Beware of Old Mortgages!

Even though you’ve paid off a mortgage or home equity line, the bank’s lien against your home may still remain.

During the course of a real estate transaction, whether a sale or refinance, a report of title is procured from a title insurance company to insure your buyer or lender that there are no liens against your property. Very often, such a report reveals the existence of an old lien, of which the owner is completely unaware. “I paid off that mortgage in 1983! Tell them it’s not on there anymore!”

We hear this all the time. The problem is that even though there may be no sums due under the promissory note, your home is not released from the lien until the lender files a Satisfaction of Mortgage with the County Clerk, and the lien will remain until that is done. “So we’ll just get it cancelled, that’s all” is the usual response. It’s not that easy.

In real estate things happen fast, and often the report of title isn’t delivered until a week or two before the expected closing. If the report shows an old mortgage that must be cleared, it will likely take several weeks- if not many weeks- to resolve, because it’s not always a function of just calling the lender. Requests of this sort need to be forwarded to a special department of the bank in writing, with all kinds of proof, before the lender will investigate. This “Mortgage Satisfaction” department will not take phone calls, so you can’t call for progress, and turnaround time is often 7-10 business days in the best of circumstances. And after the research is done, the bank will need to issue a satisfaction document and get it to us- a fax will usually be unacceptable. That takes more time.

If your lender is no longer in business (Fleet, Washington Mutual, Chemical Bank, Shadow Lawn Savings, to name a few) the process is more arduous. Before we can ask for a satisfaction, we need to find out which lender now owns the assets of that closed institution before research can begin- and that often requires more than one stop. The assets of some older banks have been sold three, four times (World Savings was sold to Wachovia, which was sold to Wells Fargo) and we need to track ownership of these assets, one by one. All of this additional work can involve additional attorneys fees, and more importantly, delay your closing.

Therefore, when you pay off a mortgage or home equity line, be sure that the lender files a Satisfaction of Mortgage, and demand a recorded copy. If they won’t provide that, call us for assistance and direction. If the lender does send cancellation documents to you, be sure to read them carefully – some lenders record the satisfaction directly- others will send you the original satisfaction documents that you need to send to the County Clerk for recording.

If you are thinking about selling or refinancing your home, consider having us check title beforehand to insure that no old liens remain outstanding.

These extra steps will save you time and money when you decide to sell or refinance your home.

Do Not Drive a Snow-Covered Car!

You should be aware that N.J.S.A. 39:4-77.1 confers upon New Jersey motorists the affirmative obligation to make a good faith effort to clear all ice and snow from their cars before driving. The statute provides that you may be stopped by a police officer for failing to do so, and you can be fined up to $75.00 for each occurrence.

If snow or ice flies off your car and causes damage or injury to another vehicle or pedestrian, the driver is subject to a fine of up to $1,000.00. Of course, aside from statutory penalties, you could be liable in civil court for damages caused by the flying ice or snow.

This is a no-brainer for police officers- and a good way to generate municipal income. Do yourself a favor- clean off your car before you drive.

Important for Parents of Adult Children

Over the holidays, I received a phone call from a close friend. His son, already on psychological medication, had ingested a good deal of illicit street drugs, suffered a psychotic break, and landed in the emergency room, facing the prospect of being committed to an institution.

Like any parent, my friend had a litany of questions for the doctors, and wanted to participate in his son’s care. The boy, however, is over the age of 18, and is therefore no longer a minor. The doctors would not provide my client with any information, nor discuss with my client treatment options. The boy was in no condition to grant consent for the doctors to speak with my friend, and the only viable option was to ask a Court for an emergent order of temporary guardianship – on Christmas – and I was out of town. Faced with the time, expense and logistics of such a petition, my friend decided to acquiesce to his hope that the hospital doctors would do what was best for his son, and see what would happen over the next several days.

Thankfully, everything worked out- but what a nightmare. The fact of the matter is that things happen- and you don’t want to find yourself in this kind of position.

For this reason, we strongly recommend that you speak with your adult children about executing a health care proxy in your favor, to allow you to receive medical information and direct treatment in the event of a circumstance such as this. You may also discuss having your child execute a durable power of attorney in your favor so that you can receive copies of medical records or take care of your child’s finances in the event of an extended incapacity.

It’s hard enough convincing clients that they need to take care of their own planning documents- and this is a much more difficult conversation to have. But finding yourself in a circumstance like the one described above- it’s unthinkable.

If you have questions about these procedures, please call us. We are glad to offer a free consultation to discuss these matters with you and your children.

