaved in an extremely offensive manner to his neighbors and to the condo manager, but the condo board can’t sue him for creating a nuisance, according to a Massachusetts court.

Over a period of five years, the owner did almost everything he could to offend his neighbors and the building manager. He cursed at them and left them vulgar and derogatory voice-mails, posted offensive messages on signs in the laundry room, shouted profanities at condo meetings, wrote highly insulting messages on his condo fee checks, made obscene gestures when passing people in the hall, made obscene gestures when passing the building’s security cameras, propped open fire doors, and twice left bags of dog feces outside a neighbor’s door. [Read more...]

A New Jersey town might have been upset about rowdy college students in rental properties near the school, but it didn’t have a right to deal with the problem by passing new zoning rules that limited rentals, says a New Jersey appeals court.

The town of Ewing, N.J. had tried to limit “Animal House”-type rentals by adopting rules for rental properties that required a minimum amount of space per renter and that required one parking space for each renter who was a licensed driver. The idea was to limit the number of people who could rent a given house, thus discouraging “party houses.” [Read more...]

A landlord can’t evict a tenant just because a guest of the tenant brought drugs onto the property, according to an appeals court in Tennessee.

The tenant, a single mother, had invited three friends over to watch videos and spend the night. During the night, police investigated a nearby burglary asked permission to enter and search the apartment. They discovered that one of the guests had placed a small amount of marijuana under a sofa cushion. [Read more...]

Selling a home in today’s market can be tough. Here are a few suggestions that might help:

Get your own home inspection. Potential buyers who are serious will hire a home inspector to discover any flaws in the property. Consider hiring your own inspector first. You might discover things you can do to enhance the value of the home, such as installing more energy-efficient windows. You’ll also be prepared for any “surprise” problems that the buyer can use to back out of the deal or negotiate a lower price. Typically, the cost of fixing minor problems ahead of time yourself is a lot less than what a buyer will demand if the problems are discovered during an inspection. [Read more...]

More than a million people suffer a slip-and-fall injury each year, and some 16,000 die as a result. Slip-and-fall injuries often lead to significant legal awards against property owners and landlords, so it’s wise to take precautions.

A recent study by the insurance company CNA makes the following recommendations for commercial property owners:

• Putting carpet runners and mats at an entrance-way can reduce falls, but make sure mats are not more than a half-inch higher than the floor and inspect them regularly to make sure the ends are not curling up.
• In warm weather, place an abrasive mat outside and an absorptive mat inside. In cold weather, put an absorptive mat just inside the door, followed by an abrasive mat. [Read more...]

A home is usually the most expensive purchase people ever make. And as we’ve all learned recently, mortgage loans can be complex and a poorly chosen mortgage can cause many problems down the road. And yet, Americans spend very little time researching a mortgage.

The average homebuyer spends only five hours choosing a home loan and gets only three quotes, according to a recent online survey of nearly 3,000 purchasers by Zillow.com. More than 30% of purchasers spend two hours or less. [Read more...]

People who use oxygen for medical reasons often smoke as well. (Frequently, smoking is the reason they have respiratory problems that require oxygen.) The problem is that smoking and oxygen are a dangerous combination. Oxygen accelerates fires and can turn a cigarette ember into a serious flame. Even after the oxygen is turned off, gas that has accumulated in a room or on a person’s clothing and hair can trigger a conflagration.

For this reason, many landlords and condominium associations would like to ban smoking in units where someone uses oxygen. But is this legal? The benefits of a ban are obvious: It reduces the likelihood of a fire causing property damage or physical injury to a resident or neighbor, along with possible resulting lawsuits. [Read more...]

Mortgages insured by the Federal Housing Administration help many people to buy a home who couldn’t do so otherwise. That’s because lenders are often willing to loan to people with less of a down payment because the loan is insured by a federal agency. However, the FHA has just made it more difficult to obtain an insured condo loan.

Generally, the FHA can insure a loan only if the condo project has been approved by the Department of Housing and Urban Development, or HUD. [Read more...]

A recent case from Maryland’s highest court shows that even people who deal with real estate simply as investors can be held liable for lead paint problems. The case involved a Maryland company that bought tax liens. The company’s business model was to buy liens, foreclose on delinquent properties, then sell them “as is” at a profit. The company was organized as a limited liability company, or LLC.

