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Category: The Sellers World


Lien on Me/Lien on You

February 17th, 2014 — 12:28pm

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freedom1When you finance the purchase of a cooperative unit, the loan you receive from the bank is not a mortgage, as the lay-person may believe.  Rather, the loan is secured by a security agreement giving the lender a security interest in the stock certificate and proprietary lease.  In order to “perfect” the security instrument, the lender files a UCC financing statement which becomes public information putting the world on notice that a lien exists on the apartment. Continue reading »

The UCC is analogous to recording a mortgage on a condominium unit with the county clerk.  After the mortgage has been paid off, a satisfaction of mortgage is recorded.  With a cooperative apartment, after the loan is paid off, the lender is required to file a UCC termination statement.

As those who have been involved in the purchase or sale of a cooperative apartment know, UCC financing statements are a constant source of trouble and delay for two reasons.  The first is that the lender will often want to file a UCC before the loan is ever made.  When the loan fails to never materialize, it is not uncommon for the lender to fail to terminate the erroneously filed UCC.

The second stems from the fact that many attorneys (specifically lender’s attorneys) are not following the “best practice” of terminating a UCC after a loan is paid off.  This tends to happen when a borrower refinances their current loan and the lender fails to terminate the prior UCC representing the now paid off or consolidated loan.

As a result, there are countless inactive UCC financing statements out there falsely telling the world that a security interest exists on with respect to a cooperative apartment even though the loan has been paid off, or even worse, never originated.  This becomes a source of delay and additional costs when a person is gearing up to buy or sell or refinance their loan because the new lender will want the property to be “free and clear of all liens.”

The lender’s oversight places a financial burden on sellers and borrowers in terms of attorneys’ fees and filing fees.  In our experience, it has always taken at least a few phone calls and emails to track down the initial filer of a UCC on behalf of a client in preparation for their impending transaction.  While we have been able to have the erroneous UCC terminated without a hitch, the situation has the dire potential to cost the client a substantial amount of money.  For example, if the company or attorney who filed the initial financing statement goes out of business, we may have to spend more time and money tracking down the lender to receive authorization to terminate the financing statement. Or worse, if we cannot contact the filer in a timely manner, the closing may have to be adjourned, costing the client real money in terms of additional interest paid, adjournment fees or attorneys’ fees.

Why are the parties entrusted with perfecting a lien in accordance with the Uniform Commercial Code so careless and irresponsible when it comes to filing the termination statements?  You do not see this magnitude of recklessness when it comes to recording satisfactions of mortgages.  While the recording of both of these instruments has a similar effect, to put the world on notice that a lien no longer exists, they seem to be treated unequally in how they are administered and processed by the lenders.

In light of the lender’s indolence and ineptitude with regard to the administration of UCC financing statements, we suggest penalizing the lender who fails to correctly file a termination statement. A fine of at least $500.00 would seem adequate to get the lender’s attention.  By invoking a financial consequence on lenders, the burden and cost associated with terminating erroneous UCC financing statements would be shifted from the individual borrower to the lender, where it belongs.

By Jerome J. Strelov and Ryan V. Stearns

 

Comment » | Liens, Liens, News

The Executors Corner: What You Need to Sell That Apartment!

June 5th, 2012 — 11:50am

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One has to think that the old adage “No Good Deed Goes Unpunished” was designed specifically for the executor whose job it is to gather up and distribute the assets of the decedent while paying off any claims and juggling the bent out-of-shape beneficiaries who feel that they somehow and someway have been shortchanged. Continue reading »

Among the executor’s more vexing challenges can be the sale of a co-operative or condominium apartment.  In that situation, the buyer’s lawyer and title company will want to be very sure that the executor has the ability to make the sale free of any liens or claims.  For a co-op, the managing agent will also get into the act and demand his pound of flesh.  In order to complete the sale, the executor must usually provide the following:

1) Letters Testamentary:  or, if there was no will, then Letters of Administration:  These are the most crucial documents as they establish that the executor has been appointed by the Court and has the power to transfer the property.  No sane buyer would go forward without this;

2) Death Certificate:  This should be self explanatory although one has to wonder how an executor could get the necessary letters without a death certificate.  I guess this is just like wearing a belt and suspenders.

