Real Condominium Due Diligence–Take the Time to Find Out Everything

11 02 2010

While there are many “short-sale” and other “bargain” condominiums on the market, the stormy winter we have experienced in almost all parts of our country needs to be factored in when purchasing a condominium unit. Roofs and other systems have been under a considerable amount of strain, and according to casualty insurance statistics, claims are at record levels.

The leaks through ceilings and walls can be plastered and painted over. The causes of the problems, however, can not be remedied with so much ease. Responsible condominium associations should be taking inventory of what will need to be done on a capital level when the warmer weather comes back. Very few Homeowners Associations are “flush” in these difficult times.

Where, in the good times, there was not a great need to be “defensive” in terms of the overall condition of the Condominium Building, those times have passed. There is now a real need to poke and prod “under the hood” shall I say to make sure you are not buying into a “Lemon”.

There follows are list of absolute “must do’s” in terms of any current Condominium purchase:

1. Ask a lot of questions.

Find out whether the Condominium Trustees are planning an assessment for a new roof or extensive system repairs. Once you are an owner, these are, at least partially, your financial obligation. If there are assessments coming, try to negotiate with your Seller to pay some or even all of planned assessments. Speak to other unit owners. Find out what they know. If they know they are going to see you on a frequent basis after you purchase, they will probably not lie to you. They will tell you what they know.

2. Do Not “Cheap Out” on Your Unit Inspection.

I refer business to one Home Inspector who charges almost $1,000 to do his work. He not only goes over the Unit with a fine toothed comb. He looks at the building systems, the furnace, the roof, the entry-way. His report is sometimes 25 pages. Even if he uncovers nothing that is wrong, the plethora of information that is in his report almost always justified its cost. I have had situations where using this person’s report gave my purchasing client leverage to exact major “price concessions” from the Seller. Please understand that with a purchase of the magnitude of an urban condominium, whatever money you spend is worth spending, if you get a “quality product”.

3. Have an experienced real estate manager, or even an accountant who specializes in real estate, go over the financial statements of the Condominium Trustees.

It is my view that the Financial Statements of a Condominium are extremely important to understand. Not many of us really have the ability to “sift through” the budgets and results of operations in a meaningful way. A person experienced in real estate management can determine whether the Condominium that you are interested in buying into is well run. Are there are charges which may be deemed “excessive”? Is there much “self-dealing”? Are all Unit Owners paying their monthly fees on time? Is the Board of Trustees diligent in using available remedies to make sure that any delinquencies are appropriately addressed? Compare last year’s Budget against this year’s expenses. Were the Trustee’s “way off” in their estimates of charges? if so, is there an “operating assessment” looming in the future? This can be a big deal, and you should know about it.

At Topkins & Bevans, we pride ourselves on giving responsible representation to purchasers. We review Condominium documents, minutes of the Trustee meetings and recent budgets. We direct your question to the Trustees and Seller so that when you do go forward, you are reasonably sure you know the animal you are dealing with. It would not be an accurate statement, however, to say that we can “do it all”. You need help from the other sources I have mentioned above. It is up to you to do some of this work yourself. You will probably not make a larger investment in your whole life. Use the resources available to make an informed decision


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The Offer to Purchase–It behooves realtor’s to spend extra time on this important document

