Negotiating a deal can be a tricky proposition for an attorney. Every attorney wants to do his/her best job and not only assure that the client is adequately protected, but also to try to get the best deal possible for the client.  As to the former, the attorney is and should be given great latitude.  But ultimately, the client will weigh the risks and make the decision.  If the attorney is doing his/her job properly, legal terms will be thoroughly debated, drafted and re-drafted so that the clients can see a nearly final product and the attorney can say “I did the best I could” and explain how the client is protected and where language could be stronger.  That way, the client can make an educated decision as to whether to proceed.

Business terms are another issue. These are the client’s domain.  The client gives parameters that the attorney should negotiate within.  During negotiations, there comes a point when both sides have to have discussions with their clients about which direction to proceed and whether to alter the parameters or terms.  Sometimes, an attorney forgets this role and speaks and acts as if he is the client.  When this happens, your deal can implode.

I recently worked on a future advance loan for a client. For some reason, the bank did not retain the same attorney to close the future advance loan who closed the original loan 2 years prior.  The original loan was an $8.9 million term loan which we amicably negotiated.  We hammered out all of the terms of the original note, mortgage, guaranties and other loan documents with the bank and the original attorney.  Negotiations were tough but fair, and the bank agreed to many of our requests to change standard bank provisions as well as numerous business terms.

The bank’s new attorney for the relatively small future advance ($425,000) did not have this history and it appeared as if he did not read the original loan documents. Clearly, he was not familiar with them because the first draft of the future advance loan documents did not include any of the terms that had been previously negotiated.  The drafts were very much the bank’s original form documents with the new terms of the future advance filled in.   All of the standard objectionable terms that we had negotiated out in the original loan had been re-imposed.  Special provisions that we had negotiated in, were omitted.  In addition, I was not satisfied with the way the attorney proposed to document the new provisions that the bank required for the future advance.  Frankly, he was not documenting the loan as a future advance and loan modification.  As I began to explain my requests, he summarily rejected them as out of hand without discussing them with his client, the bank.

The deal froze in its tracks. The attorney insisted that he was right because the credit approval made no mention of the revisions we had made to the original loan and therefore, he was supposed to amend and restate the loan documents and re-impose the original language.  I was astonished that he would not discuss this interpretation with his client.

By taking this position, he increased the interest rate of the original loan which was not the deal. The future advance interest rate was about 100 basis points higher than the original loan interest rate.  There was no intent on the bank or my client’s part to increase the rate of the original loan.  In addition, each loan was to have a 5 year prepayment penalty, with the penalty decreasing each year.  By amending and restating the loans, the original loan’s prepayment penalty period restarted.  Again, not intended.  Again, the attorney would not listen.  To me, these weren’t even items to negotiate.

To save the deal, I had to have my client intervene directly with the loan officer. Ultimately, the bank accepted every request that I made except one and that one was modified, I believe to appease the attorney.

I am fine when someone makes a mistake as this attorney obviously did. I’m not ok when they refuse to admit it or refuse to go back to the client to see if they did.  This guy, either through arrogance or ignorance decided it was his place to tell me no to every point that I raised.  What’s worse was that he asked me why I was so hostile about everything going on in the deal!  I flat out had to tell him that he was unprepared and that he refused to ask his client about anything I raised.  You can imagine how that went over.  Let’s just say that 4 weeks after closing he is still trying to find “mistakes” that our office made only to find that he remains unprepared and unfamiliar with the language in his own documents.

Attorneys who try to act as the client by making decisions for them and without being thorough and careful, do so at the risk of the deal for their client.

Florida’s recording statute gives priority to the real property lienholder who is first to record in the public records of the county where the property is located. There are certain limited exceptions to this general rule. One of the exceptions that most mortgage lenders doing business in the state of Florida are familiar with is the exception for the first lien priority created by Florida statutes for ad valorem or real estate taxes assessed by the property appraiser against real property.

Previously, mortgage lenders could accurately quantify the amount of the potential prior lien for unpaid real estate taxes that could prime their lien by examining county tax records. However, under the very recent case of Miami-Dade County vs. Landowne Mortgage, LLC, 2017 Fla. App. Lexis 14751 (3rd DCA), this analysis may no longer be accurate when refinancing an existing homeowner. In the case, Miami-Dade County filed a 2014 tax lien against the property on which Landowne had previously secured its first mortgage in 2007. The 2014 Miami-Dade tax lien imposed against the property was for up to 10 years worth of improper homestead exemptions previously received by the present owner of the property during his prior years of ownership. Florida Statutes, Section 196.161 allows property appraisers a look back period of 10 years to recoup the amount of any homestead exemptions improperly received, plus a 50% penalty and 15% interest. However, prior to this most recent ruling, it was not clear that a tax lien filed against a property for improperly received homestead exemptions would have a retroactive effect, which would prime the prior recorded lien of a mortgage granted by a lender who had no knowledge of the existing property owner’s improper claim of a homestead exemption.

