Thursday, September 21, 2017

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Home Buyers Documented Investigation Key to Recovering for Defect Concealment

A recent Washington State Appeals Court decision is worth noting from both a buyer due diligence perspective and a seller liability perspective – Douglas v. Visser. Though this is a Washington case, Oregon realtors should consider whether their procedures would have helped prevent the case from happening. A home was purchased by a real estate agent named Visser for investment and rehab. Visser leveled several bungalows that were located on the property but attempted to renovate the main house. During renovation, Visser discovered dry rot in several locations throughout the home. Because his intended renovation was going to be more expensive and time-consuming than he anticipated, he sold the property to the Douglases.

The facts are always critical to cases like this, but the trial court's finding summarizes what happened nicely as follows:

During the course of renovating the house, the Vissers discovered significant wood rot to the sill plate and rim joist that connects the concrete foundation to the frame...Rather than correct these defects, the Vissers or their hired help made superficial repairs to the visible damage and covered up the rest.

The trial court further concluded that "the defects were unknown to the Douglases and were not discoverable by a careful and reasonable inspection." There were two critical problems for the Douglases' case. One, they received a Seller's Disclosure Statement that contained several "don't know" or non-answers. They rightly sought clarification in writing and requested a copy of the inspection report prepared for the Vissers when they purchased the property. However, the Douglases never received the inspection report and they didn't follow-up on answers to the Seller Disclosure Statement that they felt were inadequate. Later, the Douglases commissioned their own inspection report and it identified an area of rot near the roofline, an area of rotted sill plate, and sistered floor joists. Their inspector testified that signs of rot aren't that uncommon and that the inspection could not have uncovered the true extent of the damage, which ultimately forced demolition of the structure.

The Appellate Court held that the Douglases were on notice of a defect and had a duty to make further inquiries. The Court called the Vissers efforts to conceal the defects "reprehensible," but ruled that the Douglases, once on notice of a defect, had a duty to make further inquiries. Despite the fact that the damage was far more extensive than anticipated, it could not be said that the extent of the damage rendered the problem unknown by the Buyers, a key element of their case. The Court found significance in the fact that they follow-up questions regarding the Disclosure Statement did not deal with the rot in question and found significance in the fact that their inspection came in after the Douglases requested the Vissers' inspection report.

The lesson? A buyer's due diligence standard is probably higher than most buyers and agents believe. Any evidence of a defect places a burden on the buyer to make new inquiries as to the extent of the problem and such inquiries and the seller's responses should be carefully documented.

What is a Living Trust and Why Might I Want One?

One topic I often address is in my practice is deciding when to use a trust-based estate plan – generally referred to as a “revocable living trust” – and when to use a will-based estate plan.  A living trust is not for everyone and there can be drawbacks, but the following characteristics are often seen as the primary advantages:

Privacy / Avoiding Probate.  A properly funded revocable living trust allows you to avoid probate as a means of transferring your assets upon death.  Probate is a court-supervised proceeding within which a person’s estate is settled.  In short, a will is filed with the court, creditors are notified and paid, and remaining assets are transferred to beneficiaries.  Probate filings are public documents, cases generally remain open for at least 6-12 months, and attorneys’ fees and costs are incurred.  Anyone interested in your family’s affairs would be able to obtain copies of the will, the inventory of assets, and the like.  With an effective trust-based plan, the need for a court to supervise the management and distribution of estate assets is avoided and assets may be distributed to heirs more quickly.  Where real property is owned in another state, a trust-based plan will also avoid the necessity of a second, out-of-state probate proceeding.      

Disability Planning.  Most loved ones serving as co-trustee or successor trustee find it easier to manage your financial affairs through a trust than with a simple power-of-attorney.  Some counterparties view general powers of attorney with skepticism. More importantly, a general power of attorney is effective immediately and doesn’t come with any tailored instructions or reporting responsibilities.  

Tax Planning.  Though tax planning can also be done using a will-based plan, a living trust is often used to minimize the impact of death taxes by providing for a “bypass trust” or “credit shelter trust” to be funded at the death of the first spouse.  Its primary purpose is to fully utilize the estate tax exemption available to each spouse in order to shelter as much of a couple’s combined estate from death tax liability as possible.  Assets that pass directly to a surviving spouse are ordinarily not taxed on the first spouse’s death, but will be subject to tax upon the survivor’s death.  In that event, the first spouse’s estate tax exemption may be wasted.  In contrast, assets properly funded to a credit shelter trust will avoid death tax on the death of the survivor as well.  The trust can still be made available for the general support of the surviving spouse during the survivor’s lifetime, but because it does not give him or her unfettered control over the trust assets, the remainder does not have to be included in the spouse’s estate for death tax purposes.  Couples with assets, including the face amount of all life insurance policies, exceeding $1 million may need some type of tax planning in Oregon.

The Death Book

How will your loved ones find the information they need to handle your affairs if you become incapacitated or die? The answer just may be the "Death Book," as the author of the following article from MarketWatch.com calls it.  Can you imagine how much easier such a binder could make it for your family?

