Please join us for our free Condo Seminar with Lauren Pair on May 21st. The seminar will include talks by condominium conversion attorney Steven M. Buckman of BuckmanLegal PLLC and Palisades Title Company and featured speaker Lauren Pair, Esquire, the Rental Conversion and Sale Administrator for the District of Columbia. The Rental Conversion and Sale Division regulates a tenants' right to purchase, the conversion of property to a condominium, conversion fees and the Structure Defect Warranty Claim Program.
Our seminar will be conducted on Tuesday, May 21st, between 2:30 p.m. and 4:30 p.m. at the DC Boathouse Restaurant which is located at 5441 MacArthur Blvd. NW, Washington, DC (MacArthur Blvd. NW at Cathedral Ave. NW). Hors d'oeuvres and beverages will be served.
In the condo seminar, we will be providing information about the proper way to conduct condominium registrations and conversions in the District of Columbia, and Ms. Pair will discuss the impact of Tenant Opportunity to Purchase Act (TOPA) rights on the conversion process. There will also be a Q&A session that will allow you to ask questions directly to Mr. Buckman and Ms. Pair.
Seating will be limited so please RSVP today by sending an email to Norman@BuckmanLegal.com or by calling Ms. Norman at 202-351-6100 ext. 0 and providing us with your name and email address.
Monday, April 29, 2013
Thursday, April 18, 2013
6-Month Super-priority Condominium Foreclosures by the Association
There is an alternative to ordinary condominium lien foreclosures that BuckmanLegal, PLLC has begun to use. We have made the change due to current market conditions and the fact that there is a de facto residential foreclosure moratorium in DC.
The D.C. Condominium Act gives the condominium association a lien priority ahead of the first mortgage to the extent of six months of regular assessments (no acceleration and no special assessments). We refer to this lien priority as the "six-month super-priority." What this lien priority means is that the association may foreclose on a lien only for the most six most recent months of regular assessments plus interest, costs of collection, attorney’s fees and advertising costs. Perhaps most critically, the sale will not be subject to the first mortgage. In other words, the successful bidder (or the association if it takes the unit back) is not stuck paying off the first mortgage. The first mortgage would be entirely wiped out by the foreclosure.
The process of foreclosure is exactly the same up through the sale. The only differences are the calculation of the amount that must be paid to stop the sale and the fact that the association's opening bid is considerably less. This changes the economics in a number of ways. On the negative side, while the unit owner remains personally liable for unpaid assessments due for months prior to six months before the foreclosure, and can be sued for that amount, the association will not automatically recover this money through the foreclosure process. The association can only keep the six month amount and must remit any surplus to the first mortgagee. On the positive side, in a majority of cases, the first mortgagee will pay the six-month amount to keep from having its first mortgage wiped out, which gives the association cash in hand, and the association may be able repeat this process every six months, thereby not losing anything more than the unpaid assessments due for months prior to six months before the first time it does a six-month super-priority foreclosure.
One advantage of the foreclosure may be that if neither the unit owner nor the first mortgagee pay to stop the foreclosure, then there may be a greater likelihood of getting bidders at the foreclosure sale. These bidders would produce cash in hand, and will become new unit owners that will be liable for condo assessments on a going forward basis. Also, even if there is no new owner, and the association takes the unit back, the first mortgagee cannot foreclose on the unit. Therefore, the association will not be time delimited on collecting rent to cover its losses.
We have conducted condominium lien foreclosures numerous times over the past couple of years. In almost every single case, the lender has stepped up and paid the amount being sought. Moreover, in the vast majority of cases, BuckmanLegal, PLLC has been able to collect all of the amount owing—not just the most recent 6 months—due to the specter of the association pursuing condominium lien foreclosures again and again. In not one case have we been forced to actually sell any units. And in every single case, we were successful in getting back every penny of the fees and costs due. This means that the process did not cost the associations anything. Of course, past performance does not guarantee future results.
