How long to return deposits?

How Long to Return Deposits?

How long to return deposits?
By: James L. Goldsmith, Esq.

As a broker holding a deposit, how long should it take you to return it pursuant to the terms of a release signed by both parties or when sufficient time has passed (the 180 days or whatever it has been reduced to) and not litigation/mediation has been initated? I am hearing complaints that listing brokers are taking “too long” to return deposits when buyers are the recipients. I’ve not verified any of these complaints, but they are the focus of a good number of Hotline calls so I thought it merited discussion.

There are times when a deposit cannot be returned despite how evident one party’s entitlement to that deposit may be. We need an agreement between the parties which usually is in the form of a release; or we wait the passage of time and follow the formula for the deposit’s return that is set forth the agreement of sale. Rarely do we await a court order. These issues, however, are not the subject of the more recent complaints.

What I am hearing is that the escrow holding broker has received a release or has received the buyer’s letter demanding return of the deposit given the passage of time without resolution. In those circumstances, the broker has no skin the game and the parties have agreed (in the release or have pre-agreed in the agreement of sale) where that deposit is to go.

In most cases, deposits are returned to buyers because of a termination resulting from an inspection contingency, or, because the buyer did not get the necessary mortgage. Sellers, and in many cases listing brokers who hold the deposit, may be suspect that the buyer’s stated reasons for terminating are bogus, or that the buyer did not make a good-faith effort to get that mortgage. To punish the buyer for their pretextual termination sellers may encourage the broker to hold that deposit as long as possible.

So the question frequently is asked: how long does the broker have to return a deposit once entitlement is established? The agreement provides no answer. So we look to what a court would do.

I think just about any lawyer would give you the same answer. The broker has a “reasonable period of time to return the deposit.” What is “reasonable” depends on the circumstances, but it is hard to fathom that it would take a broker more than several days to issue a check. Perhaps if termination happens so early in the transaction, the broker might be justified in waiting until the buyer’s deposit check clears before making the return. A seller who wants a listing broker to drag his or her feet when returning the deposit should be ignored. If a complaint is made to the Real Estate Commission, it’s not the seller who is under the gun.

I understand that there are pockets in Pennsylvania where buyer brokers hold deposits. It is a practice I think that should be considered by those who don’t. Holding a deposit does not give the broker an advantage over the other. The situations when it should be released and the time of release are not dependent on which broker is holding the deposit. The ability to fund a transaction with a deposit, however, is shorter when the buyer broker holds the deposit simply because there is one less step in the process. A buyer makes their check payable to the selling broker and hands it to their agent when close to a decision. Then, even if the contract is executed via software, the buyer agent merely needs to hear that the offer has been accepted and then place it in his broker’s escrow account. Voila! The transaction is funded rather than having to await the additional step of transfer from the buyer broker to the listing broker.

Lastly, and while we are on the subject, why am I still taking Hotline calls involving convoluted facts of the transaction and questions of breach and entitlement to a deposit when the it is only $1,000? The fight is so greater than the reward and the cost to litigate so much greater than the amount in controversy that nobodies’ interests are served!

As a subcontractor, what happens if I sign releases in order to get paid for my work?

Often contracts for public projects and large private projects require subcontractors to sign lien waivers and releases in order to receive periodic payments for their work. The subcontractors, in turn, are required to obtain similar waivers from sub-subcontractors and suppliers. For subcontractors, this creates a breeding ground for conflict. The subcontractor may feel it has a claim against the general contractor but needs to get paid, and so it is faced with the choice of releasing the claim or potentially not getting paid. This conflict can trickle down to sub-subs and suppliers who may have a claim against any of the other parties. Last year, in Connelly Construction Corporation v. Travelers, the Eastern District of Pennsylvania confirmed that these lien waivers and releases are enforceable. This decision reinforces the need for subcontractors to seriously consider the consequences of signing these waiver forms.  Commonly, general contractors will accept markups to the waiver form intended to preserve a subcontractor’s claim. Subcontractors (as well as sub-subs and suppliers) can benefit greatly from seeking legal advice before signing a contract that requires these forms or the forms themselves.

Stormwater Fees Drawing the Ire of Citizens and Businesses State-Wide

By: Paul Bruder, Esq.

As more and more communities begin charging property owners a stormwater fee (many are calling it a “rain tax”), those impacted by the fee are speaking out in opposition. Whether through social media posts such as Facebook groups, through letters to local political representatives, or attending public meetings, citizens are expressing their skepticism and outright anger with respect to the motivation, usefulness and amount of the various stormwater fees that are being assessed throughout the Commonwealth.