 

http://www.marketwatch.com/story/to-help-your-heirs-write-a-death-book-2013-02-26?link=mw_home_kiosk

What if Your Independent Contractor is Your Employee?

Hiring on a temporary basis or for a particular project is often a vexing issue for the small business owner.  Trouble is, sometime they don’t appreciate how vexing.  Many small businesses experience volatility in their business volume that requires them to lay-off, re-hire or hire anew on temporary bases in order to keep up.  One solution to the scalability issue is to hire independent contractors on an as-needed basis.  Great!  Most often, the solution is a win-win for the small business and the contractor.  Problem is that sometimes nature of the relationship becomes an important after-the-fact issue.  The worker may have a change of heart about whether they should be deemed an employee.  Why, you ask?  The reasons vary, but they usually involve a desire to receive workers’ compensation benefits, unemployment benefits, or overtime pay.  Or, sometimes either the worker or the business faces questions from a taxing authority about whether the business should have been paying payroll taxes for the worker.      

The point is that a decision about whether to hire a worker as an employee or as an independent contractor often requires legal analysis to determine whether the worker would likely be characterized as an employee for purposes of the business’ payroll, payroll tax, workers’ compensation and unemployment insurance premium payment responsibilities.  The factors or tests applied to determine whether a worker is an employee for all of these purposes varies slightly by agency – whether the Department of Revenue, Workers’ Compensation Division, Bureau of Labor and Industries – and by jurisdiction – federal versus state.   All make their own determinations if necessary.  In very broad terms, the more employer control over the place, time, method and materials used by a worker to perform is work, the more likely the worker will be characterized as an employee rather than a contractor.  The penalties for getting it wrong are substantial and reputational risk is an important consideration.

Independent contractor relationships can also be complicated by other factors that should usually be addressed in a well-written contract.  Who owns any intellectual property that is created?  What data is confidential and how will it be handled both during and after the relationship.   If the worker is to have extensive client contact, how can the owner best protect those relationships for when the worker departs?   When in doubt, a business attorney should be consulted to discuss the nature of the work, the nature of payment and the type of agreement that should be in place between the parties.

Home Under Water and Still Haven't Modified or Refinanced Your Mortgage? Check out HARP 2.0.

If you still have yet to refinance your mortgage in order to take advantage of historically low interest rates, you may want to take a fresh look at the idea now – before it’s too late.  The Federal Housing Finance Agency (FHFA) oversees Fannie Mae and Freddie Mac, two of the country’s most influential entities when it comes to the secondary market for residential mortgages.  The Obama Administration instituted the Home Affordable Refinance Program (HARP) through the FHFA in 2009 with limited success.  This spring, however, HARP 2.0 was released.  It greatly expands the program and incentives major lenders to participate in the following ways:  
•    Removing the 125% loan-to-value ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;
•    Waiving certain representations and warranties that lenders must make to Fannie Mae and Freddie Mac;
•    Eliminating certain risk-based fees;
•    Extending the end date for HARP until December 31, 2013 for loans originally sold to Fannie Mae or Freddie Mac on or before May 31, 2009.

To be eligible for HARP 2.0, borrowers must meet the following criteria:
•    The mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac.  In order to determine whether your loan qualifies in this regard, you can perform a search at the following links:  Freddie Mac and Fannie Mae.
•    The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009;
•    The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009;
•    The current loan-to-value ratio must be greater than 80%;
•    The borrower must be current on the mortgage at the time of the refinance, with no late payments in the past six months and no more than one late payment in the past twelve (12) months.

For additional detail about the HARP program, refer to the Phase II Frequently Asked Questions at the following link:  http://www.harpprogram.org/faq.php.

Avoid Conflicts Over Your Property

Avoid Conflicts Over Your Property

Ever experienced conflict with a neighbor or co-owner?  A little knowledge about your rights and responsibilities can be useful in resolving, defusing or even avoiding it in the first place.  The following three items come up in my practice from time to time.

Fencing.  If your and your neighbor’s properties are divided by fencing, the replacement or repair of the fence can be a divisive issue.  Fortunately, there is an Oregon statute that requires neighbors to share equally the cost of repairs or replacement of a “partition fence.”  A fence is a “partition fence” if it was erected for the purpose of enclosing the adjoining owner’s yard.  Asking your neighbor to cover half of the costs of necessary repairs to such a fence is not only reasonable, but it’s the law.  This is true even with respect to a neighbor who is renting, so long as the adjoining property is being leased for a period of at least one year.  Of course, it is always a good idea come to an agreement on the nature and cost of the work in advance.  Without such an agreement, you’ll be entitled to reimbursement for half of the cost so long as the work simply restored, as close as possible, the original fencing.         

