January 2, 2012 the new Massachusetts Uniform Probate Code (MUPC) takes effect

Posted on December 16, 2011 by George

Season’s Greetings from the Law Office of George E. Foote, P.C.

I again take this opportunity to send holiday greetings and to offer estate planning information. Most estate planners adhere to the prevailing wisdom that it is generally a good idea to “avoid probate”, and trusts are often the tool utilized to accomplish this goal. Despite this advice, this goal cannot always be accomplished. Assets are often forgotten or omitted from trusts and left in a person’s sole name. Clients with modest estates often hold their property in joint names because the survivor receives full control of joint property when the first joint owner dies. But jointly held property is subject to probate upon the death of the last joint owner. Heavy reliance upon joint ownership for an estate plan will thus make it more likely that probating an estate through the Probate & Family Court will be required.

January 2, 2012 will usher in significant changes in the procedures required to probate an estate in Massachusetts. This is the date the new Massachusetts Uniform Probate Code (MUPC) takes effect. The new system notably makes it easier to close an estate. Thus, a formal “Final Account” is required to exempt the executor from future liability. Under current law, without a “Final Account”, an executor is vulnerable to allegations from heirs that his/her estate obligations have been handled improperly or are incomplete. Under the MUPC, an estate can now be closed “informally”, which does not require a detailed specification of all assets, income and expenses. Sometimes requiring an executor to provide such detail might be a good idea, but with many estates, families are in complete cooperation and there is no controversy. For these estates, the option to close an estate informally will be welcome.

Of course, even though many of these new rules are designed to streamline the probate process, some experts are already disagreeing how the new rules will be applied. In addition, estates commenced under the old system, if not closed prior to June 30, 2012, must be re-filed in some fashion using the new MUPC forms. The resulting confusion, at least during the first several years of the new MUPC should cause clients to at least consider holding all their property in Trust, if only to avoid this confusion. Creating a trust was once thought of a process only sought by “rich people”. In the 21st century, however, even people of modest means would benefit from using a trust as the foundation of their estate plan. For example, whether under the new MUPC system or the former system, having a will, but no trust, requires probating an estate. This makes a client’s private assets public. Holding a whole estate in trust can ensure that a family’s net worth will be kept private and not put on public display. In addition to being open to public inspection, the probate process requires formal notice to all next of kin, whether or not they are named beneficiaries under a Will. When an excluded heir is notified about the probate of an estate, a forum is provided to relatives to air their grievances. A democratic society, of course, benefits from such “sunshine”. On the other hand, disgruntled heirs do not always have something productive or helpful to say, and the probate system, whether under existing law or new MUPC, can be manipulated to frustrate the wishes of the decedent.

Creating a trust, drafted with thoughtful statements concerning a decedent’s intentions, can address anticipated objections of obstreperous heirs, but not require a legal forum where the administration of an estate can be brought to a gridlock. Legal remedies always exist to prevent abuses, but the forum is not automatic, as it is when a Will is submitted to probate. Avoiding probate by using a trust is a preferable option.

My law practice continues to grow in the areas of estate administration and settlement, estate planning, taxation, and estate litigation. I also represent clients in all types of real estate transactions, mortgage financing and contract matters, as well as criminal, personal injury, and business litigation. My 5 Militia Drive office in Lexington is a bright, 1st floor location with plenty of free parking. Please visit my firm’s web site at http://www.georgefootepc.com; you can also contact me at georgefoote@rcn.com. This is one of the few “advertisements” I use, as I rely primarily upon recommendations from clients. Thank you for the referrals you have provided in 2011 and I wish you good health, good times, and peace in 2012.
—— George E. Foote, J.D., L.L.M. in Taxation

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Meet Guest Blogger, Don Lovering, Licensed Home Inspector

Posted on October 5, 2011 by George

I am pleased this week to host a guest blogger at my Law Information blog. Don Lovering is a licensed building inspector in Massachusetts, is a past president of ASHI, the American Society of Home Inspectors, and is also currently an adjunct professor at Salem State College in Massachusetts. Don and I have worked together in many real estate transactions, where he has performed inspections of homes my clients have contracted to purchase, and almost always has saved them a lot of money and aggravation. I hope you all find Don’s article interesting and helpful:
Have a wet basement?
Consider the recently published story of homeowner Lee Johndrow, a NH clergyman. About 3 years ago, he and his wife decided to update their home to accommodate visits by their children and grandchildren. During the course of the work, the general contractor made a significant error causing the home to flood. For three months, Lee and his wife pumped water out of the basement of their house. It was a seemingly never ending replenished supply of outside water seepage. They lost furniture, photographs and other memorabilia. Their final indignation was a now never ending supply of mold growing in what has become a skeleton of what was once their home.
Lawyers were employed and 3 insurance companies were summoned. Finally, the Johndrows moved to an outdated RV attempting to “get on with life”. They do not have the company of their children or grandchildren in their home as was their original plan. When this winter arrives, they will be once again looking for heated shelter from the elements.
So what went wrong? The contractor apparently lacked the experience to complete the work in a workmanlike manner. The Johndrows never employed an independent inspector to protect their interests.
Whoa! You say. We pay Town Building Inspectors to do that work, don’t we? Unfortunately, capping a growing trend which has been underway for many years, almost every town building inspector I have met is grossly overworked and underpaid. Even in the smallest of communities, a range of between 60 and 100 permits are open on a daily basis. Two municipal inspectors working at lightning speed could not effectively review 60 projects requiring at least 5 visits before the project is complete plus do all the paperwork, answer the phone inquiries, as well as attend building committee meetings.
This makes hiring an independent home inspector almost a necessity when undertaking a home building project. Budgeting for the cost of your own inspector, as well as an attorney to review and were advisable, to negotiate terms of your construction could save you possibly thousands of dollars, and years of grief.
Here are just a few examples of my experiences where hiring a private building inspector earlier might have saved my clients money and aggravation:

o Mrs.”Smith” had the electrician over to repair the dimming lights 4 times and paid out $3700.00 in repairs. The problem was the power transformer at the street, the utility company replaced it and the flickering lights went away. Come to think of it, the electrician did the same. The test was a simple one which I had performed and had it been done early on Mr. and Mrs. ”Smith” would have been $3700.00 richer.

o Mr. and Mrs. “Jones”, both young busy professionals, needed their deck “spruced up” for company. They hired a pressure washing contractor who started the work while the “Jones” were both at work. He called them at work and said that there was “a lot of rot” and that the “deck was unsafe”. The contractor told them he could replace the rotted wood starting today, “if they wanted”. Mr. “Jones” said “fine; just get it done”. While having lunch Mr. “Jones” called Mrs. “Jones” to relate the deck developments. Mrs. “Jones” reminded him that their deck had replaced 5 years ago, and why was it rotted? I got a call from them both asking if I could stop buy early the next day to have a look. I looked at the entire deck, top bottom in and out. I discovered that only a piece of trim had been replaced by the pressure washing contractor. I noticed that one board was rotted. As I was leaving, the contractor arrived and asked who was I? I said, “Just a friend”. He eyed me suspiciously. Coincidentally, because he called Mr. “Jones” at work asked for his credit card number to pay an invoice of $1756.00 for deck repairs. The deck “repair” invoice was not paid and the contractor is most likely still looking over his shoulder every day for Mr. “Jones”.

o Mrs. “Emery” wanted to move closer to her family. Her daughter had moved to North Carolina with the 3 grandchildren and Mrs. “Emery” was lonely, since her husband had passed on. Mrs. “Emery” was meticulous about her house and its upkeep. While gardening, she saw 3 loose bricks on the chimney. She asked her handyman to fix them and he said he was just too busy. Mrs. Emery found a mason on a well known listing service for contractors. The mason came out chatted with her about her flowers and her garden. He told her the repair would require a masonry building permit which was quite expensive. He also claimed that the chimney was “unsafe” and she could risk her life by turning on the heat. Mrs. “Emery” hired him on the spot. But the mason never did get any masonry permit yet still charged her $5000.00, cashed her check and disappeared. I saw the mason’s final work product. Perhaps if it was a hot day. It took him 1 hour to repair the 3 loose bricks. When the gentleman is tracked down, I will give my testimony on the time and skill level required to perform the repair.

The moral of the story, as I see it, is clear: a private building inspector is a valuable and worthwhile asset to have on your side. The cost involved is likely much less than you would think, and much less than the disasters that can be prevented. I hope I can be of assistance to George’s clients and potential clients in the future. Those interested should feel free to contact me at 617-928-1942 or at lovering@earthlink.net

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Living in a Two-Unit Condominium