In one case, the LLC foreclosed on a home in Baltimore. Sometime after the foreclosure it became aware that the former owner had rented the house to a family. The LLC demanded that the family leave, but the family members refused. So the LLC took the family to court and won its eviction case. The family then turned around and sued the manager of the LLC personally, claiming that the children in the house had developed lead poisoning. [Read more...]

New rules issued by Fannie Mae are making it harder for people to get mortgages for condominium units, particularly when the condo is new construction or a new condo conversion. The rules are designed to reduce the risk of foreclosures. However, they come at a bad time, because the real estate market is slow and many people have already been having more trouble getting mortgage loans.

Fannie Mae can’t tell lenders what to do, but Fannie repurchases a huge percentage of mortgages, and many lenders are unwilling to offer loans unless they can turn around and resell those loans to Fannie. So when Fannie tightens its eligibility for repurchases, it makes lenders less willing to offer loans. [Read more...]

“A man complained that [on] his way home to dinner he had every day to pass through that long field of his neighbor’s. I advised him to buy it, and it would never seem long again.”
– Ralph Waldo Emerson

“Everyone says buying your first apartment makes you feel like an adult. What no one mentions is that selling it turns you right back into a child.”

– Anderson Cooper

A condominium association can’t adopt a rule that prohibits owners from displaying religious objects outside their unit entrances. That’s the word from a federal appeals court in Chicago, which allowed a Jewish family to bring a lawsuit after their condo association removed a mezuzah from their front door. (A three-judge panel of the court had earlier sided with the association, but the full court reconsidered and sided with the family.) [Read more...]

The amount that homeowners can borrow with a reverse mortgage has been reduced by 10% by the Federal Housing Administration. The new rule applies only to reverse mortgages obtained after October 1, 2009. If you took out a reverse mortgage before that date, you won’t be affected. But if you want to take out a new FHA-insured reverse mortgage, the maximum amount you can borrow will be 10% less than it was.

In a traditional mortgage, you borrow money against your house and pay it back in monthly installments over time. With a reverse mortgage, you borrow money against your house, but you don’t have to pay it back until you die, sell the house, or move, which means you don’t owe anything as long as you stay in your home. In most cases, you must be at least 62 years old to qualify. [Read more...]

The Federal Housing Administration, which insures up to a third of all new mortgages, has adopted some limits on the mortgages it will insure.

The FHA doesn’t make loans, but it insures loans made by other lenders in order to encourage lenders to give mortgages to people with shaky credit or little in the way of a down payment. The new restrictions will make it somewhat harder for such people to get mortgages. [Read more...]

When a couple buys a home, they often simply put both names on the deed. When a homeowner gets married, he or she often adds the spouse’s name to the deed. And when a single person shares a home with an elderly relative, they often put both names on the deed.

This may be common, but it’s not necessarily the best idea. Here are some things to consider:

Capital gains. Under certain circumstances, if you add a new spouse’s name to the deed and sell the house shortly afterward, you can end up owing more capital gains tax on the sale than if you had left the house in one spouse’s name. [Read more...]

Anyone looking for a mortgage (or other loan) needs to worry about credit scores. But how much do you really know about your score? Take this quick test and see.

1. If I pay my credit card bill in full each month, that will significantly improve my credit score.      True    False

2. Any time I miss a bill payment, my credit score is negatively affected.      True    False

3. If my income goes up, so does my credit score.      True    False

4. I can use an online service and find out what credit score my lender will see.      True    False [Read more...]

Office rents nationwide declined 8.5 percent in the third quarter of 2009 compared to the previous year, according to Reis, Inc., a real estate research firm. At the same time, office vacancies rose. At the end of the third quarter, tenants were leasing some 19.6 million square feet less than at the beginning, according to Reis.

For the first three quarters of 2009, the net reduction in rented office space was 64.2 million square feet, the largest decline since records began to be kept in 1980. The vacancy rate was 16.5%, the highest since 2004. Of 79 metropolitan areas tracked by Reis, vacancies rose in 72 of them in the third quarter, and rents declined in 68 of them. Of course, no one can predict the future, but with rents at such low levels it might be a good time for tenants to renegotiate a lease and lock in rates for a longer term.

It can be a great idea to buy a “fixer-upper” – as long as you’re sure the local zoning rules will allow you to actually fix it up. Unfortunately, many people have bought a home or other property with the idea of remodeling it to their tastes, only to discover that what they had in mind is against the law. [Read more...]

