No landlord wants to evict a tenant, they would rather that the rent gets paid, the tenant complies with the lease terms, and the landlord leaves the tenant to quiet enjoyment, but sometimes landlords have no choice.
Fast Evictions: They’re All About Speed, Strategy, and Tact
It’s evicting a tenant as quickly as possible, which is what we do, but it’s also an acronym for what we believe is the absolute best way to handle evictions in New York, what does it stand for?
Follow the Lease and the technicalities of the law.
Act quickly and decisively.
Stay neutral.
Think about the bottom line.
So what does it mean?
Follow the Lease and the Technicalities of the Law
One of the most common reasons why evictions can take too long or settle on unfavorable terms is because the landlord didn’t follow the lease terms and the technicalities of law. Landlord-tenant law in New York is a highly technical and specialized area of the law. If the procedures outlined in your lease and the relevant statute isn’t followed to the letter, you risk having your case dismissed and starting all over again. Is there a guarantor involved in the lease agreement? Time is not on a landlord’s side, so a setback like this could be costly. Get it right the first time – follow the technicalities, or get someone that knows these technicalities like the back of their hand.
Act Quickly and Decisively
When a tenant is defaulting, it doesn’t necessarily happen all at once, and it’s not always a flat-out refusal to pay rent. More often, it’s a lot subtler than that. What to do? Do you turn a blind eye and hope that it won’t happen again? Our most successful landlords, address red flags right away, and they’re firm (but professional) in the way they deal with it. This often means sending a default notice and ask questions later, rather than the other way around. Waiting only benefits the tenant to the landlord’s detriment. The sooner you proceed with a (hopefully uneventful) eviction, the more you can maintain a steady cash flow.
Stay Neutral
When you need to evict a tenant, intense feelings often emerge – betrayal, fear, anger and spite. It’s best to leave the ego and emotions in check during this process because they often lead to irrational decisions that can make the situation worse. It’s a process with many variables but with a defined beginning and end. It’s best to stay focused on that process-what you can and can’t do under the law and move forward through it. You’ll then navigate the process clearly and diffuse the situation more convincingly in your favor.
Think About the Bottom Line
Most likely, you became and continue to be a landlord for financial reasons. It’s about the numbers on your bottom line and maximizing those numbers. Keep the numbers in focus. Yes, it costs money to evict and to get it done right, but that cost is usually less when you get it done right the first time, rather than risk losing another month’s rent if the case you brought yourself is dismissed, or if you missed the opportunity to get a default notice out sooner rather than later. Similarly, while you might think you can win judgment outright, it might make more sense to settle the case on terms that give the tenant an incentive to return the unit to you in good condition. Spending time in court disputing this case will cost you valuable time and money that could be better spent elsewhere. In many cases, you wouldn’t collect on that judgment anyway, so which will be better for your bottom line.
So when we say that we do FAST Evictions, yes, we get defaulting tenants out as quickly as possible, but this is how we do it.
Are you having trouble with a tenant? Would you like to hear more about how we can help you with a FAST Eviction? Give us a call at 631.669.6300 or email us at jclark@clarkslaws.com, and we’ll set up a time to discuss your issue further.
I see it happen to successful residential real estate investors all the time. They get to a point where they’re doing a little bit of everything – working on rehabs, picking up some residential rentals to hold, assigning some of their contracts when the numbers make sense and looking at bigger deals. They’re in a rat race, they go non-stop all day and night. They’re doing well, financially, but then suddenly it hits them.
They left a job years ago, to live the good life and be a real estate investor, but they’re not investing, they’ve just created another job for themselves.
It all started simple enough, buy a house, fix it up and sell for a profit. Rinse and repeat. Deal to deal, being tactical, but not strategic, taking it day-by-day, project-by-project. They know it could be different, they’ve marveled at all the really big names in real estate and they know it’s commercial real estate that made them big. But it’s a big unknown leaving that familiar residential world and making the jump to commercial. So how do you do it?
1. Start Thinking Strategically
This means planning with the end in mind. It’s not about setting goals for 1, 5 or 10 years out. It means visualizing your perfect day – where are you? what are you doing? what do you have? Write down what things you need to do more of and what things you need to do less of to make that perfect day a reality. This isn’t some airy fairy exercise, this is strategic planning with things like returns on investments, cash flow and market analysis. Trust me, the big guys do this regularly.
Before you decide to takeover some unknown town in the Midwest, it’s best to learn the economics of commercial real estate in your own backyard. These are the places you drive through every day. Keep driving through them, but now you’ll be observing commercial real estate projects, looking beneath the surface at what makes them work. Before you make a final decision, learn about which type of New York state deed will be tethered to the property. The economic drivers are often the same, but it’s a lot easier to learn them locally.