Posted on August 9, 2011 by George

I frequently represent clients seeking to purchase a condominium composed of only two units. Often this is a conversion of a building that was formerly a two family house. Communities such as Arlington, Medford, Watertown and Waltham have a large stock of two family homes and many of them have been converted to condominiums. Is living in a unit in one of these condominiums a wise choice?
The Massachusetts Supreme Judicial Court (SJC) has made the following observation in Lallo v. Szabo,
75 Mass. App.Ct. 1 (2009):
Condominium ownership is generally characterized by the relinquishment of some “personal choice” in exchange for the benefits that may be derived from associating with other property owners. Franklin v. Spadafora, 388 Mass. 764, 769 (1983). A person’s ownership of a condominium unit includes an exclusive fee interest in the individual unit, but is subject to limitations set forth in the master deed and the condominium by-laws. G.L. c. 183A, § 4. … It is therefore a hybrid interest in real estate, entitling the owner to both exclusive possession of his unit and an undivided interest as tenant in common with other unit owners in the common areas. Noble v. Murphy, 34 Mass. App.Ct. 452, 455-456 (1993).
The SJC’s point about the ownership being “a hybrid interest in real estate” cannot be over emphasized. Unlike a person’s single family home, there will likely be some kind restriction on renting one’s condo unit to third persons. Some condominiums provide a “right of first refusal”, which interposes a “speed bump” on sales of a unit to third parties. Such a provision mandates that a unit must first be offered to the other unit owner, on the same terms of a proposed sale, before any transfer may take place. If the other unit owner “waives” this right, the sale to the 3rd party may proceed. Most condos do not have this provision because of the delay and occasional logistical problems involved. People who are hyper-concerned about who will be living next to them might tend to want such a provision, but any restriction upon free transferability of a unit will have a negative effect upon the value of a property. The more restrictions upon use or transfer of a condominium unit, the more that property’s potential future value will be likewise restricted.
A condominium is broken into two basic categories: those portions of the property that a classified as part of a unit and everything else is classified as a “common area”. No single unit owner has unfettered rights over common areas. Areas such as roofs, main plumbing lines, hallways (i.e. not those wholly inside one unit), patios, sidewalks, yards and gardens are most often classified as common areas. There can be a further breakdown of common areas into those which both owners have equal rights to utilize, and those areas which are classified as “exclusive use” areas. Exclusive use common areas are those which only one unit owner has the right to utilize. Having said that, the right of “exclusive use” is not the same as the right to exclusively change, or modify, even if done at that particular unit owner’s exclusive expense. This means that a unit owner may not have the right set out flower pots on an exclusive use deck, to plant a particular garden in their own exclusive use yard area, or to hoist a decorative flag or banner on their own exclusive use porch, without first obtaining the other unit owner’s consent. Another problem, not immediately apparent to a potential buyer is that all common areas must be maintained at the expense of the whole condominium (i.e. both unit owners). This is a topic that could be the subject for a whole separate blog.
While the key to enjoyable living is always being on good terms with one’s neighbors, one cannot always guarantee that one’s neighbor will be reasonable. There is always some kind of risk tying oneself closer to an unknown quantity, but most people appreciate if an extra effort is being extended. The last resort for disputes is arbitration. It is vital that all two unit condominium documents contain an arbitration provision. The right to arbitration does not, of course, guarantee that a unit owner can compel agreement if the condominium documents are clear about the particular right or responsibility. In Lallo v. Szabo, 75 Mass .App.Ct. 1 (2009), the SJC denied forcing one unit owner into arbitration because the proposed modifications sought by the Plaintiff (installing dormers and a roof deck) required the use of the roof, which was common area space, for the sole benefit of the plaintiffs. The modifications would have taken sections of the roof and essentially allocated them to the plaintiffs. The Court also stated that dramatically expanding the living area of the unit by (in part) incorporating portions of the common areas would alter the relative values of the units and therefore this would alter the respective shares of the common area. Other issues to be considered, the questions of who pays for the arbitration? Who pays for the attorneys? Who pays for the aspirin needed after reading and understanding all the condominium documents and the potential issues which exist with a two unit condo? Just kidding, of course. Understanding what you are getting into is half the battle, and condominiums can make living in a home that is very similar to a single family house quite affordable. My office is always available if questions on such a transaction arise.

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To Inspect or not to Inspect: Is that a Question for New Construction?

