Should I be afraid of Zombie Real Estate?

JohnMenszer-0690It happens so often. I ask clients if they own a home and they say, “No, but I am buying one from the bank.” There is a popular misconception that when you are paying a mortgage, you don’t own the property until it is fully paid for. In fact, when you buy a piece of real estate on credit you are owner from the time the ink dries on the paper.

The three essential documents involved in a credit purchase of real estate are: the Act of Transfer, the Note and the Mortgage. The Transfer, also known as the Deed, transfers ownership from the seller to the purchaser. The Note is a statement of the amount the purchaser owes and the terms of repayment. The Mortgage is a security agreement that ties the note to the real estate, giving the lender certain rights over the property. Among those rights is the option to foreclose if the Note becomes delinquent.

Notice, I said “option to foreclose” because here is where the Zombie Real Estate comes in. There are unknown numbers of these foreclosure horrors where it is the bank’s refusal to foreclose which sets the owner down the path to perdition. Zombie Real Estate is property that nobody wants which keeps racking up costs for the owner.

I read of a property owner in Ohio who fell behind to JP Morgan Chase due to ill health. He received a foreclosure suit and proactively moved out before the date of the sheriff sale to live with his daughter. Then the bank quietly dropped the suit. Two years later he started getting bills for taxes, waste removal, weed control, and was threatened with demolition costs.

In depressed markets banks are walking away from properties. If they foreclose they have the legal costs and the expense of keeping up the real estate owned (known in the trade as “REO’s). In not foreclosing the bank can reap accounting and tax benefits from the government and sell the debt at a deep discount to debt collectors, who then hound the owners.

In my practice I once had a case of Zombie Real Estate in a bankruptcy. A client had a piece of investment real estate that he wanted to give back to the lender, as well as a lot of hospital bills and other debts that justified filing a Chapter 7. We filed his case and listed his intention to surrender this property to the bank. Unfortunately, before the lender could foreclose the property was damaged and the lender decided not to foreclose after all. The wrecked property sat for years with the City racking up liens and charges. The Note on the property was discharged in the bankruptcy, but since the City’s liens and charges dated from after the bankruptcy they were fresh obligations to the debtor.

You can’t force a bank to foreclose if it doesn’t want to and you can’t make them accept a donation, a dation or a quitclaim, unless they sign the document. What you own may not be so easy to get rid of.

 

What you don’t know about homeowners insurance can hurt you.

If you are like me you pay your insurance and forget about it. This article is about how to avoid that sinking feeling when your insurance agent says your loss is not covered under JohnMenszer-1090932your homeowners policy. What you may not realize is that insurance companies exclude, or partially exclude, entire classes of losses. These fall into two main categories : correlated risk and moral hazard.

What insurance companies are afraid of paying for is really big catastrophes. If my house burns down that is catastrophic for me, but it is unlikely to affect the whole city. Since it hard to actuarially adjust the premiums for really big losses that happen infrequently, the companies tend to exclude them.

War is one example. Hurricanes are another. My homeowners policy states that flood damage is an exclusion “regardless of how caused” and goes on to state that flood includes “but is not limited to storm surge, waves, tidal water, overflow of a body of water, whether driven by wind or not.” Whew! If you want protection from flood loss get a flood insurance policy which is a government program.

Another factor to consider is that most policies in costal areas of the country now include enhanced deductibles for “Named Storm Damage” (Hats off to the storm-naming National Weather Service). Unlike a standard deductible which is a fixed dollar amount, the hurricane deductible is based on a percentage of the total insured dwelling value

So far we have been discussing correlated risk – multiple losses that can happen together. Another type of loss that insurance companies try to steer away from is moral hazard. Moral hazard is when the insured’s behavior changes in such ways as to raise the costs for the insurer.

But you might say, “all insurance affects behavior.” That is almost the point of insurance. If my camera is insured, you bet I’ll be more likely to take it on a canoe trip over the rapids. What the companies are concerned about are the hidden moral hazards, where having the insurance will be encouraging indifference. “Yes,” the company says we insure against loss, “but we don’t want to be ridiculous about it.”

Infestations of vermin are not covered. You really should wash the dishes in the sink and keep your house tidy. Mold is not covered. Fix that roof leak. If a bowling ball falls off your shelf and breaks your TV, shame on you.

To learn more about these questions check this National Public Radio Planet Money report.