Take a Calculated and Controlled Leap to the Commercial Real Estate World
Obviously, there’s a lot more to it than this, but this is how it starts. In a future post, we’ll go into how you look beneath the surface, and how/when to pull the trigger on your first deal. Or, if you can’t wait until then, feel free to give us a call and we can discuss how we can help you make the jump to commercial right now.
A tenant has left and your rental unit has gone dark. Or, worse, you were forced to evict several tenants. Losing tenants is a landlord’s worst nightmare, but at a certain point, you must accept responsibility. For the time being, this means that you are losing a major source of income. You must also consider the costs of getting a new tenant– making the unit “rent ready”, advertising and broker fees, and your time. These costs are significant. Suddenly, what looked like a good year, financially, is now mediocre or worse. Carefully selecting your tenants, and subsequently offering them outstanding service is the ideal way to prevent a loss, and drive profit.
Offer Tenants World-Class Service
If you want to prevent setbacks such as this, make your place irresistible and irreplaceable to tenants. That means maintaining the building, rather than being a slumlord– especially commercial properties.
Also, make sure you go out of your way to treat your tenants like the gold that they are. How does being nice and taking care of your place help? It makes a tenant think twice about leaving. Most tenants would rather avoid the uncertainty of going someplace new for the familiar pleasant environment you’ve created. It won’t work forever, but if it gets you an additional few months or a few years of uninterrupted cash flow, it’s worth it. This is something you can do, right now, and it can be a win-win for you and your tenant.
Think of an improvement you can make to one of your properties – something that will enhance it’s value to you, and something that your tenant will appreciate. Then make it happen. If you play your cards correctly, you may avoid this downside of being a landlord altogether.
Scrutinize Tenants During the Selection Process
For the sake of both your property and financials, you need to carefully evaluate tenants before signing a lease.
Many landlords are so eager to get a paying tenant in place that they will take the first person that has the ability to sign a lease and write a check for the rent. Yes, this will stop the “bleeding”, but what happens next? Will this new tenant leave shortly thereafter, leaving you with the same problems you were trying to avoid? Can they afford the rent payments in the long-term? Will their children throw a huge party in your house the moment the parents go away?
Selection means biding your time, and carefully sizing up your tenant, both financially, personally and from a “gut” level. Find tenants that will work for your own needs, whatever they may be. We do this all the time for our clients because we’ve seen just about every which way these things can go bad. Through a solid tenant screening process, we “spot the issues” in a potential tenant before they become a problem.
Hire a Long Island Real Estate Attorney
Avoiding cash flow disruptions is just one part of our Rental Business Strategy Review we do with our landlord clients. Want to hear more about other strategies our clients are using to keep their cash flow flowing? Give us a call, and we’d be happy to evaluate your rental business strategy to see if there are ways to improve upon it and help you come up with a plan to make it happen. You can reach us at 631.669.6300 and ask to be put on my calendar for a brief ten minute introductory call to see if this structure might be right for you, or feel free to shoot me an email at jclark@clarkslaws.com.
If you’re thinking of using your retirement funds to help fund your real estate investing, it won’t be long before you come across the concept of a self-directed IRA LLC.
What is an IRA LLC?
Completing a real estate transaction with a self-directed IRA can be a slow and cumbersome process. Since an IRA is a tax-deferred vehicle, governed by the Internal Revenue Code (the “IRC”), your IRA custodian and you need to use extreme caution to avoid tripping the penalty provisions of the IRC. These penalties could have tax consequences that can wipe out a good portion of your retirement savings. For that reason, funding a transaction with a self-directed IRA often turns into a gauntlet of documentation that needs to be cleared well in advance by your IRA custodian and signed by parties to the deal you may not meet until the closing. Add a time sensitive, foreclosure or REO transaction, that needs to close within days and self-directed IRA investors often find themselves frustrated and unable to get it done.
A Practical Option for Funding Real Estate Transactions Quickly
There are major benefits to accessing funds through an IRA LLC, which may also be referred to as a Checkbook IRA. It allows real estate investors to eliminate the time-consuming documentation and dealings with the IRA custodian before funding the deal. In other words, accessing the IRA funds becomes as simple as writing a check (i.e. checkbook control). In real estate, where the best deals go to those who can act quickly, the IRA LLC is often the only way to go. This is especially true for purchasing commercial buildings, which are typically in high demand.
Why are IRA LLCs Complicated?
Setting up an IRA LLC is way more involved and costly than a traditional LLC for a few reasons. First, the owner of the LLC is your IRA account – not you. Second, the Operating Agreement must be strategically written with the permissible activities of the LLC in compliance with IRC regulations. This ensures that you will not take part in any “prohibited transactions”– which we advise clients about avoiding. The third phase of this process is corresponding with your IRA custodian. They will have a laundry list of requirements, forms and documentation to complete before funding the new limited liability company.