Posted on July 15, 2011 by George

Clients often ask me, “Should I hire an inspector if I am buying a newly constructed home?” In Lexington, Bedford, Lincoln and Concord, where the cost of newly built homes routinely exceeds $1 million, some buyers feel that they can rely upon the fact that the Town building department will perform inspections for their benefit, as a condition of issuing a certificate of occupancy. This, they reason, makes a private building inspection unnecessary.
But newspapers tell us almost weekly that almost all State and local governments have suffered massive staffing cuts. There is as a result, pressure on all these governmental units to manage the same or sometimes increased workloads with level or fewer number of employees. This includes city and town building departments. While building departments do an admirable job in enforcing building and health codes in inspecting newly constructed homes, most would agree that they are not likely to spend additional time conducting more intensive inspections going forward into the future.
In my own 35 years of experience practicing real estate law, I have never once been involved in a purchase transaction where a private building inspector has not discovered some irregularity that needed addressing. This includes every newly constructed home which a client of mine has had inspected prior to closing.
Inspectional standards have also changed over those 35 years as well. New technologies now permit private inspectors to examine, for example, mold and other air quality issues that never arose during my earlier years of practice. This does not mean, of course, that new technologies invariably disclose major defects, but they often do.
What about legal remedies, in case defects were not discovered prior to purchase or even where no professional inspections were performed on behalf of the buyers? It is a well settled legal principle that, unlike in other states (notably California, for one), homeowners who sell their houses are not liable for bare nondisclosure where a buyer makes no prior inquiry about a particular issue. In these cases a seller has no duty to speak up Swinton v. Whitinsville Sav. Bank, 311 Mass. at 678-679 (1942), Henshaw v. Cabeceiros, 14 Mass.App. at 227 (1982). There must be some affirmative act of concealment of the problem by the seller for them to be legally liable Salinsky v. Perma-Home Corp., 15 Mass.App. 193, 197 (1983).
New construction by a professional builder, however, does fall into a separate category. In Albrecht v. Clifford 436 Mass. 706 (2002), the Mass SJC announced a new principle of law: an implied warranty of habitability now attaches to the sale of new homes by builder/sellers in Massachusetts. The Court said that imposing this warranty was also consistent with the protections afforded consumers in other contexts. See Boston Hous. Auth. v. Hemingway 363 Mass. 184, 293 N.E.2d 831 (1973) (implied warranty of habitability in residential leases); George v. Goldman, 333 Mass. 496, 131 N.E.2d 772 (1956) (implied warranty in construction contracts to do workmanlike job and use reasonable skill). See also, G.L. c. 106, § 2-314 (implied warranty of merchantability for sale of goods). The purpose of this new implied warranty for newly constructed homes was to protect a purchaser from “latent defects that create substantial questions of safety and habitability”. While the scope of this warranty is to be left to a “case-by-case determination”, the Court stated that “a home that is unsafe because it deviates from fundamental aspects of the applicable building codes, or is structurally unsound, or fails to keep out the elements because of defects of construction”, would breach the implied warranty announced in Albrecht. The Court stated that parties to a residential new home construction contract could not agree in advance to “waive” the implied warranty.
You might ask, well is that not enough to protect a buyer of a newly constructed house? You should know another important fact about the case. The Albrechts actually lost the case, because they waited too long to notify the builder of the problems. How about this: they bought their home in 1993, discovered the fact in 1996, and the Mass Supreme Judicial Court announced their ruling in 2002. The Albrecht Court also announced a warning to consumers when it ruled against the Albrechts in the case:
“It was not reasonable as a matter of law for the Albrechts neither to inspect nor to use the fireplaces [claimed to have been defective before the end of the contractual 1 year period]”
Other cases confirm that a home buyer cannot comfortably rely on their right to sue other involved parties after the fact when a defect is discovered once they take possession of their newly constructed home. In Pelletier v. Chicopee Sav. Bank 23 Mass.App. 708 (1987), the Court held that a bank had no statutory obligation to guarantee that their appraiser would inspect for structural defects, even when the loan officer had told the buyers that we (the bank) “will take care of everything”. There was no obligation on part of bank to obtain structural mechanical inspection or to advise the buyers that such inspection would not be done by the bank. Similarly, a listing broker without actual knowledge of a zoning defect has no duty to determine whether the property complies with existing zoning requirements Quinlan v. Clasby, 71 Mass. App. Ct. 97 (2008), although misrepresentations on the part of a real estate broker can actionable under G.L. c. 93A if a broker should have had knowledge of a problem Mongeau v. Boutelle, 10 Mass. App. Ct. 246 (1980). In Lawton v. Dracousis, 14 Mass.App. at 170 (1982) there was no 93A liability where a broker informed buyer that there were no building code violations when, in fact, there were, because that broker was not aware of such violations. Where a buyer inquired numerous times about leaks and was told by a broker that a condo unit did not leak, the Court found a broker liable for misrepresentation in Brenner v. DiGiulio 74 Mass. App. (2009). One thing is clear. The cases do not offer a clear path to a certain result. As lawyers are fond of saying, “it depends”.
I am myself, a veteran of over 30 years of representing clients in various types of litigation. I can attest that litigation is expensive ordeal and litigants almost never achieve a perfect outcome. As a dollar for dollar comparison, a professional building inspection is a much better investment than litigation. Irregularities discovered by the inspector can become part of the issues negotiated between the buyer’s attorney and the builder prior to the signing of a final purchase and sale agreement. Having the results of a building inspection may or may not lead to price concessions by the builder, but in any event it will provide peace of mind for the future. As the credit card commercial tells us, that’s “priceless”.

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Lexington Home Owners and the Historical Commission

Posted on June 22, 2011 by George

The Town of Lexington is nothing, if not a community which focuses on its unique history.  The Battle of Lexington was the first military engagement of the Revolutionary War and the first shots were fired just as the sun was rising at Lexington on April 19, 1775.  Due in part to Lexington’s focus on history, the Town has an active and many say, powerful Historic Districts Commission, which regulates the appearance and an owner’s options to repair and improve their home, but only if the house is situated within one of the four (4) Town historic districts.  As authorized under G.L. Chapter 40C §4, the Historic Districts Commission (“HDC”) is officially responsible for reviewing and approving all plans within the Lexington Historic Districts for construction, demolition, exterior renovations, color changes, and signs.  Owners of properties in the historic district may be denied permission to paint their home a particular color, and the HDC could prohibit the installation of energy efficient windows, if that would change the look of the exterior.  Examples of the most frequent items subject to review by the HDC include items such as air conditioning units, attachments/additions to houses, chimney caps, exterior lighting fixtures, garden houses/storage sheds, landscaping structures (fencing, walls, drive/pathways), mechanical and plumbing vents, play sets, roofing, shutters,  solar panels, storm windows/doors/screens/awnings, street numbers, and swimming pools.

But the HDC reigns supreme only over those homes located within the several historic districts.  The rest of Lexington houses are not so restricted, except, of course, for the Lexington Historical Commission (“LHC”).  The LHC is a totally separate body created by a Town ordinance in 1986, and authorized under G.L. c. 40 section 8D.  The function of the LHC is to advise the Building Commissioner for the Town of Lexington concerning the issuance of demolition permits of “significant” homes, as outlined in the town ordinance (a summary of the LHC’s charge and activities can be found on the Town web site.  So-called “knock-downs” have become a common way for builders of new homes to acquire land on which to build their new structures. The proliferation of “knock-downs” has become a much debated issue in Town circles.  If a builder desires a demolition permit for a home deemed “significant” (i.e. historically significant), the LHC may block demolition until or unless efforts are made to move the structure to another lot.  The LHC has surveyed the houses in the entire Town of Lexington and placed nearly all homes constructed prior to 1950 on a list of under the purview of the LHC.  Your home may be on this list and you may not even know it.

