One major point of discussion during a contract signing with a purchaser is the disposition of their down payment if the deal doesn’t close. Indeed, it is probably the one question that every purchaser asks me and one that I always take time to discuss. The question sounds something like this, “What happens to my down payment if something goes wrong?”. The answer isn’t as clear as one would like and the whole issue comes down to two things: 1) What went “wrong”’; and; 2) The quality of people you are dealing with.
The standard and somewhat reassuring answer to the question is that if a particular contingency contained in the contract of sale isn’t satisfied, ie. the mortgage contingency, then the buyer is refunded their entire down payment and the parties are returned to their original position to before they signed the contract. Additionally, if the contract is cancelled because the seller doesn’t have clear title, then the purchaser gets their down payment back, plus possibly some de minimis out of pocket expenses for a title search. One important thing to remember is that the buyer does not get back his down payment plus all or most of his out of pocket costs. The only additional money that they receive is for the title search, which is typically about $250 to $300. Also, such additional monies in addition to the down payment are only paid in the case where the seller doesn’t have clear title.
Think of it this way, if the seller is at fault, if he doesn’t have clear title, then the buyer gets his down payment plus the title search. If the buyer is at fault, if his mortgage application was denied, then he only receives his down payment. In either instance, however, the purchaser does NOT receive a refund of his mortgage expenses, engineer costs or legal fees. Those are strictly his own expenses and are never reimbursed to him by a seller.
One other note is this context. If a purchaser’s attorney adds language to the effect that his client will be reimbursed for any expenses in addition to the title search, as a seller’s attorney you reject such change out of hand without providing an explanation and review his other proposed changes with a jaundiced eye.
As stated above, however, it isn’t always a sure thing that you will get your money back if your mortgage application is rejected. Before continuing, I should note that the seller’s refusal to return the money occurs in a very low percentage of deals and that the overwhelming majority of the time, a seller will refund the buyer’s down payment and the parties may exchange mutual releases.
The seller, however, may refuse to return the down payment as they may take the position that the buyer did not comply with their obligations pursuant to the contract with regards to the mortgage contingency. While the mortgage contingency does provide protection for buyers, it also imposes certain obligations upon them which is normally to make a timely application, prosecute it diligently and be truthful with regard to such application.
A seller has the right to request a copy of the buyer’s mortgage application, along with all of the supporting documentation, which unfortunately will include certain intimate financial information and documentation of the purchaser. The seller’s attorney can then review such documents to ascertain if the purchaser complied with his obligations pursuant to the mortgage contingency, as set forth above. If not, then the seller can declare the purchaser in default and forfeit their down payment.
Some classic things to look for as a seller’s attorney are as follows: 1) What date did the purchaser apply for a mortgage? Did they unreasonably delay their application; 2) Did they apply for a FHA loan or other governmentally insured loan when the standard contracts prohibits such an application; 3) What amount of mortgage did they apply for? Did they apply for more than the amount that was contained in the contract? If the purchaser failed to comply in any respect with their obligations as contained in the mortgage contingency, they can be presented with the threat of having their down payment forfeited.
Finally, I find that many times that a seller attempts to forfeit a down payment are the result of either frustration or a seller acting in bad faith. The seller may be quite frustrated over having taken their house off of the market for several months only to lose other buyers and then have to start the whole process again. By attempting to forfeit the buyer’s down payment, this may be the seller trying to exact some kind of revenge or compensation for their loss of time.
There are also unscrupulous sellers who attempt to extort money from a purchaser knowing that the purchaser will have limited options. The purchaser can either commence litigation against the seller, probably without the benefit of being able to place a lien against the premises. The problems with doing so are obvious - It is time expensive, time consuming and there is no guarantee of victory. The exploitative seller will pounce and offer a settlement which provides the purchaser with a guarantee as to outcome, amount recovered and time while saving on legal fees. (In this context, please refer to our earlier post “Protecting a purchaser when a seller defaults”).
This whole area can be quite stressful and complicated and one that you should tackle with an experienced attorney who can guide you calmly and rationally through it.