This problem does not arise in connection with loans to homeowners who are buying a home and obtaining purchase money financing (as opposed to refinancing an existing loan) because the tax lien for improperly received homestead exemptions will only attach to the property owned by the non-exempt owner at the time the tax lien is filed. Prior to the filing of a tax lien of this nature, any purchaser for value of the property on which the improper homestead exemption was claimed will take free and clear of this retroactive tax lien.

Cash strapped local governments aided by ever improving data gathering techniques and the Miami-Dade County vs. Landowne Mortgage, LLC decision may  increasingly turn to real estate tax revenues presented by improperly claimed homestead exemptions. Accordingly, residential mortgage lenders who are refinancing loans for existing homeowners should seek advice from loan counsel who can effectively address this new landscape.

Pittsburgh, Pennsylvania, a working class town, is generally known as an affordable city. Of course, many families struggle, but the National Low Income Housing Coalition ranks Pittsburgh among the cities with the highest availability of affordable housing units for rent.  Nevertheless, the Pittsburgh City Council has recognized the need to stay ahead of the curve.  Circumstances could change at any moment.  The economy could change.  Unemployment rates could reverse course again and the need for affordable housing units could again exceed availability.  Therefore, the Pittsburgh City Council has been proactive in adopting affordable housing policy.

The City Council created an Affordable Housing Task Force in 2015. It has adopted inclusionary zoning policy and encourages use of low income housing tax credits.  Most recently, at the end of 2016,  the City Council approved an Affordable Housing Trust Fund.  The ordinance commits funding of not less than $10 million annually.  However, the ordinance does not create a revenue stream to fund the $10 million and the debate continues as to whether the trust fund will actually be funded.

The most obvious source of revenue for the trust fund is a transfer tax on deeds and mortgages. Florida, for example, assess documentary stamps on deeds at the rate of $.70 per $100 of consideration and $.35 per $100 of consideration on mortgages.  Closer to Pittsburgh, Philadelphia charges a $10 recording fee on deeds and a $17 recording fee on mortgages that is allocated to the Philadelphia Housing Trust.  However, there is strong opposition to any sort of additional transfer tax in Pittsburgh, particularly from local realtors.  Transfers are already taxed at 4% in Pittsburgh, which is the highest in the Allegheny County.  One-half of that amount is allocated to the city.  Realtors fear that a higher tax will have a chilling effect on the real estate industry.

Living and practicing real estate in a state that taxes conveyances at a significantly higher rate, I have to chuckle at such an assertion. Buyers will continue to buy and sellers will continue to sell regardless of the transfer tax.  The tax is just the cost of doing business, even in residential sales.  Because these taxes are paid at closing and not after the fact, the responsible party doesn’t feel the pain of having to write a check at a later date.

The need for an Affordable Housing Trust Fund is too great to worry about the small price that buyers and/or Sellers of real estate might have to pay at their closings sometime in the future. With out this revenue, every day tax payers will be covering additional social service costs including temporary housing costs.  In the short and long term, the an additional point or two on transfer taxes at closing is a good investment for everyone.  Pittsburgh should act now and fund the Housing Trust immediately.

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        When tenants get that first draft of a commercial lease, the size of the package can be daunting. Part of the girth can be attributed to the Subordination, Non-Disturbance and Attornment Agreements (“SNDA”) and Estoppel Certificates that are attached as exhibits.  By the time you’ve read the lease itself, do you really want to read two more documents?  How do they affect a tenant and should a tenant be concerned?  While these documents are included and the requirement to sign them in the lease are often necessary because of the landlord’s current or future financing plans, they do in fact, help the tenant and should be carefully reviewed by the tenant as should the corresponding provisions in the lease.

             SNDA – The SNDA is 3 agreements in one.  First is the subordination.  The tenant agrees to subordinate its rights under the lease to the lender’s mortgage.  Why?  In a new project, the lease might be signed prior to the mortgage so the tenant’s rights would be superior to the lender.  But that is not always the case.  Usually, the mortgage is in place and the lease is junior to the mortgage.  Unless, of course, the landlord re-finances, in which case, the new mortgage would be subject to the rights of all existing tenants and the leases.  The landlord should include a provision in its form lease that the lease is automatically subordinate to landlord’s current mortgage and all subsequent mortgages.  Major tenants will push back and request an SNDA, requiring that the mortgagee provide a Non-Disturbance Agreement in exchange for tenant’s subordination.  Major tenants include tenants who have spent significant dollars in tenant improvements, not just anchor tenants or large space holders.  Local tenants won’t have leverage to require a Non-Disturbance Agreement and Lenders won’t be willing to give every small tenant one.  Landlords should carefully consider which tenants should be provided Non-Disturbance Agreements and add the provision to each lease.  Upon execution of the Subordination, the lease will be subordinate to the mortgage and the lender will be able to foreclose the lease upon a default by the landlord.