In theory, setting up an IRA LLC should be a no-brainer. But, there is an unfortunate downside.
The IRS has not explicitly ruled on the legality of IRA LLC’s. Because of the advantages, there are proponents of the IRA LLC. These advocates argue that the regulations are similar to those that govern IRAs. Others, however, argue that until the IRS explicitly rules, we simply don’t know for sure. The use of IRA LLC’s is small enough that it really hasn’t garnered the attention of the IRS yet.
Find an Attorney to Help Guide You Through the Process
If you’re willing to assume this risk and want to set up an IRA LLC, then you need knowledgeable assistance. An IRA custodian who is comfortable with this structure and a qualified attorney will go a long way. Jim Clark has years of experience in all facets of the real estate industry, and can serve as a guide. With a detailed understanding of the prohibited transaction rules and other applicable regulations, he will keep your IRA LLC compliant with the IRC. If you have any questions, feel free to call or email about scheduling a brief introductory call. We can help you to determine if this structure might be the right way for you.
It’s the middle of the night. From the outside the house, distant from the road but grand and stately in the moonlight looks completely dark except for a feint glow coming from one of the windows on the first floor. There he was staring at the screen of his laptop. Wife and kids, upstairs, fast asleep. He couldn’t rest, so there he is, trying to figure it out. A spreadsheet staring back at him. He’s a professional, businessman, very successful and he’s trying to figure a way out, but deep down he knows the numbers don’t lie. “How could this have happened to me?” he thinks.
Almost a year ago to the day, he was in his office, approving another wire transfer. Making another investment, a small mixed-use property. It seemed similar to the three other deals he had done in the past several months. The process was simple – buy, fix, fill it with tenants and refinance. Pocket the proceeds and move on to the next one.
The problem was that he didn’t know what he didn’t know. First it was the old water bill that became a lien on the property, then there was a violation from the town inspector that prevented him from starting an eviction against a nonpaying tenant. By themselves, these were all little things, easily knowable things that could have been avoided, if he knew enough to look for them. But now, there seems to be no way out. All of his money is in the two properties he currently holds, he can’t refinance because of all of these problems. He can’t fix these problems because they require the payment of tens of thousands of dollars in fines, much more in renovations and repairs to clear the violations, and who knows how much to get rid of the bad tenants.
He thought he was covered. His financial advisor recommended that he add some real estate to his portfolio, but he didn’t say how. His insurance broker put a policy in place for the property, but that only kicks in if the place burns down (which he thinks, doesn’t sound like a bad option right now). The lawyer seemed like a bargain – $750 for the closing, but that only included the closing – making sure the deed was delivered to me, his job was done. The construction crew was great – complete rehab of the properties done in three weeks, but they just did the work, I didn’t know to ask and they never offered to pull permits. He thought he knew it all – he’s a smart guy, graduated at the top of his class, MBA, great job, and spent thousands on real estate courses to get educated on the business.
So now he has a mess, and he’s in a jam.
If only he had a trusted guide, someone who had done it and could have helped him avoid these mistakes. There was the guy at the local real estate investors meeting offering turn-key real estate investments. He seemed very experienced, but something wasn’t right – it seemed too easy, and how was he getting paid? The whole thing screamed Ponzi scheme. Then there were the real estate agents with the market forecasts and the stories of the buildings just like it that were selling for twice what I paid for mine. Very knowledgeable, but again, seemed in it just for themselves – once I closed on the sale, they got paid, and I never heard from them again.
Back in bed, he still can’t sleep. His spreadsheet was telling him it will take years to get out of this mess, all the while his money is locked up in these properties. He’s taking another day off work tomorrow to deal with these properties. He’s not sure how much he’ll be able to do that going forward – he’s got a great job, and it’s the only thing keeping him from financial ruin right now. The alarm clock rings, it’s morning the flashing lights in his head scream – SELL, SELL!
* * *
It Could Have Easily Turned Out Differently. This is a story I have seen play out in one form or another countless times. The investor with dreams of making it big, getting lucky for a while, only to get caught in a tangled web that threatens the very fabric of their financial independence that made them want to consider real estate in the first place. They usually get out, at significant cost and go on to working their jobs and investing in mutual funds. It didn’t have to be that way.
In many ways real estate is the wild west of investing. Regulations in place to protect investors of stocks and bonds don’t exist in real estate. That’s not to say there are no rules, but the rules are often skewed against the investor in favor of public safety and tenant protection – the “greedy” investor is the bad guy. The players in real estate, for the most part, all have dollar signs in their head, and they’re all in it for themselves. There’s two sides to every trade – a winning and a losing side. Often the experienced players in real estate prey upon the newbies who end up on the losing side of the trade.
