PA Law Blogs » Real Estate Law

Augenstein v. Coldwell Banker: Appraising the Decision

Barry Hill — Tue, 20 Sep 2011 16:34:18 +0000

The Real Estate Settlement Procedures Act (RESPA) provides a framework for protecting home buyers. But the law, no matter how well-intended, can be effective only if the justice system reinforces legislation. The recent Augenstein decision demonstrates how this ought to work.

In 2009, when Jeffrey and Stephanie Augenstein purchased real estate in Delaware County, Ohio, they were billed for settlement services by NRT Columbus, LLC, doing business as Coldwell Banker King Thompson. Among the charges was an administrative fee of $199, separate from the broker commission of 3 percent of the sale price. When the lawsuit was filed in 2010, the Augensteins contended that the administrative fee was a charge for which no specific service was performed by the brokerage firm, and thus a violation of section 8(b) of RESPA (12 USC §2601-2617).

Coldwell Banker initially asked the U.S. District Court for the Southern District of Ohio to dismiss the lawsuit, but that motion was denied. Both sides then asked for summary judgment. The court agreed that, because the decision depended entirely on an interpretation of the statute, it was possible to forego a jury trial. The key element thus became the court’s judgment that “the text of RESPA §8(b) clearly and unambiguously prohibits undivided unearned fees.” Given that the defendant could not link the $199 administrative fee to any specific services performed on behalf of the Augensteins, the court issued a summary judgment for the plaintiff.

The Augensteins filed their lawsuit on behalf of a nationwide class of similarly situated borrowers who paid an administrative fee in connection with federally related mortgage
loans. In the future, then, this case becomes the vanguard of potential class-action lawsuits. Although the decision in the Augenstein case sets a precedent only in the Sixth Circuit (Kentucky, Michigan, Ohio, and Tennessee), rulings within other federal courts have often adopted a similar view of the RESPA law.

Anapol Schwartz hopes to continue its role in assisting consumer protection through class action lawsuits, and opposing these real estate “junk fees” will give substantial relief to new homeowners. If you believe you have been a victim of such a charge on your home purchase, call Anapol Schwartz partner Barry Hill toll-free at (866) 706-1477.

Jury Rules Philadelphia Cannot Evict Boy Scouts

Michael Monheit — Mon, 12 Jul 2010 11:00:59 +0000

A federal jury has ruled that the city of Philadelphia cannot evict a local Boy Scouts chapter from a building owned by the city for banning gays. According to an Associated Press news report, Philadelphia city officials had insisted that nonprofits including the Boy Scouts abide by local anti-discrimination laws, including equal protection for gays.

However, a federal jury determined that the Boy Scouts, as an independent organization, have First Amendment rights and that the city’s reason violates the Boy Scouts’ First Amendment rights.

The Scouts had filed a lawsuit seeking an injunction to prevent the city from evicting them or charging a cost-prohibitive rent of $200,000 a year. A federal judge also said that the city can still terminate the Scouts’ lease, but the reason for it cannot hinge on the organizations views or opinions. The city and Boy Scouts are continuing to negotiate the matter.

The First Amendment to the U.S. Constitution is part of the Bill of Rights and prohibits the making of any law that impedes the free exercise of religion or that infringes on the freedom of speech, freedom of the press or right to peaceful assembly.

Bethlehem Hosted Foreclosure Scam Awareness Meeting

Deborah Forrister — Mon, 03 May 2010 16:09:13 +0000

When homeowners are feeling the strain of failing to make mortgage payments, where do they turn? It is understandable for homeowners facing the possibility of foreclosing their home to seek help from individuals claiming to be professionals. But how can a homeowner in Bethlehem protect himself or herself from becoming a victim of a Pennsylvania foreclosure scam?

A recent wfmz.com article reports that Bethlehem, Pennsylvania hosted a meeting led by U.S. Eastern District Attorney Michael Levy as he addressed the issue of foreclosure fraud with other officials. Especially with the wavering condition of our current economy, homeowners struggling to pay their mortgages cannot risk falling any deeper into financial loss. Having government officials recognize the threat of foreclosure scams and fraudulent actions targeted at vulnerable homeowners is a good step towards spreading the word and helping prevent further monetary devastation.

