“Dayston v, LLC v. Brooke, voided a real estate contract because it failed to satisfy the Texas statute of frauds,” discusses Charles Sartain in Gray Reed’s Energy & The Law.
“Brooke sued Dayston asserting that the contract was void due to an insufficient legal description and asked for return of earnest money.”
This post details what is required for a sufficient legal description.
“Two Broward attorneys were arrested this week for their involvement in a nearly $750,000 fraud scheme to rip off unsuspecting victims of foreclosure surplus checks, according to the Broward Sheriff’s Office,” report Brooke Baitinger Eileen Kelley in South Florida Sun Sentinel’s Crime News.
“The attorneys, Rashisa Overby and Ria Sankar-Balram, worked with Illya and Patricia Tinker, a married couple nicknamed ‘tomb raiders’ for another multimillion-dollar scheme in which they stole properties across South Florida, some of which belonged to the dead.”
“The Broward Sheriff’s Office arrested Overby and Sankar-Balram Monday. Balram was released from jail after posting a $57,000 bond. Overby who faces significantly more charges — 29 counts of fraud, money laundering and grand theft among other charges, had bond set at $140,000.”
“A lawyer representing Jennifer Dulos’ family has filed a federal complaint seeking to require the state Judicial Branch to foreclose on Fotis Dulos’ former Farmington residence even though housing proceedings have been halted due to the coronavirus pandemic,” reports Lisa Backus in Stamford Advocate’s Local News.
“Attorney Richard Weinstein, representing Gloria Farber and the estate of her late husband, Hilliard, wants the proceedings to move forward on the 14,000-square-foot home that was already in foreclosure when Fotis Dulos died Jan. 30 from an apparent suicide.”
“In March, Gov. Ned Lamont issued an executive order, putting a moratorium on foreclosures and evictions as the pandemic spread throughout Connecticut. Weinstein filed the complaint against Judge Patrick Carroll, chief court administrator for the state Judicial Branch, out of ‘sheer frustration,’ the attorney said. ‘Judges are precluded from entering into foreclosures and evictions even in non-COVID-related cases,Weinstein said. ‘My client is paying all this money every month and nothing is happening. I did not want to sue the judge, but every day that goes by, it costs the estate money.'”
“We’ve all seen, or perhaps been assaulted by, a surfeit of articles about force majeure clauses and how all of our agreements should include one. Other pundits have gotten way ahead of this one by explaining how we will have a better world if the advice to include such clauses would be taken by all. They’ve noted that very few agreements with a force majeure provision have covered the kind of closures we have experienced and are still experiencing. But, what we’ve not seen is much understanding that there is nothing special about a ‘force majeure’ clause: it is no more than another risk-shifting device,” writes Ira Meislik in Meislik & Meislik’s Retail Real Estate Law blog.
At the beginning of this month, a Bankruptcy Court for the Northern District of Illinois published an opinion about one such force majeure clause in a restaurant lease. Consistent with the advice we are seeing from all corners of our industry, the clause (according to the court, and correctly so) covered the restaurant’s closing because of COVID-19 restrictions imposed by Illinois’ governor. Read the lease’s clause for yourself:
“The Fourth Court of Appeals of Texas overturned a jury verdict awarding HouseCanary, Inc. (“HouseCanary”) $740 million in damages for trade secret theft and fraud against Title Source, Inc., now known as Amrock,” reports Mena Gaballah, PharmD and Joshua M. Rychlinski in Crowell Moring’s Trade Secrets Trends.
“Amrock and HouseCanary are competitors in the real estate sector. Amrock provides title insurance, property valuations, and settlement services in real estate transactions. HouseCanary is a real estate analytics company that developed software to determine property values. HouseCanary agreed to provide this software to Amrock, and, according to HouseCanary, Amrock reversed engineered it. After the relationship between the two broke down, Amrock sued HouseCanary for breach of contract and fraud, and HouseCanary counterclaimed for breach of contract, fraud, misappropriation of trade secrets, among other claims. The jury found for HouseCanary, awarding it compensatory and punitive damages as well as attorney’s fees.”
“A state appeals court Wednesday overturned a record $706 million verdict rendered by a San Antonio jury more than two years ago,” reports Patrick Danner in San Antonio Express News’ Business.
“The 4th Court of Appeals in San Antonio reversed a trial court’s judgment on real estate analytic firm HouseCanary Inc.’s fraud and misappropriation of trade secret claims against Amrock Inc., a Detroit home appraisal company affiliated with Quicken Loans Inc. Amrock formerly was known as Title Source Inc.”