Thursday, February 17, 2011
BEYOND REAL ESTATE (It’s a jungle out there)
In addition to real estate, our practice areas include landlord and tenant law, collections, civil litigation, foreclosure defense and criminal law. Over the years I have found that the practice of real estate law is unlike any other area of the law. It is a cooperative effort where there aren’t any winners or losers. Indeed, if the parties don’t close, then everyone loses. This is a truth that takes some time and experience to realize and I find that newly admitted attorneys don’t fully comprehend or appreciate this.
The other areas we practice are quite adversarial and can sometimes lead to some unfortunate and extreme reactions from people. That is quite understandable as people don’t take too kindly to their creditors try to collect money from them nor when their landlords try to evict them. One recent example that has turned quite bizarre is one that I wanted to share by way of this post.
A woman that I have been trying to collect money from on behalf of a client has found a novel way to strike back against me. As she has no defense to the underlying debt, in order to vent her frustration and anger, she has started posting negative comments about me on various websites. Her preferred nom de cyber is “Blasted” and she identifies herself as being from either from Los Angeles or West Hollywood. As her postings are clearly inappropriate and have no basis in fact, most, if not all, have been quickly deleted.
She had started with the more conventional method of attempting to disrupt me by making harassing phone calls and sending a flurry of emails. Then in a frightening turn, she located my home address and contacted me at home. At that point, I stopped all contact with her and this is what set her off on her internet campaign.
The point of this post is not to defend myself against the ravings of a clearly disturbed woman. Instead, it is to both provide some background to her comments as well to highlight how suspect much of the content on the net is.
There is a great deal of valuable information available on the internet, that is for sure. Indeed, the collection of links located to the right side of this page contain invaluable information that is essential to anyone dealing with real estate in NY. Additionally, Google is still the best way to locate background information quickly about someone. I recently had a client who was defrauded by a mortgage broker who collected $7,450.00 from him and subsequently did no work. Upon "Googling" his name, I discovered that my client was not his only victim. There was even a celebrity he had fleeced who had posted about him all over the net. I brought the rash of complaints to his attention and he soon refunded every penny my client had given him. Now, maybe it's his turn to post some foul things about me on the net?
The other areas we practice are quite adversarial and can sometimes lead to some unfortunate and extreme reactions from people. That is quite understandable as people don’t take too kindly to their creditors try to collect money from them nor when their landlords try to evict them. One recent example that has turned quite bizarre is one that I wanted to share by way of this post.
A woman that I have been trying to collect money from on behalf of a client has found a novel way to strike back against me. As she has no defense to the underlying debt, in order to vent her frustration and anger, she has started posting negative comments about me on various websites. Her preferred nom de cyber is “Blasted” and she identifies herself as being from either from Los Angeles or West Hollywood. As her postings are clearly inappropriate and have no basis in fact, most, if not all, have been quickly deleted.
She had started with the more conventional method of attempting to disrupt me by making harassing phone calls and sending a flurry of emails. Then in a frightening turn, she located my home address and contacted me at home. At that point, I stopped all contact with her and this is what set her off on her internet campaign.
The point of this post is not to defend myself against the ravings of a clearly disturbed woman. Instead, it is to both provide some background to her comments as well to highlight how suspect much of the content on the net is.
There is a great deal of valuable information available on the internet, that is for sure. Indeed, the collection of links located to the right side of this page contain invaluable information that is essential to anyone dealing with real estate in NY. Additionally, Google is still the best way to locate background information quickly about someone. I recently had a client who was defrauded by a mortgage broker who collected $7,450.00 from him and subsequently did no work. Upon "Googling" his name, I discovered that my client was not his only victim. There was even a celebrity he had fleeced who had posted about him all over the net. I brought the rash of complaints to his attention and he soon refunded every penny my client had given him. Now, maybe it's his turn to post some foul things about me on the net?
Wednesday, February 16, 2011
NYC’S PUBLIC ENEMY NUMBER ONE : BUSINESS OWNERS AND INVESTORS
So you read a lot about government waste and insanity, but as an attorney, you get to experience it first hand on nearly a daily basis. Here’s an example.