The D.C. Condominium Act gives the condominium association a lien priority ahead of the first mortgage to the extent of six months of regular assessments (no acceleration and no special assessments). We refer to this lien priority as the "six-month super-priority." What this lien priority means is that the association may foreclose on a lien only for the most six most recent months of regular assessments plus interest, costs of collection, attorney’s fees and advertising costs. Perhaps most critically, the sale will not be subject to the first mortgage. In other words, the successful bidder (or the association if it takes the unit back) is not stuck paying off the first mortgage. The first mortgage would be entirely wiped out by the foreclosure.
The process of foreclosure is exactly the same up through the sale. The only differences are the calculation of the amount that must be paid to stop the sale and the fact that the association's opening bid is considerably less. This changes the economics in a number of ways. On the negative side, while the unit owner remains personally liable for unpaid assessments due for months prior to six months before the foreclosure, and can be sued for that amount, the association will not automatically recover this money through the foreclosure process. The association can only keep the six month amount and must remit any surplus to the first mortgagee. On the positive side, in a majority of cases, the first mortgagee will pay the six-month amount to keep from having its first mortgage wiped out, which gives the association cash in hand, and the association may be able repeat this process every six months, thereby not losing anything more than the unpaid assessments due for months prior to six months before the first time it does a six-month super-priority foreclosure.
One advantage of the foreclosure may be that if neither the unit owner nor the first mortgagee pay to stop the foreclosure, then there may be a greater likelihood of getting bidders at the foreclosure sale. These bidders would produce cash in hand, and will become new unit owners that will be liable for condo assessments on a going forward basis. Also, even if there is no new owner, and the association takes the unit back, the first mortgagee cannot foreclose on the unit. Therefore, the association will not be time delimited on collecting rent to cover its losses.
We have conducted condominium lien foreclosures numerous times over the past couple of years. In almost every single case, the lender has stepped up and paid the amount being sought. Moreover, in the vast majority of cases, BuckmanLegal, PLLC has been able to collect all of the amount owing—not just the most recent 6 months—due to the specter of the association pursuing condominium lien foreclosures again and again. In not one case have we been forced to actually sell any units. And in every single case, we were successful in getting back every penny of the fees and costs due. This means that the process did not cost the associations anything. Of course, past performance does not guarantee future results.
Monday, March 19, 2012
The Foreclosure Crisis in DC
Have you wondered why the inventory of so-called shells and investment properties seems to have dropped in DC? Are you finding it difficult to acquire a property for the purposes of creating a condominium? The reason is due, in part, to a standoff between title insurance companies and DC government over foreclosure laws. The standoff has created an artificial increase in property values because the supply of shells and houses that could be renovated and put into the stream of commerce is so low.
In 2011, there were only 10 or so residential foreclosures. Unless there are changes to the law, the number in 2012 will remain the same. It might even be worse. The reason for the low number is that DC modified its foreclosure law at the end of 2010 to include a mediation process on all residential foreclosures. Maryland has also added a mediation component to its residential foreclosure process. The problem with DC’s process is that, unlike Maryland’s, the mediation certificate issued at the end of the process does not have the force of law equal to an estoppel certificate and, therefore, no title insurer will issue a title insurance policy on a foreclosure sale. The title insurance industry has been trying to persuade the District of Columbia to amend the law, but to no avail. This standoff between the title insurance underwriters and the District of Columbia has caused a de facto moratorium on foreclosures and, thus, foreclosure sales.
To make matters worse, DC passed an amendment to the law last fall that requires any property that has any residential units (up to 4) to go through the mediation process. It does not matter if a unit is owner occupied or not. This also includes mixed use properties.
This amendment means that a commercial building owned by a limited liability company in Georgetown that has a shoe store on the first two floors and a tenant-occupied residence on the third floor—and has a commercial loan on the property—can only be foreclosed by going through the mediation process Thus, you cannot foreclose on the commercial loan because no title insurer will provide title insurance when you complete the foreclosure.
A more glaring scenario would be a corporation buying a dwelling for the purpose of doing a condominium conversion in DC. Because the loan would be for investment purposes, it would be made by a commercial lender with a commercial promissory note. If the corporation defaults on the loan, the lender cannot foreclose—even though it is a commercial loan taken out by a corporation—because the property is residential, and no one will insure the trustee’s deed out of foreclosure.