Thus, the LHC deals only with applications to “demolish” historical buildings, not with the repair or improvement of those homes. This means that if pre-1950 home owner’s vision includes a potential demolition of any of the existing buildings on their property, they would have to obtain the LHC’s consent. The LHC does not restrict interior renovations, and does not technically restrict exterior renovations, although it is unclear if the Town building commissioner would require consent of the LHC, if your plans included a substantial change to the exterior of an existing building which involved “demolition”.

In summary, interior renovations would not be affected, but significant changes to the exterior involving demolition might be met with some resistance.  This is above and apart from what the building commissioner might require to comply with the State building code. There can be many challenges when attempting to renovate a structure of significant age and the option of demolition is just one of them.

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New Homestead Law: To File or not to File

Posted on March 8, 2011 by George

Prior to the enactment of the 2010 Homestead Act, which will be effective on March 16, 2011, Massachusetts residents could be left without basic protection of their homes from claims and liens arising out of lawsuits files against them. It was always necessary for anyone claiming the benefits of Homestead protection to sign a written “declaration of homestead” and to file in the Registry of Deeds in the county where their home was located. Without signing and filing a homestead, a Massachusetts homeowner would have no homestead protection.

Most, if not all, states provide some kind of basic protection of their homes against attaching creditors. Of course, it is always necessary for a creditor claiming to be owed money to seek recourse through the courts to establish a legal basis for their debt. Since the early 1970’s the US Supreme Court has held that a creditor must give prior notice to a debtor before having the right to record a lien against their property, including their home. This means that a constable or deputy sheriff must certify that they have been “served” with a summons of an impending hearing, at least ten (10) days in advance. There was an exception if the creditor had evidence that the debtor was about to sell or transfer their home to someone else, making advance notice impractical. This would include a situation where advance notice gave the debtor an unfair advantage (i.e. if the debtor would use the notice as warning giving them an opportunity to put their property into the name of a third party, through a sale or otherwise). In that case, however, a sworn affidavit is required, and a judge must approve a special motion for such extraordinary relief.

Homestead Laws reflected a public policy that no matter what debts were owed by a debtor to a creditor, the debtor’s home should not be automatically seized and sold without some buffer of protection over the home. Making a debtor homeless would have the ultimate effect of placing a burden upon the taxpayers, which would not be in society’s overall interest.

States vary widely in the amount of protection provided to homeowners, however. Some states permit the protection of only ten or twenty thousand dollars of the home’s value. Other states, such as Texas, South Dakota, Oklahoma, Kansas, Iowa, Florida, and D.C. provide protection from creditors of 100% of the home’s equity. Some practitioners have speculated whether the special protection provided to Florida residents might attract debtors seeking a haven from attaching creditors. It was observed that this state’s homestead law advantage induced O.J. Simpson to move to Florida and purchase a home there just ahead of a prosecution of a civil lawsuit for causing the death of his wife in the celebrated case following Simpson’s acquittal in his criminal prosecution for murder.

Homestead protection from debts always excludes a mortgage voluntarily executed by the debtor (as long as it preceded the homestead declaration in the chain of title), most often to effect the purchase of the home. Junior liens, such as “home equity” loans are also voluntary liens, also secured by mortgages filed in the registry of deeds.
Since the passing of the 2010 Homestead Act Massachusetts homeowners are no longer required to file a written declaration in the registry of deeds to obtain homestead protection. But this does not make the recording of a homestead declaration obsolete. Why?

The “automatic” homestead covers the value of the home up to $125,000. Those who still file a written declaration, however, can obtain the more generous $500,000.00 of home equity protection, so there is a clear advantage for those who file a written declaration. In addition, the new law eliminates the ambiguity about whether the recording of a mortgage in a refinancing transaction, wipes out a pre-existing homestead declaration. The act puts to rest the legal debate on this point and confirms that mortgage will only “subordinate” its protection to the recording of the new mortgage.

The law makes other changes:
• Beneficiaries residing in homes held in trust can claim a homestead
• There is no longer any exception for pre-existing debts to homestead protection
• Homes owned by both spouses will require both spouses to sign the homestead
• If a home protected by a homestead is sold, the proceeds of sale will be covered by homestead protection for up to 1 year
• Transfers by deed of the home among members of a family will not eliminate a previously filed homestead
• Owners of manufactured homes may claim the benefits of the homestead law
• A later-filed homestead does not now terminate the benefits of an earlier filed homestead declaration overruling prior case law on this point.

Benefits of Recording a Homestead Continues

In summary, some homeowners need take no action after the act becomes law on March 16, 2011. Even though owners of homes continue to reap the benefits of a homestead that may have been filed in the past, however the law adds to the rights provided under the homestead law, as outlined above. Those who choose to record a homestead will obtain additional advantages as compared to those who settle for the automatic protection.

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Beware of Notary/Witness Only Closings

Posted on February 8, 2011 by George

Beware of Notary/Witness Only Closings

In the 35 years I have been practicing Real Estate Law, I have heard clients who move to Massachusetts from another state they are surprised that in Massachusetts “you need an attorney to represent you at a real estate closing”.  Occasionally I will hear complaints about the high cost of real estate closings, and some speculate that this is because attorneys are required to be involved.

Even in states where title companies conduct closings, attorneys are, of course, very often involved to review and negotiate the terms of purchase and sale agreements.  Attorneys also represent parties at non-Massachusetts closings, even if title companies act as closing agents.   In the long run, however, attorney conducted closings may actually be less costly than those conducted by non-lawyers.