3) The Will:   A copy certified by the Court or the executor’s attorney should suffice.  Even the moderately careful lawyer will want to be sure that the will doesn’t say something like “I give my apartment to the my bird “Tweety”;

4) Affidavit of Debts and Domicile: In its most basic terms this simply sets forth where the decedent lived when he died so that any out of state liens or taxes can be dealt with and confirms that the decedent’s bills have been paid;

5) Title Company Affidavit:  This will be required in sales of condos and, if the buyer is getting leasehold title insurance, for co-ops.  This is effectively a more complex affidavit of debts and domicile but can be problematic for the executor who only  met the decedent once about 10 years ago;

6) Releases of Tax Liens: These may be required on both the state and federal levels.  Although the releases should be simple to obtain they can take a bit of time so they should be dealt with as soon as possible; and

7) An Affidavit of Heirship:  This is sometimes required in situations where there is no will and sets forth the relatives, (both living and deceased) of the decedent.

Even more challenged is the executor who is directed by the will to transfer the apartment to a particular heir.  In that case, the co-op or condominium documents must be carefully reviewed to determine if there are any restrictions on these types of transfers and what hoops have to be jumped through (i.e. think board packages) to complete the deal.

Comment » | Documents, Executor's Concerns, News, The Sellers World

Foreign Notion – Can a Buyer be Liable for the Seller’s Income Tax?

May 14th, 2012 — 1:19pm

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Contracts for the purchase or sale of real property in New York invariably include a provision that requires the seller to deliver a so-called “FIRPTA” affidavit to the purchaser at closing.  Often times, the parties are not familiar with the requirements surrounding the FIRPTA affidavit.  However, in today’s market, with the ever growing presence of foreign real estate investors and developers, it is imperative that real estate buyers and sellers understand the implications of the FIRPTA requirements. Continue reading »

FIRPTA stands for the “Foreign Investment in Real Property Tax Act” of 1980 (the “Act”).  Pursuant to US tax law, all persons, whether foreign or domestic, must pay income tax on sales of U.S. real property interests.  Domestic persons are subject to this tax as part of their regular income tax, but foreigners are not.  As such, the Act was passed to address how foreign sellers pay this income tax.  In order to ensure that foreign sellers pay the tax, the Act requires purchasers of real property to withhold 10% of the full sales price.   If the seller is a foreign corporation, the percentage increases to 35%.

Under the Act, a foreign person is a nonresident alien individual, foreign corporation that has not made an election under the tax law to be treated a domestic corporation, foreign partnership, foreign trust or a foreign estate.  It does not include a resident alien individual.

There are a few exemptions under which a seller may be exempt from FIRPTA, including:

1. If the purchase will  be used as a residence for a price $300,000 or less;

2. If the purchaser receives a statement from the seller that the seller is a not a foreign person;

3. If the purchase is of an interest in a non-publicly traded domestic corporation where the corporation provides the required affidavit; or

4. If the purchase is of shares of a publicly traded corporation.

The most common method of ensuring the purchaser that the seller is not a foreign person, and relieving the purchaser of the FIRPTA withholding, is by the seller’s delivery to the purchaser of an affidavit commonly called the “FIRPTA affidavit”.

If it is determined before closing that the seller is a foreign person, the buyer must report and pay over any tax withheld using IRS form 8288 and 8288-A.  In most cases, this must be done by the 20th day of the transfer.  When a title agency is involved in the transaction, the agency can verify the seller’s status and oversee the necessary paperwork.   If the transferor is a foreign person and the buyer fails to withhold the tax, that buyer may be held liable for the tax.  This potential exposure mandates particular attention to this often overlooked aspect of the real estate closing.

It goes without saying that a “foreign person” buying United States real estate should be aware that they will be subject to FIRPTA withholding when they eventually sell the property.

By: Nahum M. Palefski, Esq. and Jerome J. Strelov, Esq.

Comment » | FIRPTA, News, Special Taxes For Non-Residents, Taxes for Non-Residents

Brokers Agreements: The ins and the outs

March 14th, 2012 — 9:59am

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First things first.  When selling real estate (be it an apartment house, office building, townhouse or a co-operative or condominium apartment) Sellers should enter into a written agreement with their Broker setting forth their understanding.  The agreement should be fair and reasonable for BOTH sides.  Selling real estate is a collaborative effort and the agreement between the Sellers and their Broker should keep both sides eager to work together and ensure that neither feels they have been or will be treated unfairly. Continue reading »

These are some of the things to look for in a brokerage agreement:

1)      The term:  Just how long do the Sellers have to work with the broker?  How easy is it for the Sellers to end the relationship and sign up with broker No. 2?  While the Sellers first preference might be for a shorter term then the Broker wants,  Sellers should consider that if the term is too short or the Sellers can cut out the Broker on too short a notice, the Broker may not be as willing to put as much effort (think advertising money and time) into the deal.  So it may not work in the Sellers favor to have too short a term.  Brokering is hard work and takes a great deal of time, effort and expense and it may not be in the Sellers best interest to disincentivize their Broker by keeping him or her on too tight a leash.