 

Boundary Issues in Real Estate – Use It or Lose It

Ownership of real estate in Louisiana may be acquired by 30 years possession.  A 2005 case illustrates how a good deed came back to hurt a former owner.   House and Fence

In the case both parties owned property adjacent to each other in the City of New Orleans on Metairie Road.  In 1951, Lee the defendant, built a building near his property line with the plaintiff, from which he operated a dry cleaning business.  His customers and employees used a triangular shaped piece of land as a parking area.  All parties agreed the triangular parking area was not on Lee’s land, but on land that originally belonged to the plaintiff.

At trial various customers testified to having parked on the lot.  The plaintiffs agreed that they knew the parking area was being used by the Lees, but did not complain because they were trying to be neighborly.  There is a saying about good deeds coming back to hurt you.

The Court ruled that the Lee’s possession of the parking area was continuous, uninterrupted, public, unequivocal and within visible bounds.  Since it continued for more than 30 years the Court held that Lee acquired ownership of the triangular area by acquisitive prescription.

The Court concluded that although the plaintiffs were aware of the Lees use of the land, they made no formal attempt to stop the use by the Lees until filing suit, some 47 years later.    903 So.2d 661

 

How do I dispute my real estate property tax assessment? There are 4 levels of appeal.

_1140656Many of us think that our taxes are too high, but when it comes to property taxes you can actually do something about it.  You have to pay attention to timing, as the assessor’s rolls are only open for a short period.  In Orleans Parish the books are open from July 15 through August 15. In the other parishes the rolls are open from August 1 through September 15.

You can go to your assessor’s office when the books are open and make your case why your taxes are too high.  Unless there is an obvious error, a gut feeling is not going to get you very far with the bureaucrats.  It is essential that you bring documents to make your point.

Your property is assessed at a percentage of its fair market value.  Fair Market Value is defined as the price a property would bring on the open market between a willing and informed buyer and seller, if exposed for sale for a reasonable amount of time.  Helpful documents would be a recent appraisal, a builder’s contract for necessary repairs, copies of recent sales of comparable properties and always, bring photographs of your property.  If you and the assessor come to an agreement, then you have won and the process is over.

If you cannot come to an agreement at the meeting with the assessor’s customer service representative then you can submit you can submit an appeal to the Board of Review of the assessor’s office.  This is usually done by mail or online, so you wil  make your case entirely by the written word.  The watchword is to be concise and marshal your facts, as you want to make it easy for them to agree with you.  Get to the point and avoid extraneous justifications.  The Board of Review will send you their written decision by certified mail.  Either you or the assessor can appeal the Board of Review’s decision to the Louisiana Tax Commission in Baton Rouge.  In some Parishes the assessor appeals as many of 50% of the Board of Review’s decisions to the Louisiana Tax Commission.

If you cannot come to an agreement at the meeting with the assessor’s customer service representative then you can submit you can submit an appeal to the Board of Review of the assessor’s office.  This is usually done by mail or online, so you wil  make your case entirely by the written word.  The watchword is to be concise and marshal your facts, as you want to make it easy for them to agree with you.  Get to the point and avoid extraneous justifications.  The Board of Review will send you their written decision by certified mail.  Either you or the assessor can appeal the Board of Review’s decision to the Louisiana Tax Commission in Baton Rouge.  In some Parishes the assessor appeals as many of 50% of the Board of Review’s decisions to the Louisiana Tax Commission.

Your signature on the certified mail initiates the 10 day period you have file your appeal with the Louisiana Tax Commission, but this 10 day period may be waived for cause.  A taxpayer’s appeal to the Louisiana Tax Commission should be filed on their Form 3103 A.  The Louisiana Tax Commission holds public hearings.  You can call them for the schedule.  If you receive an unfavorable decision from the Louisiana Tax Commission you have 30 days to file a judicial appeal in the District Court.

The following are some useful websites:

Orleans Parish Assessor’s Property Owners Guide

http://www.qpublic.net/la/orleans/docs/10steps.pdf

Orleans Parish Assessor’s Website

http://nolaassessor.com

Jefferson Parish Assessor’s Website

http://www.jpassessor.com

Louisiana Tax Commission’s Website

http://www.latax.state.la.us

What You Should Know About Code Enforcement.

Code Enforcement is serious business in New Orleans. An Administrative Judgment can cause you to have:
Your property seized and sold at public auction. JohnMenszer-0296
Daily fines of hundreds of dollars per day.
A lien filed against your property.
The fine and penalties added to your tax bill.

