All posts by siteadmin

| Roy L. Kaufmann

Forgiven Debt – Taxable to the Borrower?

Generally, if a borrower is required to pay a sum certain at a specific time, the obligation is considered “debt” under the Internal Revenue Code.  If the lender forgives a portion, it has “cancelled” the debt and the borrower must declare and take into income the dollar amount cancelled.  A lender may unilaterally decide that a debt is not collectable and declare the debt cancelled.

A lender may file with the IRS and send to the borrower a 1099-C.  If a person receives a 1099-C that contains an error, the lender should be contacted quickly to resolve the issue.  For example, the debt is probably not “cancelled” if the lender has persisted in collections efforts after the “cancellation date” on the 1099-C.  Even if the borrower does not receive a 1099c, there is an obligation to include the amount of the cancelled debt on the borrower’s tax return.

If the debt is secured by real estate, and the borrower signs a deed in lieu of foreclosure to transfer the property back to the lender, the amount of the outstanding debt must be taken as income by the borrower.  Details about this scenario can be found in IRS Publications 544 and 523.

In some states, when a lender forecloses, the underlying debt cannot be collected and is, thus cancelled debt.

There are two carve-outs from the foregoing:

A. Exceptions to Cancellation of Debt Income.

  1. Gifts (such as the $14,000 per person annual exclusion) which should be documented in the form of a letter and delivered to the borrower.
  2. Forgiveness or Cancellations pursuant to a Will.
  3. A qualified price reduction offered by a seller of property to the buyer. See IRS Publication 4681
  4. Cash basis borrower: amount of debt that would be deductible
  5. Pay-For-Performance Success Payments that reduce a mortgage balance under the Home Affordable Modification
  6. Some student debt if the student works in certain professions. See IRS Publication 4681

B. Cancellations that are, nevertheless EXCLUDED from Gross Income:

  1. Title 11 Bankruptcy debt cancellations
  2. Debt cancelled during insolvency
  3. Qualified farm debt
  4. Qualified real property business debt
  5. Qualified Principal Residence indebtedness which, at the moment, only applies to transactions evidenced in writing before January 1, 2017 – Laws may change to extend that date).
  6. Notes:
    1. In order to exclude these items, an IRS Form 982 will need to be filed with the IRS Form 1040 or applicable return.
    2. In order for income to be excludable from State taxation, the State’s laws must conform to the federal laws. For example, in Hawaii, there was a delay in conforming the laws, so a borrower was counseled to file an extension of the tax return until the laws were conformed.

 

The rules, as set forth above, can become more difficult to navigate in complex matters or when there is nonrecourse debt.  Jackson & Campbell, P.C. stands by to assist lenders and borrowers confronted with these scenarios.

 

| Roy L. Kaufmann

Under TOPA, a Bona Fide Offer Cannot Be Based on Future Market Value

tenant_rightsOn September 22, 2016, in Parcel One Phase One Assoc.., LLP v. Museum Square Tenants Ass’n., Inc., No. 15-CV-609, the District of Columbia Court of Appeals affirmed the trial court’s grant of summary judgment in favor of the tenants’ association that Parcel One’s offer of sale was not a bona fide offer under the Tenant Opportunity to Purchase Act (“TOPA”), see § 42-3404.02.  The Court held that the offer was not bona fide as required under TOPA because it was not an “objectively, good faith, honest offer of sale” ; instead, it was based upon an estimated  future post-development value,”  not reduced to a present value.  Id. at 19, citing Phillips, infra.

The suit arose from the Museum Square Tenants Association’s efforts to prevent Parcel One from requiring the residents of an apartment building located at 401 K Street, NW, in Chinatown to vacate involuntarily in response to a $250 million offer of sale.  Parcel One based its $250 million offer to the tenants on future market value after construction of a mixed used development of apartments, condominiums, and commercial space and without any adjustment to present value.   Museum Square argued that the offer was not bona fide under TOPA and that the proper valuation was present market value, which its expert determined to be $68 million.  The trial court agreed and the Court of Appeals affirmed.

Relying upon Twenty-First St. Tenants’ Ass’n. v. Phillips Collection, 829 A.2d 201 (D.C. 2003) (“Phillips”), Parcel One argued that TOPA required only a “good faith, honest offer.”  In a partial victory for the landlord, the Court agreed that the  Phillips decision  (a decision based on whether an offer was bona fide under TOPA in the absence of a third-party contract) means that an offer of sale under TOPA does not necessarily need to be based on current market value, but simply requires an objectively good faith, honest basis.  The Court  then concluded, however,  that “no reasonable third party purchaser” would have been willing to pay $250 million at the time of Parcel One’s offer of sale, noting that it did not need to accept Museum Square’s expert opinion “to be confident that its [the building’s] value was far less than the $250 million offer of sale.”  No. 15-CV-609 at 23.

The opinion can be found here.

| Roy L. Kaufmann

Are You Ready? DC’s Overhauled Zoning Regulations Become Effective September 6

DC’s new zoning regulations – referred to as “ZR16” – become effective September 6.  They are the product of a multi-year review by the Zoning Review Taskforce of the original zoning regulations enacted in 1958 and amended or updated through a patchwork process in the succeeding decades.  The Zoning Review Taskforce was comprised of representatives of the DC Government, the DC professional business and architectural communities, and the public.

ZR16 is a significant rewrite of the 1958 and successive regulations.  While not comprehensive, significant changes include the following:  (1) new zone designations; (2) decrease in parking requirements; (3) easing of restrictions for accessory dwelling units such as garages and carriage houses; (4) significant expansion of the downtown DC designation; (5) allowance of corner stores in certain residential zones; (6) allowance of special exception relief to development standards rather than the requirement of a variance; and (7) establishment of new front yard setbacks in residential zones for consistent street walls.

ZR16 can be found here. Minor technical modifications were approved and finalized on July 25 and can be found here. 

 

| Roy L. Kaufmann

MD: Montgomery County Recordation Tax Changes Effective September 1

James E. Babb, Tax Operations Manager for the Montgomery County Department of Finance, issued a memorandum explaining the revisions to the law concerning recordation tax, which goes into effect on September 1, 2016.

He has included 12 examples which are intended to help the public understand their interpretation of the new law as it pertains to recordation tax calculations. A copy of Bill 15-16 can also be found here. 

|

VA: Foreclosure Purchasers Face New Potential Hurdle In Virginia

In Parrish v. Federal National Mortgage Association, the Virginia Supreme Court ruled 5-2 that when a defendant raises a bona fide question of the plaintiff’s title in an unlawful detainer/ejectment action before the General District Court, that court loses subject matter over the case and the plaintiff must vindicate its title in the Circuit Court, thereby creating another potential roadblock for purchasers of occupied properties at foreclosure.

The Parrish family owned improved real property in Hanover County, Virginia, and burdened by a deed of trust for the benefit of Fannie Mae to secure a loan. The Parrish’s defaulted on the loan, and Fannie Mae purchased the property at foreclosure, receiving a trustee’s deed.  Fannie Mae then filed an unlawful detainer action in the General District Court. In their defense, the Parrish’s argued that the foreclosure sale was invalid because they had filed a timely loss mitigation application as permitted by the deed of trust. The General District Court granted judgment to Fannie Mae, and the Parrish’s appealed to the Circuit Court, which also granted Fannie Mae judgment. The Virginia Supreme Court, in an opinion by Justice Mims, held that while a trustee’s deed would suffice in most cases to establish right of possession, “in limited circumstances, the homeowner could allege facts sufficient to place the validity of the trustee’s deed in doubt.” In that case, the General District Court lacks subject matter jurisdiction, and must dismiss the case without prejudice, unless that court is able to “satisf[y] itself that the allegations are insufficient.” The appeal to the Circuit Court did not cure the problem, since the Circuit Court’s jurisdiction on appeal is the same as the General District Court’s. Thus, in such a case, the holder of the trustee’s deed is left to vindicate its title claim in the Circuit Court through a new action.

