LegalMatch: Real Estate

Madoff's Homes On The Cheap: A Lesson On Estate Planning

When we last left the corrupt Ponzi schemer Bernie Madoff, he was convicted for securities fraud, wire fraud, mail fraud, and pretty much every other type of fraud under the sun.  He was then sentenced by a federal judge to 150 years in the slammer, and last month he got into a fight with a fellow inmate over a squabble about the stock market.  We all got a good laugh because, well, old Bernie deserved it.  I mean, who gets a consultant to teach them about prison life before getting sent to the joint?  It sounds like a plot for an awful straight-to-DVD movie.  Personally, I’m taking solace in the fact that he’s doing awful in prison (too bad his stay there was only temporary).  I’m usually not one to revel in another’s misery, but I’ll make an exception in Bernie’s case.

 

Well, it just keeps getting better and better for Madoff and company.  Last week, his luxury residential properties in Manhattan and Florida were cut in price, from $9.9 million to $8.9 million and $8.49 million to $7.9 million, respectively.  What a steal, right?  It’s going to take a lot more than that to cover Madoff’s $21.2 billion worth of investor losses.  And working in the prison’s mess hall for 40 cents an hour definitely won’t cover it.  Maybe someone can go after that $2.5 million settlement his wife, Ruth Madoff, made off with (I’m a wordsmith) after striking a deal with the Department of Justice.  Oh wait, someone already did.

 

Getting back to Madoff’s former properties, the extravagant lifestyle he once lived as exemplified by these two homes is a testament to the fruits born from Bernie’s fishy investments.  While he lived in these luxury residences, his clients were unknowingly losing their fortunes and livelihoods to pay for him and his family’s dalliances around the world.  From that perspective Bernie’s ownership of just these properties alone is enough to make a person sick.

 

But on a more positive note, Bernie’s fall from grace serves as an important reminder to everyone who leaves their finances in the hands of others.  To be able to afford the kind of properties and lifestyle Bernie once had takes careful financial planning and research.  When people amass fortunes, they often do so with the intent to not only provide for themselves, but to also secure the financial stability of those they’ll leave behind.  In a sense, Bernie did that for his own family, but failed at doing so because he (to use a metaphor) built that secured future on a foundation made out of quicksand.  It could’ve only lasted for so long until his Ponzi scheme would’ve inevitably been discovered and his family’s financial future would be left in ruin.

 

The lesson here is don’t be like Bernie because for one thing people will hate you and your family for years and years to come.  But also though not everyone will be gaining their riches via a Ponzi scheme, the crux of Bernie’s story is that he became wealthy using an unstable means.  The best way to become financially secured is the same way your parents, financial experts, and academics have been telling you for years - by doing it honestly and taking an active role in managing your money.  LegalMatch has received countless requests from clients looking to get hooked up with the right estate planning lawyer who can help them do just that.

 

But remember, even the experts can falter, so don’t forget to keep you hands in the pot and ensure that your planner isn’t being careless with your hard-earned moolah.  You’re going to need plenty of it if you want to pickup that Manhattan penthouse.

Commercial Real Estate Meets Supply and Demand

With the housing crisis seemingly under control, everyone can sit back, relax, and watch our fragile economy come back to fruition, right?  Well, not quite.  Though the program is designed to help those in the greatest need keep or buy a new home, people are still cautious and with good reason.  Like monkeys being tested in a lab, if you’re constantly electrocuted every time you reach for that proverbial food pellet, chances are the next time one drops you’d probably cower in the corner. 

 

And that’s what a lot of people are doing, so to speak anyway.  You’d think with all the economic stimulation going on, someone would be spending money.  It’s really the opposite.  The average amount of money stocked away in savings accounts has increased by 5 percent in the last three months alone.  Not to mention the great new trend of short-selling (when a homeowner sells their home for below what they owe on their mortgage).  Why would anyone in their right mind do that?  Because paying back $50,000 is a lot more manageable then trying to scrap together enough money each month to pay off a $500,000 mortgage.  In other words, their house is already in negative equity and the homeowner is trying to cut their losses by selling before they become homeless.