Amazingly, lenders continue to make loans on residential properties in DC despite the lenders’ lack of recourse on loan defaults. It is entirely likely, however, that lenders will become increasingly aware of this issue, and then DC’s foreclosure law will have a chilling effect on new loans for residential properties.
In conclusion, DC’s foreclosure law is having a huge impact. Very few foreclosures are taking place, and the DC housing market is suffering as a result. Even in the case of some commercial loans, DC’s new law has had a chilling effect on foreclosures, and might soon have a chilling effect on new loans for residential properties.
In 2011, there were only 10 or so residential foreclosures. Unless there are changes to the law, the number in 2012 will remain the same. It might even be worse. The reason for the low number is that DC modified its foreclosure law at the end of 2010 to include a mediation process on all residential foreclosures. Maryland has also added a mediation component to its residential foreclosure process. The problem with DC’s process is that, unlike Maryland’s, the mediation certificate issued at the end of the process does not have the force of law equal to an estoppel certificate and, therefore, no title insurer will issue a title insurance policy on a foreclosure sale. The title insurance industry has been trying to persuade the District of Columbia to amend the law, but to no avail. This standoff between the title insurance underwriters and the District of Columbia has caused a de facto moratorium on foreclosures and, thus, foreclosure sales.
To make matters worse, DC passed an amendment to the law last fall that requires any property that has any residential units (up to 4) to go through the mediation process. It does not matter if a unit is owner occupied or not. This also includes mixed use properties.
This amendment means that a commercial building owned by a limited liability company in Georgetown that has a shoe store on the first two floors and a tenant-occupied residence on the third floor—and has a commercial loan on the property—can only be foreclosed by going through the mediation process Thus, you cannot foreclose on the commercial loan because no title insurer will provide title insurance when you complete the foreclosure.
A more glaring scenario would be a corporation buying a dwelling for the purpose of doing a condominium conversion in DC. Because the loan would be for investment purposes, it would be made by a commercial lender with a commercial promissory note. If the corporation defaults on the loan, the lender cannot foreclose—even though it is a commercial loan taken out by a corporation—because the property is residential, and no one will insure the trustee’s deed out of foreclosure.
Amazingly, lenders continue to make loans on residential properties in DC despite the lenders’ lack of recourse on loan defaults. It is entirely likely, however, that lenders will become increasingly aware of this issue, and then DC’s foreclosure law will have a chilling effect on new loans for residential properties.
In conclusion, DC’s foreclosure law is having a huge impact. Very few foreclosures are taking place, and the DC housing market is suffering as a result. Even in the case of some commercial loans, DC’s new law has had a chilling effect on foreclosures, and might soon have a chilling effect on new loans for residential properties.
Friday, July 15, 2011
Due Diligence
Prior to purchasing any property, the best practice of any developer should include a phone call to her or his attorney. In order to ensure that a comprehensive review of the title, zoning, tenants' rights and other legal issues has been conducted, it is imperative to involve a lawyer specializing in those practice areas. Also, a good lawyer can provide guidance about what sort of properties would be optimal for a condominium project before the developer even starts to look at properties.
For a review of your prospective land purchase or for guidance about what you should be looking for in a property, call us today at 202.351.6100.
For a review of your prospective land purchase or for guidance about what you should be looking for in a property, call us today at 202.351.6100.
Tuesday, March 1, 2011
Shelving a Condo Project
Upon registering a new condominium project, developers sometimes face choosing between putting units up for sale immediately or postponing sales and renting out the units instead. Postponing sales is often referred to as "shelving" a condominium project. Putting aside the economic and practical considerations, it is important to keep in mind the legal aspects of shelving a condominium project.
First, the District of Columbia requires annual reports (D.C. Code § 42-1904.07) within 30 days of each anniversary date of the order registering the condominium. The reports must be filed with the Rental Conversion and Sale Division (CASD) of the Department of Housing and Community Development. The reports must include any material changes to the information contained in the original application for registration.