This holding inspired two separate dissents. Justice McClanahan argued that the “result-oriented approach” used by the majority failed to appreciate the difference between right of possession, which is needed for an unlawful detainer action and within the General District Court’s subject matter jurisdiction, and “complete title,” which is not needed for an unlawful detainer action. Justice Powell agreed that the General District Court lacks jurisdiction to try title to real property, but argued that “there is a significant difference between an action that turns on the question of title and an action that tries title”-the former is an evidentiary question that is part of an unlawful detainer proceeding properly heard by the General District Court, while the latter “involves a conclusive determination of a party’s title.”

 

US: Divided Court Preserves Circuit Split On Spouse’s Defense Under Equal Credit Opportunity Act

SupremeCourtGayMarriageIn a one-sentence ruling, the Court affirmed the decision of the U.S. Court of Appeals for the Eighth Circuit in Hawkins v. Community Bank of Raymore, leaving a circuit-split unresolved in its wake. In that case, PHC Development, LLC was the borrower under a note, which was unconditionally guaranteed by Gary Hawkins, one of PHC’s owners, and Valerie Hawkins, his wife. When PHC defaulted, the bank sued the wife only. The wife claimed the bank’s actions constituted marital status discrimination under the Equal Credit Opportunity Act. The Sixth Circuit had previously agreed that spousal guarantors had standing under the Act to raise such a challenge as an “applicant,” but the Eighth Circuit disagreed, holding that the Act unambiguously excluded guarantors because they are not integrally part of “any aspect of a credit transaction.” A link to the affirmance is here.

Some state courts, like the Virginia Supreme Court, have already ruled consistent with the Sixth Circuit, and those rulings are still in place for those jurisdictions. Other jurisdictions that have not squarely confronted the issue may have decided ancillary matters, such as whether a particular agreement constitutes a “credit transaction”—see, for example, Laramore v. Ritchie Realty Mgt. Co., 397 F.3d 544 (7th Cir. 2005) (lease of real property not a “credit transaction”), and Shaumyan v. Sidetex Co., 900 F.2d 16 (2d Cir. 1990) (home improvement contract that provided for contemporaneous payments as work progressed not a “credit transaction”). Lenders and creditors who intend to use spousal guarantors should consult counsel on the practical implications of the Court’s non-decision on potential claims under the Act.

| Roy L. Kaufmann

Consider Carefully The New Certification Required Under The Revised D.C. FP7

The D.C. Recorder of Deeds announced today that it has revised the Real Property Recordation and Transfer Tax Form FP 7/C (herein “FP7C”). The purpose of this revision was to “contain a self-certification of compliance with tax payment, per DC Code § 42-407(2).” That statute, reprinted below, says that D.C. shall not record if any Transfer tax, Recordation tax, or late-filing fee is owing:

Ҥ42-407. Instrument not properly executed or acknowledged not recordable.

The Recorder of Deeds shall not:

…

(2) Accept for recordation any deed, as defined in § 42‑1101(3), concerning real property in connection with which taxes, assessments, or charges are owing under chapter 11 [RECORDATION TAX] of this title, under chapters 9  [TRANSFER TAX]   and 14 [REQUIREMENT TO RECORD WITHIN 30 DAYS] of Title 47 …”

But, the certification on the new FP7 goes much further. The buyer and seller are asked to certify that there are no “assessments or charges that may be collected under [47-1330 et seq. which is] Title 47, Chapter 13A and deals with tax sales.

Query as to how a purchaser could so certify. Also, the extent to the seller’s certification is very broad. Consider the following:

The categories of “assessments or charges” that can be collected under Chapter 13A is extremely broad.  It includes:

” ‘Costs’: mounts paid or payable by a tax sale purchaser to the District in connection with the sale of a real property. 47-1330.

‘Tax’: unpaid real property tax owing as of October 1, including penalties, interest, and costs. The term shall include an assessment or charge due at any time to the District and certified to the Mayor for collection under this chapter in the same manner as a real property tax, along with permitted penalties, interest, and costs. 47-1330

Interest at the rate of 1.5% per month. 47-1334

Fees for advertising by the District and other District fees. 47-1342

All other amounts due  under 47-1361(a). Warning, although this is the tax sale chapter, the definitions of amounts that “may be collected” under this Chapter are very broad and may apply even if there is no tax sale involved. See 47-1361(a):

(a)  “(5) All other taxes to bring the real property current;

(5A) Any delinquent special assessment re: any energy efficiency loan agreement…

(6) … all expenses for which the tax sale purchaser is entitled to reimbursement under § 47‑1377;

(7) All expenses owing to any other [tax sale] purchaser; and

(8) If judgment of foreclosure of the right of redemption of the sale is set aside, the reasonable value, at the date of the judgment, of all reasonable improvements made on the real property by the purchaser and the purchaser’s successors in interest, subject to § 47‑1363.

(b) Notwithstanding subsection (a)of this section, payment of all real property tax liens and permitted accruals assigned or sold and transferred to third parties under § 47‑1303.04 shall be required before a person may redeem under this chapter.

DC Water Proposes Rules to Add New Fees for New Construction and Renovations

Blue_Plains_WWTP_-_aerial_2009DC Water published proposed rules that would institute a System Availability Fee (“SAF”), targeting projects that require an increase in the size of the water connection for drinking water.

DC Water, in its continuing effort to recapture infrastructure costs it has had to shoulder as a result of the renovation and redevelopment boom has announced Proposed Rules that would assess a one-time “System Availability Fee” (“SAF”) when developers seek to increase the size of the water service connection on or after April 1, 2016.

The System Availability Fee (SAF) is defined  as:

System Availability Fee – A one-time fee assessed to a property owner of any premises, building or structure to recover the cost of system capacity put in place to serve all metered water service and sanitary sewer connections and renovation or redevelopment projects that require an upsized meter service connection to the District’s potable water system.  The fee is assessed based on the peak water demand, excluding fire demand, for new meter water service connection and renovation or redevelopment projects that increase the peak water demand and associated SAF meter size for the property.

The Fee will apply to new development, redevelopment, and renovations and the amount of the fee is determined by the  SAF meter size which is takes into account peak water demand (excluding fire demand). The proposed regulation states:

112.11 (c)  The SAF meter size shall be computed for the peak water demand, excluding fire demand in accordance with D.C. Construction Codes Supplement of 2013, as amended, Chapter 3 (Water Meters) of this title, and DC Water Standard Details and Guideline Masters.