Selling Real Property as an Executor

As the Executor or Administrator of an Estate, part of your duties is to liquidate any real estate owned by the decedent. While the process is similar to other sale transactions, there are extra steps- and extra pitfalls- that the estate administrator must consider.

When listing the house with a realtor, try to get more than one professional opinion of the value of the property. As a fiduciary, you have the obligation to insure that you are getting the best possible price. You should also shop for your professionals. Some attorneys, realtors and accountants charge extra when dealing with estates, and those costs can become excessive. Of course, you certainly get what you pay for, but try to make sure that the fees you agree to pay are at least market value. Failure to do so could lead to disgruntled beneficiaries, who might seek to hold you responsible for what they perceive as a loss of proceeds.

You should insure that any multiple listing service description discloses that the house is being sold by an estate, and that you, as the seller, have limited information about the property. Unless you have actually lived in the house, you don’t have the knowledge to make disclosures or representations that a homeowner would normally make- and your attorney should include appropriate language in his or her attorney review addendum to properly inform your prospective buyer of such limitations. If this is not done, you could be held responsible for failure to disclose defects in the property.

The buyer’s title insurer will have several additional requirements for an estate selling property. First, the Executor or Administrator will have to prove that they have been qualified as such. You should provide your attorney with a copy of your Executor or Administrator Certificate, as well as a copy of the decedent’s Death Certificate. Other documents are also helpful. When looking through the decedent’s papers, pull a copy of the Deed, the Title Insurance Policy from the purchase of the property, anything entitled “Affidavit of Title,” and other documents that show the payoff of any mortgages or liens, and provide these to your attorney as well. These will help to clear any issues raised by the title search.

The title insurer will also ask you to complete an Estate Questionnaire. This document discloses the financial condition of the estate, and gives the title insurer an idea of who the beneficiaries are, to determine whether or not any estate taxes will be due, and to document any outstanding debt that the estate may have. If estate tax returns have not been filed by the time of closing, the title insurer will likely require an escrow until it can be proven that the estate has no further liability for estate taxes. If you can prepare and file your returns before closing, showing no tax liability, this escrow can be avoided. This is particularly easy in the case of an estate valued at less than $675,000.00, where an estate tax waiver can be requested from the Division of Taxation by use of a simple, two-page form.

When preparing the new deed, your attorney may require all estate beneficiaries to sign the transfer documents. This usually occurs when the sale is not to a third party in an arm’s length transaction, but some title companies routinely require this to avoid conflict with disgruntled beneficiaries who could claim that the estate representative did not act in the best interests of the estate.

Title insurance companies will always ask an Executor or Administrator to sign an indemnity bond, promising to reimburse the title company in the event that claims are made against the policy by people who believe they should have been paid before the proceeds of sale were released. Few will tell you this, but signing is optional. You do not have to do this, and quite frankly, you should not.

Finally, before proceeds are released to the beneficiaries, be sure to have each sign a Refunding Bond and Release to be filed with the Surrogate’s Court.

We can certainly help you with all of these issues, but you should be aware that services such as these are outside the structure of a usual real estate transaction, and additional fees will apply.

Want more information? Call us for a free consultation.

Child Support Law Changes

New Jersey Child Support Payments Now Terminate Automatically
If you receive or pay child support in New Jersey, a new law may seriously affect those payments.

Currently, New Jersey law provides no automatic termination of child support payments.  Once a child turns 18, the onus is upon the paying party to seek termination of support.  While there is a presumption in favor of emancipation once a child turns 18, Bishop v. Bishop instructs that the recipient can overcome that presumption by showing that the child is “not beyond the sphere of influence and responsibility exercised by a parent.”  Beginning February 1, 2017, the tables are turned.

Under the new law, child support will terminate automatically when a child reaches the age of 19 unless (a) a time for termination has previously been specified in a court order, or (b) the receiving parent petitions the Court for an extension prior to the child turning 19.

There are two important factors here.  First, as stated, any petition to extend child support must be made before the child’s 19th birthday.  Once that birthday passes, the window to extend support is closed.  Second, success of that petition is not guaranteed.  The receiving parent will have to prove that (1) the child is still in high school, (2) the child is a full-time secondary student (college, trade school, etc.) or (3) the child has a mental or physical disability that manifested before the child’s nineteenth birthday, and requires continued support.

Admittedly, the thresholds are not difficult to surmount- the key is being sure to making application before the child turns 19.