             The second component of the SNDA is the Non-Disturbance Agreement.  Here the lender agrees that if the landlord defaults under the loan and lender institutes foreclosure proceedings or otherwise acquires the property, lender will not join the tenant in the forecosure proceedings or otherwise take steps to evict the tenant or terminate the lease as long as the tenant continue to pay rent and attorn to the lender.

             The final component is the Attornment Agreement.  The tenant provides assurance to lender that if lender acquires title to the property, by foreclosure, deed in lieu or otherwise, tenant will recognize lender as the landlord (attorn to lender).  This agreement creates privity of contract between lender and tenant.  While there are 3 components to the SNDA, they work together to help the lender and the tenant and by extension, the landlord.

             Estoppel Certificate – The Estoppel is confirmation from the tenant to the lender or a prospective buyer of the property that there is a lease in effect as to the space, that it is in good standing and the landlord is not in default.  It confirms the material terms of the lease, such as the remaining term and current rent.

             When negotiating the lease, the landlord should attach the basic forms of the SNDA and Estoppel as exhibits to show the general terms that the tenant will be expected to provide upon request.  Tenants should review these forms during negotiation and make changes prior to lease execution so that they are not surprised when the time comes to provide signed copies to lenders.  The SNDA should provide, at minimum, lender’s full recognition of the tenant and the lease and confirmation that tenant shall have the right to continue to occupy the premises following lender’s acquisition of the premises as long as tenant continues to pay rent.  Tenant should not be held in default for failure to timely provide an SNDA or Estoppel, especially if the lease is subordinate to all mortgages by its terms.

             SNDA’s and Estoppels are important protections for tenants and should be reviewed and negotiated.  They should not be overlooked upon receipt of a lease proposal nor should they cause worry. Expectations should be stated up front so that they will be met at the time the documents are required.

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Borrowers need help. Although the worst of the foreclosure crisis is apparently behind us, many homeowners are still dealing with upside down mortgages that are in default or on the verge of default. Foreclosure is not always the best way to resolve the situation for a troubled homeowner. Yet lenders and servicers are still slow to help.

President Obama’s HAMP and HARP programs were designed to offer relief. In essence, these programs were created to allow borrowers whose home values were less than the outstanding balance of their mortgage to reduce the principal balance, interest rates and therefore, monthly payments so as to be able to afford to stay in their homes. (Information about HAMP and HARP can be found at http://www.hmpadmin.com and http://www.harpprogram.org.) However, no standards or rules were implemented which require banks to act with any urgency to approve a borrower’s modification application. As such, the approval process for loan modifications often takes months, sometimes over a year, resulting in the defaulting borrower to accrue insurmountable default rate interest and causing the new payment amount to be only nominally lower than the prior payment amount. This bank practice continues today.

Similarly, borrowers fortunate enough to find buyers for their homes need approval from their servicers or lenders for the resulting short sales. Again, no guidelines or rules require lenders to act promptly in approving a request for short sale and often, potential buyers grow frustrated with the delays and cancel the contracts. “The Prompt Notification of Short Sale Act”, S.361, a bill designed to speed up the short sale approval process,  stalled for over two years in committee and ultimately died when the 113th Congress adjourned last year. But there is hope.   Representative Brian Higgins (D, NY) re-introduced a modified version of the Act on July 23, 2015, now titled “The Vacant Homes Act” (H.R. 3203).

If passed, the Act would require lenders and loan servicers to decide whether to approve a short sale within 90 days from receipt of notice of an offer from the owner of a home in foreclosure. If the offer is rejected, the “Mortgage Owner” must provide the reason for the rejection and the rejection must provide a counteroffer which includes an alternative price which would be acceptable to the Mortgage Owner, together with an economic analysis which demonstrates a reasonable expectation of the expected market value of the property one year following the 90-day period.  This is a big improvement from the legislation proposed in the last Congress which simply provided that the lender or loan servicer had 30 days from “completion of the file” in which to approve the short sale.  The prior legislation did not define completion of the file, leaving borrowers at lenders’ mercy because checklists were open ended as is the current practice.  Representative Higgins has addressed this problem by starting the clock upon the date that the borrower notifies the lender of the pending sale.  While lenders and loan servicers will likely require the same information they now require from borrowers in order to approve the request for short sale, the impetus will be on the lenders and loan servicers to make sure that the information is timely received.  The proposed Act also requires Mortgage Owners to negotiate with borrowers rather than allow an outright rejection of a proposed short sale.  This provision would add more certainty for potential buyers.

The House Financial Services Committee should take action on this important legislation to move it forward quickly.  Similar legislation should be offered for modifications, workouts and deeds in lieu of foreclosure.  As lenders and servicers continue to delay working out these loans and mitigating losses, the foreclosure backlog increases when dockets could and should be cleared quickly.  This legislation offers simple relief for homeowners needing relief.

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