Those who commit fraud in scamming homeowners do a huge disservice to the housing market and to the financial well being of families who are also experiencing a rough time. Homeowners should be weary of anyone declaring that they will alter mortgages and stop a foreclosure from happening for a certain charge. The meeting in Bethlehem intended to also remind homeowners that various loan modifications for mortgages and related services are usually offered without a fee needing to be paid. So, if a “company” informs you that there is no need to respond to your bank’s paperwork or appear in court because they will make sure everything is taken care of, think twice about continuing forward with any sort of deal.

PA Supreme Court Approves Voting On Philadelphia’s Board of Revision of Taxes

Deborah Forrister — Thu, 29 Apr 2010 10:00:27 +0000

Voters in Philadelphia may be able to decide on a new approach as to how their properties will be taxed in accordance to the ways in which the value of real estate is established and contested. A new charter is in the wings to get rid of Philadelphia’s Board of Revision of Taxes and initiate two new agencies – an Office of Property Assessment and an independent Board of Property Assessment Appeals.

An article from The Philadelphia Inquirer reports that the Pennsylvania Supreme Court ruled on April 27, 2010 to allow a primary election vote scheduled for May 18 which is focused on abolishing the Board of Revision of Taxes in Philadelphia and replacing it with two new bodies. While the BRT asserts that prospective alterations to the charter are illegal, the Supreme Court ruling made no judgments based on these statements.

If the charter is approved by Philadelphians and if no other challenges are made, real estate values would be set under the circuitous control of the mayor in an Office of Property Assessment entity. In addition, cases presented by property owners regarding improperly calculated real estate values would be handled by an independent Board of Property Assessment Appeals group.

The Pennsylvania Local Government Commission reminds us that the real estate tax is the only tax authorized by law in Pennsylvania to be imposed by all classes of local governments within the state. As one of the primary sources of funds for PA local governments, real property taxes influence property owners to a great degree in which real estate taxes are typically owed to the county, the municipality, and the school district with the same voting boundaries. Pennsylvania assessment laws call for real estate value to be based on its “actual value” and at a legitimate rate and price for which the property would independently be sold for.

The city of Philadelphia has the right to take control of property assessments if it believes the entity in charge is not fulfilling its duties. However, according to the article, the BRT contests that its power to hear property assessment appeals would be taken away by an entity other than the legislature.

With the housing market in Philadelphia and throughout the state of Pennsylvania still on the road to recovery, the amount a person is taxed for real estate has played a greater role than most people have ever experienced before. It is during such times that it may be necessary for a reexamination of how property assessment and real estate value appeals are being handled and what potential changes can be made to the process.

Real Estate Problems Fuel Landlord Impersonation and Rental Scams

Deborah Forrister — Tue, 20 Apr 2010 10:00:10 +0000

Finding a well-priced house or apartment for rent is challenging enough without having to worry about being scammed by someone posing as a landlord. For those who have lost substantial finances from having to foreclose their home, the last thing they need is to handover a deposit only to loose out on the money and housing opportunity.

A recent Associated Press article discusses a noted rise in incidents of “landlord impersonation” contributing to rental scams. Officials speculate that these occurrences may be linked to the increased quantity of vacant and foreclosed homes – more empty spaces to advertise for rent and more families and individuals in need of a place to live. While solutions to real estate market problems seem to still be wavering, this type of scam may continue to increase unless stricter penalties are enacted in accordance with heightened awareness amongst law enforcement and searching tenants.

The article focuses mainly on landlord impersonation occurring in San Francisco; however, this type of scam happens throughout the United States and can happen to anyone. California Assemblywoman, Fiona Ma, is sponsoring a bill that would increase the penalty of collecting money by posing as a landlord. Under the bill, such an offense would become a felony of grand theft rather than a misdemeanor. The bill would make it so that anyone convicted would face serving a maximum of one year in state prison or paying a $10,000 fine.

