FEDERAL: Revisions to US Bankruptcy Code that pertain to title, all effective as of October 1, 2005:

Definition of a "Transfer" now includes a deed of trust/mortgage. Important to lenders which would now be exempt from the automatic stay if the loan is made without knowledge of a bankruptcy is not yet a matter of public record and insures that the lender is a "good faith purchaser" so as not to lose rights in a post-petition transfer of the property.

Repetitive Bankruptcy Filings: If a lift-stay was granted on a previous petition filed within two years prior to the present petition, the automatic stay will generally not apply.

If a judgment for possession has been granted in a landlord/tenant action, the filing of a petition will not result in an automatic stay. Thus, the pendency of a bankruptcy might not need to prompt a knee-jerk reaction that a foreclosure action is stalled.

Bad faith is PRESUMED if the debtor files more than one case in a 12-month period or fails to follow the terms of a plan of reorganization or fails to follow Court orders. The debtor can apply to the Court to rebut this presumption, however.

Lenders secured by real property can also seek relief from the automatic stay by showing that the petition was filed to delay, hinder and defraud creditors.

Condo/Co-op Fees: No longer dischargeable.

Deadline for Recording Deeds of Trust: If a Deed of Trust, Mortgage or Financing Statement is not recorded within 30 days, the document could be voided by the trustee. Title companies should be aware of this dire consequence if there is a delay in the recording of any deed of trust.

Fraudulent Transfers: The Trustee can now attack ("reach back") two years (as opposed to one year) to void that transfer. Note, this applies only to cases filed after April 20, 2006.

Homestead Exemption: Now only available if the home has been occupied for two years.

Reminder: A discharge goes only to the obligations of the debtor. Unless a Bankruptcy Court Order specifically addresses liens against property, court action is still required to clear the title.

DISTRICT OF COLUMBIA: Tenant Opportunity to Purchase Act: Amidst a flurry of last-minute changes and compromises, there have been some changes to the "Tenant Opportunity to Purchase Act" (sometimes referred to as the "Tenant's First Right of Refusal", etc. The effective date is expected to be July 25, 2005.

We offer you several links:Click here for a rough, unofficial redline of the original statute with new changes. Note, this is an unofficial version that we created in the absence of any official version. When we get an official version, we will advise you.

Click here for a highlight of the language DCLTA proposed versus what the final bill included (so you can see what proposals were not implemented).

This statute is of paramount importance to the real estate and title industries. Title insurance insures that the buyer has title. The statute gives tenants some rights which, if not properly handled, could divest the buyer of title! You will certainly receive instructions from the underwriters as to how they will treat tenant-occupied properties in the District.

One of the major changes that affects the title industry is that a transfer of less than 100% of a building no longer a "loophole" that avoids tenant rights. The definition of a transfer that "triggers" tenant rights has been broadened. While the Amendment gives some examples of what does constitute a sale, it does indicate that there is more of an economic substance test to be applied. See 42 D.C. Code 3404.02(a). A "step transaction" will not exempt the transaction from TOPA. See 42 DC 3405.03(b)

But, there are some exemptions from TOPA. See 42 DC 3404.02a(c)(2) which does not include all the exemptions advocated by DC Land Title Association ("DCLTA") nor do they parallel the exemptions for Recordation/Transfer Tax (that would have been too easy). For example, a transfer by a decedent's estate to the decedent's nieces would trigger tenant rights. Thus, please plan on sending 90-day notices before your demise. Similarly, the following appear to trigger tenant rights: inter vivos transfer to a niece for no consideration, transfer to a irrevocable or QTIP trust as a part of estate planning, a lease with option to purchase and transfers between co-owners. The statute applies to basement apartments in houses (although Councilwoman Ambrose is submitting a Bill to exempt such situations).

Even if the owner wishes to avail himself of any exemptions, he may be required to divulge "all material facts" concerning the transfer even though such facts might otherwise be highly confidential. 42 DC 3404.02(d)(3)(A).