And of course, the deadline is irrelevant if you have a court order, or a settlement agreement incorporated into a Final Judgment of Divorce, that specifies the end of the child support obligation.  However, the new law also provides that even if you have such an order, support will terminate when the child reaches the age of 23.

The new law goes into effect February 1, 2017.  If you have a child that is already over 19, child support will terminate on that date.

So what are your action points?  First, check any court order or divorce judgment that you may have to determine whether a timeline for child support has been previously stipulated.  If not, mark your calendar six months in advance of your child’s nineteenth birthday so you have plenty of time to file your petition.  And if you have a child who is already 19, you need to consider making an application now.

Need help?  Call Pickus & Landsberg for a free consultation- we’re here for you.

Small Business Pitfalls

Clients starting small businesses are usually encouraged to operate as a formal entity, either as a corporation or a limited liability company.  And while most people understand that the purpose of incorporation is to protect the owners from individual liability, there are circumstances where that protection can be bypassed- and the owners find themselves personally liable for the debts of their company.

The most common cause of losing corporate protection is the failure to observe corporate formalities.  Operating as a corporate entity means more than filing a certificate of formation and paying an annual fee.  Pursuant to New Jersey law, corporations are required to maintain bylaws and limited liability agreements are required to maintain operating agreements.  Records must be kept of share allocations and transfers, ownership certificates must be issued, entities must hold annual meetings of shareholders or members, and minutes must be recorded to memorialize those meetings- even if the company is just you and your wife!  An effort should be made to separate corporate expenses from personal expenses and your business account should not be used to pay for your home expenses.

A collection litigator’s favorite strategy is to demand copies of corporate records to determine whether corporate formalities have been observed.  If there are no such records, a request can be made of the court that the “corporate veil be pierced,” alleging that the corporation seems to be a mere sham.  If that request is granted, the “veil is pierced” and the owners of the company could be held personally liable for the debt being collected.

If you have concerns about your small business, please call us for a free consultation.

Home Warranties

Protect yourself – whether you are selling or not.

A few years ago, the buzz phrase “at the end of its useful life” started showing up in just about every home inspection report.  “This furnace is the oldest furnace I’ve ever seen.  It’s structurally sound, it’s not leaking, but it could fail at any time and should be replaced immediately.  It’s at the end of its useful life.”  What can I tell you?  Home inspectors don’t want to get sued for failing to disclose a potential problem.

Typically, in our letter representing sellers, we add, “the mere age of a functioning element shall not give rise to a buyer’s right to demand repairs or cancel under the inspection clauses of the contract.”  In other words, if something is working as intended, the seller will not be obligated to replace it, simply because it is old.

This makes sense to sellers- after all, they are not selling a new construction- they are selling a used home.  Buyers, however, become concerned when they see this language.  “What if that rusty hot water heater goes bad next month?  What if the air conditioner breaks during the summer?”  Good questions, but the fact of the matter is no one can really predict when or if there may be a problem.  It’s therefore unfair to make a seller replace something that is in good working condition, based upon the subjective opinion that something may be at the end of its useful life.  But in reality, if a buyer doesn’t want to buy, he’ll try to find some way to get out of the contract, and that’s no good either.

So what to do?

Sometimes, when buyers start to panic about all of the things in the house that are “at the end of their useful lives,” in lieu of making replacements, a seller will offer the buyer a one-year home warranty- an insurance policy on all of the mechanicals and appliances in the house.  The typical cost is around $500.00 for the year, and in many cases, the buyer is very satisfied with that.

But what if I’m not selling?  I purchased my home as new construction 17 years ago, and I’ve already replaced the the dishwasher and one of the air conditioning units.  Looking around the house a few months ago, I realized the financial implications of an aging home.  I looked around at the hot water heater, the kitchen appliances, the furnaces, the air conditioners- and I got worried.  So I did a little research, and found that home warranties are available not only in the course of real estate transactions, but also for existing homeowners.

There are many companies that offer these services.  I chose American Home Shield because of their reviews, pricing and the positive experiences I’ve had with that company on behalf of clients.  For $60.00 a month, I purchased a policy that covers all of our mechanicals and appliances- even the pool equipment.  Two weeks later, we came home from a weekend away to find that the hot water heater had burst.  At 9:00 pm, I logged on to the AHS website and requested service.  By 8:00 am, I had an email from AHS, assigning the job to a local contractor, with a note to expect a call the next morning.  The plumber called at 10:00 am, and was at the house by noon.  He checked out the problem, made a call to AHS and received approval to move forward.  We paid the required $125.00 service fee, and AHS took care of the rest.

