By David A. Zobel
Part of a monthly multi-part series of discussions aimed at explaining legal and financial considerations for young professionals as they establish and develop their careers, relationships and lives.
The decision to purchase a home may be one of the biggest financial decisions you will ever make. Chances are, you will be looking at two or three times your annual income in debt, a small forest’s worth of paperwork, and a host of terms and phrases you may not be familiar with. Unfortunately, a misstep or two in your purchase can have serious ramifications on both your home and your investment. This discussion sets forth several legal considerations to keep in mind before you sign the contract.
How Should I Take Title to the Property?
This choice can be pretty easy when you are single – you purchase it and title yourself as the sole owner. The property is yours (subject to the mortgage) and you are free to sell it as you please or have it pass pursuant to estate plan.
However, if you are married or purchase the property with a friend or investor, you will need to title the property differently and different titles may be more appropriate for different marital and financial relationships. For example, a joint tenancy with right of survivorship may be ideal for family situations in which an older family member wants the property to automatically pass to a younger sibling upon death. A tenancy by the entirety, reserved for married couples, can prevent one of the spouse’s individual creditors from reaching the property. Where business partners are purchasing a property, it may be wise to hold title as tenants in common which would allow either partner to freely sell his/her interest in the property without the permission of the partner.
The Basement Is Dry, The Roof Does Not Leak: Seller Representations
Most states require the seller to disclose to you “material” facts which may affect your decision to buy the property. What is “material” may vary from state to state, but typical items for disclosure and warranty address termite or water damage as well as issues relating to appliances, the roof, and sewage systems. Should the seller misrepresent the extent of a known problem or fail to disclose something known to them, you may have a cause of action against the seller for any damages caused thereby. It is important to note, however, that the seller’s disclosure typically only covers known issues. For this reason, it is still strongly suggested that you obtain your own independent property inspection.
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02/2/12 9:15 AM
Real Estate | Comment (0) |
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Buying a House? A Quick Look at Legal Issues You Should Consider
By David P. Renovitch
Illinois Attorney General Lisa Madigan has filed a lawsuit in Cook County Court alleging Standard & Poor’s committed consumer fraud in causing the housing market to crash. S&P is a credit-rating company that graded mortgage-backed investments in the years leading up to the housing market crash. Madigan alleges S&P did not exercise proper independence and objectivity when it gave high ratings to mortgage-backed investments it knew were unworthy and risky. The lawsuit alleges S&P did so to increase its own profit and market share.
Madigan stated S&P “… used every trick possible to give deals high ratings in order to retain clients and generate revenue. The mortgage-backed securities that helped our market soar – and ultimately crash – could not have been purchased by most investors without S&P’s seal of approval.” The lawsuit cites numerous internal emails and conversations among S&P employees as evidence of its misrepresentations. For example, in one email, an employee stated an investment “could be structured by cows and we would rate it.” The lawsuit also cites to congressional testimony by a former managing director at S&P who testified that “profits were running the show” and ratings were assigned to risky investments to help drive profit margins for their clients.
Mortgage-backed securities are financial products made up of a pool of mortgages that are bundled and sold as a security. They are backed by residential mortgages. Pension fund and 401(k) managers relied upon S&P ratings to make decisions as to whether these were appropriate investments for their clients.
Madigan has been successful in the past in her efforts to go after lenders following the housing market crash. In December of 2011, Madigan and the U.S. Department of Justice agreed to a $335 million settlement with Countrywide for discriminating against minorities during the sub-prime mortgage lending binge. In 2008, she headed up a lawsuit against Countrywide leading to a nationwide $8.7 billion settlement over predatory lending practices. She also reached a $39.5 million settlement with Wells Fargo over deceptive marketing of risky loans called Pay Option ARMS.
Posted by Attorney David P. Renovitch. Renovitch has extensive litigation experience in matters related to insurance companies and their insureds, real estate, construction, banking and lending, especially in the areas of title litigation, recoupment and mechanic’s lien litigation.
01/31/12 9:55 AM
Litigation, Real Estate | Comment (0) |
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S&P Sued for Allegedly Contributing to Housing Collapse
By Michael J. McKitrick
Your lease may be the most important asset of your business. Commercial leases are complex transactions and should not be taken lightly.
Following these basic points will make the lease renewal or new lease go smoothly.
- Know your dates. I have seen many cases where tenants allow their lease renewal deadline to pass or, even worse, have their lease automatically renewed by failing to follow these important deadlines. You should check your lease to see exactly what options you have to renew and the deadline specified in the lease to notify the landlord of your intention to renew. These deadlines are usually strictly enforced by the courts.
- Start early. You should start your decision process well before the deadline in the lease. The earlier you start, the more time you have to test the market, review potential alternative sites, and make your decision. Many renewal provisions have a market rent adjustment, so you will need to find out what your landlord proposes as “market rent” well in advance of the deadline to give you time to negotiate or to consider alternatives.