For these reasons, and others, little problems in real estate can quickly become financially lethal.
I’ve seen these problems over and over again through the years. I’ve also seen the investors who make it big and become wildly successful investing in real estate. Yes, there are plenty of people making a killing in real estate, returns that dwarf what they would ever see in your standard mutual fund. What’s more is, unlike the stock market where an investor is at the whim of unseen market forces, insiders and luck, the returns in real estate can be predictable, controlled and infinitely increased by the investor.
I’ve also done it myself, turning $100,000 in savings into a multi-million dollar real estate portfolio that continues to grow, that promises to provide for my retirement, and that gives me the freedom to do what I love most – being an attorney representing investors looking to do the same thing.
A Proven System for Success. There are common traits and tactics among these successful investors. I’ve documented these tactics and I employ them every day using tried and true systems and processes for a select group of active reals estate investors.
Start to finish, these processes provide our investor clients the best chance of success. We cover every legal aspect of their real estate business to keep our clients safe, that’s what we do best, and as a result our clients are free to focus on the things that they do best – like finding deals, analyzing them and employing capital. Other than the proven processes and our experience, what makes us different from any other professional our clients might work with in their real estate business is:
Undivided Loyalty. For us, it’s about the client. We’re guardians of our client’s success. If they succeed, then we succeed with them. Our clients never question our allegiances because we are bound by a duty of undivided loyalty to them as attorneys and because we believe in what they’re doing.
Crystal Clear Judgment. While we are invested in our client’s success, we never invest in or profit from our client’s deals other than the flat fees our clients pay us. This is intentional – we keep ourselves one step removed from our client’s investments to make sure our judgment is never clouded by financial motives. If a deal doesn’t look good for you, we won’t hesitate to say so.
We’re serious about keeping our clients safe, and getting them to the next level faster, and so we limit the number of people we work with at any given time. We welcome new clients who we believe we can help and that are otherwise a good fit for working with us.
So if you are an active real estate investor or looking to become one and you’re interested in having an experienced, fiercely loyal team with a proven system for success on your side, then call us at 631.669.6300 and ask to be put on my calendar for a brief ten minute introductory call so we can discuss your plans. If we think you’re a good fit for our practice, we can give you more information about working with us and schedule an REI Strategy Session to get into specifics.
When you’re nearing the end of a real estate negotiation, every decision you make counts. If you’ve paid attention to the cycles and patterns in real estate, then this transaction will hopefully have positive implications for you. However, navigating this process alone is difficult, even for landlords who have spearheaded similar deals in the past. A top-notch residential real estate attorney can help you maximize the potential of your deal— but only if they’re the right fit.
What is a Real Estate Attorney’s Role in the Closing Process?
The basic role of Real Estate Attorney in a residential real estate closing is to carry out the deal negotiated by the client. There are three basic components to this service:
Reduce the client’s deal to writing in the Contract of Sale
Describe to the client what the key terms of Contract of Sale means
Ensure that the transaction occurs in accordance with those terms, and if not, to extricate the client from the transaction with minimal damage
Those are the basics, but what is it that makes a real estate attorney a critical component member of your team if you are buying or selling residential real estate?
It’s Primarily About Loyalty
Among the many participants in a residential real estate transaction, there is only one participant who is truly acting on your behalf – that is your real estate attorney. By virtue of the various New York licensing laws, rules and regulations, real estate agents, mortgage brokers, title representatives and home inspectors all have an obligation to conduct themselves professionally. But, only your attorney has the duty of undivided loyalty to you, the client. This is a timeless principle that often gets lost in the fast-paced, mortgage bank-dominated nature of the modern residential real estate transaction.
Selecting an attorney who solemnly adheres to this principal will ensure that you never second guess whether your best interests are being represented. Almost everyone else involved in the transaction only receives their fees if you close the deal. So, doesn’t it seem wise to have someone who will advocate on your behalf even if closing is no longer in your best interests?
It’s Also About Undivided Loyalty
The participants in a real estate transaction largely rely on referrals from others in the real estate industry for their business. How did you come to know the real estate agent, mortgage broker, home inspector and attorney? More likely than not, these people were referred to you.
With your attorney, it is fair to ask how much business they get from referrals? To what extent does he or she rely on the referral of business from the realtor or mortgage broker in your transaction? If it is significant, will that attorney be willing to take a position in your favor and possibly to the detriment of that referral source?
At the very least, an attorney referred to you from a real estate broker, should have a conversation with you about this potential conflict of interest. That attorney should absolutely make you comfortable that their loyalty lies solely with you. If that is not possible, then it might be best to find an attorney on your own and not through a referral. If this is the case, then you can have 100% confidence that your attorney has absolute undivided loyalty to you.