“The two claims were sent back to a state District Court in San Antonio for a new trial.”
A “plaintiff entered into an exclusive listing agreement with the defendant, Deal Lake Village Gardens, LLC to broker a sale of the defendant’s apartment complex. The agreement included the following provision: “If a sale or exchange is consummated after the termination of this agreement to or on behalf of a party who was introduced to the property by [plaintiff], [plaintiff] will also be entitled to a full commission.” writes Gary M. Albrecht in Cole Schotz’ Real Esate & Construction Law.
“The property was sold, but not until after the term of the plaintiff’s exclusive listing expired. At the trial court level, the plaintiff argued that even though the property was sold after the exclusive listing agreement expired and the defendant had hired a new broker, it had earned a commission because it had introduced a principal of the purchaser to the property while its exclusive listing agreement was in effect. The trial court rejected the plaintiff’s claim, but its reasoning came under the Appellate Division’s scrutiny.”
“When negotiating exclusive listing agreements or other forms of commission agreements, whether on the side of a property owner or broker, any right to a commission after a broker’s agency has expired must be discussed and memorialized in a contract to avoid a similar fate to the parties of this case, which in the case of the defendant, may include the payment of two full commissions (in addition to legal fees) depending upon the disposition of the remanded case at the trial court.”
“The recent decision of the Bankruptcy Court for the Southern District of New York in In re AAGS Holdings LLC, Case No. 19-13029 (SMB) (Bankr. D. Del. Nov. 12, 2019), underscores the ability of debtors — and specifically, for purposes of this client alert, parties to real property purchase contracts — to take advantage of the Bankruptcy Code’s 60-day tolling period to get more time to close on a purchase despite a “time of the essence” (TOE) closing deadline. The SDNY Bankruptcy Court … held that a debtor’s bankruptcy petition is not filed in bad faith when the petition is filed in order to obtain a statutory 60-day extension of a TOE closing deadline. The decision underscores the need for sellers to consider the effect of this automatic bankruptcy extension when negotiating with buyers over the terms of a consensual closing extension (e.g., fees and increased deposits) even if the contract does not have a financing contingency.” warn Adam C. Rogoff, Daniel Ross Berman and Caroline Gange in Kramer Levin’s Perspectives.
“The court found that the term “Closing Date” as defined in the PSA was, in fact, ambiguous.”
“The question of does a lien exist without a debt for it to secure is a complicated issue that unfortunately does not have a universal answer.” discusses Vincent E. Mauer in Frost Brown Todd’s blog.
“Commercial lawyers know that a properly constructed consensual mortgage or security interest can secure the debt created by funds loaned after the lien is granted. This is common in commercial revolving loan situations and real estate lines of credit. The lien continues to exist and dates back to its recording or filing for priority purposes even if the amount owed goes to zero and back up again.”
“What happens in a situation where the lien arguably is not consensual and structured to meet the legal requirements that may permit the lien to continuously exist even when there is no debt to secure?”
Jason Reeves and Helen Campbell of Zelle LLP offer some advice on commercial property insurance contracts in the firm’s Articles.
“Over the past decade, as commercial property insurance rates softened, so too have terms and conditions. In some instances, attempts to broaden coverage have also had the effect of diluting the clarity and consistency of manuscript forms. The role that underwriters’ contract wordings managers once played in tidying up such issues was weakened when the new imperative was to sign up to a policy wording as presented or risk not having an offered line taken up.” they write.
“The market is changing. As the property market continues to show signs of hardening,” he offers some fixes underwriters should consider.
Before agreeing to a real estate sales contract or lease, the parties may prepare a letter of intent, term sheet or other form of preliminary agreement (together, called here an “LOI”), writes Stephen Siegel of Novack and Macey.
An LOI reflects that the parties have agreed on certain important terms of a deal, though not on all of its provisions or details.
“A well-crafted real estate LOI should address the parties’ intentions on such questions in clear terms. An LOI that is unclear as to what, if anything, it obligates the parties to do can invite uncertainty, disagreements and even litigation,” Siegel writes.
A post on the website of Allen Matkins offers five strategies for real estate buyers to increase their leverage when dealing with a seller who requires a sign-and-go-hard transaction.