 

But at the same time, all this scrimping and saving is helping the average American get back on their feet.  The only thing it’s not helping is the economy and of course the commercial real estate market.  Unless your head’s been under a rock the past few months, you’re probably already aware of the impending commercial property crisis.  The crisis can be attributed to many factors, such as the crackdown on loans and lines of credit from banks – a theory most notably popularized by analysts and pundits alike.  But to a larger extent, it seems an even bigger factor in bringing the commercial real estate industry to its knees is the aforementioned scrimping and savings.

 

Anyone who has taken a basic economics course will be familiar with the principle of supply and demand.  As long as there are consumers who want a product or service, the industry that provides that product or service will survive and thrive.  But once those consumers are gone then the industries will go down.  And what also happens when industries fall, the office buildings and storage warehouses they once owned or rented will also no longer be needed.  Why have a 10,000 square foot warehouse to store all those Now! CDs if no one is buying them; furthermore why risk loaning money to those purveyors of that fine compilation CD?  To me, the crisis can be solved by a simple injection of consumer confidence.  As they say, if you build it they will come?

 

So what does all this mean for Joe Schmoe?  Well it’s great for the American public.  We’ll keep getting cheap deals on flat-screen TVs and cars as long as big industry is in the hole.  It may sound a little schadenfreude, but hey, with all that money you’re saving you can keep from getting foreclosed on in style.  Or just spend it all on a good bankruptcy attorney.  Whichever is easier.

The Battle of the Black Mold, Part I.

  Mold is everywhere.

It nests in the creamy pits of forgotten coffee mugs, chews through loaves of week-old bread, and generally turns things we like into things we would really rather not touch. Sure, it’s great when it’s powdered and packaged and sold as Penicillin, but even feverish infectees aren’t clambering to feast on fungus-infected food.

And perhaps this aversion isn’t without reason, considering the toxicity of some of our less-friendly household molds. 

Black mold, in particular, has been a plague on the human race since Biblical times. It thrives on moisture and loves porous surfaces, and it’s as difficult to eradicate as a roach infestation. Especially in old buildings, where ventilation is shaky and inhibited, black mold can spread like poison ivy on plant steroids. So let’s take a minute and determine (a) how to identify harmful types of mold and (b) what you and your landlord should do about it. 

 

Identifying Toxic Mold in Your Home

Mold is a term that encompasses a huge variety of organisms, and not all of them are a health-hazard. However, if you have something growing on your walls, in your bathroom, or even in the fridge, it’s probably a safe bet that you should get rid of it ASAP. While there are tests to determine the toxicity of the mold present in your home, they are largely unnecessary. It’s better to move directly to controlling the problem—the moisture level in your home.

The following symptoms can be an indication of exposure to toxic mold or another household irritant, and are commonly grouped together under the name “Sick Building Syndrome:”

• Headache
•  Eye, nose, or throat irritation
• Dry cough
• Dry or itchy skin
• Dizziness and nausea
• Sensitivity to odors
• Difficulty concentrating
•  Fatigue

Because these are common symptoms for many different diseases, Sick Building Syndrome requires that two more conditions be present. (1) The cause of the symptoms is unknown, and (2) the sufferer experiences relief shortly after leaving the building. If this sounds familiar, it may be time to break out the bleach and get to scrubbing.  Sick Building Syndrome is no 24-hour flu.

(Check in later for Part II).

Subprime Mortages and the Crisis of Foreclosures.

The title might be a mouthful, but “subprime mortgage crisis” is probably a familiar phrase if you’ve been reading the papers—or even just scanning the headlines on your way past the newsstand.

What are Subprime Mortgages?

Subprime mortgages are home loans made to people who have a higher likelihood of defaulting on their payments and foreclosing on their homes.

Sometimes this happens because a financial institution makes a bad judgment call-- lending to would-be homeowners who have a poor credit history or an inadequate income for the purchase they’re making. Other times, the fault lies in misleading or confusing advertisements by predatory lenders.  Low introductory interest rates on ARMs (Adjustable Rate Mortgages) create another problem. In these cases, people can afford the lower initial interest rate, but are unable to make their payments when interest rates increase later on.