I received a phone call today - February 16th, 2011 - from an attorney at HPD which was a response to my letter from November 19th, 2010. It only took them two (2) months to respond. Bravo. I had written them at that time regarding a client who had closed on his purchase of a house the day before to inquire about the issuance of a Certificate of No Harassment and whether he would have to apply for a new one. A Certificate is required in order to evict a tenant of a building classified as a Single Room Occupancy (“SRO”). An investigation is conducted and the Tenants are consulted. I had one case a few years ago where the Tenant, who seemed to be suffering from schizophrenia, claimed that he had very expensive electronic equipment and scientific journals in his apartment that he wanted compensation for. His figure was $150,000. The HPD employee took the tenant’s claims seriously and recommended to my client that he make an offer.
You could call the whole process “extortion”, but that would be unfair and vicious to run of the mill extortionists. Indeed, the whole concept is ridiculous and contrary to rational thought. On the one hand you have a property owner who paid a significant amount of money to buy a building and who should be entitled to a fair return on his investment. If you wanted to devise a system which absolutely guaranteed rewarding people for laziness and penalizing others for hard work and initiative, then this is it. This is often what passes for law in New York and squarely in the cross-hairs, pardon the term, are hard working business owners and investors. Indeed, it seems as if the whole system is rigged to penalize people for engaging in hard work and trying to operate a profitable business or enterprise.
My client wants to improve the building, and hence the area. He would perform construction on the building which would provide employment opportunities for various individuals and companies. He would do this with the thought of making a profit, of course, but that seems to be sort of what capitalism is about.
Finishing up the story, I was told that my client would have to file a whole new application to obtain a Certificate of No Harassment and that he could not use the old owner's application. I was also told that if he failed to do so in the near future (I have no idea how many decades that constitutes in HPD time), that they would go ahead with the former owner's application and may give him a Certificate.
I questioned this procedure. HPD is going to continue with the application of a former owner when they have been advised that they no longer own the building. Then they may even give this former owner a Certificate to permit them to evict the tenants. Of course, as the old owner is just that, no longer an owner, they don't have standing to evict anyone nor the desire to do so. But, those are HPD rules, logic and common sense be damned.
Getting back to government agencies that seem to affirmatively and aggressively attempt to impede businesses, there are two more to discuss. That is after leaving out the confiscatory taxes and mindless rules and regulations, business owners run into other roadblocks such as the NYC Department of Consumer Affairs and the Division of Human Rights. Let's start with a look at the latter agency.
Without a modicum of proof, a person can file a complaint with the Division of Human Rights for perceived discrimination. I had a case that I handled in 2009 where after reading the complainant’s affidavit, I couldn’t figure out exactly what the alleged discrimination was. I called up the Division and asked for clarification and I was told that they didn’t know either. They asked the Complainant for clarification and he wasn’t able to articulate what the discrimination was that he was complaining about. He just didn’t like the fact that he was denied from purchasing a house and he thought that the broker discriminated against him. My client’s defense was that he had shown this gentleman, and his family, this particular house 8 times. Every time he asked him for proof regarding his financial ability, he made promises to produce documentation at a later date, but consistently failed to do so. When I brought this fact up in my response, the HPD worker advised me that the Complainant had been unemployed for the past decade. The complaint was eventually dismissed.
I had another case with them recently and out of curiosity asked a worker what powers the Division had if there was an adverse ruling. I was told that they had no enforcement powers whatsoever. Notwithstanding their utter impotence, they operate a large bureaucracy.
So, in essence, you have a government agency which prosecutes frivolous, and sometimes incoherent complaints against businesses with no power to do anything if they find that discrimination has indeed occurred. You would think that a bureaucrat with a single digit iq in a third world country would come up with this kind of system. No. It’s NYC. And this is one reason that you pay such high taxes.
Of course, it’s worse. You have the Department of Consumer Affairs who I have found to be extremely anti-business. I would hesitate to say that they are pro-consumer as it would imply that they have some legitimate function. They aren’t and they don’t. They are just anti-business to the core. I have had a few cases with them over the years, but won’t handle them anymore as it is just a losing proposition. It’s hard to explain to a client how rigged the system is and how they have no chance of prevailing.
I could finish on an upbeat note and remark that it could be worse. Frankly, I am not sure how.