Benefits of Attorney Conducted Closings in Massachusetts

Massachusetts has historically been a pro-consumer state, and citizens of Massachusetts benefit from the State’s policy of protecting their rights as consumers.  A somewhat cynical view suggests that we pay more for these rights as compared to residents of other states.   There is ample evidence to the contrary, however.

It has been observed by the President of the Massachusetts Real Estate Bar Association that:

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“…the typical attorney’s charges in connection with a closing have steadily fallen as a result of increased efficiency and competition. This is not a situation where there is one company that controls the market. There are thousands of attorneys throughout the Commonwealth who provide conveyancing and settlement services, and the competition among them is fierce. The typical closing fees are similar or less than those charged by the closing companies.”

In states where title companies may act as closing agents (rather than limiting this practice to attorneys), title insurance rates can often be higher than in Massachusetts.  In Florida for example, where non-attorneys compete with lawyers to handle closings, Buyers are currently charged $5.00 per thousand of purchase price (according to the rules promulgated by the FLORIDA DEPARTMENT OF INSURANCE) as compared to the Massachusetts prevailing $4.00 per thousand rate.  According to one insurance industry view, when attorneys are involved, greater care is generally taken in the first instance, and when things go wrong, which they can occasionally, the closing attorney is contacted to clean up any legal mess.  Even the cynical observer would concede that in that situation, an attorney would be likely more responsive than a non-lawyer, if only to guard against a potential legal malpractice claim against their professional liability insurance, or the possible suspension of their license to practice law*.

Notary/Witness Only Closings

In this type of closing, an attorney is provided a set of closing documents, but by agreement with the lender, the attorney’s role limited only to witnessing and notarizing documents.  The attorney charges a nominal fee for this which the lender passes on to the buyer or borrower.  The attorney has no responsibility to answer questions or to retain documents.  If a problem later develops, the buyer/borrower has the option of calling the closing lender’s toll-free number and speaking to a customer service representative.  Sound scary?  You bet.

One of the most common title problems facing the real estate attorney is dealing with missing mortgage discharges (also referred to as “satisfaction of mortgage” documents).  It is a generally accepted principle that closing agents responsible for collecting money and sending the required amount to the holder of the seller’s mortgage, are also in charge of making sure that a mortgage discharge document is recorded in the applicable county registry of deeds.  This in turn removes the old mortgage lien from the new buyer’s chain of title.

A lawyer acting as witness or notary does not have this duty.  The buyer’s lender (presumably customer service) does.  I have personally tried to make these calls, and I have never been able to find anyone who understands the problem.  The buyer is then left with paying someone hundreds of dollars (hopefully this is all it will take) to spend extra time to track down the missing discharge.  This will often exceed the savings touted by the lender who may have convinced the buyer of the benefits of their witness/notary closing.

The decision of the First Circuit Court of Appeals in REBA v. NREIS 608 F3rd 110, 114 (2010) makes interesting reading on the issue. The First Circuit reversed the lower Federal Court ruling in favor of an out-of-state real estate company, NREIS. NREIS conducts notary/witness only closings for national lenders in a number of states, and brought a lawsuit against the Massachusetts Real Estate Bar Association (REBA).  The case has been sent to the Massachusetts SJC for a ruling of whether the NREIS style closing constitutes the “unauthorized practice of law” made illegal by Mass General Laws c. 221.  You can read the full decision at http://www.ca1.uscourts.gov/cgi-bin/getopn.pl?OPINION=09-1809P.01A

The Attorney: the Less Expensive Alternative

It is my belief, based upon my experience in 35 years of law practice, that retaining an experienced real estate attorney is less expensive in the long run than the dark unknowns associated with a notary/witness only closing.  I would urge anyone considering to purchasing a new home to contact their lawyer of choice for assistance, and stay away from notary/witness only closing situations when buying or refinancing.  My own office represents clients in all types of real estate transactions, whether they involve mortgage financing (I handle closings for a number of area banks and mortgage companies), or are “cash only” situations.

I invite you to visit my firm’s updated web site at http://www.georgefootepc.com; you can also contact me electronically at georgefoote@rcn.com. If you know someone in need of legal services, I hope you will recommend me to them. This blog is one of the few means I have to advertise my legal services, as I rely primarily upon recommendations from clients.  Thank you for reading this blog.

*There are decisions, such as Horvath v. Adelson, Golden & Loria, P.C. 55 Mass.App.Ct. 1113, 773 N.E.2d 478 Mass.App.Ct. (2002) which limit a closing attorney’s liability unless there is an explicit attorney client relationship.  Other cases, however, impose liability on an attorney if the consumer had justifiable reliance upon  the attorney to complete a particular service or task Lamare v. Basbanes 418 Mass 274, 276 (1994).  A wise attorney generally would seek to eliminate the possibility of any claim being made.

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An Opportunity to Escape Massachusetts Estate taxes

Posted on January 26, 2011 by George

An Opportunity to Escape Massachusetts Estate taxes

Massachusetts still, along with at least nineteen (19) other states, imposes an estate tax upon all property transferred as a result of death.  This tax is imposed upon the estate of a Massachusetts resident dying and leaving property to a non-charity.  Even non-Mass residents who own Massachusetts real estate (e.g. Cape Cod vacation homes) will be subject to the Massachusetts estate tax when they die.