Residential Customers:

SAF Meter Size

(inches)

 Water System Availability Fee Sewer System Availability Fee Total System Availability Fee
5/8” $ 1,135 $ 2,809 $ 3,944
3/4″ $ 1,135 $ 2,809 $ 3,944
1” $ 1,135 $ 2,809 $ 3,944
1”x1.25” $ 2,047 $ 5,066 $ 7,113
1.5” $ 5,491 $ 13,591 $ 19,082
2” $ 11,125 $ 27,536 $ 38,661

Multi-Family and Non-Residential:

SAF Meter Size

(inches)

 Water System Availability Fee Sewer System Availability Fee Total System Availability Fee
1” or smaller $ 1,282 $ 3,173 $ 4,455
1”x1.25” $ 2,047 $ 5,066 $ 7,113
1.5” $ 5,491 $ 13,591 $ 19,082
2” $ 11,125 $ 27,536 $ 38,661
3” $ 32,500 $ 80,442 $ 112,942
4” $ 83,388 $ 206,394 $ 289,782
6” $ 229,246 $ 567,408 $ 796,654
8” $ 229,246 $ 567,408 $ 796,654
8”x2” $ 229,246 $ 567,408 $ 796,654
8”x4”x1” $ 229,246 $ 567,408 $ 796,654
10” $ 229,246 $ 567,408 $ 796,654
12” $ 229,246 $ 567,408 $ 796,654
16” $ 229,246 $ 567,408 $ 796,654

If the new meter is replacing an old meter, the SAF will be based upon the net change (you will be given credit for the usage of the old meter as long as the old meter was active within 12 months prior).

Until December 31, 2019, one can apply to have the SAF paid in 4 installments over the course of a year.

Major Changes for Foreign Seller Transactions

closing-on-a-home

Title professionals are familiar with the requirement to withhold 10% on sales of real property (including short-sales) by foreign nationals pursuant to the Foreign Investment in Real Property Tax Act (FIRPTA).

Beginning on February 16, 2016, the percentage will increase to 15%.

There are a few exemptions:

  • On properties that sell for between $300,000 and $1,000,000 and the purchaser will be using the house as his residence, the withholding requirement drops to 10%.
  • On properties that sell for is less than $300,000 and the purchaser will be using the house as his residence, the withholding requirement drops to zero.

In an excellent article prepared by Steven Gottheim (ALTA) and Melissa Murphy (Attorney’s Title Fund Services), title professionals are counseled to document the buyer’s intent to occupy either of the exemptions above should be utilized.   At the very least, a statement from the buyer, under penalty of perjury should be secured.

It is also recommended that the purchaser be advised of the legal ramifications of misstating intent to occupy, which could include personal liability for any uncollected withholding tax, penalties and interest.

Maryland Court of Special Appeals: When A Foreclosure Sale Is Challenged

foreclosure (1)Noting that “in mortgage foreclosure law, as elsewhere, society’s interest in finality and repose is a weighty one,” in Devan v. Bomar the Maryland Court of Special Appeals ruled against a homeowner and found that her post-sale foreclosure challenge was too late. Mr. and Mrs. Bomar owned their marital home as tenants by the entireties, but only Mr. Bomar signed the promissory note secured against the home. After Mr. Bomar died, the lender, PNC Bank, rejected Mrs. Bomar’s monthly mortgage payments because her name was not on the loan. She ultimately went into default, and the bank foreclosed on the property. After the sale was consummated, Mrs. Bomar filed suit, arguing that under federal law she was protected from the bank’s due-on-sale option to foreclose, and the trial court agreed and set aside the foreclosure sale. In a scholarly opinion by retired Judge Moylan, the Court of Special Appeals reversed. Surveying foreclosure law, the Court held that challenges to the legitimacy of a foreclosure sale, as Mrs. Bomar was doing, needed to be brought prior to the sale. After the sale, the only challenges allowed would concern procedural irregularities in the sale itself. The Court also considered, in dicta, whether certain allegations of fraud could be brought post-sale, opining that “the rationale [behind the ultimate decision] may inhere not in Socrates but in Yogi Berra: ‘When you come to a fork in the road, take it.’” A link to the October 1, 2015 published opinion is here.

DC: Proposed Laws Challenge the Airbnb Model

airbnbVincent Orange, Councilmember of the D.C. Counsel has introduced two bills that would directly challenge the Airbnb business model.

The “Short Term Rental Regulation and Housing Protection Amendment Act of 2015” would establish a Special Enforcement Division with DCRA to regulate the industry, monitor compliance by the housing providers and the Hosting Platforms (such as Airbnb) for code compliance, refer violators to the fire department and other governmental offices including the Attorney General for appropriate action and to  maintain a registry of individuals providing short-term rentals (which would be available to the public on a website) public information).

Short-term rental providers would need to obtain a Basic Business License with a Housing:Transient endorsement as well as a Home Occupation Permit.  The legislation gets a little muddled in a further requirement of a “Home Occupation Permit for a Bed and Breakfast”, but would prohibit the issuance of a permit unless the property meets code, is in compliance with the Americans with Disabilities Act  as well as “any other requirements, which DCRA shall deem necessary to ensure the health and safety of visitors during short-term rentals.

A person may be issued only a single permit and that permit may only be issued for the person’s permanent residence and the housing provider must reside in the property during the short-term rental.

Applicants for permits would have to notify the ANC and neighbors “abutting or directly across the street from the … short-term rental.”  If the applicant is not the owner of the property, notice needs to be sent to the owner.

There are significant requirements that the Hosting Platform would need to comply with and the law purports to require the Hosting Platform to retain records for ten years.

Penalties for violation (including advertising a unit without a license) can be up to $500 per each unit, forfeiture of all “illegally obtained revenue”,  as well as imprisonment for up to 6 months or both.

The second proposed bill, the “Short-Term Online Rental Marketplace Rental Procedures and Safety Act of 2015”  establishes the licensing requirements finding that, on the one hand, short-term rentals can “provide a flexible housing stick [sic.] that allows travelers a safe accommodation while contributing to the local economy”, but that “a lack of regulations can pose public safety risks”, and loss of tax income to the District.

The law would limit a guest to 90 days (but not less than 24 hours), prohibit any sale of food or alcohol (unless the housing provider has permits and licenses for those purposes).  The bill outlines some other requirements such as smoke detectors and that the number of adult guests cannot exceed more than twice the number of sleeping rooms plus four.

 

| Roy L. Kaufmann

Analysis of Key Changes To GCAAR Documents

Analysis of Changes in 10/2015 Version

Roy L. Kaufmann

Jackson & Campbell, P.C.

A well-formatted, printable .pdf of this article is available here.

GCAAR SALES CONTRACT (GCAAR FORM 911) [1]

General Comments

            The new GCAAR Sales Contract (here, we will call it the “Contract”, formerly called the “Regional Sales Contract”) to be implemented on October 1, 2015, is designed to be used in Montgomery County, Maryland and the District of Columbia.  It is no longer useable in Virginia where the Northern Virginia Association of Realtors created its new Regional Sales Contract for Virginia, effective January 1, 2015.

The Contract eliminates some redundancy found in prior versions and has fewer pages.

The analysis focuses on the changes from the prior versions.

Contract’s Introduction

The “time is of the essence” clause has been moved to the very top of the Contract from a much later page where the clause was obscured.  The purpose was to communicate to the parties the importance of the deadlines in the Contract.

The words “Contract Date” were changed to “Date of Offer” to avoid confusion with the Date of Ratification which becomes the operative date of the contract.Picture1

1. REAL PROPERTY. Many of the blank fields were removed because they were not used or applicable.

3. PRICE AND FINANCING. Many sophisticated agents were already changing the older versions of the Contract to convert the hard dollar figures of the loan amounts to percentages, so that the numbers could change during the loan process without requiring an amendment to the contract or changes to the later provisions of the Contract.  The new Contract embraces this flexibility and percentages are now used. Picture24. DEPOSIT. With the advent of ZipForm and other electronic systems, often the offer is presented and a physical check is not present.  The Contract now has a provision allowing the Deposit check to be delivered with “X” days after the Date of Ratification.Picture3

 

5. FUNDS DUE AT SETTLEMENT. There are times when the Seller needs to deliver money at closing.  While an “assignment of funds” is not routinely a part of residential transactions, GCAAR determined that the use of this might be problematic, so the Contract provides that it cannot be used without consent of “all parties to the transaction” (which GCAAR believes includes Real Estate Agents/Brokers).