What About Competence?
From a legal perspective, residential real estate transactions seem very straightforward. Any attorney who has handled a few closings can manage most deals. However, looking a little deeper, every transaction is rife with issues that are often unseen to the untrained eye.
In this respect, a residential real estate transaction is a lot like a frozen lake upon which you must skate from one side to the other to complete. Anyone with reasonable skating skill can skate across with little to no assistance. Only someone with experience, however, knows where the rough patches lie or what lurks beneath, and which areas have the potentially deadly thin ice and deep water. Similarly, any attorney with basic real estate closing skills can get you through a deal – a little luck and a little less skill, and you’re done.
But only an attorney who has hundreds or thousands of closings under their belt, has dealt with the tough issues and litigated the deals that have gone bad can truly give you the best shot at making it through unscathed. In selecting an attorney to represent you, the basic question as to how many closings that attorney completes every year is a good starting point. More importantly, you should know how many transactions did not close, and why? Does the attorney have experience dealing with the difficult issues (i.e rent to own deals, landlord-tenant problems, advising on the correct deed form, short sales, estate and probate issues) that inevitably arise, and how were they handled? Also, has the attorney ever been involved in going to court to litigate deals that fell apart, and what did that attorney learn from those experiences?
Asking these questions will help you determine if you are dealing with an untested novice or a battle-hardened advocate. Which would you rather handle what could be the biggest investment of your life? This type of experience doesn’t matter until it does. It doesn’t cost much more for this type of additional experience, but you might find that it could be priceless.
Long Island Real Estate Lawyer
Navigating the real estate closing successfully can set the stage for high cash flow. Hiring a real estate lawyer that can help you maximize this potential is critical. As a real estate attorney who has advocated on the behalf of many landlords, Jim Clark has the knowledge and experience to make a difference in your real estate closing.
Legal disclaimer: IMPORTANT LEGAL NOTICE: This post is not legal advice does not create an attorney-client relationship. This and all posts on this website are intended as general information, and are provided for educational purposes of the public, not any specific individual. If you would like to obtain specific legal advice about this issue, please contact an attorney in your state. Mr. Clark is licensed to practice law in New York.
Case Study: The following represents and actual commercial mortgage modification matter in which James E. Clark served as counsel. Names of parties and other identifying information has been changed to protect the confidences of the parties. The following represents a smapling of the type of work Mr. Clark has done in the past and in no way serves as a representation of any outcome in any other situation. The following is for educational purposes only.
Client: Business/Property Owner with a Failing Business
Background: Client owned a commercial property where he operated his upholstery fabrication business and had three rental units. Client has been operating the business for over twenty years and purchased the building where he was operating in 2007 after he exercised a right of first refusal contained in his lease. Back in 2007, the valuation of the building was strong and the client readily obtained a mortgage from a small local bank. All three of the rental
units were occupied and paying rents that were enough to pay a good part of his mortgage payments.
Problem: Since 2007 the client’s business had dropped off significantly. With cheap furniture coming from overseas, it was usually not economically feasible for his customers to have their old furniture reupholstered when they could simply purchase new furniture for a fraction of the cost. The other part of his business, creating canvas covers and tops for boats was struggling due to the slow economy and significant decrease in new boat sales (his primary source of new business). On the other hand, the rental units were still occupied and paying rent and the client had a good relationship with the tenants. Unfortunately, due the decrease in business income, he was having a difficult time making his commercial mortgage payments on the building. A foreclosure action on his commercial mortgage seemed imminent.
Solution: The client met with Mr. Clark where the client expected to be filing bankruptcy within days. Instead they explored other options first. After reviewing the client’s personal financial profile as well as the operations of his company and the contribution of the commercial tenants, Mr. Clark developed a plan to help the client through and avoid bankruptcy. The client did not want to shut down his business, but realized that the business no longer justified the use of over 50% of the square footage of the building. At the same time, with rents coming down since 2007 and several tenants’ leases up for renewal in the coming year, it was going to be difficult to increase the rental income coming from the building. Mr. Clark then commenced negotiations with the client’s mortgage lender for a loan modification in which he stressed the client’s abilities as a property manager along with the realities of the income coming from the property. After several meetings, the lender agreed to a commercial mortgage loan modification in which the bank agreed to modify the terms of the mortgage by severing part of the mortgage from the first position and amortizing the loan with a smaller principal balance. As part of the plan, the client was to decrease the size of the space of his business to 10% of the building, and utilize the left over space to lease to new tenants. Mr. Clark also negotiated new leases with all of the existing tenants to keep them in place for the long-term and paying a market rent. With a smaller operation, the client was able to make his business profitable, avoid bankruptcy, and with the new tenants and keeping the old tenants, the rental income from the property were enough to meet his new mortgage obligations. The severed portion of his mortgage remained a lien on the commercial property, but utilizing guidelines put in place by federal regulators, Mr. Clark was able to negotiate that this portion of the commercial mortgage be forgiven over time as the client performed on the rest of the loan.