The highest visibility of such fees takes place within the Chesapeake Bay watershed, for which state and federal agencies and private groups have spent many years formulating and pursuing a cleanup strategy to reduce the flow of nutrients such as nitrogen, phosphorous and sediment from local waterways. Pennsylvania is largest contributor of fresh water to the Chesapeake Bay, and by far the largest contributor of nutrients, which promote growth of algae blooms in the Bay, robbing the Bay of valuable oxygen and sunlight which inhibits and reduces sensitive habitats for shellfish and other aquatic life once teeming in the Bay.

Local municipalities which contain urbanized areas and separate storm sewer systems are required to meet certain pollution reduction requirements through their stormwater management permits, known as MS4 permits. In order to better manage stormwater in a way that allows municipalities to reduce the amount of nutrients being discharged local waterways, and ultimately the Chesapeake Bay, funding is necessary to make system improvements or develop “best management practices” that accomplish these nutrient reduction goals. Of course, municipal projects such as these cost money, and with budgets already stretched thin, stormwater fees are a way for municipalities to fund these programs.

In the typical circumstance, the fees are assessed to property owners based upon the amount of impermeable or impervious surfaces (driveways, parking lots, rooftops) that exist on an individual property. Some municipalities, or municipal authorities which encompass multiple municipalities (such as the Wyoming Valley Sanitary Authority), impose minimum fees for each category of residential, commercial, and agricultural properties, and then additional fees based upon the amount of impervious surface, if any. Different municipal entities are calculating fees in different ways; however, the end result is the same – an additional financial burden being placed upon local property owners to help fund a mandate from the federal government.

One common argument is that this fee is simply a new tax in disguise, and many people are angered by the idea of new municipal taxes. However, the major difference is that the fee is actually more far-reaching than a tax in that typically tax-exempt properties, such as churches and schools, are not exempt from the stormwater fee. While this may be a good thing for those who are not tax-exempt in that they feel that tax-exempt property owners are sharing the load, the downside is that many of these tax-exempt entities are faced with excessively large stormwater fee obligations due to the size of their impervious surfaces, particularly schools and religious institutions that have large impervious parking areas.

Challenges to these fees are popping up all over the Commonwealth as well, in the form of lawsuits and intervention from politicians. Recently, US Representative Dan Meuser, who represents many of the thirty-two (32) local municipalities that are members of the WVSA, has called for a suspension of the fee until there is a better understanding of them and how they might be reduced. Meuser claims that many of his constituents were “blind-sided” by the fee, despite the amount of publicity stormwater fees have been receiving state-wide over the last several years. Nonetheless, the fact remains that challenges to these fees are becoming as common as the fees themselves. Only time will tell how these matters will be played out in the court system or through the political process.

If you have any questions about stormwater fees in Pennsylvania, please call Paul Bruder at 717-232-5000, or email at pjbruder@mette.com.

Drinking Water

PFAS Takes Center Stage in Pennsylvania

Drinking Water

By: Paul Bruder, Esq.

Chemicals historically used in products such as non-stick cookware, flame retardant fabrics and fire-fighting foam, although no longer used in the United States, nonetheless continue to show up in public and private water systems across the United States, as well as in soil, because these chemicals – individually PFOA (Perfluorooctanoic Acid) and PFOS (Perfluorooctane Sulfonate) – do not break down naturally in the environment. PFAS (perfluoroalkyl substance) has been linked to some forms of cancer and other illnesses, and there is growing evidence of its link to elevated cholesterol, low birth weight and thyroid problems.

While the United States Environmental Protection Agency begins its process of setting maximum contaminant limits for the PFAS chemicals, and various bills make their way through Congress which would make PFAS a hazardous substance under the Federal Superfund Law (“CERCLA”), Pennsylvania is also exploring the idea of setting its own state-wide health standard  for the PFAS compounds.

The Pennsylvania Department of Environmental Protection will evaluate the effects of PFAS on human health in order to develop standards above which consumption or ingestion of PFAS would potentially be harmful to humans. DEP currently monitors a dozen or more sites around the Commonwealth for PFAS contamination, and has tentative plans to begin monitoring of other systems later this year. Although other states have already performed studies and developed their own PFAS limits, most of which are stricter than EPA’s current health advisory level of 7 parts per trillion for combined PFAS, DEP appears intent on performing its own independent studies and determining appropriate maximum contaminant levels rather than piggy-backing off of the work done by others.