Two days before a commercial landlord in Nebraska was to receive a $90,000 rent payment for some cropland, the tenant filed for bankruptcy. What happens? Can the landlord still collect? The law is somewhat unclear, but in this case a federal appeals court sided with the landlord and ruled that the tenant had to pay the entire $90,000.

The tenant was a business and it filed a Chapter 11 reorganization bankruptcy (as opposed to liquidating under Chapter 7). According to the ruling, the bankrupt company still had to perform all its obligations under the commercial real property lease until the fate of the lease was decided in court.

If you own rental or other income-producing property, you should consider putting it into a limited liability company. This can be a great way to protect your assets, while at the same time you can reap some tax advantages.

Suppose someone slips and falls on your rental property and sues you. If you own the property as an individual, all your assets would be at risk – your home, your investments, your savings accounts, etc. But if the property is owned by an LLC, in most cases the risk would be limited to the amount of your investment in the LLC. Your personal assets would be safe.

The same is true for other types of claims involving a property, such as fire-related claims or problems with environmental contamination. [Read more...]

In a challenging real estate market, there’s been a growing interest in lease/purchase options, which can benefit sellers and make it easier for prospective purchasers to buy. A common problem today is that, due to new lending restrictions, many potential buyers can’t qualify for a loan even though they have saved toward a down payment and are generally a good credit risk.

The solution for both sides might be a lease/purchase option. Basically, the prospective purchasers agree to rent the property for a year (or more), after which they have the option to purchase it at a given price. Each month a portion of their rental payment is credited toward the purchase price, which will reduce the amount they have to pay if they decide to buy. In effect, it’s a “rent-to-own” arrangement for real estate. [Read more...]

You can now borrow up to $625,500 with a federally insured reverse mortgage – up from $417,000 – as a result of a change made by Congress that will help some seniors.

In a traditional mortgage, you borrow money against your house and pay it back in monthly installments over time. With a reverse mortgage, you borrow money against your house, but you don’t have to pay it back until you die, sell the house, or move, which means you don’t owe anything as long as you stay in your home. [Read more...]

Many people who are having trouble making their mortgage payments are turning to consultants who promise to help them modify their loans. The problem: Often, these “loan modification” businesses are actually scams. In a typical scam, a consultant demands a large upfront fee – sometimes as much as $3,000 – and then disappears without doing any work.

Prosecutors in 19 states have taken legal action against various “foreclosure rescue” businesses, as has the Federal Trade Commission, but many homeowners continue to be bilked. In Washington state alone, the attorney general’s office is investigating complaints involving as many as 100 companies. Be very careful before you hire a consultant who promises to negotiate for you. If you’re in debt trouble, your best bet is often to consult a reputable attorney.

A landlord could evict a tenant who sued the landlord for a personal injury, according to the Alaska Supreme Court. The tenant was a handyman at a motel who rented a motel room at a reduced rate. He sued the motel after he slipped and broke his leg. The motel owners responded by throwing him out. According to the handyman, this was illegal retaliation against him that violated the state’s landlord-tenant law.

But the Supreme Court sided with the landlord. It said it was true that the state landlord-tenant law prohibits retaliation against a tenant who tries to enforce his rights under the law. However, in this case the handyman wasn’t trying to enforce his rights under the landlord-tenant law; he was filing a personal-injury lawsuit, which is a different matter. [Read more...]

Over the past year, there have been a number of instances where a bank has agreed to provide a mortgage, then has changed its mind and reneged on its agreement at the last minute. In the past, such conduct was unheard of. It’s still rare – but the credit crisis has changed a lot about the way banks operate, and this is one result. As a buyer, you might want to protect yourself by spelling out in your purchase and sale agreement what will happen if the bank backs out.

Of course, many purchase and sale agreements already include a mortgage contingency clause, which says that the buyer’s offer is dependent on being able to get a mortgage. But you might want to be sure that the contract makes the offer contingent not just on getting approval for a mortgage, but on the lender’s actually following through and funding the loan at the closing.

Here’s a common scenario: Both parties to a real estate deal are ready to close, but for some reason the seller can’t move out by the closing date. Maybe the seller is moving to a new home or place of business, and the new place isn’t quite ready yet. Maybe the closing date is the last day of the month, a notoriously difficult day on which to hire a moving company.

One solution is to go ahead with the closing, but have the buyer rent the property back to the seller for a short period to give him or her time to move out. [Read more...]