James E. Clark is a New York business and real estate attorney. For more information on modifying your commerical mortgage loan or re-negotiating a commercial lease please visit our website at https://www.clarkslaws.com, call his office at 631-539-8889 during regular business hours or feel free to e-mail Mr. Clark directly at jclark@clarkslaws.com.
Legal disclaimer: IMPORTANT LEGAL NOTICE: This post is not legal advice does not create an attorney-client relationship. This and all posts on this website are intended as general information, and are provided for educational purposes of the public, not any specific individual. If you would like to obtain specific legal advice about this issue, please contact an attorney in your state. Mr. Clark is licensed to practice law in New York.
Case Study: The following represents and actual matter in which James E. Clark served as counsel. Names of parties and other identifying information has been changed to protect the identity and confidences of the parties. The following represents a sampling of the type of work Mr. Clark has done in the past and in no way serves as a representation of any outcome in any other situation. The following is for educational purposes only.
Client: Two individuals, long-tome friends, first-time business partners entering a business venture together.
Background: Clients were on the verge of entering a business together opening a retail store in a local town. One partner was providing the funds and the
other was providing the expertise and labor. The two had found the perfect location and negotiated a reasonable rent.
Problem: Clients needed an entity formed, a partnership agreement drafted to handle any contingencies and to negotiate the terms of their lease.
Solution: After reviewing each individual’s personal financial and tax profile including telephone conversations with their respective accountants Mr. Clark formed an LLC as their operating entity. Mr. Clark then sat down with both partners to review the major issues to consider when drafting a partnership agreement including a standard checklist Mr. Clark has prepared to illicit productive discussion among business partners. The partners considered the issues had a separate meeting together to discuss and then came back to Mr. Clark with specific instructions for their agreement. Mr. Clark then drafted an
operating agreement (partnership agreement) handling contingencies if one partner died or became disabled and how to handle partner’s selling their
interest or leaving the partnership. Simultaneously, Mr. Clark marked up the lease agreement the partners received from their landlord. Mr. Clark’s
markup raised points that the partners needed to consider further and to negotiate with the landlord. Since the partners were trying to save money, they only wanted Mr. Clark to review and comment on the lease and they would handle the negotiation with the Landlord themselves. After several rounds back and forth with the landlord and the landlord’s attorney, the partners decided to let Mr. Clark finish the negotiation. After reaching terms that were acceptable to both sides they signed the lease, signed the partnership agreement and opened for business.
Postscript: One year later the partners returned to Mr. Clark because a dispute had arisen between them and they were looking to dissolve their partnership with as little expense as possible. It appeared that the working partner was not making enough money with the venture and wanted to withdraw, and the funding partner lost faith and trust in the working partner. At the same time an employee of the business venture was interested in taking over management of the venture for substantially less compensation than the previous working partner. Since Mr. Clark represented both of them in the formation of the entity, he had a conflict of interest in taking a position advocating for one or the other. Mr. Clark recommended that they each hire their own counsel to work out their differences. However, the partners wwre largely in agreement on what they wanted and were seeking to avoid the expense of hiring separate counsel with the possibility of things getting more adversarial. After fulll disclosure, the partners requested that Mr. Clark serve as an impartial mediator and to draft a simple agreement to unwind their association and bring in the new partner. After two meetings with the partners, they signed an agreement whereby the working partner withdrew, but maintained a small passive financial interest in the venture, and the new working partner was admitted. The business continued to operate, and the partners avoided a costly litigation by relying on the terms of the initial agreement drafted back when their relationship was stronger. Even though each partner was not completely satisfied with the outcome, they were bound by the terms of the agreement to break-up the partnership. In the end they avoided a costly court battle which would have destroyed the business, and now each retains a profitable interest in the company.
James E. Clark is a New York business attorney. For more information on starting a business, entity selection, entering or dissolving a partnership arrangement or negotiating a commercial lease please visit our website at https://www.clarkslaws.com, call his office at 631-539-8889 during regular business hours or feel free to e-mail Mr. Clark directly at jclark@clarkslaws.com.
Legal disclaimer: IMPORTANT LEGAL NOTICE: This post is not legal advice does not create an attorney-client relationship. This and all posts on this website are intended as general information, and are provided for educational purposes of the public, not any specific individual. If you would like to obtain specific legal advice about this issue, please contact an attorney in your state. Mr. Clark is licensed to practice law in New York.