15 12 2009

In Massachusetts, where I practice as a real estate attorney, there is a two step process for most real estate purchases. Usually without the assistance of counsel, the parties enter into an Offer to Purchase (the “OTP”). There are some contingencies in the OTP, which generally center around a “satisfactory” inspection. If the property “passes” inspection, the next step is to enter into a Purchase and Sale Agreement (the “PNS”) which has more provisions than the OTP, and “fleshes out” the details of the transaction in greater depth. What every real estate professional in Massachusetts needs to take note of, however, is that there are Massachusetts Supreme Judicial Court decisions, which clearly hold that the OTP, if it includes the basic facts of the transaction (like purchase price, closing date and the like), can be viewed as an enforceable contract, upon which the Buyer can sue the Seller for specific performance, even if the parties are never able to work out a mutually satisfactory PNS.
That being the case, I thought I would make some observations about what I am seeing in many OTP’s which can, and should be, improved by the realtors who generally draw the documents up.
1. Make Sure the OTP is legible. This may sound like a basic truism on a document as important as the OTP, but I am amazed at how many times, I receive OTP’s to review, where I cannot read some of the important terms therein, because of strike-overs or substitutions in the margins. The OTP should really be written very neatly, and precisely, because it is from this document that an accurate PNS can be drafted by the attorneys representing the Buyer and Seller.
2. Think Long and Hard About Who Will Hold the PNS Deposit. If you are a Buyer’s agent, and would like to get paid at the closing, you are almost always better off having the attorney for the Seller hold the deposit(s). The Listing Broker holding the deposit often takes his or her time to pay you your fee. Then, you have that ugly possibility that the Listing Broker may experience some kind of financial difficulties which delay (or prevent) your getting paid. I would opt for the attorney, who is subject to strict disciplinary rules if the deposit does not get delivered and who should be willing to pay over the deposit(s) at the closing for distribution by the closing agent.
3. Be Precise in Indicating What is “Included” and Excluded” from the Sale. The OTP is the place to be specific in this area. Many disputes at the PNS level can be avoided if there is definition of the inclusions and exclusions.
4. Be Realstic in Terms of Date for Mortgage Commitment and Submission. I have seen many OTP’s where the date to submit the mortgage application has passed by the time I start working on the PNS. Make the dates comport with reality. Similarly, put in a realistic time frame for the receipt of a mortgage commitment. Lenders are understaffed, and appraisals are taking longer than in the past. Give all parties a chance to do what is possible.
As I said above, the OTP is basically completed by the realtors. If you are involved, take the time to make your OTP accurate and realistic. It will make your transactions move more smoothly, and the extra time spent at the outset of the transaction will almost always bear fruit somewhere down the line.


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Home Owner’s Title Insurance–Lots of real benefits for realtors, too

6 12 2009

The subject of Home Owner’s Title Insurance always comes up in purchase transactions in which I am involved. For my more sophisticated clients, it is generally a “no-brainer”. The client spends a little extra money and then has piece of mind respecting his or her title which will last throughout ownership of the home. Even if the person performing the title search missed a probate, or didn’t see an undischarged private mortgage, HOTI will cover it. More importantly, even if there is a forgery in the chain of title or the Registry has lost, or misfiled, an important document, the company providing the HOTI will stand behind the title. This assurance provides a lot of comfort for an investment that far outshadows all others for the average purchaser,

Having said all this, and truly believing that HOMI is the right way to go, I am continually shocked when realtors at a purchase closing are neutral,or even negative,about their customer’s purchasing HOTI. Perhpas, they are “grandstanding”, trying to show how they are helping the purchaser to husband each and every of their hard-earned dollars for more important things. Perhaps, they are ignorant of the true benefits of HOTI to the realtors, especially the Buyer’s agent who may be involved in the sale of the property being purchased somewhere down the road.

There follow several reasons why this writer, a person who has conducted thousands of real estate purchases over more than 40 years of practice in Massachusetts, believes that realtors should provide whole-hearted endorsement for the purchase of HOI, not only for their customer’s benefit, but for their own, as well:

1. If there is a title claim, it is more than likely that everyone involved int he purchase trsnaction, including the realtor, will be named in the litigation. This will mean that time, effort and money will need to be expended by ALL particilants to exculpate themselves.

2. If there is a title claim, no matter what the outcome, all people involved will be “tainted” with being involved in a transaction that didn’t turn out quite right. If there is HOTI, the title insurance company will absorb the costs from dollar one. It is unlikely that anyone, other than the person, or entity, certifying the title, will be involved in any of the proceedings. If anything, the realtor who endorsed the purchase of HOTI will seem like a hero for making such a practical, and ultimately beeficial, suggestion.

3. Many times, your purchaser will be a seller some day. If the transaction went well, you will get the listing. Won’t you feel that much better knowing that while selling the property my have its owns set of obstacles, obtaining clear title will not be one of them if HOTI was obtained when the property was purchased.

So the next time you hesitate, or even balk, when the subject of Home Owner’s Title Insurance comes up, think again. The deal you save may be your own!!!!


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Selecting a Real Estate Attorney–Some advice from a 4l year veteran

3 12 2009

In my over forty years of practicing real estate law in Massachusetts, I have had clients in all sizes and shapes. Many of my clients have been satisfied with my services, others not so much. When I have disected what went wrong with the clients who were less than enchanted, I found that the old “C” word, communication, led to most of the disappointments on both sides.

With that inmid, I would submit the following set of rules to follow when considering attorneys to assist you in what will, perhaps, be the biggest single investment you will make in your lives.

