Monday, December 9, 2013

Sellers of Residential Property Now Must A Provide Smoke Detector Affidavit Or Credit The Buyer $250 At Closing

Connecticut currently does not require sellers to install smoke detectors, but rather, only requires them to disclose certain information on smoke detectors in the Residential Property Condition Disclosure Report Form that residential property owners generally must provide when they sell property. This will change effective January 1, 2014. Subject to certain exemptions, sellers of one or two family residential properties must, at or before closing, provide the buyer with a Smoke Detector Affidavit certifying that the property is equipped with compliant smoke detection and warning equipment, as well as compliant carbon monoxide detection or warning equipment. If the seller fails to provide this affidavit, the seller must provide the buyer with a $250.000 credit at closing. The Act specifies the standards that the smoke detectors and carbon monoxide equipment must meet. Specifically, the carbon monoxide detectors must be able to show “the amount of carbon monoxide present as a reading in parts per million.” The smoke detectors must be able to “sense visible or invisible smoke particles” and “be installed in the immediate vicinity of each bedroom.” Both may be battery-operated and must: (1) be installed in accordance with the manufacturer’s instructions; (2) not exceed the standards under which they were tested and approved; and (3) be capable of providing an alarm suitable to warn occupants when activated. So what does this mean for sellers? If the property does not have the proper equipment, sellers must now install the equipment before closing. The cost to do so may exceed $250.00. Accordingly, sellers may elect to pay the $250.00 rather than installing the equipment. Sellers may also choose to pay the $250.00 to avoid any potential post-closing liability that may arise from providing such an affidavit. This may be particularly true for a seller whose property appears to be in compliance, but the seller was not the property owner when such equipment was installed. That said, it is likely that some buyers will demand compliance as a condition precedent to closing. If you have any questions, please feel free to contact Mark Steier or Emily Steier at (860) 233-1271.