I received a phone call today - February 16th, 2011 - from an attorney at HPD which was a response to my letter from November 19th, 2010. It only took them two (2) months to respond. Bravo. I had written them at that time regarding a client who had closed on his purchase of a house the day before to inquire about the issuance of a Certificate of No Harassment and whether he would have to apply for a new one. A Certificate is required in order to evict a tenant of a building classified as a Single Room Occupancy (“SRO”). An investigation is conducted and the Tenants are consulted. I had one case a few years ago where the Tenant, who seemed to be suffering from schizophrenia, claimed that he had very expensive electronic equipment and scientific journals in his apartment that he wanted compensation for. His figure was $150,000. The HPD employee took the tenant’s claims seriously and recommended to my client that he make an offer.
You could call the whole process “extortion”, but that would be unfair and vicious to run of the mill extortionists. Indeed, the whole concept is ridiculous and contrary to rational thought. On the one hand you have a property owner who paid a significant amount of money to buy a building and who should be entitled to a fair return on his investment. If you wanted to devise a system which absolutely guaranteed rewarding people for laziness and penalizing others for hard work and initiative, then this is it. This is often what passes for law in New York and squarely in the cross-hairs, pardon the term, are hard working business owners and investors. Indeed, it seems as if the whole system is rigged to penalize people for engaging in hard work and trying to operate a profitable business or enterprise.
My client wants to improve the building, and hence the area. He would perform construction on the building which would provide employment opportunities for various individuals and companies. He would do this with the thought of making a profit, of course, but that seems to be sort of what capitalism is about.
Finishing up the story, I was told that my client would have to file a whole new application to obtain a Certificate of No Harassment and that he could not use the old owner's application. I was also told that if he failed to do so in the near future (I have no idea how many decades that constitutes in HPD time), that they would go ahead with the former owner's application and may give him a Certificate.
I questioned this procedure. HPD is going to continue with the application of a former owner when they have been advised that they no longer own the building. Then they may even give this former owner a Certificate to permit them to evict the tenants. Of course, as the old owner is just that, no longer an owner, they don't have standing to evict anyone nor the desire to do so. But, those are HPD rules, logic and common sense be damned.
Getting back to government agencies that seem to affirmatively and aggressively attempt to impede businesses, there are two more to discuss. That is after leaving out the confiscatory taxes and mindless rules and regulations, business owners run into other roadblocks such as the NYC Department of Consumer Affairs and the Division of Human Rights. Let's start with a look at the latter agency.
Without a modicum of proof, a person can file a complaint with the Division of Human Rights for perceived discrimination. I had a case that I handled in 2009 where after reading the complainant’s affidavit, I couldn’t figure out exactly what the alleged discrimination was. I called up the Division and asked for clarification and I was told that they didn’t know either. They asked the Complainant for clarification and he wasn’t able to articulate what the discrimination was that he was complaining about. He just didn’t like the fact that he was denied from purchasing a house and he thought that the broker discriminated against him. My client’s defense was that he had shown this gentleman, and his family, this particular house 8 times. Every time he asked him for proof regarding his financial ability, he made promises to produce documentation at a later date, but consistently failed to do so. When I brought this fact up in my response, the HPD worker advised me that the Complainant had been unemployed for the past decade. The complaint was eventually dismissed.
I had another case with them recently and out of curiosity asked a worker what powers the Division had if there was an adverse ruling. I was told that they had no enforcement powers whatsoever. Notwithstanding their utter impotence, they operate a large bureaucracy.
So, in essence, you have a government agency which prosecutes frivolous, and sometimes incoherent complaints against businesses with no power to do anything if they find that discrimination has indeed occurred. You would think that a bureaucrat with a single digit iq in a third world country would come up with this kind of system. No. It’s NYC. And this is one reason that you pay such high taxes.
Of course, it’s worse. You have the Department of Consumer Affairs who I have found to be extremely anti-business. I would hesitate to say that they are pro-consumer as it would imply that they have some legitimate function. They aren’t and they don’t. They are just anti-business to the core. I have had a few cases with them over the years, but won’t handle them anymore as it is just a losing proposition. It’s hard to explain to a client how rigged the system is and how they have no chance of prevailing.
I could finish on an upbeat note and remark that it could be worse. Frankly, I am not sure how.
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