Now think about this.  A new hot water heater costs approximately $1,200.00 and the service fee was $125.00.  That means that I saved $1,075.00 and that balance pays the AHS premium for the next 17 months!

If you own a home that has mechanicals or appliances older than ten or fifteen years, you may want to give consideration to one of these home warranties.  It’s no fun to pay fifty or sixty dollars a month- but it’s even less fun to shell out a couple thousand dollars when something goes wrong.  In the same vein, if you are selling a home with older mechanicals or appliances, consider offering a home warranty to resolve repair issues- or better yet, offer the warranty as an incentive in the MLS listing, foreclosing most repair/replacement discussions.  Your realtor can provide you with guidance and more information.

New Law! Move Over!

It’s actually not that new- the legislature passed the law in 2009. Nevertheless, many people have never heard of a violation under NJSA 39:4-92.2. This law is being enforced vigorously – and it can be costly.

Pursuant to this section, a driver has an obligation to move to the left when passing an emergency vehicle on the right shoulder of a roadway. In other words, let’s say you’re driving in the right lane on a road that has two lanes in each direction. As you travel, you notice a police car on the right shoulder. Even if the officer’s car is fully in the shoulder, you must, if at all possible, completely move into the left lane (and don’t forget to signal). If you can’t move over, or if the roadway has only one lane, you have an obligation to “reduce the speed of the motor vehicle to a reasonable and proper speed for the existing road and traffic conditions, which speed shall be less than the posted speed limit, and be prepared to stop.”

This applies to any “authorized emergency vehicle…that is displaying a flashing, blinking or alternating red or blue light or, any configuration of lights containing one of these colors” as well as “a stationary tow truck…that is displaying a flashing amber light or a stationary highway maintenance or emergency service vehicle that is operated by the State, an authority or a county or municipality and displaying flashing yellow, amber, or red lights.”

Penalties for violating this section are hefty, ranging between $100 and $500. No motor vehicle points have been assigned to this offense, but some insurance companies are known to treat this violation in the same manner as careless driving, which can significantly increase your premiums.

At Pickus & Landsberg, we are happy to meet with you, discuss your circumstances and do our best to reduce your fines and avoid insurance cost hikes. Please call or email for a free consultation.

Have You Updated Your Will?

It’s not something people like to think about. But insuring that your will is properly updated can save your family a good deal of heartache.

Now, honestly, not everyone needs a will, and there is a huge misconception that without a will, the government will take your assets. In fact, the State of New Jersey has what is called an Intestacy Statute, clearly delineating who is entitled to your assets in the event that you die without a will. You may not like, however, how the law requires your assets to be distributed.

For example, here are some possibilities:

If you are single, without children, your parents take your estate. If your parents have already passed on, your brothers and sisters share your estate. If you have no brothers or sisters, nieces and nephews come next, and so on.

If you are married and die with children only of the marriage, your spouse receives the first $50,000.00 plus half the balance, and your children get what’s left.

If you are married and die with children not of your current marriage, your spouse gets strictly half and your children share the other half.

If you are married and die without children, but your parents are still alive, your spouse receives the first $50,000.00 plus half the balance, and your parents get what’s left.

Clearly, the government is not coming to take your money, and there is a plan in place in case you don’t have a will when you die.

But maybe you don’t like how this will work out. Maybe you want to disinherit one or more of your heirs, or you want to make disproportionate gifts. Or perhaps you want to specify who should receive particular assets. Without a will, the Court will appoint someone to distribute your assets- wouldn’t you rather choose the person who will take on this task? These are all good reasons to have a will prepared.

Having young children presents its own challenges in this arena. Young children who inherit under the Intestacy Statute are simply entitled to your money. There is no mechanism for control- no means to insure that the money they inherit will be available to support them as they go through college and early adulthood. Similarly, without a will, the Court will appoint a person to care for your children after you are gone. Most people I know would rather select the guardian who will care for their children.

So, notwithstanding the Intestacy Statute, there are plenty of good reasons to have a will. But it’s equally important to update your will as your life circumstances change. The people you have chosen to act on your behalf after you die may have become disabled or died themselves. Your children may have grown to an age where trusts are no longer applicable. Or you may have amassed significant assets that create the need for tax planning.

What kind of tax planning? New Jersey residents are subject to three levels of tax upon death- New Jersey Inheritance Tax, New Jersey Estate Tax and Federal Estate Tax. While these taxes kick in at different thresholds, and not everyone is required to pay, the cost can be significant- and sometimes, there are ways to avoid these payments.