1. Ask the prospective attorney the following questions:

a. Is real estate you primary area of practice? It seems so obvious, but many times you will have counsel who is “learning while you learn”. This is generally not a good thing.

b. Will you do this on a fixed fee basis or on an hourly basis? Many seasoned attorneys are not afraid to quote a fixed fee. Others will say “hourly” but will consider a “ceiling” on the amount of the fee. Some will day a fixed fee, with the understanding that if the deal goes way off the tracks, the parties may revisit the fee situation to assure that the attorney is not disadvataged when events really changed in the course of the transaction. In any event, too many people enter into a professional relationship with an attorney with no clear understanding of what the matter will cost, and that can lead to disatsifaction on both sides.

c. Whatever is agreed upon for fees, enter into a fee agreement with your attorney. This should set forth the amount of your retainer, if any, the hoursly rate if that is the way the transaction is structured and any other important aspects of the attorney’s representation.

d. Find out in advance if you can expect to be dealing with the attorney you slected most of the time. or if you will be dealing with an Associate or a Paralegal. My firm, Topkins & Bevans, is small, and one of my marketing approaches is “I am the A Team, and there is no B Team”. Other lawyers operate on a different basis. Find out in advance so you will not be frustrated because Mr. X or Ms Y is not returning your calls or emails.

2. Once you have established the rules wth your attorney, learn to live with them. Attorneys, like any other professionals, cannot manage through exception. Realize that the attorney has other clients, and that sometimes you will have to wait for a response.

3. Try to listen to the advice your attorney gives you. AsI said abopve, the purchase or sale of real estate is one of the most important things you will do in your financial life. Once you find the right attorney, listen to what he or she has to say. Many of us have been through thousands of transaction, and we know our crsft. Listen to what we tell you; we are on your side.


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Life in the Pressure Cooker–Some Suggestions for Extraction

29 11 2009

As real estate professionals, we are more or less used to the stress level which exists within our clientele. I am a Massachusetts real estate attorney with more than 40 years of experience. I have bought, and sold, five and four homes, respectively. In not one situation was I calm and relaxed throughout the process. it seemed that there were a million things to do, and I did not have the time, or the patience, to tackle all of them. Sometimes the lender created problems with requests for information I was sure I had already submitted. Sometimes, the walk-through did not go particularly well. In one situation I had a flooded kitchen between the time of Purchase and Sale and the closing. That caused its own set of problems.

Looking back on my own situations, and the many others I have handled for others, I have developed a few tried and true approaches to the resl estate “pressure cooker”, which I would like to share with all of you, whatever part in the process you are assuming:

1. Try to Stay Calm. Problems are going to arise, and almost always when we least expect them. Acccept the fact that there can be problems. Think about your customer first. What can you say or do to assuage the issue. I have found that the last minute inspection problem, or the lender delay, or any number of other things which can delay a closing, or worse, are best addressed by calmness. Do not let yourself get emotional about the problems. Speak with the other professionals. Try not to relay bad news to a customer without suggested approaches to a solution. Think positive thoughts; convey your sense of confidence to your customer through your calm mien.

2. Do Not Point Fingers. Many times the approach which appears simplest to effect is to blame another person or entity for what has happened, and step away. I used to do this, because lawyers are very fat targets when there is a problem, and I wanted to stress that I had done nothing wrong, but Mr, Jones or Ms. Smith, was the true culprit. I no longer take this approach. Rarely do real estate disputes actually result in litigation. More often than not there is a solution out there which everyone can live with. If I have been solution, rather than blame, oriented, I can preserve my relationships with the professionals I will have to work with at other times, and in other places. Furthermore, I have found that coming up with a solution in a difficult situation is the thng that a lot of people remember about me, and my firm, when the smoke clears.

3. Do Not be Afraid to Call a “Time-out”. In our profession, no one really gets paid unless and until the deal closes. Sometimes, that colors our behavior. We all have lost deals, and spent time on matters that do not produce revenue for us. On the other hand, sometimes a deal just cannot work, no matter how hard we try to push it forward. Sometimes, it can work, but the financing must be re-tooled to fit the specific situation of the Borrower. My experience has been that it is better to call a “spade a spade” early in the game than to labor relentlessy on a project where there is little, ot no, hope of success. Call “Time Out”, regroup, and go a different path.

4. Never Sacrifice Your Integrity to Make a Transaction take place. New financing rules have severely hampered the ability of the Borrower to exaggerate assets or income, or even lie about them. In a way, that has taken some pressure off the rest of us. There are still situations which arise, however, where a half-truth or a lack of disclosure may let a deal go forward. I suggest to each of you that you do not want to be a part of any effort which involves ANY deceit or subterfuge. I mentioned above that real estate matters rarely become litigations. If they do, however, and you are called upon to testify, you want to make sure that your behavior in the matter, from an ethical standpoint, is above reproach. Deals come and deals go. Your reputation is forever.


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