In New Orleans, the Municipal Code was amended as of April 10, 2014, making occupied and vacant property subject to the “Minimum Property Maintenance Code”. See this link to the Municode website, specifically Sections 6 and 26:
https://library.municode.com/index.aspx?clientId=10040

It is a violation of the Code to have:
Weeds in excess of 18 inches.
Substantially peeling, flaking or chipped exterior paint.
A gutter that discharges water onto a neighbor’s property.
A window that doesn’t operate or has a substantially cracked glass.
A screen with holes or breaks.
Peeling, chipped or flaking interior paint.
An inoperative or unlicensed motor vehicle.
A hot tub or pool without a 6 foot high fence with self-latching gate.

The Code Enforcement process can be initiated by an inspector or by a neighbor’s call to 311. At the hearing, the owner can present evidence and photographs to show work in progress. The Code Enforcement Bureau has discretion to continue the hearing, if substantial progress is shown, or render a Judgment. If found in violation the Bureau will issue a Notice of Judgment and levy a fine which is subject to stiff penalties beginning in 30 days if the fine is not paid. After 30 days the Judgment is recorded in the Land Records Division of the Clerk of Court (formally Notarial Archives and the Mortgage Office.) The Bureau has discretion whether to have the Sheriff of Orleans seize and sell the property at public auction.

The Owner is best served by bringing the property into full compliance. The administrative process allows appeals of a Judgment to Civil District Court, but only a suspensive appeal, which requires the posting of a bond, will protect the property from seizure and sale. Paying the fine (and penalty) will terminate the current case, but the property is subject to being re-cited for violations. Repeat offenders may have increased penalties.

As I said before, “Code Enforcement is serious business in New Orleans.”

How to take control of Real Estate in a Succession

When real estate is inherited by more than one heir it can get tied up– a stalemate can occur.  Typically, a parent will leave the family home to all their children, but they may not be situated equally.  Consequently, one heir wants to sell and the other does not.  Should the heir who doesn’t want to sell have “veto” power over the property?  Putting the property under  administration and selling it out of the succession is one solution.


Woman Handing Over the House Keys To A New Home Inside Empty Tan Colored Room.

Consider  the following example: One sibling has been living in the family house for years, rent free, while the other sibling
has been financially responsible and lives out of state. If the attorney put both the heirs into possession, each would each get their percentage of ownership, but both would have to agree in order to sell the house and distribute the proceeds.  The sibling who is living in the house rent free has an incentive not to sell, because as part owner he would have the right to continue to live there. The out of state sibling would get no tangible benefit from being a co-owner.  This produces the stalemate I was talking about.  One wants to sell, one does not – as a consequence the house cannot be sold.*

As attorney for the estate I have advised putting the succession under administration and selling the house out of the open succession.  With this scenario, each heir benefits equally.  The heir who opens the succession applies to the court to be named as administrator of the estate. Any interested party can object on the basis that they are unfit for the office.  But if there are no objections, and it is rare to have an objection, the administrator is empowered to make decisions for the succession, including selling assets to pay off the heirs.

There are two ways that estates can be put under administration in Louisiana.  The standard mode requires court approval for each administrator’s decision. The other way is called an independent administration, and gives wide latitude to the administrator.  Either way, with or without court approval, the administrator can list the house for sale with a real estate agent and at the closing sign for the succession. The sales proceeds are deposited in the succession’s bank account and ultimately divided among the heirs.

 

* The asterisk refers to the type of lawsuit called a partition by licitation. A co-owner can sue to have a property legally sold at auction, whether or not the co-owners agree. This is an expensive option and a sale at a public auction does not fetch the highest price.

 

What is a Purchase Agreement and why is it important?

JohnMenszer2-Crop_-0761For a buyer or seller of real estate the Purchase Agreement is a critically important document. It is the rule book or ”road map” for the transaction. Most people sign their Purchase Agreements without reading or fully understanding what they are agreeing to. Then, if there is a bad outcome, they call an attorney and want to get out of the contract.  It may be too late.

There is a Standard Agreement that is in common use among the real estate brokers and agents in New Orleans. It protects the commission of the realtors and splits the penalties between the buyer and seller roughly down the middle. It sets out the conditions for property inspections and financing. In a private sale it is not necessary to use this Standard Agreement. A seller or a buyer may decide they want to use a contract that is more favorable to them or meets their special needs. This is permitted. Or, the Standard Agreement can be modified with additional terms and conditions.