Monday, October 21, 2013

BUILDING PERMIT ISSUES IN CONNECTICUT REAL ESTATE CONTRACTS

A common issue that arises in real estate transactions is whether a seller is obligated to obtain and close out building permits. Section 29-265 of the Connecticut General Statutes states, in pertinent part, that “no building or structure erected or altered . . . shall be occupied or used, in whole or in part, until a certificate of occupancy . . . has been issued by the building official, certifying that such building, structure or work performed . . . substantially conforms to the provisions of the State Building Code.” The statute, however, contains a safe harbor provision that provides that a building or structure will not have to be removed so long as it was used for six years “except as may be necessary for the safety of life or property.” This issue is raised in several contexts. 1. The Real Estate Contract: The contract prepared by, for instance, the Greater Hartford Association of Realtors is silent regarding whether a seller is liable for conveying real property with improvements for which permits were not obtained and/or closed out. The fact that the contract provides that the buyer will take subject to municipal ordinances/regulations and any state of facts an accurate survey or personal inspection of the property might reveal, arguably draws the conclusion that the contract does not require the seller to convey the property with all permits properly in place, particularly, if there is no affirmative representation in the contract requiring the seller to so comply. 2. The Property Condition Disclosure Report: There is little in the property condition disclosure report that suggests that the seller is making any representation as to the status of permits. Moreover, for the seller to incur any liability, it must be demonstrated that the seller’s misrepresentation was made with actual knowledge of the condition complained of. However, in a recently decided Connecticut Superior Court case, Barbour vs. Zapata, the court concluded that the seller’s representation in their disclosure that there were “no” problems with the deck and that lack of town approval of new construction was a problem which required disclosure. The language in the property condition report which contains a statement that encourages purchasers to have properties inspected by professional inspectors, and informs purchasers that any representation made by a seller does not constitute a warranty by the seller may provide a defense to sellers who claim that a purchaser has not justifiably relied on the seller’s statements. 3. The Home Inspection Contingency: Buyers sometimes raise such issues as part of their home inspection contingency. They assert that the failure of the seller to obtain or close our permits reasonably leads buyers to conclude that improvements may not conform to building code, and therefore, may be unsound or unsafe. Assuming the issue relates to the basis structure of the house, or whether the mechanical, electrical and plumbing are in good repair, the seller is obligated to negotiate a resolution of such issues. In Barbour vs. Zapata, the court observed that the plaintiff and the defendant attended the home inspection. The buyer asked the seller whether everything that needed to be done with the house was in order, whether all permits which needed to be pulled had been obtained. The seller stated that all permits had been pulled, since she needed to do so to obtain a daycare license. Because the buyer specifically brought up the issues at the time of the inspection, the Court found that the defendant knowingly misrepresented the condition of the residence and that the buyer relied on it. 4. Marketability of Title and Title Insurance Affidavit: As you may know, the title insurance affidavit contains a representation the seller has obtained and closed out all applicable permits. Answering this question falsely can give rise to a lawsuit. There also may be argument that the title to property is not marketable, a requirement of the contract, if the lack of permits is such that there may be a substantial probability of loss and litigation due to the failure to obtain a building permit, i.e. the title company may not be willing to provide title insurance. For example, a buyer might argue that the use of property, without applicable building permit, could result in the town issuing a cease and desist order, which might result in the owner of such property not being able to use a portion of it as a single family residence, thereby making the title unmarketable. 5. Seller’s Liability for Negligent Misrepresentation or Fraud: Outside of express statutory language and contractual provisions, buyers have the common law right to terminate a contract if they can prove that the seller’s nondisclosure constitutes a negligent misrepresentation, or fraud, and that the buyer relied on the truthfulness of such negligent misrepresentation or fraud of the seller. In such an event, a buyer may be able to terminate the contract, upon the discovery of misrepresentation or fraud. If it is not discovered until after the closing, the buyer may have a right of action against the seller for his losses and damages. The central elements of action in fraud are: (1) that a false representation was made as a statement of facts; (2) that it was untrue and known to be untrue by the party making it; (3) that it was made to induce the other parties to act on it; and (4) that the latter did so act on it to his injury. To be liable for negligent misrepresentation, one is liable if he supplies false information for the guidance of others which causes pecuniary loss as a result of their justified reliance upon the information, and if the supplier fails to exercise reasonable care or competence in obtaining or communicating the information. A cause of action for negligent misrepresentation requires a plaintiff to prove that (1) the defendant made a misrepresentation and (2) the plaintiff reasonably relied upon that misrepresentation. If you represent a buyer who is concerned about status of permits, the best way to deal with it is to provide proper language in the real estate contract and to make sure that the requisite due diligence is done on behalf of the buyer by contacting, for example, the local building inspector’s office to determine whether improvements to the property have been properly permitted. You can also include a provision in the contract requiring “attorney review”. A diligent buyer’s attorney should insert a provision in the contract requiring seller to obtain and close out permits for any required building, structures or improvement subsequent to the issuance of the original certificate of occupancy. Here is an example that ought to be included as a seller representation in a real estate contract: “seller represents that the premises and the present use thereof are not in violation of any governmental rules, codes, permit regulation or limitations, unless same have become legally nonconforming. The seller represents that seller has not received any notice of zoning or building code violation and that there have been no attempt to enforce same against seller during the time seller has owned the premises. Seller is not aware of any such violations which predate this ownership of the premises”. Another example would be “seller is in the material compliance with all state and municipal zoning environmental, health and building regulations affecting the property and has no notice of any investigations, deficiencies, cease and desist orders, inspections or violations, actual or threatened, involving the property”. Please feel free to contact me if you have any questions regarding the foregoing. Sincerely, Mark S. Steier

Tuesday, June 18, 2013

Attention Homebuyers: Connecticut Increasing Closing Costs for MERS Documents

The Connecticut General Assembly recently approved House Bill 6706, which, if signed by the Governor, will increase recording fees for MERS documents.  Specifically, the bill increases recording fees for documents where there is a “nominee of a mortgagee.”  Currently, only Mortgage Electronic Registration Systems, Inc. (“MERS”) falls within the legislation’s definition of a “nominee of a mortgagee.”  Assuming the Governor signs the bill (which we expect him to do shortly), effective July 15, 2013, the recording fee for the first page of all MERS documents will increase from $53.00 to $159.00.    