Trees and Vegetation.  Another common source of conflict between neighbors has to do with trees or other vegetation that is located on both properties – and thus shared – or trees and vegetation owned by one neighbor but overhanging the other’s property.  With respect to vegetation that is shared, neither owner can remove it without the other’s consent.  Generally, overhanging vegetation may be cut by an adjoining landowner at the property line based on the legal principal that one’s property line continues in a straight line up into the sky.  As with shared fencing, it’s always a good idea to alert your neighbor to your plans up front.  It may be helpful to emphasize that the owner of overhanging vegetation will generally be liable for any significant damage caused by it to a neighbor’s property.  Before removing trees, please keep in mind that many municipalities require a permit before cutting down trees of a certain size, even trees on one’s own private property.  Check there first.       

Shared Property.  Shared property comes in different forms, whether via ownership or use.  Adjacent property owners may share a private driveway. Vacation homes are often co-owned with friends or family.  Before a conflict arises, make sure you’ve thought through what might lead to a disagreement and do your best to address it.  Shared driveways are often subject to rules contained in documents you may have seen when you acquired the property, such as a deed, easement, or right-of-way agreement.  If you purchase property with a friend or family member, it is wise to deal with each party’s rights and responsibilities relative to the use and maintenance of the property and its contents.  In addition, make sure there is a well-defined exit strategy for each owner in the event an owner dies or wishes to sell.  The terms solving these issues are usually documented in a written “co-tenancy agreement.”  For investment properties, consideration should be given whether to acquire or own the property in a limited liability company (LLC).  The LLC’s operating agreement should then address all of the management and exit-strategy terms.     

An experienced real estate or business attorney can help you avoid or resolve property-related conflict by helping you identify issues, by drafting language to address them, or by negotiating resolution on your behalf.

Becoming a Landlord? A Few Items to Consider

As local housing prices continue to fall, many people will be looking to buy distressed properties as investments.  Buying low is just one part of the equation.  landlord1
Another is managing the asset.  If you are thinking about becoming a residential landlord, an ounce of planning may prevent a house full of cure.    What type of risks do you face as a landlord?  I think there are three main categories.

Legal and Regulatory Compliance 

You should become generally familiar with the laws and regulations applicable to the residential landlord-tenant relationship.  Landlords can do much to determine the relationships they will have with their tenants by the terms contained in a written rental agreement.  However, a tenant has certain rights under the law.  Oregon’s Residential Landlord Tenant Act (the “Act”) outlines certain rights and obligations of the parties that may not be overridden by contract (i.e., the rental agreement), in addition to default rules that may be overridden by contract.   For example, the Act includes notice requirements for (i) terminating month-to-month tenancies without cause, (ii) terminating a tenancy for certain outrageous conduct (e.g., substantial property damage, injury to another tenant, selling or manufacturing an illegal substance), (ii) terminating a tenancy for non-payment of rent and the tenant’s right to cure, (iii) terminating a tenancy for violation of a “no pet” policy and the tenant’s right to cure, (iv) declaring a default of other material terms of the rental agreement and the tenant’s right to cure (v) dealing with repeat violations after having given the required notice, and (vi) dealing with a tenant’s deposit upon termination.  


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End-of-Life Planning Part 2 - How Do Doctors Feel About Their Role?

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End-of-Life Planning Part 1 - The Advance Directive for Health Care

In a previous post I wrote about basic estate planning steps that everyone should consider.  An important compenant of planning in Oregon is the Advance Directive for Health Care, a statutory form used to appoint a health care representative to make health care decisions when we are unable and/or to express wishes about end-of-life decisions that may someday need to be made.  This video includes a discussion between a terminal cancer patient and his pain management physician about extraordinary life-saving measures.  It appears that a form similar to Oregon's Advance Directive is being contemplated.  Included is a short interview of the patient's daughter, who I think articulates well the benefits of this type of planning from the perspective of family members.  She expresses a sense of calm and relief about her father having addressed these issues.  In part 2 of this series (post to follow), the important role of doctors is examined within the backdrop of federal health care reform signed into law late last year.  A provision that would have allowed doctors to be compensated for their time in conducting end-of-life counseling was removed from the bill prior to its passage.  I think doctors play a crucial role in educating their patients on the things to consider in making these decisions.  It's interesting to hear this doctor's view.

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Have you thought about what you’d do if a family member or loved one died?

lovedone.jpgI know.  This is simply an unpleasant thought.  Most families rarely, if ever, discuss what should happen if a family member dies.  Some, however, are open and quite communicative about the subject.  It’s my belief that these people will generally be more prepared to handle the post-death tasks associated with their loss, both practically and emotionally.  So, what should be discussed?  What should you do?


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Some Basic Estate Planning May Be a Smart New Year’s Resolution

 

NewYears2011.jpgDo you have an estate plan?  If not, you may be taking an unnecessary gamble with your family’s future.  The goal of this article is to highlight the importance of basic estate planning most people need and something many of you may have been avoiding for too long.  Maybe it’s time to put it on the New Year’s resolution list. 


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Vanguard on Estate Planning

It's not a topic that people like to think about too much, but a well-crafted estate plan can provide financial security for the people who depend on you.  Video Link