Anyone looking to lease property should do their research and be sure that any rental agreement is legitimate before signing or paying a deposit. It is understandable to want to rush this process so that you and your family have a place to live, but it is not worth the risk of being the victim of a rental scam. Real estate matters and legalities are typically far from simple to someone who has not devoted years to becoming an expert in the field. Plan on taking your time in looking for other prospective places to live before you give a stranger a large amount of cash for a deposit.

Environmental Contamination in Massachusetts Leaves Condo Owners Stuck

Michael Monheit — Tue, 13 Apr 2010 16:00:10 +0000

American real estate law provides a variety of protections for consumers including provisions for environmental hazards. But what happens when newly discovered ground contamination issues devastate property prices?

A case in Lowell, MA, as reported by WCVB TV Live Boston, illustrates how these kinds of circumstances lead to some complex issues and financial liability for residents, as well as tough challenges in local government.

In July of 2009, environmental testing found unusually high levels of arsenic, cadmium, chromium and lead, tetrachloroethene and other elements at the Willard Street condominium property in Lowell. The city paid for an Immediate Response Action Plan submitted in September to the State Department of Environmental Protection. However, further efforts to test the site have been delayed by procedural issues.

In the meantime, though city assessors have slashed values more than 35%, condo owners dispute their responsibility to pay any property taxes citing hardship in owning their units. Real estate agents have refused to sell the units on ethical grounds and so their owners are stuck with them. Renters in the units have moved out since the environmental issues were made public according to condo owners.

The case of the Willard Street property highlights complex issues of responsibility where the State Department of Environmental Protection has named the condo association and the City of Lowell as responsible for the issue. According to state law, both the original owners and the current owners of a property can be liable in these kinds of cases. City planners will have to make difficult decisions about spending under scrutiny by condo owners who say they are being overlooked by the city. This case details the kinds of debates and controversies that inform real estate law when new issues of contamination cause a large fluctuation in local property values and threaten the health and safety of residents.

Dollar Houses in Minnesota?

Michael Monheit — Mon, 05 Apr 2010 19:00:05 +0000

Kare11.com reports that the local government in Minnesota’s St. Paul–Minneapolis Twin Cities area is taking an active approach to real estate rejuvenation. Apparently they are offering homes for sale on the public market for as low as $1.

As foreclosures keep battering home values in many parts of the country, neighborhoods like Dayton’s Bluff in the Twin Cities are home to some properties that, according to some technical estimates, are nearly worthless. The city has taken some of these properties and put them up for sale for $1, hoping for some bites from enterprising investors.

Local real estate agents report some frustration with an apparently large consumer base that responds to advertised sales believing they can buy a house for $1. Just scratching the surface of the deal shows that the traditional strings apply to these kinds of real estate purchases. Buyers need to be able to qualify for significant loans of up to $190,000 for making needed repairs on the properties.

St. Paul–Minneapolis is not the first city to try the “dollar menu” approach to real estate. In years past, cities like Philadelphia adopted similar programs for homes with extremely low buyer interest. However, as shown in the recent deals following the nationwide housing collapse, the actual offer of a home sale for $1 is nothing but a formality. Local citizens should recognize that there’s no such thing as free real estate. Real estate legal professionals can help inform the public about the actual risks and benefits of signing onto these kinds of deals. Legal restrictions and obligations apply to dollar homes just as they do to any other type of real estate contractual agreement. Making money on any property deal involves critical thinking about what home prices will look like in the future.

Utah Wants Federal Lands – Legal Battle Looms

Michael Monheit — Wed, 31 Mar 2010 10:00:11 +0000

A brewing legal battle between the state of Utah and the federal government looks a little like high stakes poker. The Los Angeles Times reports that Utah lawmakers are looking to go all the way to the Supreme Court to get eminent domain powers over some large land parcels now federally owned.

Land use groups estimate some 60% of Utah’s land is owned by the federal government, sparking claims of economic hardship from state officials who say the lack of potential revenue is crippling the state education budget. Some of the controversy goes all the way back to agreements made at the time of Utah’s official grant of statehood according to some Utah officials.