At Pickus & Landsberg, we are happy to meet with you, review any will you might have, and discuss your circumstances to determine any changes that need to be made. Please call or email for a free consultation.

What is this TRID business? And what happened to my HUD?

You may have noticed that recently, just about everyone in the real estate industry has lost their minds. This is because on October 3, 2015, the federal government decided to change the way real estate transactions are settled, and the disinformation out there is staggering.

The new regulations are called TRID, short for TILA/RESPA Integrated Disclosure law. That probably didn’t help much, so let’s break that down.

    The way it used to be.

Before October 3, we had two specific regulations that mortgage lenders and other real estate professionals had to comply with, TILA and RESPA. TILA is the Truth In Lending Act, which required lenders to give you certain disclosures about your mortgage prior to closing. RESPA is the Real Estate Settlement Procedures Act, which required certain disclosures at the time of closing.

Under TILA, lenders were required to give you a Good Faith Estimate of your closing costs and a Truth In Lending Disclosure that set forth the mechanics of your loan. These two documents, along with other disclosures, were supposed to be delivered to you three days after you made application for your loan. If anything changed in those disclosures as the loan progressed towards closing, the lender was required to re-disclose the loan, and was required to wait three days until closing could take place.

Under RESPA, a special statement, outlining all closing costs and settlement fees was required to be used at the time of closing. This document was known as a HUD-1, named after the Department of Housing and Urban Development, which initially promulgated the form.

So we had three forms- the Good Faith, the Truth in Lending and the HUD.

    The way it is now.

Since October 3, lenders are required to provide you with a Good Faith Estimate of your closing costs and a Truth In Lending Disclosure that sets forth the mechanics of your loan. This information is to be provided to you three days after you make application for your loan.

Sound familiar?

That’s because it’s basically the same process.

The new disclosure is made on an all encompassing document called a Loan Estimate, which is basically a GFE, a TIL and a HUD wrapped up into one. The document contains a little more illustrative information, providing examples of payment options and how quickly you will pay down your loan- but the information is basically the same. They say it’s more comprehensive this way. That’s up for debate.

One change is that at least three days before closing, the lender is required to deliver another new form, called a Closing Disclosure. The CD is very similar to the Loan Estimate, except these are the final numbers. If the lender fails to deliver the CD on time, the closing must be postponed until the borrower has had the CD in his hands for three days prior to closing.

Another change is that the CD will not have the seller’s numbers on it. There is a second document, a Seller’s Closing Disclosure, presented to the seller at closing, which has the seller’s numbers on it, but not the buyer’s. Note that this means there will be no final document with all signatures on it, because we no longer use the HUD. So, many attorneys have begun the use of a third document, called an ALTA Settlement Statement, that has everyone’s numbers on it, and everyone signs at closing.

So let’s see.. same procedure, and basically the same disclosure, except now there are more documents to organize and sign. Easier? That, too, is up for debate.

    How can this affect me?

Really, the only significant change here is the requirement that the CD with the final numbers be disclosed three days before closing. If that’s not done, your closing could be postponed. This has thrown the realtors into a tizzy, because they are concerned that if a problem is discovered during your walk through, and a credit is required, the CD will have to be re-disclosed.

This is not true.

There are only three circumstances under which the CD must be re-disclosed:

1. If the APR changes by more than 1/8%. This has to do with the cost of your loan, and is therefore unrelated to any walkthrough issues.
2. If the lender adds a pre-payment penalty. Again, this has nothing to do with walkthrough issues.
3. If your loan program changes, i.e., from a fixed to adjustable rate. Once again, nothing to do with walkthrough issues.

This doesn’t all fall on the shoulders of the realtors. Many mortgage lenders don’t understand TRID either, and are giving the realtors bad information.

So what can you do? First, choose attorneys that understand the new regulations so that your closing can be as stress-free as possible. Second, be patient while the industry learns exactly what these new regulations mean, and how they need to be applied.

“You want me to sign a contract to buy a house before my lawyer has a chance to read it!? That’s crazy!”

But that’s how we roll here in New Jersey.

In 1995, the New Jersey Supreme Court decided In Re Opinion 26 , settling a long dispute between the New Jersey Bar Association and the New Jersey Association of Realtors. You see, some Realtors regularly drafted contracts for real estate transactions, as is common practice in many states. The Bar contended that by drafting such contracts and providing associated advice and assistance, Realtors were engaging in the unauthorized practice of law. The Realtors countered that their customers had a right to choose whether or not they wanted to hire an attorney for such a transaction, but the Bar didn’t want to hear it. In response to the Bar’s outrage, the Committee on the Unauthorized Practice of Law eventually issued Opinion 26, declaring that by drafting contracts and providing such advice and assistance, Realtors were, in fact, engaging in the unauthorized practice of law. The New Jersey Association of Realtors filed papers asking the Supreme Court to put Opinion 26 on hold, and a long trial followed.