In order to be a successful landlord or real estate investor, you need to take a look at the minute details in each transaction. Even when everything else about a deal checks out, it’s possible for a seemingly trivial detail to cause issues in the future.
When purchasing or selling property, it’s imperative to pay attention to the type of deed that the property is being transferred under. It may seem insignificant, but the type of deed you use in any transaction has tremendous and permanent implications. Here, we’ll discuss the types of deeds most commonly used in New York State.
What is a Real Estate Deed?
Real estate deeds are legal documents that are used to transfer ownership of real property. This includes the land, its improvements (such as a house or buildings), and attachments.
Words used to effectuate the conveyance of property may be grant, assign, convey or warrant. However, they all basically do the same thing: transferring the interest of the person or entity selling the property to the person or entity buying the property.
Deeds are recorded at the county or city recorder’s office. They become a matter of public record, putting the world on notice of the ownership of the property.
Additionally, anyone can go to the local recorder’s office and view a copy of the most current deed for a property. They can also view the prior deeds for a particular property.
Bargain and Sale Deed
This form of deed is most commonly used in downstate real estate transactions (i.e. New York City, surrounding suburbs and Long Island). The recipient of a bargain and sale deed is acquiring real property without knowing if there are any encumbrances on it, unless stated in the deed. The grantor of the deed only guarantees that the grantor has title, and does not guarantee that the title is free of defects. This form of deed implies that the grantor holds title to the property. However, the deed does not warrant against any encumbrances.
Since a bargain and sale deed does not warrant good title from the grantor, the grantee could be in trouble if title defects appear at a later date. However, for purchasers who are looking to avoid potential issues, there are workarounds. The most common workaround is for the buyer to purchase a title insurance policy, which does warrant good title. The combination of a bargain and sale deed and owner’s policy of title insurance usually is sufficient to give a buyer reasonable comfort that it is acquiring good title to a property. It also serves to shifts some of the risk of delivering good title from the seller to the title insurer.
Bargain and sale deeds can include covenants against grantor’s acts. This is a promise within the deed instrument by the seller that it has not done any act which would encumber the title it seeks to convey. In other instances, the bargain and sale deed might not contain such a covenant. This transfers more of the risk of the delivery of good title to the title insurer.
Warranty Deeds
Warranty deeds are customarily used in upstate New York real estate transactions, but can be used anywhere in New York State. They contain three main guarantees that the:
Grantor has not sold the property to anyone else
Property is not burdened by any encumbrances apart from those the seller has already told the buyer about
Grantor will warrant and defend title against the claims of all persons
This means the seller is guaranteeing the grantee that title is free of any defects that may affect the title to the real property being transferred, even if the defect was caused by a prior owner.
Quitclaim Deeds
Quitclaim Deeds are used to convey any interest that the grantor might possess in the property. They are sometimes erroneously referred to as “quickclaim” or “quick claim” deeds. The grantor might be the legal owner. Or, the grantor might never have formally been identified on a deed describing the property.
Through a quitclaim deed, the grantor is essentially disclaiming and turning over its interest (without necessarily defining what that interest, if any might be) to a grantee. Quitclaim deeds are often used during a divorce or estate administration. This is because it is the most efficient way to deed the property from one spouse or beneficiary to another.
If a married person or beneficiary of an estate holds title to a property as sole and separate or perhaps he or she acquired the property before marriage or death of a decedent, the spouse or beneficiary not in title might be asked to sign a quitclaim deed when the property is sold to a third party. This is to make sure the spouse or beneficiary who was not on the deed does not later come back and lay claim to the property.
Other Types of Deeds
Tax Deed: When property taxes are unpaid (the numbers of delinquent years vary from state to state), and the property is sold for the payment of back taxes; typically a tax deed is used to convey title to the buyer.
Deed-in-lieu of Foreclosure: Sellers who are behind in payments will sometimes negotiate with a lender to accept a Deed-in-Lieu of Foreclosure; This means that the seller has deeded the property to the lender to avoid foreclosure.
Real Estate Lawyer for Deed Transactions
Understanding what each type of deed can do and the strengths and limitations of each is crucial. In real estate, deeds are often permanent, so it pays to be exceedingly careful and get and it right. Deeds raise the most basic issues of ownership, but the way they work and what they mean is complex and lasting. As an experienced real estate attorney, Jim Clark can help you to strategically approach each deed transaction with these considerations in mind.
For people who are entering their elder years, estate planning can quickly become an important point of interest. Taking the time to sit with an attorney and discuss your various assets should be a priority. This is especially true for individuals with diversified assets, including real estate investments. One critical step of this process is distinguishing between probate and non-probate assets, and making the proper preparations for each. In this blog post, we’ll discuss the differences between probate and non-probate assets, and the implications this carries in the estate planning process.