But the Massachusetts estate tax can be avoided, even by the every wealthy. This is because Massachusetts STILL has no gift tax.  Good news for those of us who reside in gift-tax-free Massachusetts! The reason for this lies in the recent passage of the Tax Relief, Unemployment Insurance Preauthorization and Job Creation Act of 2010 on December 17, 2010.

This is the new law which increased the Federal Estate Tax exemption amount for each person=s estate to $5 million.  In addition, this same law raised the life time gift tax exemption amount to $5 million.  It was formerly $1 million.  This should not be confused with the $13,000.00 “annual exclusion”, permitting a per-person/per year ability to make gifts without the filing of a gift tax return (which is still in place).  Prior to the 12/17/10 tax law revision, individuals making gifts which totaled, in their life time (cumulatively), more than $1 million would pay gift tax.  This was true even though a decedent could die and leave an estate of more than $1 million and not pay Federal Estate taxes (though they would likely pay Massachusetts Estate taxes).

The result is that under the new law, an individual can give away up to $5 million during their life time, and pay no gift tax.  Then, if the estate they have left after making these whopping gifts is less than $1 million, the escape is complete! No Massachusetts Estate Taxes.

So here is a planning opportunity to escape Massachusetts Estate taxes: because Massachusetts STILL has no gift tax, an individual can reduce their Massachusetts estate by giving away up to $5 million.  Make sure that the assets you have left is less than is less than $1 million, then no Massachusetts Estate Tax will be owed.

That is correct – gifts made by Massachusetts residents can still be made free from any tax that could be imposed by the Massachusetts Department of Revenue and, subject to the exception below, are not considered part of the estate.  Prudent estate planning would be to at least consider making gifts to bring the estate down under the $1 million mark.  Clients should first consult their tax/estate planning advisor before giving away property that has appreciated over time, however, since this would the gift beneficiary to potential capital gains tax (the subject of a whole other discussion).

There is one exception to this estate tax escape plan.  Gifts made within three (3) years before death are considered automatically under Massachusetts G.L. c. 65 section 1 to be made “in contemplation of death”, and are considered to be part of the Massachusetts decedent’s estate.  Such gifts made within this three (3) year window must be counted and added to the estate’s balance sheet when the numbers are crunched to see if Massachusetts Estate Tax is owed.

I hope that is not too confusing.  Whether it is, or if you would like to sit down and discuss estate planning opportunities, I hope the readers of this blog consider contacting me to review their estate plan.

My law practice continues to grow in the areas of estate administration and settlement, estate planning, taxation, and estate litigation. I also represent clients in all types of real estate transactions, mortgage financing (I handle closings for a number of area banks and mortgage companies) and contract matters, as well as criminal, personal injury, and business litigation. My office at 5 Militia Drive in Lexington is a bright, first floor location with plenty of free parking. I invite you to visit my firm’s updated web site at http://www.georgefootepc.com; you can also contact me electronically at georgefoote@rcn.com. If you know someone in need of legal services, I hope you will recommend me to them. This letter is one of the few advertisements@ I use, as I rely primarily upon recommendations from clients.  Thank you for reading this blog.

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Significant changes to the Federal Estate Tax may affect your estate plan

Posted on January 10, 2011 by George

On December 17, 2010, Congress Passed the Tax Relief, Unemployment Insurance Preauthorization and Job Creation Act of 2010

Significant changes to the Federal Estate Tax may affect your estate plan.  Here are the  main features of the new law:

1. The exemption amount for each person’s estate increases to $5 million.

2. The change to $5 million per person exemption amount lasts for 2 years, i.e. for 2011 and 2012, then it “sunsets” and as of 1/1/13, returns to  $1 million per person, which is the same that it would have been if Congress had not passed the new law.

3.  A deceased spouse’s unused exemption amount (“DSUEA”)  is now “portable”.  This means that if one spouse dies leaving a small taxable estate, the surviving spouse may use the excess unused exemption upon his or her death, so that no part of one of the new $5 million exemptions is wasted (total of) $10 million estate tax exemption.  An election needs to be made at the death of the first spouse.  This is done by filing a federal estate tax return.

Prior to this change, without careful balancing usually done as an essential part of a careful estate planning process, a portion of a spouse’s exemption might be left to the uncertainties of who might die first, and thus “wasted” if the less wealthy spouse died first.  This is because the prior system had a “use-it-or-lose-it” exemption.  A small estate would, of course, consume a small part of the exemption.  The last-to-die spouse could not automatically sue the first spouse’s unused exemption. This is changed under the new law.

4.  It is possible to “elect” that the new $5 million exemption apply to a 2010 estate.  The advantage would be that the “tax basis” for capital gains purposes would be “stepped up”.  Without this election, the “step up” is limited to $1.3 million of assets.

Estates with assets that were purchased many years ago, for example, may want to make this election.  This is because if the assets are sold, they would result in capital gains taxes, because only some of the assets would receive a  “stepped-up tax basis”.  If the tax basis is not  “stepped up”, the capital gain is greater, and the tax would be higher.

5.  The lifetime gift tax credit has increased from $1 million to $5 million (but this too “sunsets” as of 1/1/13).

The burning question that all clients would presumably have, would be “does this require a complete change in my estate planning strategy?”.