A real estate deal is a complicated venture involving property inspections, financing, appraisals, warranties, title issues, timing of events and a significant deposit. Many things can go wrong. As a result penalties can kick in and property can be tied up in litigation.

Consulting with a real estate attorney prior to signing a Purchase Agreement or hiring a lawyer to draft a modified or custom contract is time and money well spent.

 

How Good is Your Tax Sale Title?

When it comes to Tax Sales the investor should be guided by the ancient motto “Caveat Emptor,” which in Latin translates to “Buyer Beware.”

There are two main reasons for this:

JohnMenszer2-Crop_-80661) When a property goes to tax sale no one has checked for prior clouds on the title; and 2) The tax sales are often conducted in such a manner that legal notice is not received by the former owners.

When I take a tax sale case the first thing I recommend is a title search. This should reveal the title issues that could be problems later. Next, I make a governmental request for documents that show the steps taken to notify the former owners of the sale. These notices state that the owners are about to lose their property if they do not pay the taxes before the auction. On lucky occasions the record shows that the owners actually got notice, but often it cannot confirm that the notices reached them.

Now a word about titles. The gold standard is a “merchantable title,” which means, not a perfect title, but a title unlikely to lead to litigation. A merchantable title is readily transferrable and a reputable insurance company will write a policy of title insurance on it. The latter is important because most mortgage companies require that a title insurance policy be issued to safeguard their loans. They will not make a loan without the title insurance. It has been the case in South Louisiana that reputable title insurance companies will not issue policies on tax sale properties.

I look at a the purchase of a tax sale as an investment. The tax sale purchaser will have to determine if the risks justify the rewards. Whether, the defects in the title, if any, and the lapses in the notice process, if any, justify the financial risk.

High Tech Zoning Tool You Should Know About

 

 

Screen Shot 2014-03-12 at 9.59.09 AM

The City of New Orleans website has a cool new mapping tool that allows you to zoom in on any lot in Orleans Parish and obtain up to date zoning information.

You can:

• View the city in satellite imagery or as street map.

• Search by street address or drag and click on a location.

• Create custom layers that show lot, square, zoning and future land use.

For each lot it will tell you the zoning designation, description and when the map was last updated. Click on each item for more detailed information and a link to the zoning ordinance itself. Check your neighbors. Check yourself. Check the commercial development on the corner.

The Comprehensive Zoning Ordinance is the “blue print” to new developments in New Orleans real estate. Last updated in the 1970’s a new ordinance is in the process of being adopted. It will afford predictability and uniformity to what has been an ad hoc process of appeals for each non-conforming use and waiver. The goal has been to balance comprehensiveness and simplicity, so that the average citizen can understand it. High tech mapping tools have allowed the City to analyze neighborhood patterns of use as never before which should lead to fairer and more just decisions.

You will find a link to the Planning and Zoning Lookup Tool on the City’s website at:

www.nola.gov/city-planning/planning-and-zoning-lookup-tool/

 

 

 

Real Estate Liens and Judgments — How to Cancel Them?

Liens and Judgments that are recorded in the Land Records Division of the Clerk of Court of Orleans Parish are indexed under the names of the parties. They act as clouds on the titles of real estate owned by the parties cast in judgment. Fortunately, there are several ways to cancel them.

Note: Formally, the Land Records Division of Orleans Parish was divided between the Notarial Archives, the Mortgage and the Conveyance offices. Now, all documents in Orleans Parish are filed once, in one place, making Orleans conform to the practices of other Louisianan parishes.

Here are the major ways to cancel a Judgment:

1. Consent of the parties – usually upon payment or settlement of the Judgment balance.

2. Prescription – the effect of recordation ceases 10 years from the date of the Judgment,
unless it is re-inscribed..

3. Order of a Bankruptcy Court – upon motion and hearing the Bankruptcy Court may order the cancellation for a debtor’s lack of equity in the property.

4. Erasure by State Court – usually by a Mandamus proceeding for the failure of the
Clerk to take action.

Here are the major ways to cancel a Mechanics’ Lien:

1. Release by the Lien Filer.

2. Order of the Court in Suit to Compel Release.

3. Prescription if more than a year has passed and no lis pendes (notice of suit) has been filed in Land Records.

Here are the major ways to cancel City Code Enforcement Liens:

1. Consent of the parties – upon payment of the fine, penalty and costs or settlement..

2. Order of the Court – after filing a timely appeal in a lawsuit.

Here is the way to cancel a Federal IRS Lien:

1. Consent of the IRS after notification of prescription or payment.

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