What’s the Difference Between Probate and Non-Probate Assets?
Assets that become property of a decedent’s estate and are subject to distribution to estate beneficiaries under the terms of the decedent’s will or the state intestacy statute are probate assets. In other words, the decedent has not specifically designated anyone to receive these assets following their death.
Non-probate assets, on the other hand, are those assets that are not a part of the estate subject to distribution. This is because they automatically pass to another by law upon the death of the decedent, or have already been passed on before death.
Why Is This Distinction Important?
After a decedent passes away, the individual serving as the executor of the estate is tasked with distributing assets. When the decedent has planned for this process by creating a will, and having a limited number of probate assets, then it is a fairly straightforward procedure. When decedents do not take these measures, however, the probate court involvement can get a lot more complex. Unfortunately, this can quickly get expensive.
Examples of Non-Probate Assets
When it comes to estate planning, often non-probate assets are preferable to probate assets if you’re primarily concerned with efficiency in their distribution to beneficiaries. This is because they do not require any court involvement, primarily having non-probate assets can streamline asset distribution. Non-probate assets could include the following:
Assets a decedent owned jointly with another with rights of survivorship. Upon the passing of the decedent, these assets pass automatically to the other owners by operation of law.
Assets a decedent owned jointly with his/her spouse as tenants by the entirety.
Assets that a decedent previously titled to a revocable living trust or other entity. Since the asset is not in his/her name at the time of death, it is not subject to probate.
Assets in which a decedent transferred to another, while retaining a life estate. Upon the death of the decedent, the life estate expires by operation of law and the remainder interest passes automatically to the previously designated remaindermen (an individual or entity other than the decedent).
Assets owned by a decedent, but payable to a designated beneficiary (provided such designated beneficiary has not predeceased the decedent) upon the death of the decedent. Such assets might include: payable on death (“POD”) accounts, transfer on death (“TOD”) accounts, in trust for (“ITF”) accounts, Totten trusts, life insurance policies, retirement accounts, annuities, or health savings accounts. This also includes IRAs, which, if they are Self-Directed IRAs, can be a great way to fund real estate transactions.
So, if you title your real estate properties that regularly receive cash flow, they could be considered non-probate assets. Commercial real estate properties, again if they are properly titled can also be made into non-probate assets. The efficient distribution of these properties is critical in the event tenant problems arise during the estate administration process. We have seen many instances where, tenants get wind of the passing of the landlord and attempt to go on the offense to exploit the confusion that inevitably arises in these situations. Sometimes it’s well worth it to re-title these assets, but not always. It’s critical to speak with an attorney that’s familiar with how these things play out both during the decedent’s life and after they pass.
What Role do the Non-Probate Assets Play?
When dealing with assets of an estate or of a decedent, the determination of whether the assets are probate or non-probate assets is the first question. This classification will determine which assets are subject to a probate or administration proceeding and distribution under the decedent’s last will and testament or under the state intestacy statute.
The next question, which goes more toward taxation of the estate goes to the value of the gross estate. Non-probate assets may not be a part of a probate proceeding. But, they will be included in the value of the gross estate when determining the tax liability of the estate.
Carefully Designating Non-Probate Assets
While it is often beneficial to own non-probate assets, you should maintain a level of caution. Without the discretion that an attorney can provide, jointly owned assets may pass entirely to the individuals that you do not intend. Creditors seeking mortgage or other payments might also have claims to these assets. So, guidance from a qualified attorney is paramount when designating assets.
Classify Your Real Estate Assets Accordingly
Some of the most valuable assets in many estates are real estate assets. Because of this, it’s important to take a proactive approach in planning your estate for this eventuality. As a real estate attorney, Jim Clark has seen myriad real estate deals, and helped clients to take the appropriate steps for estate and asset protection planning. If you’re approaching your later years with real estate investments, then feel free to contact us for advice about how to strategically plan your estate.
Jim Clark is a New York estate attorney. For more information on the process of settling an estate in New York, the probate or administration process, or ways to plan an estate to avoid probate or other will, trust or estate settlement matter please visit our website at https://www.clarkslaws.com, call my office at 631-669-6300 during regular business hours or feel free to e-mail me at jclark@clarkslaws.com.
Legal disclaimer: IMPORTANT LEGAL NOTICE: This post is not legal advice does not create an attorney-client relationship. This and all posts on this website are intended as general information, and are provided for educational purposes of the public, not any specific individual. If you would like to obtain specific legal advice about this issue, please contact an attorney in your state. Mr. Clark is licensed to practice law in New York.