Picture4

6. SETTLEMENT. The prior version said “… settle…on, or with mutual consent before, ________ (date). The underlined language is removed in the new version.  Parties may agree to amend their Contract in many ways, including the date of settlement, however they must do so with an actual amendment to the contract.  The prior language made the inference that the parties might move the settlement date around without amending the Contract, which was not a good practice.

9. INCLUSIONS/EXCLUSIONS. The Contract has deleted the duplicate listing of the checkboxes about what personal property conveys and what utilities are present.  They will now be listed only on the Disclosure and Addendum (GCAAR Form 911).

10. HOME WARRANTY. The offer of a Home Warranty has been moved to Section 10.

Picture5

12. WOOD DESTROYING INSECT INSPECTIONS. The words “termite inspections” has been replaced with “wood destroying insects” , the obligation has been shifted to the buyer, and the report must not be older than 60 days prior to Settlement.

Picture6

13. LEAD-BASED PAINT REGULATIONS. The clause was amended to clarify that the Buyer may declare the Contract void at any time until i) the Buyer has acknowledged receipt of the Lead Paint Forms including the EPA pamphlet and the DC form, if applicable, and has either exercised the opportunity to incorporate a Lead-Based Paint Inspection Form or waived that right.

The Federal Disclosure form is GCAAR #907, and it also contains the ‘acknowledgement  of receipt’ by the Buyer to which this paragraph refers.

The DC Disclosure form is GCAAR #917, and it also contains the ‘acknowledgement of receipt’  by the Buyer to which this paragraph refers.

Picture7

17. TITLE. In a clause that needed more substantive attention, the only change was to include the possibility of conveying by “Personal Representative’s Deed.

27. DISCLOSURES TO PARTIES. The disclosures have been consolidated to this one section and a particular disclosure as to the availability of title insurance has been included.

Picture8

31. NOTICES. Resale packages for condos and co-ops may be delivered electronically.  References to electronic signatures on the Contract have been deleted since they are now explicitly permitted under federal law.

INCLUSIONS/EXCLUSIONS DISCLOSURE AND ADDENDUM (GCAAR FORM 911)

Mounting brackets for electronic devices now convey by default.

 Picture9

JURISDICTIONAL DISCLOSURE AND ADDENDUM FOR WASHINGTON D.C. (GCAAR FORM 1313)

This form is shorter and better organized because the clauses that were common to both Maryland and D.C. contracts have been merged into the base Contract.

Part I – 3. TENANCY.    The time frame of the representation from Seller about whether there were tenants has been changed from the date of execution of the Contract to “the time Seller decided to sell”.

Picture10

Part II – 2.  RECORDATION AND TRANSFER TAXES.  A provision was added about the District’s Tax Abatement Program as well as a checkbox for the Buyer to indicate whether an application for the Program will be filed.

MONTGOMERY COUNTY JURISDICTIONAL ADDENDUM TO GCAR AND MAR SALES CONTRACT (GCAAR FORM 1312)

The language relating to District of Columbia properties has been removed and many of the provisions have been moved into the base Contract.  There are now two separate addenda – one for use with the GCAAR contract and one for use with the MAR Contract. The result is a much shorter document.

ADDENDUM OF CLAUSES – A  (GCAAR FORM 1332-A)

The prior “Addendum of Clauses” was an expansive potpourri that included matters that were very uncommon.  There is now an Addendum “A” of more common situations, and an Addendum “B” for the more uncommon.  A few changes to the clauses:

2. HOME INSPECTION CONTINGENCY. The GCAAR task force noted confusion in earlier versions.  Now it has been clarified that  a Seller may not exercise an option to void when it first responds to a Buyer’s notice under section 2(A).

Picture113. GENERAL INSPECTION CONTINGENCY. The GCAAR task force thought it prudent to underscore to buyers that this particular clause did not give the buyers a right to negotiate (only to void).  An interesting perspective.

Picture12

4. ADDITIONAL AS-IS PROVISIONS. The heading was changed to add the word “Additional”.  The base contract has an “as-is” clause (see Section 7 of the base contract which provides checkmarks of “Date of Offer” or “Date of Home Inspection”), so the word “Additional” was added to make it even more “as is”.  There were no other changes.

Picture13

ADDENDUM OF CLAUSES – B  (GCAAR FORM 1332-B)

  1. CONTINGENT UPON SELLER PURCHASING ANOTHER HOME. The provision was clarified such that the contingency would continue to either the inspection date or a date when Seller notifies Buyer that the contingency is removed.
  2. THIRD PARTY APPROVAL: Emphasis added not to use this clause for short sales.

A PDF version of this document is available for download here.

[1] The GCAAR documents are copyrighted and only for use by its members.

D.C. Court of Appeals: TOPA Extensions Must Be Defined To Preserve Tenant Rights

TOPAIn an important new ruling construing the Tenants Opportunity to Purchase Act (“TOPA”), the D.C. Court of Appeals held on September 23, 2015, that extensions of the deadlines for a seller and a tenant association to negotiate a sales contract must be express and contain a definite end-date to be valid. Under TOPA, once a buyer enters into a sales contract to purchase a rental accommodation in D.C., the seller must inform the tenants of their opportunity to purchase the building themselves. If the tenants choose to purchase the building, they must settle within 120 days, with an extension permitted for financing to 240 days. However, the seller can grant further reasonable extensions of those periods to allow for negotiations and other incidents. In William J. Davis, Inc. v. The Tuxedo, LLC, the tenants formed a tenant association to buy the building that Davis contracted to buy. The association obtained the 240-day deadline to get financing. Four days before that deadline, the tenants’ counsel informed the seller that the association would not go through with the sale, alleging violations of TOPA by the seller. While the seller and tenants continued to negotiate, the 240-day deadline passed without any definite extension agreed to by which to settle. The Court, in an opinion by Senior Judge Ferren, held that the failure to set a defined end-date, along with the association’s stated refusal to close, failed to constitute an extension under TOPA. Therefore, the association’s contract had expired, and Davis’ contract to buy the building had priority and would go forward. The Court also rejected the association’s argument that the seller had violated TOPA when it offered the association a contract to buy the building at the same price that Davis contracted to pay, and held that the association failed to explain how the seller-financing terms were not “reasonably acceptable.” A link to the opinion is here.

