MAY 2004 REAL ESTATE NEWSLETTER

1.   TRANSACTIONS VIA E-MAIL

A recent case, Rosenfeld v. Zerneck, involved a debate about whether a contract for the sale of real property can be sustained via email. The defendant argued that an email he sent was preliminary and was not a firm agreement, as that would require further discussion between him and the perspective purchaser. Thus, the defendant claimed that the email did not satisfy the Statue of Frauds, which require that contracts be in writing.

Although the signature on the e-mail was valid under the general statues of frauds, the email lacked vital terms that would have characterized the email as a binding agreement. The plaintiffs informed the defendant of their interest in the property and offered an all cash transaction in the amount of $3.5 million. They later held a telephone conversation that was followed by the controversial email composed by the defendant. The email included his agreement to the all cash offer and that his attorney would be preparing a contract of sale. It also requested the information of the perspective buyer’s attorney, in order to begin the transaction of sale. The email ended with an end salutation and his first name.

According to Parma Tile Mosaic & Marble Co., (1996) the Court held that the imprinting by a fax machine is programmed to automatically imprint the sender’s name on every page transmitted. Therefore, the sender may not have a specific intent to authenticate it, not simply because it is transmitted electronically. However, the court currently holds that the defendant’s act of typing his name at the bottom of the email manifested his intention to authenticate the transmission for Statue of Frauds purposes. In Page v. Muze (2000), the Court held that the Statue of Frauds does not make any accommodation for the realities of doing business in our electronic age. Therefore, current law is beginning to adjust and amend regulations that conform to modern technology. Despite the fact that the email does enclose a legitimate signature, it failed to lay out all of the essential terms of the agreement since it did not set forth any understanding as to the amount of the contract deposit, nor did it indicate how the parties intended to treat the commercial lease then encumbering the premises.

Hence, the court found that the elements of a valid and enforceable contract were lacking in this case. However, had the email contained many of the essential terms, a valid contract would have been found.

2.   TRENDS OF THE REAL ESTATE MARKET

It was believed that 2004 would be a year of modest home sales and higher interest rates. However, in March, existing home sales were running at the second highest levels within the last forty years. Existing-home sales increased 5.7 percent to a seasonally adjusted annual rate of 6.48 million units in March, up 12.7 percent according to the National Association of Realtors. Currently, Washington, D.C. is representing to be one of the most popular markets in the U.S. This is because over 60,000 new jobs have been created in the past year. At the end of April, says Freddie Mac, typical mortgage rates for 30-year, fixed-rate financing reached 6.01 percent with .7 points, low by historic measures but as much as .43 percent higher than the rates seen during the first two months of the year. However, the current circumstances of Washington are not necessarily current circumstances of other cities. For instance, as for employment, Detroit (down almost 21,000 jobs) and Los Angeles (2,000 approx) have all seen declines during the past year. Homes sales and prices are a by-product of many factors including local job growth, economic expansion, rising incomes and tolerable mortgage rates. The Washington metro area now has it all in real estate terms; but no one knows how long this will last.

3.   THE TENDENCY OF MORTGAGE FRAUD

At one point, the mortgage business was careless about loans received under fraudulent circumstances as long as they were performing as expected. However, that has changed, according to a senior fraud investigator at Freddie Mac. Currently, investors like Freddie Mac are looking for patterns of fraud in an attempt to get to them before they go delinquent.

Prosecutors are no longer waiting for losses to occur before going after swindlers who cheat lenders and investors out of billions of dollars annually. According to the manager of Fannie Mae’s Dallas office even though crime busters are becoming involved earlier in the game, the incidences of fraud remain on the upswing. While much has been made of the growth in identification theft, complaints about ID theft to the Federal Trade Commission are three times worse, mortgage fraud has increased as five times worse in the last decade.

Fraud experts state that even when collusion is involved, and even when borrowers unwittingly sign on to the scheme, the seller coordinates the misdeed. The Fannie Mae representatives call it ‘one-stop-shopping’. They have the tendency to discover that it doesn’t take much to discover it’s one person controlling the transaction. Even when the conspiracy involves loan brokers, appraisers and others in the lending process, it’s usually one person who is manipulating the transaction. There have been instances where the seller opened his own Mortgage Company and title company.

Borrowers generally are legitimate individuals who want to buy or invest in a home and are sucked into the scheme. There is a higher rate of fraud in cities in the Southeast and Midwest – places like Atlanta, Charlotte, Memphis, Detroit, Chicago and Indianapolis – where a large amount of rehabilitation is taking place. Typically, the offenses the company discovers involve property flips in older, deteriorated neighborhoods where it is not unusual to see a renovated 50-year-old house standing beside another 50-year-old property that has not been remodeled. While there is nothing wrong per se with flipping, buying a rundown house, fixing it up and reselling it over the course of a few months – a lot of people can do illegal actions within an otherwise legal framework.

4.   RECENT CASE LAW DEVELOPMENTS

Rouette v. One West 126th Street

The parties contracted for the sale of plaintiff’s cooperative apartment in exchange for another. The co-op board refused to close claiming contractual breach for plaintiff’s failure to permit inspection of his apartment. In a specific performance action, plaintiff sought to enjoin termination of his unit rights and transfer of the exchange apartment. The court granted relief, holding that the Court of Appeals’ decision in 40 West 67th Street v. Pullman   applying the business judgment rule to judicial review of cooperative housing board actions   does not protect a cooperative corporation from liability for breach of contract. The contract called for inspection of plaintiff’s unit within 48 hours before closing. The court found that the board did not arrange a mutually convenient time before appearing at plaintiff’s doorstep on the day before closing and that it admitted that plaintiff agreed to make his apartment available three hours before closing.