The Supreme Court ultimately decided that it would allow Realtors to draft contracts and provide other advice and assistance, but only under certain conditions:

1. A Realtor’s client must be provided with and sign what has come to be known as an Opinion 26 disclosure. This document informs the client of their right to hire an attorney, and must be attached as the cover page to any contract drafted.

2. Every contract drafted by a Realtor must contain an “Attorney Review” clause, stating that either party has the right to consult with an attorney, who can cancel the contract for any reason or no reason on behalf of the client, as long as a cancellation notice is transmitted no later than three days following the delivery of a fully executed contract to all parties.

It has become common practice for Realtors to draft most contracts, have them signed by both parties, and only afterwards are they sent to the parties’ respective attorneys. In accordance with the Supreme Court’s decision, each attorney has three days to consult with his or her client, and then disapprove of the contract if the client so wishes. If an attorney issues a notice of disapproval, the contract is null and void, and of no legal effect, and the buyer is refunded whatever deposit was left with the Realtor.

A couple of rules about Attorney Review:

1. As stated, a notice of disapproval must be delivered to both Realtors involved in the transaction within three days of the delivery of a fully executed contract to all parties. The day of delivery, weekends and holidays do not count- so if the contract is delivered to the buyer and the seller on Thursday, then day 1 is Friday, and attorney review ends on the following Tuesday.

2. For the notice to be effective, the attorney must use the specific wording, “I disapprove of the contract as written.”

3. As of this writing, notices of disapproval must be delivered to the Realtors by personal service, or by certified mail, return receipt requested. It is virtually universally thought that fax or email transmissions are acceptable means of disapproval, but under current law, that is simply not the case. Note that the New Jersey Superior Court has decided that fax or email notice is acceptable, but the question is still winding its way through the higher courts.

4. If no notice of disapproval is properly issued by the end Attorney Review, the contract becomes firm, and the parties will be bound to the terms contained therein.

Next Blog: “But I want this house and I didn’t want to cancel! Why did my attorney issue a notice of disapproval?!”

“But I want this house and I didn’t want to cancel! Why did my attorney issue a notice of disapproval?!”

Stay calm.

Part of your attorney’s job is to insure that a real estate contract provides you with the most protection possible. The printed forms used by Realtors tend to be somewhat generic, and for this reason, attorneys take this opportunity to suggest changes that would give you more protection than the printed forms provide. In order to make these changes, however, your attorney must first disapprove of the contract, and in all likelihood, the other party’s attorney will do the same. In fact, it would be extremely irregular for an attorney not to disapprove of a new contract and propose changes. So stay calm- this is part of the process.

What kind of changes can be made? Remember that the purpose of attorney review, as explained by the Supreme Court, is to provide a buyer or seller with the opportunity to consult with counsel before the contract is binding. After discussing the contract with a seller, his attorney may feel that the deposit amount inserted by the Realtor is insufficient. The buyer’s attorney may feel that the closing date is too soon. The buyer may recall a verbal agreement that certain appliances were included in the transaction, but notes that the Realtor did not write them into the contract. A seller might remember that he had intended to exclude certain window treatments from the transaction, but forgot to ask the Realtor to include such an exclusion. In short, anything can be changed. In addition, most attorneys have a standard group of clauses suggested for any contract.

You should be aware that after a notice of disapproval is issued by either attorney, there is no contract; a seller is perfectly within his rights to sell to someone else, and buyer can walk away with no penalty. This does happen from time to time, but it is certainly not the norm. It is interesting to note that some Realtors will include a provision in the original contract that the “property will not be shown during attorney review.” As initiation of attorney review cancels the contract, it also cancels that particular provision- so really, all bets are off. But again, this is all part of our process following the Supreme Court’s decision regarding Opinion 26.

It is also interesting to note that if a contract is drafted by an attorney and is signed by the parties without the participation of any Realtor, there is no attorney review. A client came to see me a few weeks ago about selling her home, and handed me a contract that the buyer’s attorney prepared, and both parties had signed. When she began discussing the changes she would like me to make in attorney review, I had to cut her off. Opinion 26 did not apply- and the contract was valid and binding from the time of execution. So be careful- you cannot depend on attorney review unless the contract is drafted by a Realtor!