Such an agreement means the buyer must commit its deposit upon execution of a purchase agreement, without the opportunity to reclaim such investment if it discovers an undesirable condition after opening escrow, explain the authors, Alain M. R’bibo and Shannon I. Snell.
They discuss strategies that involve early access agreements, seller representations, carving out title and survey from the diligence period, expanding conditions precedent, and closing extension options.
As the U.S. commercial real estate sector prepares in the downswing of an extended economic expansion, executives and investors continue to be highly optimistic about the market and the overall U.S. economy, according to an annual survey by U.S. law firm Akerman LLP. The tenth annual Akerman U.S. Real Estate Sector Report – completed by more than 200 C-suite and senior executives – shows that developments such as federal tax reform and evolving technology have taken root and spurred growth, even amid mounting uncertainty and the likelihood of a market correction.
Coming off a record-high outlook in the 2018 survey, when 68 percent of respondents expressed more optimism for the market in comparison to the prior year, 70 percent this year say they are more bullish about 2019 market activity than 2018. Nearly half (46 percent) say the continued improvement of the U.S. economy is the primary driver of this increased confidence.
In a release, the firm said the survey also shows sentiments of softening with a market slowdown looming. A third of respondents (33 percent) say interest rate uncertainty is their primary concern, followed by uncertainty in global economic conditions (23 percent) and uncertainty of federal government policy in the U.S. (22 percent). With the prospect of an interest rate reduction by the Federal Reserve, concerns about rising interest rates are abated for the time being and certain subsectors like industrial and multifamily are outperforming in major markets like Chicago, Houston, Los Angeles, Miami, and New York.
“While the U.S. real estate market has remained resilient since the economic downturn, the headwinds we expected coming into 2019 are starting to come to fruition,” said Eric Rapkin, chair of Akerman’s national Real Estate Practice Group. “Nonetheless, capital is still chasing deals, especially in gateway markets, and we’re beginning to see executives capitalize on tax advantages and deferral strategies such as Opportunity Zones.”
Additional trends identified in Akerman’s 2019 survey include:
• Tax Reform and Opportunity Zones Generate Activity: With the commercial real estate sector a key beneficiary of the Tax Cuts and Jobs Act passed in December 2017, it’s no surprise that 46 percent of respondents rank tax reform among the top three trends they expect to have a significant impact on real estate development over the next three years. On the heels of the release of the U.S. Treasury Department’s second round of proposed regulations, developers and investors are expressing more interest in Opportunity Zones – areas designated for federal tax breaks. As further clarity is being brought to the program, nearly a quarter of respondents place Opportunity Zones among the top three areas they believe will fund the most commercial real estate debt and/or equity in 2019.
• Digital Transformation and Disruption: Executives responding to the survey view technological advances as having the most influence on real estate development, with 48 percent selecting it among the top three trends that will have a significant impact over the next three years. Incorporating the latest technology and design attributes has become critical across all sectors of the real estate market, including luring and retaining tenants in office buildings, attracting millennials to residential properties and facilitating the use of automation and robotics for the industrial sector.
• Aging Population Drives New Areas of Growth: The graying of America closely follows technology and tax reform as the trend expected to most impact real estate development, with 45 percent of respondents designating it among their top three choices. As seniors account for more of the population, new types of healthcare facilities are experiencing growth, including microhospitals, ambulatory surgery centers and other medical uses within traditional retail locations.
• Housing Still Dominates: Survey respondents continue to express confidence in multifamily with 67 percent placing it among the top two sectors they expect to be the most active for real estate transactions in 2019, followed by single-family residential (50 percent). These results echo last year’s survey where 63 percent of respondents predicted the multifamily sector would be the first or second most active in 2018. Within multifamily, 2019 respondents rank apartment development as likely to be most active this year, followed by senior living facilities.
• China, Canada and Latin America Lead the Way: Uncertainties abound in an unbalanced global economy – driven by such developments as the trade war with China, ongoing Brexit gridlock and the upcoming U.S. presidential election. Nonetheless, respondents expect cross-border investment across a range of areas. Executives predict China to be the region that will invest most heavily in the U.S. hospitality, industrial, office and retail sectors. However, Canada is expected to contribute most to foreign investment in the predicted hot markets of multifamily and single family residential. Within Latin America, respondents expect the greatest increase in investment in U.S. real estate to come from Mexico (38 percent), followed by Brazil (30 percent).