For many of us in the less-than-$5 million-category, the answer is “no!”.  Why?

For those clients who live in Massachusetts, as well as a number of other states who, like Massachusetts, have independent estate taxes, there still remains a state estate tax.  This has not been changed by Congress’s new amendments, nor is it expected to change.  Except for three (Alaska, Montana, and North Dakota), every state is struggling with massive budget deficits.  As a result, it is unlikely that these jurisdictions will reduce or eliminate their own estate taxes.

Unlike the Federal Estate tax, the state estate tax rate is  much lower.  In Massachusetts, the average estimated estate tax rate is based upon a complicated formula, but ranges from about 5%–11%.

On the other hand, even a low rate applied to a $1.2 million dollar estate can mean a  $35,000 to $45,000 estate tax. Due to a quirk in the calculation of Mass estate tax rates, estates which are just over the $1 million threshold are actually taxed at a net higher rate of estate tax than a slightly larger estate.

The clear conclusion is that clients should be careful to implement marital credit shelter trusts or face the imposition of significant state estate taxes. This can shelter the transfer of $2 million in assets to heirs, if the trusts are properly implemented with careful balancing of assets.  It is the advice I am giving to my clients who have joint estates in excess of $1 million.

My law practice continues to grow in the areas of estate administration and settlement, estate planning, taxation, and estate litigation. I also represent clients in all types of real estate transactions, mortgage financing (I handle closings for a number of area banks and mortgage companies) and contract matters, as well as criminal, personal injury, and business litigation. My office at 5 Militia Drive in Lexington is a bright, first floor location with plenty of free parking. I invite you to visit my firm’s updated web site at http://www.georgefootepc.com; you can also contact me electronically at georgefoote@rcn.com. If you know someone in need of legal services, I hope you will recommend me to them. This letter is one of the few “advertisements” I use, as I rely primarily upon recommendations from clients.  Thank you for reading this blog.

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Wills v. Trusts

Posted on December 27, 2010 by George

I again take this opportunity to send holiday greetings and to offer estate planning information. In response to a number of inquiries and my observation that this is a point of confusion for people, the topic of this year’s newsletter is to examine the differences between Wills and Trusts. Sometimes these terms are used interchangeably, and though similar in function, they can be very different in substance.

A Last Will and Testament will determine what happens to property owned solely by a decedent and must be signed and witnessed according to statutory procedures. It is not enough for an individual’s last wishes to be simply notarized. In my 35 years of practice, I have sometimes faced the difficult task of informing families that a Will signed without following legal formalities is invalid. The terms of a Will must be confirmed by a court-supervised process of probating the estate. Wills have no binding effect until the creator of the Will dies, and the Probate Court has “allowed” the Will.

By contrast, Trusts, though often part of an estate plan, are not dependent on the death of the grantor to become effective and are typically created in part, to avoid the probate process. Such Trusts are called “Inter-Vivos”, meaning “between/among the living”.  In essence, a Trust is a set of a “grantor’s” written instructions to another person who agrees to be a custodian (“trustee”), of the grantor’s property for a “beneficiary”. Ownership or title to the assets is transferred to the Trustee, who must follow these written directives.

In some situations, Trusts may have the benefit of minimizing estate taxes.  Examples of this include an Irrevocable Life Insurance Trust (“ILIT”), a Qualified Personal Residence Trust (“QPRT”) and a Credit Shelter or Marital Trust. A Credit Shelter or Marital Trust is created to minimize estate taxes, but serves another important safeguarding function if both parents die before their child/children are independent. In such a case, a Trust insures that the management of inherited property will remain in the hands of a responsible adult until the grantor’s child/children reach a more mature age as designated by the grantor.  Without a Trust in place, children who inherit directly gain control of their legacy at age 18.

Trusts also address other non-tax needs. Disabled beneficiaries receiving governmental assistance may lose those benefits if they receive an outright inheritance. I have prepared “Supplemental Needs Trusts” to prevent such forfeiture. These trusts permit distributions for a disabled beneficiary’s “extras” but not for basic necessities (i.e. food, shelter and clothing) which are paid by government benefits.  Such trusts permit and can provide for significant non-covered medical expenses such as special counseling and therapies.

Describing these various Trust arrangements points out that there are many options that can make inheritance easier on those who depend on us and for whom we want to provide a meaningful legacy. Every situation is different. This is why personal, patient and knowledgeable planning is called for.  In addition to my Master’s degree in tax law, I offer many years of experience and a commitment to articulate clients’ wishes consistent with ever changing estate laws, both at the state and federal levels.

My law practice continues to grow in the areas of estate administration and settlement, estate planning, taxation, and estate litigation. I also represent clients in all types of real estate transactions, mortgage financing and contract matters, as well as criminal, personal injury, and business litigation. My office at 5 Militia Drive in Lexington is a bright, first floor location with plenty of free parking. I invite you to visit my firm’s updated web site at http://www.georgefootepc.com; you can also contact me electronically at georgefoote@rcn.com. If you know someone in need of legal services, I hope you will recommend me to them. This letter is one of the few “advertisements” I use, as I rely primarily upon recommendations from clients.  Thank you for the referrals you have provided in 2010 and I wish you and yours good health, good times, and peace in 2011.

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