But I digress. Following notice of disapproval, the attorneys will discuss their respective suggestions, consulting with their clients throughout the negotiations. When both attorneys find the modifications acceptable, all changes will be put before the buyer and seller for final approval. Remember that at this point, there is no contract and neither party has any obligation to accept the changes proposed by the other side. But if both parties do agree and sign the final addendum, attorney review will be complete, the contract is deemed reinstated, and we march forward once more into the breach.

Next Blog: Inspections- “My roof is at the end of its useful life!? What the heck does that mean!?”

“My roof is at the end of its useful life!?  What the heck does that mean!?”

Not much, but let’s see how we got here.

Following the end of attorney review, a buyer will schedule a physical inspection of the house.  A professional home inspector, paid by the buyer, will check everything from the base of the foundation to the tip of the chimney, additionally looking for wood-destroying insects, mold, asbestos and the presence of radon gas.  His findings will be reported in writing to the buyer, and the buyer will prepare, with the assistance of his attorney, a list of deficiencies found.

It is important to note that a buyer cannot simply cancel because of his dissatisfaction with the results of the home inspection.  Contracts are clear that the buyer must present a demand for repairs to the seller, and give the seller the opportunity to address those issues.  Similarly, a buyer may not demand a reduction in price to compensate for deficiencies.  The seller always has the option to make repairs- or to refuse to do so.  If the seller refuses, then the buyer may cancel.  The seller may also offer monetary compensation, but the buyer is not required to accept any amount.  The contract is very clear- the buyer inspects and demands repairs, and the seller either agrees to make repairs, or doesn’t.  If the seller refuses, and the parties cannot agree upon any price credit or reduction, the buyer can cancel and will receive a full refund of his deposit.

Now let’s get back to that roof.  To put this into perspective, we need to understand the reason for home inspections.  Clearly, not every buyer has the education or experience to evaluate the physical condition of a house.  I could look at a hole in side of a building for six hours and never be able to tell you whether it’s termites, carpenter ants- or just a hole.  I could look at an electrical panel for another six hours and never be able to tell you if it’s wired properly.  A qualified home inspector, however, can make these determinations.  So the purpose of having an inspection is to reveal defects that the average layman is unable to discover on his own.

Some attorneys take the position that if problems were clearly evident at the time of offer, such as rising cracks in the driveway or crumbling entry stairs, those issues should not constitute bases of a valid inspection demands.  After all, you don’t need a home inspector’s license to see these problems.  While I don’t necessarily agree with the theory, a buyer can avoid conflict over such items by simply discussing these issues with his attorney during attorney review, and having language included in the contract to either make such items valid inspection issues, or to bind the seller to making those repairs before an inspection is performed.

So question that arises is “what is a defect under the terms of the contract?”

Good question.

Most attorneys will include language in their review letters that exclude “defects alleged based upon the age of the particular element being inspected.”  What that means is that if a roof is structurally sound, is not leaking, and all of the shingles are in place and intact, it shouldn’t matter how old the roof is – the buyer should not have the right to demand replacement.  The theory behind this is that, again, the purpose of a home inspection is to detect deficiencies – things that are wrong, broken or not functioning as intended – at the time of inspection.  While a home inspector is experienced in his field, he can’t really tell you when a roof will fail.  Indeed, while it may seem old, if it was built well, it could last another twenty years.  Virtually every home inspection report that I have reviewed in the past twenty years states that “something” is past its useful life- the roof, the furnace, the hot water heater, the dishwasher.  Inspectors include these statements clearly because they don’t want to be liable for failing to inform a buyer about something that the buyer could deem material.  But just because a buyer may deem it “material” does not mean that it is material under the terms of the contract.

Remember that when purchasing an existing home, the expectation is that everything should be working as intended, not be in the best condition possible.  If a buyer is looking for “best condition possible” it might be better to purchase new construction.  So if something hasn’t failed by the time of inspections, it really is not a valid basis for a demand for repairs or cancellation.

Next Blog: Radon – “I’m not buying a house filled with poisonous gas!”

“I’m not buying a house filled with poisonous gas!”

Take it easy.

One of the things that a home inspector will look for is the excessive presence of radon, a radioactive gas that you can’t see and can’t smell, but may be very dangerous in excess concentrations.  In fact, at very high levels, radon may cause lung cancer.  Radon is released from the breakdown of various elements in the ground, and comes into your house through cracks or holes in your foundation, or even from your sump pit or well water.  Once there is a flow of radon in your home, if you keep your windows and doors closed all the time, the radon will collect, and high concentrations develop.