Second, prior to leasing any unit, the developer must file an FR-500 with the Office of Tax and Revenue, file a Basic Business License (a “BBL”) Application and a Clean Hands Certification with the Department of Consumer and Regulatory Affairs (the “DCRA”), receive a bill for the BBL and rental unit fee and a BBL number, allow the DCRA to conduct a housing inspection, if any such inspection is requested, make the BBL and rental unit fee payments with the Office of Finance and Treasury, and file a registration with the Rental Accommodations Division (the "RAD") of the Department of Housing and Community Development.
Third, developers should determine whether they will be subject to rent control in connection with the leasing of the units. If the owner of the housing accommodation is not a natural person, or if the units in the condominium to be rented, together with any other properties owned by the developer, contain five or more units, then each unit may be subject to rent control. All rules in connection with rent control will then need to be observed. If rent control does not apply, then the above referenced application filed with the RAD registration should include a claim of exemption.
Fourth, DC Code provides that developers must include a disclosure in the lease that gives prospective tenants notice of the existence both of the condominium and of the condominium instruments by which the tenant will be bound. Applicable language conforming to DC Code may be obtained from the Greater Capital Area Association of Realtors (GCAAR).
Fifth, units rented to low-income tenants may be eligible for property tax abatement provided that the CASD gives its approval. Thus, it makes sense to seek CASD approval for property tax abatement when renting to low-income tenants.
Sixth, developers should be aware that when market circumstances make the sale of the units desirable, each tenant will have certain rights to purchase the units ahead of any third party. From a practical standpoint, this means that all proper notices must be given and all proper waiting periods must be observed before any leased unit may be sold. Then, if a new owner seeks to occupy a unit, all landlord and tenant laws must be obeyed to observe the rights of the tenant. Please note that special protections attach to tenants that meet an income criterion and are elderly or disabled in connection with all of the rules and regulations discussed above.
Seventh, prior to the first out-sale, a letter of credit or bond must be filed with the Rental Conversion and Sale Division of the Department of Housing and Community Development. Then, at settlement, a limited warranty must be issued to the purchaser. Both of these steps must be taken even if many years have elapsed since the registration of the condominium.
The foregoing discussion is not intended to represent an exhaustive list of the legal issues that developers face when they seek to shelve a condominium project. Also, there will be numerous financial and practical issues that developers will face, such as gaining FHA and Fannie Mae (formerly the Federal National Mortgage Association) approval in connection with loans that future buyers may seek to obtain. Developers should consult with attorneys--and also with financial and tax advisers--when making the decision to shelve a project due to the number and complexity of related issues.
First, the District of Columbia requires annual reports (D.C. Code § 42-1904.07) within 30 days of each anniversary date of the order registering the condominium. The reports must be filed with the Rental Conversion and Sale Division (CASD) of the Department of Housing and Community Development. The reports must include any material changes to the information contained in the original application for registration.
Second, prior to leasing any unit, the developer must file an FR-500 with the Office of Tax and Revenue, file a Basic Business License (a “BBL”) Application and a Clean Hands Certification with the Department of Consumer and Regulatory Affairs (the “DCRA”), receive a bill for the BBL and rental unit fee and a BBL number, allow the DCRA to conduct a housing inspection, if any such inspection is requested, make the BBL and rental unit fee payments with the Office of Finance and Treasury, and file a registration with the Rental Accommodations Division (the "RAD") of the Department of Housing and Community Development.
Third, developers should determine whether they will be subject to rent control in connection with the leasing of the units. If the owner of the housing accommodation is not a natural person, or if the units in the condominium to be rented, together with any other properties owned by the developer, contain five or more units, then each unit may be subject to rent control. All rules in connection with rent control will then need to be observed. If rent control does not apply, then the above referenced application filed with the RAD registration should include a claim of exemption.
Fourth, DC Code provides that developers must include a disclosure in the lease that gives prospective tenants notice of the existence both of the condominium and of the condominium instruments by which the tenant will be bound. Applicable language conforming to DC Code may be obtained from the Greater Capital Area Association of Realtors (GCAAR).
Fifth, units rented to low-income tenants may be eligible for property tax abatement provided that the CASD gives its approval. Thus, it makes sense to seek CASD approval for property tax abatement when renting to low-income tenants.