2)      The commission:   This one is obvious but Sellers should realize that in an “exclusive arrangement”, they will owe the commission even if they sell the property to their Aunt Tilly UNLESS the agreement says otherwise.  The agreement should also spell out if there are any reduced commissions (i.e. “4% if I sell to my next door neighbor Bob in the next 30 days”).  The Sellers will naturally want to pay a lesser commission but should note that a lower commission may result in lost opportunities since buyers’ brokers (who share the commission) might prefer to steer their buyers to properties offering a higher commission.

3)      Post Contract Sales:  It ain’t over till it’s over.  Many brokerage agreements fairly provide for the Sellers to still pay the commission AFTER the term so long as there was a sale to a buyer whom the Broker found. Fair is fair but the Broker should provide a list of the people he or she introduced to the property and there should be some time limit.

4)      “If, as and when”:  The four most frightening words in the English language to brokers.  The agreement should be clear that the Broker only gets their commission “IF AS AND, WHEN” a contract is signed, the deal closes and the Sellers get paid!

5)      Indemnity: Sellers should be protected from claims by other brokers that the Broker they are dealing with brought to the property.  Brokers hate this but it is fair.  Many brokers will reluctantly agree to it at least up to the amount of commissions they are paid.

6)      Should the Broker get a commission if the buyer defaults and the Sellers wind up keeping all or some of the downpayment?  Some brokers want their commission on the downpayment if the deal falls apart after the contract is signed.  While this seems sort of reasonable it is also fair that the commission be based on the amount of downpayment the Sellers keep AFTER all the Sellers’ costs (think legal fees in a protracted fight over the downpayment) and expenses.

While there are other issues to think about (such as  the listing price and advertising) the above list is a reasonable start of the basic points to consider when entering into a brokerage agreement.  Good Luck with your sale!

 

 

 

Comment » | Broker’s Fees, News, The Brokers World

Out of State, Not Out of Mind

February 1st, 2012 — 10:25am

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By now almost everyone is familiar with the transfer taxes imposed by the City and the State on sales of real property or co-operative apartments.  However, not everyone knows that non-residents must also pay a tax on their gain at the time of closing.  This can lead to a delay in the closing by unaware sellers. Continue reading »

The procedure by which transfer taxes are paid and transfer documents are recorded is the execution and subsequent filing of the New York City Real Property Transfer Tax Return and the New York State Combined Real Estate Transfer Tax Return (“TP-584”).

In 2003, the New York State Budget Bill added Section 663 to the Tax Law requiring nonresident sellers to pay estimated personal income tax on the gain resulting from the sale of real property in New York State.  The tax (currently 8.82% of the gain) is in addition to the transfer taxes to the City and State and is due at the time of closing by selling individuals, trusts and estates.

The TP-584 (State transfer tax form) requiresthese  sellers to certify that they are residents of the New York State at the time of the Closing.

Those who cannot certify they are residents must complete forms (the IT-2663, for condominiums, homes and other real property or the  IT-2664, for cooperatives) which detail the gain (or loss) resulting from the sale of the subject property and compute the estimated personal income tax due.  The tax must be paid at the closing.

There are three exemptions to the requirement to pay estimated personal income tax to NYS under Tax law section 663 as follows:

1)       If the “real property or cooperative unit being sold or transferred qualifies in total as the transferor’s/seller’s principal residence.”  Meaning, a nonresident seller may be exempt from the payment of estimated tax if the property has been used as the taxpayer’s “principal residence.”  The term “principal residence” has been understood to mean that the seller must have owned the property and lived in it as his or her main home for at least two years during the five year period ending on the date of the transfer;

2)       If the seller is a mortgagor conveying mortgaged property to a mortgagee in foreclosure, or in lieu of foreclosure with no additional consideration; or

3)      If either the seller or buyer is an agency or authority of the United States of America, the State of New York, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Government National Mortgage Association, or a private mortgage insurance company.

The IT-2663 and IT-2664 forms are somewhat complicated as they contain line items for improvements, closing costs and depreciation and are typically completed by the seller’s accountant.  As such, the appropriate IT form should be forwarded to the seller’s accountant well before closing to avoid a delay of the closing.

By Jerome J. Strelov and Nahum M. Palefski

 

1 comment » | Special Taxes For Non-Residents, Taxes for Non-Residents

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