Friday, May 31, 2013

Five More Provisions That Homebuyers May Want To Add To The Standard Real Estate Purchase Contract

 
  1. A representation from Seller that Seller has fee simple, or a valid permanent easement, to every portion of any driveway serving the premises, and that no other person(s) has the right to use such driveway. 
  2. A provision requiring the Seller, upon Purchaser’s request, to at or before the time of closing, (1) meet with the Purchaser to explain the operation of all appliances and systems in the house; (2) deliver all instruction manuals and guarantees in Seller's possession; and (3) deliver a list of servicemen and contractors who worked on the premises during Seller's period of ownership.
  3. A provision requiring Seller to deliver at closing any plot plan, engineer’s certificate, or survey of the property in Seller’s possession to Purchaser or Purchaser’s agent or attorney at least thirty days prior to closing.
  4. If applicable, a representation from Seller that during Seller’s ownership of the premises, Seller has experienced no difficulties with the air conditioning system(s) and is not aware of any latent defects therewith.  A representation that the air conditioning system has been regularly maintained and that Seller has not withheld from Purchaser any information relating in any way to material defects in the air conditioning system(s).
  5. An agreement from Seller that Seller will not further encumber the property without immediate notice to Purchaser and that Seller will notify Purchaser immediately of any matters including, but limited to, attachments, liens and zoning matters which may affect the property during the pendency of the Agreement.

Tuesday, May 21, 2013

Warning for Connecticut Landlords: You Could Face Serious Consequences If You Don’t Comply With Connecticut Law Regarding Security Deposits

A recent decision highlights the potential consequences facing landlords if they do not comply with Connecticut law regarding the handling and return of security deposits.  Under Connecticut law, if the tenant has provided the landlord with a forwarding address, the landlord must within thirty days after the expiration of the tenancy deliver the former tenant with the full security deposit plus interest or the balance of the security deposit and a written accounting of any deductions for damages actually suffered by the landlord.  If the former tenant has not provided the landlord with a forwarding address, the landlord must return the security deposit plus interest or the balance of the security deposit with an accounting by the later of either thirty days after the end of the tenancy or fifteen days upon receipt of written notice of the tenant’s forwarding address.

It is important for landlords to know that Connecticut law broadly defines the term “security deposit” to include all forms of advance rental payment other than the first month’s rent, regardless of its intended use.  That means if a landlord collects, for example, the last month’s rent at the inception of the lease; such money will be deemed a “security deposit” under Connecticut law. 

If landlords don’t follow these rules, it could be very costly.  The Court of Appeal of Connecticut recently found landlords liable for double damages plus interest for failing to timely return the tenants’ “security deposit,” which included not only what one commonly thinks of as a “security deposit,” but also the last month’s rent paid at the inception of the lease.  The landlords were also found liable for punitive damages and the tenants’ attorney’s fees pursuant to the Connecticut Unfair Trade Practices Act for comingling the tenants’ security deposit with their own funds and using the deposit for their own personal expenses.   

Monday, May 13, 2013

Representing Homebuyers in Hartford County, Connecticut: Top 25 Things Missing From the Greater Hartford Association of Realtors Standard Contract

By Mark S. Steier                                                                                                           
Direct Telephone: (860) 231-1014
Email: Mark@stmclaw.com