Should PFAS be designated a hazardous substance under the Superfund program, that would allow federal agencies to clean up sites contaminated by PFAS. However, such a move would also signal potential liability exposure for manufacturers, distributors or others involved with PFAS. CERCLA is a very broad environmental liability statute which can potentially encompass current owners or operators of the facility, past owners or operators of a facility, generators and other parties that arranged for the disposal or transport of hazardous substances, as well as actual transporters of the substance. Therefore any company or entity that was in any way involved with the generation, transport, or ownership of property that is in any way connected to PFAS should begin to assess its potential liability in the event that PFAS becomes covered by CERCLA

Recently, Governor Wolf announced the approval of funding through Pennsylvania’s Commonwealth Financing Authority for projects that will remove PFAS from 17 wells in the Warminster/Horsham and Warrington areas of Bucks County, and New Jersey’s Department of Environmental Protection ordered five companies to pay for the contamination caused by PFAS in that state. Two days later, New Jersey sued DuPont and Chemours over PFAS-contaminated water and soil.

PFAS is fast becoming one of the hottest topics in environmental law, statewide and nationally.  Expect this trend to continue.

For more information about PFAS liability or exposure, please contact Paul J. Bruder at 717-232-5000, or pjbruder@mette.com.

What are some of the difficulties of operating my family-owned business with the next generation?

One of the biggest issues faced by partners of family-owned businesses is dealing with co-owning family members as business partners, rather than as family members. This is true of businesses comprised of siblings, as well as parent-child businesses. In order to successfully operate a family-owned business it is important to recognize that the business, despite the familial relationship of those involved, is still a business and a balance must be struck between being a family and being business partners. This means knowing when to treat your partners as business partners and when to treat them as family members. For example, in making routine business decisions, those decisions need to be based on what is best for the business fundamentally, not the personal interests of a particular family member. When it comes time to buy-out the retiring generation, however, the retiring partner may want to give weight to their family relationship in order to facilitate the transition of the business.

The attorneys at Mette, Evans & Woodside have extensive experience representing family-owned businesses and partners.

Home Inspectors

Attend Inspections

PART TWO

By: James L. Goldsmith, Esq.

Home Inspectors

 

Who, if anyone, should attend home inspections has been a topic of debate for as long as home inspections have been a standard element in a residential transaction.  Year ago when the topic came up at an NAR meeting of attorneys who represented state associations of Realtors, the room was divided, with roughly 50% saying that buyers should attend, but not their agents.  I remember one outspoken attorney claiming that if an agent was not present to hear the spoken word of the inspector, he/she could not be charged with failing to pass the inspection comments on.  As for me, I am not a supporter of “see no evil” or “head in the sand” approach.

Most of the lawyers at that NAR meeting, however, agreed that buyers should attend inspections.  The reason should be obvious, but consider a recent transaction where the buyer sought an inspection of the sewer lateral from the home to the municipal system located in the street.  The inspection primarily consisted of snaking a video camera through the lateral and visually assessing its condition.

The seller agreed to be present for the inspection so he could open the door to the inspector and direct him to the location of the line in the basement.  Neither the buyer nor the salespersons involved in the transaction chose to attend.  The seller, who was curious, watched the process and conversed with the inspector during the inspection.  As they watched the monitor, the inspector pointed out dips in the lateral and explained they were probably caused by substandard work when the house was constructed.  The inspector felt that the stone bed in which the lateral was placed was not sufficiently compacted and offered other criticisms that were either an educated opinion or complete conjecture.  He also expressed that the dips would get worse over time.  When the seller read the report he was surprised to see that, while the dips were mentioned, there was no reference to the hypotheses that were verbally expressed by the inspector.  The seller was so concerned that he contacted his lawyer questioning whether he had a disclosure obligation that went beyond the written report.

It happens all the time.  The inspector is generally all too happy to discuss his findings and the possible implications of those findings as he pokes about shining a flashlight in dark corners, behind water heaters and above drop ceilings.  Yet, it’s very likely that what will appear in the written inspection report will be an abbreviation of those comments, if they are mentioned at all.  Wouldn’t it be beneficial to the buyer to have the opportunity to ask the sewer inspector what causes dips, whether they remain stable and what is likely to happen over how many years?  More information is better.  When buyers are told to focus not only on written conclusions, but also the inspector’s musings and mutterings they will get more out of the inspection.

Home Inspectors

Untimely Repairs

PART ONE

By: James L. Goldsmith, Esq.

Home Inspectors

 

It happens.  Sellers agree to make repairs suggested by a home inspection, but fail to complete the job timely.  When this happens a buyer is faced, unfairly, with proceeding under a contingent plan (e.g., having repairs made post-settlement or taking cash in lieu of repair) or of delaying settlement.  Usually there is little choice.  The buyer is packed and ready to move or the mortgage commitment can’t be extended, etc.

What prompted this article was a recent call to the Hotline involving a transaction where seller was to have conditions repaired before settlement.  For any number of reasons the repairs were not made.  Buyers only learned of sellers’ failure at the pre-settlement walk-through.  The seller acknowledged the failure but offered to issue a check payable to the repairperson that would be given to buyers at settlement.  When the buyers expressed their dissatisfaction, sellers became indignant.  How unreasonable of the buyers not to accept a check in the full amount the repairperson had estimated!   Likewise, the listing agent was incredulous that the buyer agent didn’t find this to be an acceptable alternative to what had been agreed to: repairs made before settlement.