Virginia Supreme Court Rejects Role of Juries in Title Insurance Bad Faith Claims

Virginia-Supreme-CourtIn a new opinion that merits review by anyone who underwrites title or defends title insurers in Virginia, a 6-1 majority of the Virginia Supreme Court held that Virginia Code sec. 38.2-209 requires that judges, not juries, make the determination of whether an insurer has acted in bad faith under a policy. In REVI, LLC v. Chicago Title Insurance Company, REVI purchased certain residential land with the intent to develop it, and purchased title insurance against any “loss or damage” caused by “[a]ny defect in or lien or encumbrance on the title.” Four years later, REVI discovered the parcel had a number of development restrictions on it as imposed by the United States back in 1963. REVI made a title insurance claim, and Chicago Title worked to remove some, but not all, of the restrictions. Chicago Title decided that the reduced restrictions did not diminish the value of the parcel, but REVI claimed $1.6 million in lost value. When Chicago Title refused to pay, REVI sued and alleged bad faith, asking for a jury trial over Chicago Title’s objection. The jury awarded REVI $1.2 million in damages for breach of contract and another $442,000 for bad faith. The trial court vacated the bad faith award, holding that Va. Code sec. 38.2-209 required any bad faith finding to be made by the judge, and ruled that there was not enough evidence to prove Chicago Title acted in bad faith. REVI appealed, and in a decision authored by Justice Mims, the Court affirmed, holding that 209(A)’s requirement that a “court” make the determination means the trial judge, not a jury. In particular, the Court noted that when Title 38.2 was created in 1986 as part of the Recodification Act, another statute separately addressed “the court or jury,” thus indicating that the General Assembly saw the two as distinct. Justice McClanahan, concurring, noted that the General Assembly’s habit was to use the term “court” to refer to the trial judge, not a jury. Justice Kelsey, in dissent, argued that the term “court” was ambiguous, and should be read in favor of allowing jury review. A link to this opinion, issued on September 17, 2015, is here.

Published Fourth Circuit Opinion On Maryland Credit Law Relies On Unpublished Opinion

In a published opinion that relied upon the reasoning of a previous unpublished opinion, the U.S. Court of Appeals for the Fourth Circuit held in Gardner v. GMAC that the Maryland Credit Grantor Closed End Credit Provisions, Md. Code Ann., Com. Law sec. 12-1001, et seq., require borrowers to have repaid more than the original principal amount of their loans before they are entitled to relief if a creditor violates the repossession notice requirements. In this class action suit, GMAC had repossessed cars when the owners became delinquent on payments, and then advertised the foreclosure sales as public. The Maryland Court of Appeals in Gardner v. Ally Fin. Inc., 71 A.3d 817 (Md. 2013) held that the sales were actually private, and thus GMAC mischaracterized them. The district court, relying on the unpublished opinion of Bediako v. American Honda Fin. Corp., 537 F. App’x 183 (4th Cir. 2013), held that Gardner had not sustained damages because there was still an unpaid principal balance on their loan. Judge Diaz, for a unanimous panel, affirmed, expressly following Bediako’s determination that the Provisions only permitted a debtor to recover “amounts paid in excess of the principal amount of the loan” as damages. The panel also rejected the debtors’ claim of nominal damages pursuant to a breach of contract claim linked to violation of the Provisions. A link to the opinion, released on August 6, 2015, is here.

Conservation Lawsuit Revived—Whether Act Is Inconsistent With Another Law Does Not Deprive Court Of Jurisdiction

The Fourth Circuit again reversed dismissals under Rule 12(b) in Goldfarb v. Mayor and City Council of Baltimore, in a case regarding contamination claims brought under the Resource Conservation and Recovery Act, 42 USC sec. 6901, et seq. The City of Baltimore gave a parcel of land near the Patapsco River, formerly used for industrial purposes, to a casino developer. Maryland residents sued the City, the developer, and a chemical company that previously used the parcel, under the Act, arguing that the parties caused or failed to properly mitigate pollution on that property, and that the pollution had seeped into nearby properties the residents use and enjoy. The district court dismissed the claims against all the defendants—most under Rule 12(b)(6), and as against the casino developer under 12(b)(1) or (6). Judge Agee’s opinion for the unanimous panel reversed all the dismissals. First, it held that the Act’s anti-duplication provision, which states that the Act will give way whenever it is “inconsistent” with another statute, does not deny the courts of subject matter jurisdiction—it is merely an affirmative defense that can be argued—and thus dismissal under 12(b)(1) was incorrect. The Court also held that in order to dismiss claims under the Act for being “inconsistent” with another statute, the district court had to analyze exactly what that inconsistency was before dismissing under Rule 12(b)(6), noting the care the trial court needed to apply in taking notice of matters outside the complaint. The Court also construed the Act’s “contribution” requirement of section 6972(a)(1)(B) of the Act as requiring a defendant to be alleged to take an active, as opposed to passive, role in the pollution, and held that the residents’ complaint properly pled such facts under 12(b)(6) against the chemical company. A link to the opinion is here: http://www.ca4.uscourts.gov/Opinions/Published/141825.P.pdf

District Courts Have Original, But Not Exclusive, Jurisdiction Over Bankruptcy Issues

foreclosure (1)The decision in Houck v. Substitute Trustee Services, Inc. concerned a foreclosure sale that occurred after a bankruptcy petition had been filed and the automatic stay under 11 USC sec. 362(k) was in effect, but the panel opinion by Judge Niemeyer contains several important rulings that all litigators should take heed of. The first wrinkle is that Houck brought her claim that the automatic stay had been violated before the district court instead of the bankruptcy court. The district court dismissed her claims as against the trustee who handled the foreclosure sale under Rule 12(b)(6) because she had not alleged that the trustee had any notice of her bankruptcy, and that her claim was not plausible because “a lawful alternative explanation appears a more likely cause of the complained of behavior.” The district court then dismissed her claims as against another defendant for lack of subject matter jurisdiction on the assumption that 362(k) claims had to be brought in the bankruptcy court. Houck appealed, but the Fourth Circuit rejected that appeal because her claims against a third defendant had not yet been disposed of. The district court, however, ruled that a final judgment had been entered after all. On reconsideration, the Fourth Circuit agreed with the district court, holding that under the doctrine of cumulative finality the district court’s dismissal for lack of subject matter jurisdiction operated to dismiss the case as to all remaining defendants. The Court then ruled that the district court did have subject matter jurisdiction over 362(k) claims, noting amendments to the bankruptcy code that vested the district courts with “original but not exclusive jurisdiction” over Title 11 matters, although the district court could choose to refer such matters to the bankruptcy court. Finally, the Court held that the district court’s plausibility standard was incorrect—that there might be an alternative lawful explanation for the defendant’s actions has no bearing on the analysis—and that the facts pled by Houck did meet the requirements of Rule 12(b)(6). A link to the opinion is here.

Mortgage Company’s Indemnification Claim Against Loan Officer Not Discharged In Bankruptcy

bankruptcy1When Fidelity First Home Mortgage Company was found liable by a jury under the doctrine of respondeat superior when one of its loan officers engaged in a fraudulent foreclosure rescue scheme, it sued the loan officer seeking indemnification and contribution. The loan officer claimed that Fidelity’s claims were discharged in his prior no-asset Chapter 7 bankruptcy, and that Fidelity’s negligence in supervising him precluded its claims. The circuit court granted summary judgment to Fidelity, and the Court of Special Appeals, in a unanimous panel opinion by Judge Graeff, affirmed. First, noting that the loan officer had failed to list Fidelity as a creditor in his bankruptcy, the Court held that the circuit court therefore had concurrent jurisdiction to determine whether Fidelity’s debt was discharged. It then held that since the loan officer’s conduct involved fraud, Fidelity’s claim was nondischargeable under the fraud exception even though it was seeking indemnification and contribution, as opposed to claiming that it had been defrauded. Finally, the Court held that there was no finding at trial that Fidelity engaged in “active, independent negligence” that would bar it from seeking indemnification against the loan officer. The opinion in Fox v. Fidelity First Home Mortgage Company was issued on July 1, 2015.