• Private Equity and Banks Lead Among Funding Vehicles: For the fourth year in a row, real estate executives expect most funding to come from private equity funds and institutional lenders. In reflecting on the top three areas they expect to fund the most commercial real estate debt and/or equity in 2019, 53 percent chose private equity and 51 percent selected banks. Additional funding sources selected by respondents include foreign investors (45 percent), insurance companies (28 percent) and real estate investment trusts (24 percent).
A Delaware court refused to reform a contract with clear language, finding the argument of a scrivener’s error unconvincing, write Scott E. Waxman and Douglas A. Logan for K&L Gates.
“While the Court noted that it found all of the parties’ testimony believable, the Court did not find clear and convincing evidence that a mistake was made in drafting the contract in question,” the authors explain.
They list the three elements that a party seeking reformation must clearly and convincingly prove.
Ira Meislik of Meislik & Meislik, writing in the firm’s Ruminations real estate law blog, examines the use of subrogation clauses in real estate leases in relation to insurance policies.
He states that the term “waiver of subrogation” is a misnomer when it comes to a lease provision.
“It is the insurance policy where the carrier waives its subrogation right. It isn’t the lease that waives an insurance company’s subrogation right. What the lease needs to do is waive claims. Secondarily, but importantly, a lease needs to require each party to have insurance policies that aren’t invalidated by such a waiver of claims,” he explains.
While a commitment letter in the real estate lending process fleshes out any issues or misunderstandings between the parties prior to the preparation of the ultimate loan documents, it is important to be aware of some potential pitfalls and issues that it can present, warns Benjamin Bruner in a Dickinson Mackaman Tyler & Hagen web post.
The post outlines some of the dangers that cause problems for parties to the contract and then discusses some fundamental terms that a commitment letter should include for the protection of the bank.
Few concepts are as confusing as the “gross up” of operating expenses to those who do not regularly deal with office leases, writes William Hof in a white paper for Husch Blackwell.
“Most tenants understand that in addition to base rent, tenants often directly reimburse their landlords for a portion of the building’s operating expenses (e.g., real estate taxes, casualty insurance, maintenance, utilities, etc.),” explains Hof.
In the paper, he defines “gross up” and explains how it works, and he discusses variable vs. constant expenses and tenant protection.
Houston commercial real estate is still suffering from the collapse of oil prices and loss of tens of thousands of jobs, according to a post of the website of Androvett Legal Media & Marketing. The latest estimates are that more than a fifth of Houston office space sits empty as landlords struggle to find new tenants and existing tenants struggle to sublease unused space. Commercial real estate firm NAI Partners calculates that more than 2 million square feet in office space is expected to be returned to property owners in the next two years.
Houston commercial real estate lawyers Douglas Yeager and Jeffrey M. Smith of Winston & Strawn LLP have witnessed several real estate cycles in their careers. Their experience includes handling the purchase and sale of non-performing loans, as well as advising tenants, owners and developers.
“Without sufficient tenants in these buildings paying rent, the owners may not be able to service their debt. In a couple of years, once this sublease space comes back onto the market, there could be a number of workout agreements and foreclosures of office buildings,” said Yeager. “This is something we have not seen for a few years.”
Smith notes that “lenders will be keeping a close eye on properties as deadlines to extend leases approach. Will the owners be able to service debt if occupancy rates fall as tenants decide not to extend leases, or if they continue operations in less space? Owners that are unable to backfill space will be anxious to see whether lenders will work with them or whether they will try to unload non-performing loans. We would expect to see an uptick in not only workouts and foreclosures, but also opportunistic investors seeking to purchase non-performing loans.
“Tenants may be in a better position to negotiate moving forward, particularly in certain submarkets where vacancy rates are higher,” Smith said. ”On the flip side, tenants will need to get assurances from lenders that they have approved lease terms and, in a worst-case scenario, that the lender will allow the tenant to continue occupying the space if the lender forecloses on property.”
Increased confidence in the commercial real estate market has taken hold since the U.S. presidential election, according to a report released by U.S. law firm Akerman LLP. The eighth annual Akerman U.S. Real Estate Sector Report revealed 53 percent of investors and lenders are more optimistic about the 2017 outlook for the U.S. commercial real estate market, compared to only 38 percent last year.
In a news release, the firm said the prospects of deregulation, tax reductions and stronger economic growth have renewed investor confidence. Sixty-four percent of real estate executives interviewed after the election say the Trump administration’s agenda will have a moderately or significantly positive effect on the industry. This number is up from 54 percent who were bullish about the pro-business presidential candidate during the 2016 campaign.
