If there is an issue that is frequently misunderstood in residential real estate transactions, this is it. New Jersey is the only state that mandates attorney review in residential real estate transactions. As a result, many buyers relocating from out-of-state are unfamiliar with this practice. As the result of litigation concluded many years ago, it is required that every broker-prepared residential real estate transaction contain a provision permitting the buyer and seller to have an attorney review the contract within a three-business-day period. This right of review is absolute and either party's attorney may terminate a contract for any reason and may request additional terms, subject to the other party's acceptance. The common reference to a "three day review" is frequently misunderstood to mean that the entire process will be concluded within that time. That is not the case, however, since an attorney need only forward a letter indicating disapproval within the three-day period. Once the initial letter has been sent, the contract will not become firm until the attorneys for both parties agree that additional terms are acceptable to each of them. While it is possible, under the best of circumstances, to conclude this process within three days, it more typically takes seven to ten days before all details of the contract have been resolved. During the period that the contract remains in attorney review, either attorney may terminate the contract, until both attorneys have indicated, in writing, that they are satisfied. Buyers and sellers should also keep in mind that the time period set forth in the contract will generally not begin to run until the attorney review period has been concluded. Hence, even where the contract calls for a deposit to be paid within ten days of "the date of the contract," or for certain inspections to be concluded within "fourteen days of the date of the contract," those time periods will not commence to run until the attorney review period has concluded. If the contract is terminated by either party prior to the conclusion of attorney review, any deposit monies that have been paid will be returned to the buyer and neither party will have any further liability to the other. While the time period spent awaiting the conclusion of attorney review can be an anxious one, given the right of either party to pull out of the deal, most buyers and sellers find that their personal concerns are best satisfied by communicating with their attorneys and making sure that the final form of contract contains terms that reflect their true intent. New Jersey is located in an area of the country where underground rock formations containing uranium deposits result, in localized areas, in the creation of radon gas, which can permeate foundation walls and enter dwellings. While there is little hard data to support any health dangers relating to radon gas, it has been suggested that, since radon is a carcinogen, long-term exposure may contribute to certain health concerns. As a result, standards have been promulgated by the New Jersey Department of Environmental Protection that suggest that radon levels should not exceed a standard of 4.0 picocuries per liter of air. New Jersey real estate contracts typically contain home inspection contingencies or other clauses that allows a buyer to conduct a radon test to determine if the levels exceed the recommended standards. Where they do, a seller can usually remediate the radon so that the levels will be below the recommended standards through the installation of an appropriate ventilation system. These systems are not excessively expensive nor do they require much maintenance and, hence, the discovery of radon levels in excess of the recommended standards rarely results in the termination of a residential real estate contract, nor affects the value of a particular home. In 1996, the Department of Housing and Urban Development ("HUD") in conjunction with the Environmental Protection Agency ("EPA") adopted rules and regulations aimed at protecting the public from exposure to lead-based hazards from paint, dust and soil. The rule is aimed at "Target Housing," which includes most housing built before 1978. These rules and regulations are the end result of an attempt by Congress to ensure that purchasers and renters of housing built before 1978 receive the information necessary to protect themselves and their families from lead-based hazards. However, not all housing is affected by this rule. "Target Housing" does not include the following:
If you are a seller of "Target Housing," you must provide the buyer with the EPA approved lead-based hazard pamphlet entitled "Protect Your Family From Lead in Your Home" which can typically be obtained from your Realtor. The contract of sale must also contain warning language in the form required under the regulations. Disclosure of lead-based hazards is a very important feature of these rules and regulations. A seller is required to disclose all known reports and information on lead-based hazards and the buyer has a statutory right to test the home for lead-based hazards within 10 days from the contract date, which can only be waived in writing. Compliance with these regulations is essential and penalties for knowing violations can result in substantial fines, treble damages, and, in some circumstances, criminal sanctions. The rules that apply to the sale of property apply with equal force to rental housing as well. For more information concerning lead-based hazards or for a copy of the pamphlet, sample disclosure forms, or rules, call the National Lead Information Clearing