Notwithstanding lobbying efforts to the contrary, TOPA continues to apply to housesitters, a tenant's live-in girlfriend, grouphome residents, subtenants (even if unbeknownst to landlord) and to "any other person entitled to the possession, occupancy, or benefits of a housing accomodation." 42 DC 3401.03(17). Further, nothing has abridged the right of tenants to assign their rights to third parties.

IF a transferror is taking the position that the transfer is exempt from TOPA the transferror has to send a 90-day "Notice of Transfer" to Tenants with a copy to the Mayor. 42 DC 3404.02a(c)(2)(e). For some exempt transactions, no Notice of Transfer is even required. 42 DC 3404.02a(c)(2)(e)(1). Otherwise, if the Notice to Transfer is not sent, there is a rebuttable presumption that tenant's rights have been triggered.

Note that this notice is in addition to the other notices already required by TOPA.

After receiving a Notice of Transfer, the tenant has 30 days (45 if a tenant organization) to send a reply notice ("Notice of Intent to File Petition") to the landlord of the tenant's intent to challenge the landlord's characterization that the transfer does not trigger tenant rights. A copy of the tenant's notice goes to the Mayor. Within 30 days of the tenant's notice, the tenant has to file a petition with the Mayor. The Office of Administrative Hearings ("OAH") will be the Mayor's venue for deciding these matters. The law says that the OAH will render its opinion within 30 days (we'll see). 42 DC 3405.03a(b).

If the tenant does not issue a Notice of Intent to File Petition or the Petition itself the required times, all tenants rights are effectively foreclosed. The statute says that a combination of the following items constitutes conclusive proof of the termination of tenant rights: a) affidavit from seller that he sent out a Notice of Transfer; b) Certification from Mayor's office that it received the Notice of Transfer and that no responsive notices from tenants were received within the prescribed periods and c) Servicemembers Civil Relief Act Affidavit. 42 DC 3405.03(a)(d).

The amendment makes no provision for any phase-in period or for any transactions "in the pipeline". Thus, any transfers after the anticipated effective date of July 25, 2005 wherein the owner contends that the transfer is exempt from TOPA, may need to be delayed to comply with the amendment so that the 90-day Notice of Transfer can be delivered. This may prove to be a challenge because the Notice of Transfer has to be substantially in a form prescribed by the Mayor and that form is not yet available.

FEDERAL: In furtherance of the article in our last newsletter, Susan Phillips of Jackson & Campbell, P.C. has prepared an excellent synopsis of the new, imporant federal rules promulgated by the FTC governing the disposal of your files that may contain confidential information (such as social security numbers).Click here for the article on Disposal of records.
Click here to see the FTC Disposal Rule.

DISTRICT OF COLUMBIA: Tax Sales: Auction begins July 11, 2005. Newspaper list of properties appeared in Washington Post on June 16, 2005. Click here for List of Properties Scheduled to be Sold at Tax Sale

Upcoming Seminars and Continuing Education:

Nuts and Bolts of Tax Sales. Conducted by DC Bar. Speakers: Roy L. Kaufmann of Jackson & Campbell, P.C.; Honorable Joan Zeldon, Civil Division, D.C. Superior Court; Honorable Evelyn Coburn, D.C. Superior Court; Nancy Tucker, Assessment Services Division, Office of Tax and Revenue; Susan Lee, Assessment Services Division, OTR; Connice Hogue, Tax Sale Unit, Assessment Services Division, OTR; Robert McKeon, Assistant General Counsel, OCFO; Joseph Ferguson, Attorney-Advisor with Office of Attorney General; David A. Rosen, Bierman, Geesing & Ward, LLC
To register, contact the DC Bar at 202-737-4700.

Please feel free to circulate this newsletter to others in the industry, both within and outside your office. The contents of this Update are intended for general informational purposes only and should not be relied upon as legal advice or as a substitute for consultation with a qualified attorney. Moreover, the mailing hereof is not intended to create nor does it constitute an attorney-client relationship.

Sincerely,

Roy L. Kaufmann of the Real Property and Asset Management Group
Jackson & Campbell P.C.