This increasingly optimistic view of the market is tempered by new uncertainties. The potential impact of a rising interest rate environment and the unintended consequences policy changes could have on the U.S. economy are top of mind for real estate executives, according to the Akerman Report (85 percent). Nearly 12 percent see the rise in purchase prices as another pressing issue affecting the real estate sector. Several say the risk of reduced cap rates and higher borrowing costs will continue to drive deals to secondary and tertiary markets, and new creative segments.
“As 2017 unfolds, industry executives are increasingly optimistic about the state of the U.S. commercial real estate market,” said Richard Bezold, chair of Akerman’s Real Estate Practice Group, which is ranked sixth by Law360 among the largest teams of real estate lawyers in the United States. “There are headwinds, but as we move into a deregulated environment, we expect less restrained capital to pursue opportunities actively and aggressively. Local market knowledge and innovative investment strategies will continue to be the key differentiator for successful real estate investors.”
Key Findings:
1. U.S. Homebuilding on the Rise: For the first time since the launch of the Akerman Report in 2010, commercial real estate leaders predict residential – single-family homebuilding (43 percent) will outpace multifamily development (37 percent). The Akerman Report shows investors and lenders anticipate an upswing in housing development across suburban markets that will continue to rival walkable, sustainable urban centers. Investor attention will focus on replicating the urban experience in smaller, scalable communities with ample access to public transportation. More than 60 percent agreed the preference for a live-work-play lifestyle in a compact city center is among the top three trends impacting U.S. real estate.
2. Ambitious P3 Opportunities Await: When real estate executives were asked to identify the most pressing issues impacting real estate development, only 4 percent selected the need for new infrastructure. Enthusiasm from investors could be invigorated by President Trump’s $1 trillion public-private infrastructure project slated to be unveiled later this year. While the details of the infrastructure plan are unknown, the promotion of public-private partnerships, tax credits and other innovative financing will likely return with a vengeance in 2017. What’s clearer among executives: cities of the future will require a different infrastructure framework that takes into account the long-term significance of dense urban living, sea level rise, the desire for a low carbon footprint, and technology advancements such as next-generation vehicles.
3. Bullish Outlook for Banks: As the Trump administration plans to reduce the regulation on the financial services sector to allow for greater capital formation, real estate executives predict banks will be the main source for commercial real estate debt or equity in 2017. Foreign investors and private equity rank second and third in the Akerman Report, followed by REITs, insurance companies and pension funds as among the most likely capital sources to drive real estate financing throughout the year.
4. China Dominates Non-U.S. Buyers (Again): Stability, transparency and robust fundamentals in the U.S. real estate market continue to attract a growing pool of international capital sources. Despite the strengthening of the U.S. dollar, 42 percent of real estate executives believe foreign investors will lead debt/equity financing this year, and about a third expect multifamily (33 percent) and residential – single-family homebuilding (32 percent) to see the greatest dollars. Across all real estate sectors, China is expected to be the dominant source of foreign capital. To a lesser extent, investment is also expected to come from Europe and Latin America, and even less so from the Middle East and Canada.
5. From Brick to Click: Commercial real estate leaders rank the effects of technology among the three most significant factors impacting real estate development, according to the Akerman Report. This trend, coupled with changes in consumer behavior, have brought about the era of “one-click shopping” for millions of retail customers and led to a corresponding explosion in demand for more warehouses or fulfillment centers. Real estate executives affirmed this trend and predict once again that industrial will be the third most active sector for real estate investment. In contrast, the retail sector dropped to last place in the Akerman Report. In 2016, the retail sector was predicted to be the fourth most active sector.
Click here to view the Report: www.akerman.com/resectorreport17/index.html
The trustee for a bankrupt company decided to drop his lawsuit after watching his expert witness cross examined by an attorney from Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing P.C.(AZA), clearing AZA’s clients of claims that they received fraudulently transferred company assets, the firm reports in a news release.
Rodney Tow, trustee for the estate of the Peterson Group Inc., a Houston real estate development company, had watched AZA’s John Zavitsanos examine his expert witness over whether Peterson Group was solvent and what company assets remained. The legal dispute involved a series of shopping centers and other properties worth more than $30 million.
The night of the expert’s failed testimony Tow informed Zavitsanos that he was completely dropping the case, which was in the third week of trial to a jury in the 269th District Court in Harris County.
See a video and read about the case.