According to the AP report, the state is ready to put its chips on the table in the form of 3 million dollars earmarked for legal defense. State lawmakers say this is a small sum in relation to the revenues the state could get from control of the disputed lands.

At the core of the issue, according to some sources, is the general policy of current Interior Secretary Ken Salazar to deny oil and gas leases on some of the Utah land parcels that are federally administrated. The Grand Staircase-Escalante National Monument, with its coal reserves, represents another possible land grab by Utah administrators.

Legal professionals involved in this kind of high stakes real estate law will want to watch this case carefully to see if Utah’s efforts will open the gates for a flood of eminent domain claims against the federal government. The outcome of this and similar cases will have a huge effect on state and federal budgets while setting important precedents for real estate law as it applies to multiple levels of government. The case may also shed some light on how public energy policies come into play in conflicts over America’s natural protected lands.

Worries Grow Over Commercial Real Estate Loans

Michael Monheit — Wed, 24 Mar 2010 14:00:53 +0000

America has already faced some of the major effects of foreclosures and a weakened housing market, but according to many experts, Americans haven’t yet begun to see the real consequences of defaulting on commercial mortgages.

Across the country, flagging retail sectors mean more risk of abandoned commercial real estate. Empty malls, office buildings and storefronts can be every bit as bad for communities, in their own way, as empty houses or residential properties.

A Feb. 17 Market Watch article shows that the Congressional Oversight Panel, the government committee that presided over the commonly familiar TARP program, is warning about the future effects of CRE defaults, which they predict will be heaviest after this year.

Many commercial real estate loans made prior to the collapse of the housing market were made “carelessly” according to the panel, and now many of them may shake the banks that made them.

Experts believe that a certain class of banks generally carries a lot of CRE debt while also providing the bulk of loan money to small businesses. When these banks realize losses related to commercial real estate, the consequences could be widespread.

In terms of commercial real estate law, it’s likely that a flood of defaults on CRE loans will include legal wrangles over the responsibility of borrowers, the “real value” of properties and the need for upkeep and maintenance of properties. Law firms involved in legal counsel for companies holding “troubled assets” will likely pay attention to what goes on in the CRE market as well as any related legislation that the federal government may consider. Meanwhile, it’s reported that relatively successful companies are on the prowl for bargains on commercial real estate purchases. All of this means attention to detail will be crucial for handling legal issues around commercial properties in a volatile market.

Special Servicing Deals Anticipate Imminent Commercial Real Estate Crisis

Michael Monheit — Wed, 17 Mar 2010 22:08:06 +0000

Recent news reports show that at least one “big player” in commercial real estate is looking to the future of America’s troubled commercial mortgages as a potential investment opportunity.

A Feb. 17 Wall Street Journal story on real estate entrepreneur Andrew Farkas indicates the 49-year-old investor with a history of big real estate deals is looking to obtain a stake in American commercial real estate debt. Specifically, the report states that Farkas’ Island Capital Group is negotiating to take over a unit of Centerline Holding Co., a primary firm that specializes in securitized bonds representing CRE loans.

The documented history of deals that Farkas has brokered includes some controversial events including lawsuits by the U.S. Department of Housing and Urban Development along with other suits by private parties, which settled out of court.

The story of Andrew Farkas includes some unique successes as well. Perhaps most prominently, Farkas played a major role in building up real estate value in the Middle Eastern island of Dubai, which enjoyed international renown prior to economic troubles in 2008.

Current efforts by Farkas and his investment entities appear to be aimed at participating in collectivized risks for those who hold bond investment in commercial real estate. Some critics of the deal argue that Farkas might try to artificially depress the values of properties according to the WSJ story.

Firms like Centerline, that experts call “special servicers,” will play a prominent role in managing the risks when commercial real estate loans begin to experience high rates of default. This is something that government groups have warned may happen in 2011 and beyond. If a trend in defaulting on commercial spaces like warehouses, storefronts, strip malls, and larger commercial spaces does occur, everyone will be looking at how to use existing real estate law to prop up deals on behalf of America’s communities to avoid a much larger and more painful decline.