U.S. Supreme Court: Same-Sex Marriage Is a Right

SupremeCourtGayMarriage

Photo Credit: US Rep. Mark Pocan Twitter

Coincidentally timed on the anniversary of the decisions in Lawrence v. Texas and U.S. v. Windsor, two prior gay-rights cases, Justice Kennedy announced the majority opinion in Obergefell v. Hodges, in which the five-person majority held that the Fourteenth Amendment requires all states to license marriages between same-sex couples, and to recognize same-sex marriages of other states. The majority opinion found that “the nature of injustice is that we may not always see it in our own times. The generations that wrote and ratified the Bill of Rights and the Fourteenth Amendment did not presume to know the extent of freedom in all of its dimensions, and so they entrusted to future generations a charter protecting the right of all persons to enjoy liberty as we learn its meaning.”

The Court then analyzed the principles the Court had used to define the right to marry, and found that they applied “with equal force to same-sex couples.” While recognizing the ongoing democratic debate regarding same-sex marriage, the majority determined that enforcement of the fundamental right of marriage was needed now to prevent harm to same-sex couples.

Chief Justice Roberts, joined by Justices Scalia and Thomas, filed a dissent, arguing that while “many people will rejoice at this decision, and I begrudge none of their celebration,” the majority’s holding “is an act of will, not legal judgment,” that “will for many cast a cloud over same-sex marriage, making a dramatic social change that much more difficult to accept.” In his view, the “Constitution does not enact any one theory of marriage,” and the states should have been left to decide the issue. Justice Scalia, joined by Justice Thomas, penned a separate dissent arguing that the majority’s pronouncement was a “threat to American democracy,” as it permitted “a majority of the nine lawyers on the Supreme Court,” in a “naked judicial claim to legislative—indeed, super-legislative—power,” to shut down the public debate over same-sex marriage that was “American democracy at its best.” Justice Thomas, joined by Justice Scalia, expressed his concern that the Due Process Clause be used as “a font of substantive rights” as the Court’s whims saw fit, and arguing that there was no cognizable liberty interest in forcing the states to recognize same-sex marriage. Justice Alito, joined by Justices Scalia and Thomas, filed the final dissent, arguing that since the Due Process Clause only protects fundamental rights deeply rooted in the nation’s history, the majority’s holding is based on present-day belief, not evidence, worrying that “if a bare majority of Justices can invent a new right and impose that right on the rest of the country, the only real limit on what future majorities will be able to do is their own sense of what those with political power and cultural influence are willing to tolerate.”  A link to the opinion is here.

It should be noted here that the District of Columbia and Maryland have already enacted statutes providing for same-sex marriage.  Prior to that, Roy Kaufmann, of our firm, wrote the legislation enacted by the District of Columbia that provided tenancy by the entirety status to domestic partners who co-owned real property in the District of Columbia – one of the first such statutes in the country.

Condominium Insurance Considerations: Owner-Occupant and Owner Who Rents Out

condominium insuranceBy  Roy L. Kaufmann[1] of Jackson & Campbell, P.C.  and Margarita Dilone, President and CEO of Crystal Insurance Group, Inc.

Owners of condominium units should review their condominium insurance needs carefully.  A unit-owner’s policy is essential. In fact, in some jurisdictions, such as the District of Columbia, it is required by law. Even with a policy in hand, all too often, when a problem arises, a unit owner may be disappointed that certain perils are not covered.   Although the condominium association’s “master policy” may cover some rebuilding costs, the unit-owner needs to be assured that there are no gaps (or costly overlaps) in coverage.

A review of the condominium association’s master policy is an essential place to start.

MASTER POLICY

Liability Coverage:  The master policy includes liability coverage for injuries or events occurring in common areas such as the lobby, hallways, elevator, garage, club house, tennis court, swimming pool[2], etc.

Casualty Coverage:  The policy also includes coverage for property damage in the event of fire or other casualty.  Although master policies vary, there are two common methods to provide coverage for residential buildings.

The “bare-walls-in” method insures the basic building, e.g.., the lobby, hallways, elevators, roof, walls, and floors, but leaves the unit-owner to insure fixtures inside the unit, e.g., cabinets, carpeting, wall coverings, appliances, and sometimes even the interior walls.

The second possibility is the “all-in” coverage whereby the common areas are covered, as well as the as items within the interior unit walls that are not considered personal property.  The analogy often used is that if you were to pick up the condominium unit and turn it upside down and shake it, all the material remaining in the unit when you put it right-side-up would be covered.  Note that the fixtures and installations as were originally placed when the condominium was constructed would be covered and not upgrades by the unit-owner.  The unit-owner’s personal property is not covered by the master policy and this should be made clear in any lease agreement by owners who rent.

Each master policy has a deductible.  Although a $5000 deductible is common, many

associations are buying policies with higher deductibles to save cost.  The condominium bylaws will probably provide whether an individual unit-owner may be responsible for the entire deductible if the casualty originated in the unit.  In fact, DC Law allows the condominium association to set its own, higher, deductible levels for claims made under the Master Policy that are triggered by an event originating within a member’s unit.

UNIT-OWNER POLICY

Once a unit-owner is familiar with the coverage provided for by the master policy, coverage gaps need to be filled through a tailored unit-owner policy.  This policy is known as condominium coverage or a form HO-6 policy[3].  Premiums may be lower when both the HO-6 and the master policy are provided by the same insurer.  It may also eliminate disagreements between two different insurers as to which is responsible for a particular situation.

Liability Coverage:  The HO-6 provides liability coverage to the unit-owner for injuries or events that occur within the unit as opposed to in common areas.

Casualty Coverage:   This is the area that merits the closest attention to make sure that property damage coverage is coordinated with the master policy.  If a fire were to occur and the master policy provided “bare walls in” coverage, then the unit owner would be solely responsible for the cost of replacing cabinets, appliances, carpeting, and all personal property.

But, even if the master policy had “all-in” coverage,  structural additions, alterations, and other value added to the unit by the owner after original construction, e.g., high-grade carpets or high-grade cabinets, will most likely require building improvements coverage because an “all-in” master policy may only compensate for the original structure and fixtures.   Thus, the dollar amount for structural coverage needs to be high enough to cover upgrades.   Do not confuse structural coverage with personal property/contents coverage.

The HO-6 covers personal property within the unit against damage or loss from several specified causes such as fire, weight of snow, windstorm, hail, theft, explosion, smoke damage, accidental discharge of water, and falling objects, among other causes.  The coverage is usually available in one of two bases.   “Actual cash value” is the traditional basis in which owners are given the value of the item, less depreciation.  “Replacement Cost” covers the value to replace the item, regardless of the age or condition of the item. Items of higher value, such as collectibles, antiques, jewelry, or art work, then these items should be addressed through riders to the policy.

It is helpful to have a photographic inventory of the personal property, and of the improvements to the carpeting, cabinets, and countertops before a problem occurs. The inventory can be accomplished by wandering around each room with a video or other camera, or can be more detailed to include purchase price, appraised value or other information. There are several home inventory programs available on-line.  Quicken products, for example, allow you to scan a copy of a receipt or any other document and store it along with the check-entry.  We suggest that the inventory be updated on a yearly basis.   For obvious reasons, the inventory or a copy thereof should be stored outside the condominium unit.

Coverage for damage from sewer and drain back-ups is highly recommended for owners with units in the first few floors of the building.  The coverage is usually missing from standard policies, but can be added for around $25 per year.  However, owners should be aware that basic policies generally do not cover damage from floods or earthquakes.