- Consult the experts. You should consult a commercial real estate broker familiar with your type of property to assist you in determining the options available in the market including rent and other terms landlords are providing. They know the market, the players and concessions generally available. Brokers generally work on a commission basis and your landlord will most probably be consulting with his broker so you need to even the playing field. At the same time, you should consult with a real estate attorney so that your attorney will be on board when the lease proposal is made and when you are presented with a lease or renewal document.
- Carefully review the lease documents. Depending on the type of property, whether construction is contemplated and many other factors, leases are lengthy and complex. Much legalese is involved and terms have meaning and importance that are not apparent to someone not experienced in reviewing and negotiating leases. The lease or renewal document should be carefully reviewed by your attorney and revised to include provisions necessary to protect your interests. Most landlords have lease formats that are not favorable to tenants but landlords are willing to negotiate lease terms especially now when it is still a tenant-oriented market.
If you follow these steps you should be able to navigate the lease renewal minefield. If not, you risk a blow up!
Posted by Attorney Michael J. McKitrick. With over 30 years of hands-on commercial litigation and transactional law experience, McKitrick’s practice encompasses business and transactional advice, commercial real estate matters, and regulatory and practice management guidance for health care professionals. Most of his clients are in the medical, financial services, and manufacturing sectors.
01/9/12 4:02 PM
Business Law, Real Estate | Comment (0) |
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Four Points to Follow When Your Lease Term is Ending
By David P. Renovitch
Deal Did Not Include Details on Practices that Led to Housing Market Collapse
A federal judge in Manhattan refused to approve a $285 million settlement entered into between the Securities and Exchange Commission and CitiGroup, Inc. The SEC sued CitiGroup alleging that in 2006 and 2007, it sold $1 billion in mortgage-related securities without telling investors that it was betting against those same securities. In other words, CitiGroup anticipated a collapse in the housing market and sought to unload securities that would lose value as a result of the collapse.
Judge Jed S. Rakoff rejected the settlement because CitiGroup did not have to admit or deny any allegations. The Judge ruled that without knowing more details of the facts, both he and the public have no way of knowing whether this is a reasonable settlement or whether such practices should be corrected. In its Order, Judge Rakoff stated “If the allegations of the Complaint are true, this is a very good deal for CitiGroup; and even if they are untrue, it is a mild and modest cost of doing business.” The Judge noted that investors lost more than $700 million in these transactions.
This decision is seen as a fairly dramatic shift in a very long-standing policy of permitting the SEC to reach settlements without any admission of wrongdoing. The SEC settles hundreds of enforcement cases each year, usually by getting the company to pay a fine or reimburse investors without admitting or denying any charges. The Judge hinted at his motivation for deviating from precedent by stating “… in any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth.”
The SEC has decided to file an appeal citing “… legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits.” The SEC also cited the break from decades of precedent.
There is, indeed, a growing sense of frustration as economists and other experts seek to learn the factors and variables that led to the collapse of the housing market. Obtaining accurate information is critical to determining what, if anything, needs to be fixed.
Posted by Attorney David P. Renovitch. Renovitch has extensive litigation experience in matters related to insurance companies and their insureds, real estate, construction, banking and lending, especially in the areas of title litigation, recoupment and mechanic’s lien litigation.
12/29/11 12:43 PM
Banking and Finance, Real Estate | Comment (0) |
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Judge Rejects SEC Settlement with CitiGroup
By David P. Renovitch
Two of the largest players in the mortgage industry, Fannie Mae and Freddie Mac, are eliminating their respective foreclosure attorney networks in an effort to establish more uniform foreclosure practices. Fannie Mae currently has 191 law firms in its Retained Attorney Network. The Federal Housing Finance Agency, which oversees Fannie and Freddie, instructed the two companies to “transition away” from the current law firm approval network and allow servicers to choose firms that “meet certain minimum, uniform criteria.”
This change was prompted by a report released earlier this month by the inspector general citing failure on the part of FHFA to stop abuses by Fannie-and Freddie-approved attorneys despite warnings. Some of the approved firms have been accused of mishandling paperwork for evictions and foreclosures, including falsifying signatures on affidavits submitted to the courts. The so-called robo-signing scandal which erupted last year led numerous services to temporarily suspend foreclosures.
Fannie Mae and Freddie Mac are government-controlled mortgage companies and have received over $170 billion in taxpayer assistance since they were placed in conservatorship three years ago.
Posted by Attorney David P. Renovitch. Renovitch has extensive litigation experience in matters related to insurance companies and their insureds, real estate, construction, banking and lending, especially in the areas of title litigation, recoupment and mechanic’s lien litigation.