Sixth, developers should be aware that when market circumstances make the sale of the units desirable, each tenant will have certain rights to purchase the units ahead of any third party. From a practical standpoint, this means that all proper notices must be given and all proper waiting periods must be observed before any leased unit may be sold. Then, if a new owner seeks to occupy a unit, all landlord and tenant laws must be obeyed to observe the rights of the tenant. Please note that special protections attach to tenants that meet an income criterion and are elderly or disabled in connection with all of the rules and regulations discussed above.
Seventh, prior to the first out-sale, a letter of credit or bond must be filed with the Rental Conversion and Sale Division of the Department of Housing and Community Development. Then, at settlement, a limited warranty must be issued to the purchaser. Both of these steps must be taken even if many years have elapsed since the registration of the condominium.
The foregoing discussion is not intended to represent an exhaustive list of the legal issues that developers face when they seek to shelve a condominium project. Also, there will be numerous financial and practical issues that developers will face, such as gaining FHA and Fannie Mae (formerly the Federal National Mortgage Association) approval in connection with loans that future buyers may seek to obtain. Developers should consult with attorneys--and also with financial and tax advisers--when making the decision to shelve a project due to the number and complexity of related issues.
Monday, February 22, 2010
Two Lots or More?
In the District of Columbia, it may be possible to record plat and plans of a condominium that sits on two or more lots. Surprisingly, multiple lots of record do not necessarily need to be contiguous so long as they all sit in the same square.
For a review of your survey(s) and legal description(s), call us today at 202.351.6100.
For a review of your survey(s) and legal description(s), call us today at 202.351.6100.
Friday, February 12, 2010
New Vacant Property Tax Rate
New tax rates for vacant properties will go into effect this March. The default of $10 tax for each $100 of assessed value for vacant properties will drop down to $1.65 for each $100 of assessed value (up to the first $3,000,000 of assessed value). In other words, the default rate will switch from Class III to Class II without any need to qualify the property for an exemption.
This does not mean that owners have been given a green light to neglect their properties. The city can still go after blighted properties in a number of ways, including application of the Class III rate of $10 tax for each $100 of assessed value for vacant properties. To avoid a finding by the DCRA Office of Vacant Property that a property is blighted, the owner should take a number of steps, including but not limited to the following: (1) Make sure that the property does not pose any threat to the health or safety of the community. (2) Maintain the landscaping of the property. (3) Improve the appearance of any scructures on the property by removing boards that have been used to board up windows and other openings, remove or paint over graffiti, secure doors and windows against intruders, and protect the exterior surfaces by applying paint or other materials. This is not intended to be an exhaustive list of steps that an owner must take to avoid a blighted property qualification. For more information on the subject, consult the DCRA Office of Vacant Property.
Owners of vacant properties are required by law to fill out the registration form provided by the Office of Vacant Property and file it with the Office of Vacant Property.
If you have would like to find out more about the rules pertaining to vacant properties in the District of Columbia, please contact us at BuckmanLegal PLLC by calling 202.351.6100 or send an email to info@buckmanlegal.com.
This does not mean that owners have been given a green light to neglect their properties. The city can still go after blighted properties in a number of ways, including application of the Class III rate of $10 tax for each $100 of assessed value for vacant properties. To avoid a finding by the DCRA Office of Vacant Property that a property is blighted, the owner should take a number of steps, including but not limited to the following: (1) Make sure that the property does not pose any threat to the health or safety of the community. (2) Maintain the landscaping of the property. (3) Improve the appearance of any scructures on the property by removing boards that have been used to board up windows and other openings, remove or paint over graffiti, secure doors and windows against intruders, and protect the exterior surfaces by applying paint or other materials. This is not intended to be an exhaustive list of steps that an owner must take to avoid a blighted property qualification. For more information on the subject, consult the DCRA Office of Vacant Property.
Owners of vacant properties are required by law to fill out the registration form provided by the Office of Vacant Property and file it with the Office of Vacant Property.
If you have would like to find out more about the rules pertaining to vacant properties in the District of Columbia, please contact us at BuckmanLegal PLLC by calling 202.351.6100 or send an email to info@buckmanlegal.com.
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