Coverage for Gaps in Master Policy Deductibles:   Unit owners should:

  • Review the condominium’s governing documents to see if the condominium has set a higher deductible; and
  • Ensure that his policy covers the deductible discussed above under “Master Policy”. This deductible may be called a “loss assessment” by insurance companies.  If the condominium association sends a notice of such a loss assessment, it is important that the condominium association’s description of the assessment reference the specific loss otherwise the unit-owner’s insurer may not recognize it as a “loss assessment” and may categorize as some other type of assessment, for which there would be no coverage.

SPECIAL CONSIDERATION: UNIT RENTED OUT

A special situation arises when a unit-owner rents out the unit to a third party, assuming that the condo’s bylaws permit rental.  Keep in mind that there may be licenses required and exemptions from rent control.  The repercussions can be severe if you ignore these requirements and your attorney or property manager can assist.

The landlord could chose between an i) HO-6 condominium unit-owner policy with an endorsement for additional coverage for losses associated with renting or ii) a DP-3 policy, depending on what is available from the insurance company.

The two options are essentially the same and, under either scenario, the landlord should look for coverage for structural damage caused by tenants, liability to third parties for injuries occurring in the unit, damage to other units, loss of rental income due to an uninhabitable unit for at least nine months and, if available, loss of income due to untimely rent payment.

Tenants should be encouraged to obtain renter’s insurance.  In fact, diligent landlords currently require proof of such coverage.  The renter’s policy, the form HO-4, is relatively inexpensive and should include loss of use coverage, contents (personal property) protection, and liability protection.  In the event the unit is damaged and uninhabitable, the loss of use coverage provides the tenant with reimbursement for hotel and moving costs, usually for around a nine-month period.

 

SUMMARY

 

Policy: Condominium Coverage –  What to Look For:
Master
  • All policies generally include liability protection and structural coverage for common areas such as the garage, club house, tennis court, swimming pool, etc.
  • Bare-Walls-In Coverage Method—the master policy insures the basic building, e.g., the lobby, hallways, elevators, roof, walls, and floors, but leaves the unit-owner to insure fixtures inside the unit, e.g., cabinets, carpeting, wall coverings, appliances, and sometimes even the interior walls/wallpaper.
  • All-In Coverage Method—the master policy insures the basic building as well as items within the interior unit surfaces not considered personal property. Usually covers all original fixtures and installations.
  • Highly unlikely to cover owners’ personal property.
  • Inquire: Does it provide comprehensive or blanket coverage to protect an owner against other owners who do not have adequate coverage?
  • Generally, deductible is ~$5,000. Depending on the damage and loss circumstance, and the bylaws, the deductible can be divided among and paid for by all unit-owners, by select owners, or by a single unit-owner. Some buildings may have set their own deductible amounts.
Unit-OwnerOwner-Occupied
  • Policy form known as an HO-6 policy.
  • Premiums may be lower when the master and unit-owner policies are taken up with the same insurer.
  • Umbrella liability provides broader coverage than the standard liability coverage in the master policy.
  • Structural additions, alterations, and other value added to the unit by the owner, e.g., high-grade carpeting or high-grade cabinets, will likely require higher building-improvements coverage.
  • Damage from sewer and drain back-ups will likely require additional coverage and is highly recommended, especially for 1st and 2nd floor unit-owners.
  • Insure personal property (unit contents) through this policy.  Items will be covered against damage or loss from several specified causes such as fire, weight of snow, windstorm, hail, theft, explosion, smoke damage, accidental discharge of water, and falling objects, among other causes.
  • Basic policies generally do not cover damage from floods or earthquakes.
  • Items of higher value, such as collectibles, antiques, jewelry, or art work, might need additional coverage through rider policies.
  • All personal property is covered either for “actual cash value” or “replacement cost.”
  • Master Policy deductible pass-through coverage if the master policy deductible is high or if the building has set its own higher amount (often called “loss assessment coverage”).

 
Unit-Owner as Landlord
  • Option 1: HO-6 unit-owner policy with endorsement for additional coverage for losses associated with renting. Option 2: Landlord’s rental condominium (DP-3) policy.
  • Prudent Landlords require that Tenant have an HO-4 Policy in effect (some state require this).
  • Either option should include coverage for:
    • Structural damage caused by tenants
    • Damage to appliances and other personal property left in the unit
    • Liability for injuries or property damage occurring in the unit
    • Medical payments
    • Loss of income due to untimely rent payment
    • Loss of rental income due to an uninhabitable unit (coverage for up to around nine months)
    • Master Policy deductible pass-through coverage if the master policy deductible is high (often called “loss assessment coverage”).
Renter
  • Policy form known an HO-4 policy.
  • Include contents (personal property) protection.
  • Include liability protection.
  • Include medical payments.
  • Include loss of use coverage—provides the tenant with reimbursement for hotel and moving costs in the event the unit is uninhabitable (coverage for up to around nine months).

 

[1] Original version of this article drafted by Claudio Sayan Lazarte, Intern to the Firm, 2011

[2] Recently, most carriers are declining to cover diving wells with diving boards.

[3] In situations, such as when the condo is rented to others or titled in the name of an LLC, a DP-3 policy is used, in which event a second, inexpensive liability policy should also be purchased.

DC Tax Sale Scheduled starting July 20, 2015

taxThe District of Columbia Office of Tax and Revenue has announced the annual tax sale of real properties with delinquent taxes and other assessments.  The list of properties is correct as of the date of this publication.  Some properties will be removed before the date of the sale if the arrearages are satisfied.  Recent, massive, changes in the tax sale law which reduce the incentives to bidders have diminished the pool of bidders at the auctions (see prior blog article).   Brian Thompson, Art Konopka, and Roy Kaufmann stand by to answer any questions you might have about tax sales

DC Tenant Bill of Rights– Landlords to Amend Their Practices as of July 3!

tenant_rights

In August of 2014, then Mayor Vincent Gray signed a bill into law that requires landlords to provide their tenants with a copy of the District of Columbia Tenant Bill of Rights.  The District has long been seen as a relatively tenant-friendly city and this new law, effective July 3, 2015, aims to make sure renters are aware of their rights under the law.

Those rights include:

  • Lease—If there is a written lease, the landlord must supply the tenant with a full copy of the lease, along with all addendums and DC housing regulation disclosures. (Written leases are not required in DC). At the end of the lease term, tenants may continue month-to-month, indefinitely, on the same terms, unless there are lawful rent increases.
  • Security Deposit— The security deposit cannot be more than one month’s rent and, upon termination of the tenancy, landlord only has 30 days to explain any deductions from the deposit.
  • Disclosure of Information—Upon receipt of an application to lease a unit, landlord must disclose:
    1. The applicable rent for the unit
    2. Any pending petitions to change the rent (if rent control applies)
    3. Whether the property is subject to rent control or exempt (remember, exemptions have to be applied for – they are not automatic)
    4. Certain housing code violation reports
    5. The amount of any application fee, security deposit and interest rate on the security deposit
    6. Any plans for condo or coop conversions
    7. Information on the ownership by the landlord and business license information
    8. 3-year history of mold contamination
    9. A copy of the Bill of Rights
  • Receipts for Rental Payments—The Landlord must give a receipt for every rental payment.  The receipt must state the purpose, the date paid, and the amount, if any that remains due.  The only exception to this receipt requirement is when the payment is made by personal check AND pays in full all amounts due.
  • Rent Increases—Explains rent control (only for non-exempt units)
  • Building Conditions— The unit has to be safe and sanitary as of the first day of tenancy (“warranty of habitability”) and must be kept in compliance during the tenancy. Tenant has a right to receive copies from DC of violations.
  • Lead Paint Hazard— For properties built prior to 1978, the landlord must provide prospective tenant with:
    • The District Department of the Environment form about their rights under the D.C. lead laws
    • A current lead-safe “clearance report” to:
      • a prospective tenant household that includes a child less than 6 years of age or a pregnant woman
      • a household that gains such a person and requests the report in writing
      • any tenant household that gets regular visits from such a person
    • Disclosure to a tenant household what the landlord reasonably should know about the presence in the tenant’s unit of a lead-based paint hazard or of lead-based paint, which is presumed to be present unless there is documentation showing otherwise
  • Mold— After receiving a written notice from a tenant that mold is suspected in the unit or a common area, the landlord must inspect the premises within 7 days and remediate the mold within 30 days.
  • Quiet Enjoyment and Retaliation— The landlord may not unfairly interfere with the tenant’s comfort, safety or enjoyment of a  unit. Additionally, landlords may not retaliate against you for exercising any right of occupancy.
  • Discrimination— The landlord cannot discriminate based upon actual or perceived: race, color, religion, national origin, sex, age, marital status, genetic information, personal appearance, sexual orientation, gender identity or expression, familial status, family responsibilities, disability, matriculation, political affiliation, source of income, victims of intra-family violence, or place of residence or business of any individual
  • Right to Organize—The landlord may not get in the way  of tenant’s right to organize a tenant association, hold meetings, share and post information, or deny building access to an outside tenant organizer.
  • Sale and Conversion— Under the Tenant Opportunity to Purchase Act (TOPA), tenants must be given the opportunity to purchase their unit before the landlord sells, demolishes, or discontinues the housing use.  Additionally, the landlord may not convert the rental building into a condominium or cooperative unless a majority of the tenants vote for the conversion in a tenant election.
  • Relocation Assistance—Tenants have the right to relocation assistance if they are displaced by alterations, demolition, and other circumstances.
  • Evictions— Evictions may only occur for a violation of one of the ten specific reasons set forth in Title V of the Rental Housing Act of 1985.  Landlord cannot use “self-help” methods of eviction such as cutting off your utilities or changing the locks.

Current tenants also have benefits under this law. Once a year, a current tenant may request, in writing, a copy of disclosure documents for their unit. The landlord then has ten (10) days to provide the tenant those documents, which should include the Tenant Bill of Rights.

MD: Maryland Implements Statewide Subpoena Form

imagesBeginning July 1, 2015, the Maryland Judiciary will begin using a statewide subpoena form. To ensure that the required seal of the issuing court and the proper clerk’s signature appear on the subpoena, there are separate forms for each circuit and district court; but the content of each from is the same.

Registered users can access the subpoena on The Maryland Electronic Courts (MDEC) portal by following the process below:
1. Log into: https://maryland.tylerhost.net
2. Click on the “Help” link in the upper right menu of the screen. The help screen will appear and the link to the Uniform Subpoena is available under “Find an Answer”
3. Click the link for the county in the circuit or district court in which the case is filed

If you are not registered to e-file in MDEC:

1. You must register on MDEC to access the subpoena forms. Please note you do not have to become an MDEC e-filer to access the forms
2. You will need your Client Protection Fund number to register. If you do not know your Client Protection Fund number, email efilinginfo@mdcourts.gov, providing your full name. Your Client Protection Fund number will be returned by email
3. Register at: https://maryland.tylerhost.net
4. Once you are on the web page, click “Register Now” in the upper left box and follow the instructions. Each firm and sole practitioner must have a designated firm administrator who will be responsible for registering the firm and maintaining all users. You must register a firm administrator even if you are a sole practitioner.
5. Every attorney associated with your firm can now register as a user by clicking “Register Now” and choosing “User with an Existing Firm.”
6. After you complete your registration, you will be able to log-in to access the subpoena forms.
7. Log in with your username and password
8. Click the “Help” link in the upper right menu of the screen. The help screen will appear and a link to the Uniform Subpoena is available under “Find an Answer”
9. Click the link for the county in the circuit or district court in which the case is filed

For more information please see the Step-by-Step Registration. Paper subpoena forms will still be available at the court.  For questions or concerns about the registration process, please contact efilinginfo@mdcourts.gov.

Maryland Court of Appeals: Breeding v. Koste

The Maryland Court of Appeals held in Breeding v. Koste that the “woodlands exception” applied in cases involving prescriptive easements also applies to adverse possession where the land at issue is unimproved or otherwise in a general state of nature. The exception holds that in such circumstances, there is a legal presumption that the claimant’s use is by the owner’s permission, thus defeating a claim of adverse possession. The Court then held that “unimproved land is undeveloped land that lacks additions that increase the land’s value or utility or enhance the land’s appearance.” Under that definition, the Court determined that the woodlands exception did not apply in this case because certain improvements had been made to the property at issue, including a road, a storage box, duck blinds, and “no trespassing” signs, and those improvements were sufficient to put the owner of the property on notice of the adverse use. A link to the unanimous May 22, 2015 opinion by Judge Watts is here

SCOTUS: 2nd mortgages on ‘underwater’ homes cannot be voided in Chapter 7 bankruptcy

In Bank of America v. Caulkett, the Court declined to allow a Chapter 7 bankruptcy debtor to “strip down” a mortgage lien that is junior to liens that claim all of the equity in a home, thus allowing those “underwater” liens to survive a discharge. Caulkett owned a house where the senior mortgage lien was greater than his property’s current market value, and he sought under Chapter 7 to void a junior mortgage lien under section 506 of the Bankruptcy Code on the basis that the junior lien was not “an allowed secured claim.” The Eleventh Circuit affirmed ordered voiding the junior lien, and the Court, in a unanimous opinion by Justice Thomas, reversed. Although such underwater liens would appear to be “unsecured” under the definition of 506(a)(1), the Court held that its opinion in Dewsnup v. Timm, 502 U.S. 410 (1992), mandated that such liens were “secured” regardless of whether the value of the property was sufficient to cover the claim, regardless of whether the subject lien was partially or wholly uncovered. Justices Kennedy, Breyer, and Sotomayor joined in the opinion except with regard to a single footnote that pointed out the unpopularity of Dewsnup, which the parties had not argued to overrule—perhaps indicating that the other six justices might favorably entertain such a future challenge. A link to the opinion is here.

Proposed Changes to R-4 Zone (height, conversions, grandfathering)

zone-4 regulations proposedIn response to public concern and newspaper articles, the DC Zoning Commission has issued a notice of proposed changes of great interest to residents and home-builders.  R-4 Zone properties are addressed in the proposed rulemaking and comments to zcsubmissions@dc.gov with a copy to Sharon.schellin@dc.gov (reference number ZC Case No. 14-11) are due by May 31, with a possible vote on June 8 which could mean that these changes could be effective as soon as June 12.

In an excellent summary, Martin Sullivan of Sullivan & Barros, points out that mezzanines would count as a story and  height limits would be reduced to 35 feet, except for new construction of 3 row dwellings together.      On conversions as a matter of right, the 900 foot rule will still apply, no extensions can be more than 10 feet past the neighbor, no turrets, towers, or dormers can be removed, and additions, such as a penthouse, cannot block a chimney, vent, or solar panel.  On conversions from residential buildings, there can be nor more than 4 units (and the 4th being an inclusionary zoned unit), and on conversions from nonresidential buildings, there is no limit as to units, but IZ applies at the 10th unit.

The summary also points out that there would be narrow opportunities to apply for a Special Exception and that, as the rules are presently proposed, there is little protection for grandfathering or vesting meaning that, if a permit were applied for after the June 12 date, the new regulations would apply.