  1. A provision requiring the seller to provide buyer with keys, garage door openers and codes.
  2. A provision expanding the termite and wood destroying insects inspection to also include infestation by bees, bats, rats, roaches, mice, hornets, wasps, snakes and raccoons.
  3. A provision that makes the home inspection subject to the satisfaction of the buyers in their sole discretion.
  4. A provision giving the seller the right to terminate the contract in the event the parties are unable to agree on inspection issues.
  5. A provision requiring the seller to provide the buyer with copies of any radon, septic, water, or home inspection report they received since they've owned the property.
  6. A representation from the seller that they know of no underground storage tanks on the property, and that in the event the same were located on the property, they have been properly decommissioned in accordance with state or local regulation, and a requirement that seller provide buyer with appropriate proof prior to closing of such compliance. This representation shall survive the closing.
  7. A representation from seller as to the existence of any wetlands on the property, or if it is located within any flood hazard area, and buyer’s ability to declare the contract void if it, in fact, is located in a flood hazard zone, or contains wetlands areas that are not satisfactory to buyer.
  8. A representation that the property sustained no damage from wind or water during Hurricane Sandy or Irene, and, in the event such damage did occur, what remediation was taken by the seller.  Buyer should be given an opportunity to review such as information in the right to cancel the contract and obtain a full refund of all deposits if they so elect.
  9. A representation from the seller that they are unaware of any easements, deed restrictions, or zoning ordinances which might affect the subject premises as a legal one family home, or, in the event the buyer wishes to put a pool in a certain location, that there are no restrictions or easements that would impact such an improvement.
  10. A representation from seller that in the event they have a home equity line of credit that sellers will forward appropriate correspondence to the lender irrevocably freezing it as of the date of the contract and providing written proof of same to buyers attorney.
  11. A representation from the seller that the payoff of all mortgages shall be the requirement and responsibility of the seller, irrespective of the fact that at closing a deficient amount of money may have been paid to the mortgage company or bank and demand for a subsequent amount of funds is required to satisfy said obligation in order to obtain the appropriate release of mortgage. Seller agrees to make said payment on such deficiency demanded within five days of receipt of such notification. This paragraph shall survive closing of title.
  12. A representation from the seller that they have sufficient equity in the subject property to close on this transaction without having to bring funds to closing to satisfy any and all obligations as set forth under the contract, and a further representation that this is not a short sale requiring lender approval to culminate the transaction.
  13. A representation from the seller that they have not received any notices of any variances or other zoning issues from neighboring properties within six months prior to the execution of the contract and, in the event any such notices had been received prior to the date of closing, that said notice shall be provided to the buyer within five days of receipt of same. The buyer shall have an opportunity to review such notice and based upon the content of such notice, the buyer may cancel the contract within three days of receipt of such notice if the buyer so chooses, and receive a refund of any deposits previously paid.
  14. The seller represents that during seller’s period of ownership, no work has been performed on the premises for which a building permit has been required other than that for which building permits were obtained and for which certificates of occupancy have been issued and seller will provide to the buyer’s attorney copies of any and all permits obtained and closed out in connection with any and all improvements made to the subject premises, if any, within seven days of the conclusion of the attorney review period. This paragraph shall survive closing of title.
  15. The seller represents that the subject premises is not part of a Common Interest Community or Association and is not required to make payment to any entity on either an annual or monthly basis for dues and assessments.
  16. At the time of closing, the seller shall provide buyer with any warranties that they may have in their possession that are in full force and effect concerning the subject matter premises, including, but not limited to appliances, roof, air conditioning, heating etc.
  17. Within three days after the conclusion of the attorney review period, the seller agrees to order a home insurance claims report, known as a CLUE report, from Choice Point for $19.50 for an electronic copy. Choice Point can be reached at 866-527-2600 or www.choicetrust.com. The seller shall be reimbursed said sum at the earlier of closing of title or contract termination. Seller shall provide buyer with a copy of such report upon receipt and buyer shall have three business days after the date of receipt to review the report. In the event that buyer find said report to be unsatisfactory, buyer reserves the right to cancel the contract receive a refund of any and all deposits paid. The seller agrees to sign an affidavit certifying the results of the CLUE report.
  18. The subject premises shall appraise at the contract price, or more, or, if less, the parties can agree to an appropriate adjustment, or failing that, buyer may cancel the contract receive a refund of all deposits paid.
  19. A time of essence closing date with penalties if it doesn’t close by a certain outside date.
  20. A requirement that sellers do more than merely leave the house in broom clean condition e.g. interior of refrigerator scrubbed and cleaned out.
  21. A representation that no utility lines cross the property of an adjoining owner to serve the premises.
  22. A representation as to the nonexistence of urea formaldehyde or other type of foam insulation or asbestos related material.
  23. A representation of no basement or roof water leaks.
  24. As to septic, a representation that it is entirely within lot lines, serves no other premises, and has required normal maintenance only.
  25. As to well water, a representation that the well and pipes are entirely within lot lines, serves no other premises, and that during seller’s entire period of ownership, the well has produced sufficient clear and potable water for normal domestic use.