House at 1-800-LEAD-FYI. The EPA pamphlet and rule are also available through the website at http://www.epa.gov/opptintr/lead/. You can also request further information about the Residential Lead-Based Paint Hazard Reduction Act by calling the National Lead Information Center at 1-800-424-LEAD. Under almost all residential real estate contracts, the buyer will have the right to have physical inspections conducted at the home being purchased to determine the condition of the home and any deficiencies that may exist. In most cases, the cost of the inspections are borne by the buyer. Typically, the inspection includes the review of the structural elements of the house, the major systems, the existence of environmental hazards such as asbestos, lead paint or radon, the testing of any underground fuel storage tanks, and an inspection for wood-destroying insects. The expectations of most parties is that if the inspection reveals any structural deficiencies or significant conditions, the buyer will have the right to present these conditions to the seller, so that the seller can either remediate the conditions or provide an appropriate credit against the purchase price. Of course, each party's definition of what is considered "significant" or "material" to a transaction may differ. As a result, it is best to view the contingency period as a time when the buyer still will be able to terminate the contract if the buyer finds the condition of the house to be unsatisfactory. While the attorneys for the parties can spend many days negotiating and drafting appropriate language for the inspection contingency clause so that each party's expectations will be met, long-term experience demonstrates that it is best to commence the inspection period as soon as possible, and allow the buyer to obtain the results of the report to determine whether there are serious issues which the seller needs to address. If the seller is not willing to satisfy the buyer's significant concerns, then the parties should be left to go their separate ways as quickly as possible. It is rare, however, that a real estate transaction fails as the result of the inspections, since most parties act reasonably and responsibly in resolving the inspection issues. In reviewing a home inspection, a buyer should particularly note any items relating to the structure of the dwelling, as well as any deficiencies in the electrical, plumbing, heating, air conditioning or sewage disposal systems, and any problems that would be expensive to repair or remediate. A buyer who is relocating from another area will likely be selling the house again in the not too distant future, and if the buyer does not have these items attended to by the seller, the next buyer of the home is likely to raise the same issues with the buyer. If possible, the buyer should attend the home inspection with the inspector, since there are many matters that a home inspector will point out to a buyer concerning the maintenance of the home or any idiosyncrasies of the home that may not show up in the final written report. Most New Jersey contracts require the payment of an initial or "good faith" deposit, typically in the amount of $1,000.00. In addition, it is customary to require the payment of an additional deposit upon or shortly after finalization of the contract pursuant to the attorney review process. While there is no legal requirement concerning the amount of the deposit, 10 percent is most common. Please note, however, that this amount is "negotiable." Regardless of the amount of deposit, the deposit monies should be readily available. The initial and additional deposit may be paid by a personal check. The money is typically held in an escrow or trust account by the attorney for the seller or the broker. In some cases, the deposit is maintained in an interest-bearing account with the interest being divided equally between the parties at time of closing. Most real estate contracts contain a mortgage contingency provision that allows the buyer to seek and obtain a mortgage commitment within, typically, 30 to 45 days. The mortgage contingency period is negotiable and the necessary time period often depends upon market conditions. In times of greater purchase and refinancing activity, mortgage companies may require longer time frames to issue commitments, thereby delaying the closing date. Once the mortgage commitment is issued, it is very important that you review it to be certain that you are able to satisfy each condition. If there are any questions concerning any of the conditions, or how they are to be satisfied, you should promptly contact your lender. New Jersey real estate contracts customarily do not contain an appraisal contingency, a clause in the contract that permits a buyer to cancel the contract of the appraised value does not equal the purchase price. If such a contingency is required, it must be specifically negotiated. The appraisal performed by a lender is strictly for its own loan underwriting purposes and is not intended for the benefit of a buyer or seller. If you, or you employer, require an appraisal contingency, you must advise your attorney. All community townhouse associations are required by state law to provide an alternative to litigation for disputes between homeowners or between a homeowner and the board. While the language of the statute is vague - "associations shall provide a fair and efficient alternative to litigation" - the method of providing alternative dispute resolution (ADR) is left largely up to the association. ADR may be in the form of a unit-owner comprised committee or a mediator or arbitrator