That being said, it’s time for a few facts.

  • Radon is basically everywhere, in all fifty states.  Indeed, it is exceedingly rare to have a radon test return with a zero concentration.
  • The United States Environmental Protection Agency (EPA) estimates that 1 in 15 homes have radon concentrations that exceed recommended levels.
  • High radon levels can usually be very easily remediated to acceptable levels.
  • Radon is measured in “picocuries per liter,” abbreviated as pCi/l.  A pico curie is 0.000,000,000,001 (one-trillionth) of a Curie, an international measurement unit of radioactivity.
  • Both the EPA and the New Jersey Department of Environmental Protection agree that a concentration of 4.0 pCi/l or less is acceptable.  This is a concentration of 70,000 atoms of radon in each liter of air.

So how do we test for radon?  There are two ways.

By far, the most common method is use of a passive test.  A canister is placed on the lowest level of the home, and is left exposed to the air in the house for a period of three days.  Afterwards, the canister is collected by your inspector, and the test elements inside the canister are examined to determine the level of radon concentration to which the canister was exposed.  Your inspector will charge between $75.00 and $150.00 for this test.

The second method of testing for radon is with an active system, which utilizes a computer to test air drawn into the machine at regular intervals over a period of time.  This test is much more expensive, and for that reason, is used mostly as a re-test when passive systems return high radon readings.

If you are selling your home, it is advisable to air out the lowest level of your home the day before the test by keeping doors and windows open.  This will help reduce the level of stagnant radon in the air, and provide a more accurate reading of radon entering the building.  It is important to note that sellers must not disturb a canister placed by a buyer’s home inspector, or purposefully leave doors and windows open, as doing so could invalidate the results.

So, now you’re a buyer and your inspector calls to tell you that the radon test came back high.  Don’t panic.  Most sellers will ask for a re-test to confirm the high readings.  If your test results are confirmed, that does not, under any circumstance mean that you shouldn’t buy the house.  In fact, most contracts give the seller the opportunity to remediate before you have any right to cancel.

How is radon remediated?  Actually, it’s pretty simple.  Understanding that high radon readings are most often the result of standing air, the idea is to get the air moving.  If the house has a basement, a PVC pipe is run from the basement, through the walls of the house, and out the roof.  If the house does not have a basement, the pipe is installed beneath the slab near the perimeter of the house, and the same pipe is run up the outside of the house, to the roof.  In either event, a small fan is attached to the basement or slab end, which draws in air, and sends it up the pipe.  In larger homes, or in circumstances of very high concentrations, two pipes and fans are installed, one at each end of the home.  After the system is installed, another test is performed, and in the vast majority of cases, this simple method of helping the air to move is sufficient to bring radon levels within acceptable levels.  Of course, if the seller is unable to bring the radon concentration to acceptable levels, the buyer will have the right to cancel, and receive a full refund of all deposit monies.

Now, a couple of notes.

  • Many builders of new homes install “passive radon systems” during construction, consisting of a pipe, but no fan.  While the structure is being built, it is extremely easy to run an extra pipe from the basement through the roof, and frankly, it’s a good selling point- so if you are buying new construction, be sure to ask about this.  While the pipe does not do much on its own, should the need arise later, it is very inexpensive and very easy to simply attach a fan to the lower end.  In fact, installing a fan will usually cost less than $750.00.  To install the pipe and the fan, contractors will charge between $1,500.00 and $2,500.00.
  • Radon is affected by weather.  Remember that radon rises through the ground and into cracks or holes in your foundation.  When there is a lot of rain, or as the ground freezes during winter, added pressure can force more radon into your home.  Therefore, when these conditions exist, it is even more important to air out the lowest level of the home before a radon test is conducted.
  • If you are a seller, New Jersey law requires you to disclose to a buyer the results of any previous radon tests performed upon your premises.
  • If you are completely freaked out by the thought of high radon concentrations, discuss this with your attorney during review.  As stated, most contracts give the seller the right to remediate before the buyer can cancel, but it is not completely unheard of to suggest a clause in the contract giving the buyer the right to cancel due to high radon concentrations without providing the seller any right to remediate.  But again- keep in mind that 1 in 15 homes have high radon concentrations- it’s much more common than you think, and it’s very easily dealt with.

Next Blog: Deposits – “The buyer breached the contract!  What do you mean I can’t keep his deposit!?”

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