300 West 106th St. Corp. v. Rosenthal

Petitioner landlord sought respondent’s rent-stabilized apartment, alleging its abandonment as respondent’s primary residence. Prior to accepting a temporary job in California in 1999, respondent subleased the apartment to her roommate. Although important documents listed respondent’s temporary California address, her New York State and City tax returns as well as her voter registration and New York driver’s license listed the New York apartment. Finding that petitioner failed to demonstrate the apartment’s abandonment, the court required that respondent be offered a rent-stabilized renewal lease. Petitioner’s non-renewal notice was not served until after respondent informed her landlord that she was returning to New York. Also, by allowing the sublease to extend beyond the expiration of the lease, petitioner agreed that respondent, who returned to the apartment on Feb. 1, 2002, did not need to reoccupy the apartment until May 15, 2002.

Arbern 125 Eastern Parkway LLC v. Armstead

Petitioner’s 2001 licensee holdover action sought recovery of a rent-controlled apartment. Opposing summary judgment, respondent claimed succession rights based on having moved into the apartment in 1987 to care for an ailing aunt, the tenant of record, who died in 1990. The court denied summary judgment. It found that respondent raised a triable factual issue as to whether he had a legal right to succeed to tenancy under rent stabilization statutes prior to an amendment to the Rent Reform Act, effective June 19, 1997, which removed nephews from the definition of traditional family members entitled to succeed to a regulated apartment. Concluding that the amendment to succession provisions cannot take away rights conferred to nephews under the prior rent stabilization statue, the court determined that it did not need to decide respondent’s claim to succession rights as a nontraditional family member pursuant to Braschi v. Stahl Assocs.

5.   AIR QUALITY AND YOUR HOME

Indoor air quality has become a significant problem. It is important to protect the home’s indoor air quality. The most effective way is to eliminate individual sources of indoor pollution. In many cases, source control is the most cost efficient approach to controlling indoor air quality. Another approach is the ventilation improvement approach. Under this approach, increasing the amount of outdoor air that comes inside lowers concentrations of indoor air pollution. Finally, air cleaning is a third method for addressing certain levels of contaminants. There are all kinds of air cleaners on the market ranging from fairly inexpensive models to very sophisticated whole house systems.

Air cleaners vary in terms of quality, some being much more effective at removing particles than others. Generally, they are not designed to remove gases. Radon is a common indoor air quality issue. The EPA recognizes the use of approved test kits to determine whether radon is present, as well as the use of a contractor in the event that it is present at excessive levels. Environmental tobacco smoke produces second hand smoke that diminishes indoor air quality. Not smoking at home, or if smoking in home cannot be avoided then increasing ventilation, are the proposed methods for addressing this pollutant source.

Biological contamination such as mold or mildew is gaining increased attention. While licensed contractors can handle severe problems, avoiding dampness especially in dark situations and the use of bleach can often address minor problems. Carbon Monoxide and Nitrogen Dioxide gases and release of particles can occur from in home stoves, heaters, fireplaces, and chimneys. Every year we hear about horrible instances of carbon monoxide poisoning. Often, it takes quite some time before a good diagnosis of carbon monoxide poisoning can be made. Household products are also a familiar source of indoor pollution. A product sold for household use does not mean that it is always safe to use it in any manner. And related to this is the issue of pesticides. It is important that pesticide usage be minimal and only in accordance with the directions on packaging.

Asbestos is of course a great health risk. Many old homes still contain asbestos. An authorized licensed asbestos professional would need to address it. Lead is found in several ways in the home. Today it is often found in lead pipes and in lead paint. Of course, lead can cause brain damage and other illnesses, and has a horrible effect on young children. Finally, new carpet installations have been associated with indoor air pollution. Make sure that you understand what kinds of chemicals your new carpet will emit. Many people report becoming ill after new carpets have been installed in their homes. Indoor air pollution is a significant problem that we are really just beginning to understand. Source control, increased ventilation and air cleaning are three approaches for addressing this concern. This is not a one time only issue; constant surveillance and vigilance are required.

6.   UPON LEAVING A RENTAL APARTMENT

Most leases require tenants to leave the property “broom clean” when they move out. Definitions of broom clean from real estate agents claim that it is to ready to be cleaned and painted; thus, the term does not mean immaculate or spotless or even necessarily clean.

When does a landlord keep some of the deposit? Actually, there are no regulations that determine this. It also depends on a comparison of the walk-through sheet when the unit was first rented out and what it looked like at the end of the lease.

If the dwelling had undergone normal wear and tear, the full deposit would be returned. Normal can be a point of view. However, it usually means that when the tenant moves out, the unit needs a deep cleaning, there are no holes in the walls (except for picture nails, etc.) and the flooring has not been overly damaged.

Before moving in, make notes on the condition of each room and look for the following: Scratches in hardwood floors, carpet conditions, missing tiles, ripped screens in windows, holes or scratches in walls, faded paint or rubbed off paint etc., burn marks, Loose fixtures, outlets have covers and receptacles. Make sure to turn on the units such as the kitchen Stove, refrigerator, kitchen cabinets, bathtubs/showers and toilets.