paid by the association. ADR must be provided for any "housing related" dispute, but specifically does not apply in the collection of fees. All associations should consider the enactment of detailed procedures regarding ADR and these procedures should be sent to all owners and residents before a dispute erupts. The association's attorney's role can vary, from simply advising the association concerning its options, to being present and advocating the association's position at the ADR hearing. HRB has participated in the preparation of a "model" ADR resolution. If you would like to receive an e-mail, fax or hard copy, contact us via our Feed Back page and we will be happy to provide it to you. The 1996 federal Telecommunication Act resulted in regulations being issued by the Federal Communications Commission with respect to satellite dishes. In a fee simple townhouse development or in a condominium in which the owners have limited common elements under their exclusive control, there exists an absolute right to install satellite dishes of less than one meter in diameter. That right is limited to the owner's unit and lot in a fee-simple development, and to the limited common elements in a condominium. An owner who believes the association has violated the regulations may petition the FCC seeking an interpretation of a restriction imposed by the community association. An October 1997 ruling held that an association has the burden to prove that its restrictions do not unreasonably delay or increase the cost of installing a satellite dish. It held that a $5.00 application fee was unwarranted, and that screening requirements must be reasonable in comparison with the cost of the dish. Another 1997 ruling reiterated that the burden is on the association to show that restrictions do not impair the quality of a signal. The current regulations do not require condominium associations to permit satellite dishes, except on the limited common elements. To obtain the full text of the FCC regulations or copies of its declaratory rulings on satellite dishes and other communication devices, contact the FCC web site at http://www.fcc.gov/. Recent changes to certain practices in the insurance industry affect community associations. Typically, under most existing liability and director's and officer's (D&O) policies, the insurance contract provides for a broader duty to defend than an insurer's obligation to pay claims. A new form issued by Insurance Service Organization ("ISO") may limit the duty to defend those claims to those for which the insurer would be obligated to pay. Hence, associations should, when reviewing policies or soliciting bids for a new carrier, be certain to understand the scope of the insurer's duty to defend. Associations should have on file the claims notification procedures to avoid having a claim voided because the requirements of the policy were not followed. This is best obtained from the insurer or agent. Associations should also investigate obtaining employment practice liability coverage that would address claims such as wrongful termination, sexual harassment and discrimination. A typical D&O policy may not provide this type of coverage and, if a claim were asserted, the association could bear the cost of a legal defense, as well as any damages. The association's managing agent should also be named an "additional insured" on the association's D&O policy so that a defense will be provided in the event a claim is filed and indemnification by the association is required. Most management contracts obligate the association to indemnify the manager for any action within the scope of its duties. If the manager is not named as an additional insured, the association would be required to bear the cost of defense, as well as any judgment against its manager. Of critical importance to the financial stability of any association is the payment of the common expense assessments by its members. The association's collection policy should be in writing and set forth the steps that will be followed. Demand letters may be followed by the filing of liens and complaints. The requirements of the Fair Debt Collection Act must be followed since recent case law has held that the collection of fees by attorneys (and property managers) is governed by the Act. If the mortgage on a condominium unit was filed after January 1996, the provisions of the "Super Lien Law" may be applicable. If the homeowner declares bankruptcy, the provisions of the federal Bankruptcy Act, as amended in October 1994, may come into play. In condominium associations, collection of late fees and fines are governed by requirements set forth in the July 1996 amendment to the New Jersey Condominium Act. The attorney retained by the association must be familiar with the implication of each of these laws in the collection process. Aggressive handling of the files will ensure a better chance of success in the recovery of overdue fees. Rent levies, asset searches, and wage executions are all tools that may be utilized based on the particular circumstances. Foreclosure of a lien, which would result in ownership of the unit, must be considered very carefully due to the potential financial implications. In any event, the board must approve all action taken in the process and should pay attention to particular circumstances of homeowners while fulfilling their fiduciary obligations. If you would like information or copies of the Fair Debt Collection Practices Act, "Super Lien Law," or Bankruptcy Act Amendment, or cases under those laws, contact us via our Feed Back page and we will be happy to provide it to you. |