10/24/11 6:00 AM
Business Law, Litigation, Real Estate | Comments Off |
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Fannie, Freddie Phase Out Approved Attorney Networks
By James M. Heffner
Established in 2010 by Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau (“CFPB”) has released its first edition of the Supervision and Examination Manual. The Manual is a guide to how the CFPB will supervise and examine consumer financial service providers under its jurisdiction for compliance with Federal consumer financial law.
As stated on the CFPB’s website, the Manual is divided into three parts:
- Part One describes the supervision and examination process.
- Part Two contains examination procedures, including both general instructions and procedures for determining compliance with specific regulations.
- Part Three presents templates for documenting information about supervised entities and the examination process, including examination reports.
While the Manual is designed in large part to supervise the nation’s largest mortgage servicers, it will impact all lenders who deal with consumer loans.
Posted by Attorney James M. Heffner. Heffner practices in corporate and real estate law. He is experienced in the purchase, sale, financing, and leasing of real estate, as well as the creating and negotiation of construction documents. In corporate matters, he supports business owners in structuring entities, shareholder disputes, mergers, and stock purchases/redemptions.
10/22/11 6:00 AM
Banking and Finance, Business Law, Real Estate | Comments Off |
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Consumer Financial Protection Bureau releases Supervision and Examination Manual
By James M. Heffner
New York Times article notes that banks are making more loans. Corporate lending is leading the way, up 7.2% from October 2010.
Posted by Attorney James M. Heffner. Heffner practices in corporate and real estate law. He is experienced in the purchase, sale, financing, and leasing of real estate, as well as the creating and negotiation of construction documents. In corporate matters, he supports business owners in structuring entities, shareholder disputes, mergers, and stock purchases/redemptions.
10/21/11 8:02 AM
Banking and Finance, Business Law, Real Estate | Comments Off |
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Banks Loosening the Purse Strings?
By James M. Heffner
Lease Term, Renewal Options, Lease Purchase Options
Part 2 in Series – “10 Lease Traps & Tips for the Small Business Owner”
When contemplating new lease space, the small business owner understands the need for flexibility. The term, or length of time, you will remain in the leased space is a chief concern of any entrepreneur. You don’t want to be forced to look for new space after only a few years, on the other hand, you want to be able to leave if after a period of time you learn the space is not right for your business.
One of the most important aspects of a lease for the small-to-medium sized business owner is flexibility. How much space do you need? Will you grow? Was your initial assessment too ambitious?
Lease Term – Most commercial landlords will insist on a lease term of at least 3 – 5 years. Depending upon your industry, this very well could be a good place to start. For example, if you’re looking for office space, the initial investment on fixtures and other start up costs can be minimal; conversely, if your space is going to be used for heavy manufacturing, just getting the machinery situated can be a huge expense, warranting a longer term lease.
Renewal Options – The more the better. Renewal options allow you to choose to remain in a space, usually under the same lease terms, or to look for a new space after the term has expired. One term that often does change is rent. You’ll want to either include a percentage rental increase for the renewal term, attach the increase to a Consumer Price Index, or agree to negotiate using the future “market rate”. A renewal option doesn’t do you any good if you don’t exercise it per the lease’s requirements – be certain to develop a system to calendar the date by which you must provide notice to your landlord.
Lease Purchase Options – Sometimes it makes more sense for a tenant to own their space rather than pay rent. While this decision inevitabely involves important tax consequences, it allows you to test drive the property before buying. It also gives you the ability to build some equity towards the purchase price if the lease is properly negotiated; meaning, you need to make certain some portion of your monthly lease payment will be applied to the purchase price. The potential downside of a lease purchase option is that the landlord will probably make you pay a premium for it. Again, be certain to calendar the date by which you must give notice to landlord in order to exercise your option.
Part 1 in Series – “10 Lease Traps & Tips for the Small Business Owner”
Posted by Attorney James M. Heffner. Heffner practices in corporate and real estate law. He is experienced in the purchase, sale, financing, and leasing of real estate, as well as the creating and negotiation of construction documents. In corporate matters, he supports business owners in structuring entities, shareholder disputes, mergers, and stock purchases/redemptions.
10/13/11 12:35 PM
Business Law, Real Estate | Comments Off |
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How Long Should You Stay in Your Commercial Lease?
By James M. Heffner
With downtown St. Louis office vacancy now at 19%, landlords are being forced to compete aggressively and find creative ways to market their office properties.
Landlords have found they also have to create major incentives for tenants: everything from rent concessions to significant tenant improvement allowances.
If you are looking at moving your business, or if you are opening a new office, your best bet may be a move to downtown St. Louis.
Now may be a good time to be looking! Read more in this article from the St. Louis Business Journal.
07/26/11 3:10 PM
Business Law, Emerging Business, Real Estate | Comments Off |
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It’s a Great Time to Become an Urban Business Dweller