ARMs are one of the reasons for the current glut of subprime mortgages and large number of foreclosures.

 

How are Subprime Mortgages and Foreclosures Related?

Foreclosure is the end result of an unpaid subprime mortgage.

When a homeowner cannot or will not make their mortgage payments, the bank or lender has the right to force that person to sell their home. The money from the sale of that home is then used to pay off the unmet home loan or mortgage. You can think of it as a kind of “insurance” for the financial institution that gave you the loan in the first place.

Imagine eating at a cash-only restaurant, only to realize that you don’t have a dime on you. You might leave your wallet with a waiter while you run to the ATM. And while waiter doesn’t necessarily want your wallet, they will keep it as insurance that you will return with money to pay for your meal. A mortgage works the same way. And a foreclosure means that if you don’t return, or you default on your payment, the waiter will keep your wallet and the bank will keep your home.

If you’re a more visual person, you can also check out this graphical representation of the subprime mortgage crisis from the New York Times.

Learn more about subprime mortgages and avoiding foreclosures at our LegalMatch law library, or by visiting the Real Estate and Property Law Forum at the LegalCenter.

 

 

By Kate Beall

Break A Lease Without Breaking the Bank.

Renting can be a nightmare. Leasing—even worse.

 

In a twelve-month period in 2006, I moved over six times—from Northern California to Southern California to all along the coast and back. I was seamless. I had packing down to a molecular-level science (that mostly involved never entirely unpacking), I could fit the entirety of my life into the back of a Civic, and I knew the I-5 like its asphalt was hard-coded into my blood.

The nomadic madness of that year taught me quite a few things about finding apartments. One: never move in with a stranger who you wouldn’t take out for coffee. Two: if you have to spend more than 60 seconds convincing yourself that this place is not that bad of a commute, it is. Three: If it’s broken when you move in, it’s going to be broken when you leave. And four: always, always, always rent month-to-month.

But once I got to San  Francisco (where month-to-month rentals and parking spaces DO NOT exist), I was forced to lock in to the first lease of my life. And let me tell you: learning about leases (and safe lease termination) can save your skin.

 

If you need to break a lease, you have a few options—but you’ll have to review the details of your lease agreement to figure out exactly what they are. A real estate lawyer can help you figure out the relevant bits if you need some clarity, and may even have a great suggestion for getting out of your particular situation. But whether you’re leasing commercial or residential property, you can try these more general bits of advice on for size:

(1) Assigning a commercial lease to someone else can save you thousands of dollars you’d otherwise be burning to break or pay out your lease. If you can find someone who is willing to take over your lease, and your contract allows for you to transfer the lease to them, you’re home free.

(2) If you can’t assign the lease, you may be able to sublet your property instead. However, while assigning allows you to wash your hands of any responsibility for the property, subletting still leaves you as the responsible party for any property damage or missed payments that come up. So make sure to choose your lessee wisely.

(3) If neither assigning or subletting are permitted by your lease, you’ll need to find something wrong with the place you’re leasing. Not only that—you’ll need to have serious documentation proving that you brought that “something wrong” to the landlord’s attention on more than one occasion, and that they have still failed to fix it. This obligation is called “duty to repair,” and if your landlord doesn’t? They’ve broken your lease, and you can do the same.

(4) Got the funds? You can usually pay out the remainder of your lease if you decide to break it, although it’s best to reserve this option for situations where you only have a month or two left. Some leases also have a set fee written into their contracts which you can pay in order to break away from it—but be careful. If you don’t pay close attention to the terms of your lease, you could be taken advantage of by a less-than-moral landlord.

If you do manage to successfully break a lease, take it as a lesson learned when you start looking at that next long-term contract. And the next time you’re presented with a restrictive lease, think about it carefully before you sign the dotted line. Or have someone think about it for you—like a lawyer that specializes in tenant’s rights to break a lease.

by Kate Beall