An agreement is an agreement is an agreement.  If it was agreed that repairs were to be made before settlement!  It really doesn’t matter that the sellers and listing agent feel that providing a check in the amount of the repairs is an equivalent.  It is not.  Repairs frequently lead to the revelation of other issues requiring repair.  The cost of materials can rise.  Estimates are not always guaranteed.  Repairpersons go out of business or get sick or worse.  Further, the parties agreed that the burden of resolving the matter would be borne by sellers.  When the sellers deliver a check at settlement, the burden of repair falls on the buyer.  This was not the bargain the parties struck.

Certainly a buyer can hold firm and demand that the terms of the agreement are honored.  But, at the price of delaying settlement and the well-made plans of buyer, this is usually not a satisfactory alternative.  Further, listing agents and sellers quickly understand that buyers may have little choice.  What do you, as a listing agent, consider appropriate?   Beyond the legal obligation, is there a moral obligation that your sellers complete the tasks that they agreed to undertake?  RELRA requires licensees to advise their clients of the status of the transaction and an argument can be made that as a listing agent you have an obligation to poke in every now and then to determine that your seller is complying with their agreement.  Should a buyer agent be inquiring as to the status of repairs at the risk of being labeled a pest?

The fact is, buyers have a right to enforce the agreement, including seller-promised repairs.  While it is rare that a buyer will refuse to attend settlement until the terms of the agreement are satisfied, it happens.  Further, if I were negotiating on buyer’s behalf, I might anticipate delays in repair and, as part of the change in terms agreement, require that repairs not made by settlement will exact a payment into escrow at settlement of 1 ½ to 2 times the projected cost of repair.  It’s not customary, but I do know agents who make this a routine point of negotiation when repairs have to be undertaken.

The best transactions occur when a seller receives all of the purchase money at settlement and where the buyer receives all of the property promised, at settlement.

farm transition

The Use of Windfall Gain Agreements in Farm Transition Planning

farm transition

By: Jennifer Denchak Wetzel, Esq.

The importance of farm transition planning has become increasingly understood and accepted by the agricultural community.  The topic is regularly discussed in agricultural literature as well as through live seminars.  Yet, despite widespread awareness and adoption of the concept, there can still be a general reluctance, for a number of different reasons, to approach and tackle the issue.

Many times, the topic is ignored because it reminds the parent generation of their mortality.  The parent generation may also have a resistance to losing control and may operate under the assumption that no one could ever run the farm business as well as they have run it.  Sometimes there just is not enough of time to handle the farming obligations, let alone deal with this complex and time-consuming issue.

Another major deterrent is not knowing how to handle the “non-farm child” fairly.  In most farm transitions, the farm child receives the farm assets by gift or through a bargain sale at less than the fair market value.  This arrangement may reflect the sweat equity that has been contributed by the farm child to the farm operation over the years, as well as reflect the maximum price that can be paid by the farm child in order for the business to stay viable.  After the farm assets are transferred, few assets often remain for distribution to the non-farm child.

If your reluctance to approach this topic stems from your uncertainty regarding the treatment of the non-farm child, a possible solution is to add conditions to any transfer to the farm child requiring him/her to share a portion of the “windfall gain” that is recognized by the farm child if he/she sells or transfers all or a portion of the farm assets outside of the ordinary course of the farm business, or discontinues the farming operation, within a set period of time.  For example, for a period of ten (10) years from the date the farm child receives the farm real estate, he/she could be made to share a portion (often a higher amount initially and then decreasing over time) of the net profit he/she receives from the sale of the farm real estate with the parents and/or the non-farm child.  The time period and sharing percentage can be adjusted to fit each family’s circumstances, and parents can provide for exceptions to the windfall gain sharing requirement, such as the leasing of oil and gas rights and/or the sale of agricultural conservation easements, among others.

An agreement to share windfall gain may be part of the solution to guaranteeing fair treatment amongst your children, and may be the peace of mind needed to allow you to begin the farm transition process.

The attorneys at Mette, Evans & Woodside are available to counsel and assist you with the development of an Agreement-Sharing of Windfall Gain, as well as with all other aspects of your farm transition plan.

farm joint ownership

Untangling Joint Ownership of Real Estate

farm joint ownership

By: Ronald L. Finck, Esq.

It is not uncommon in the farm community for real estate to be owned jointly by two or more owners.  Many times, parents will transfer their real estate to more than one child as part of their estate and farm succession plan.  Joint ownership of real estate often presents unique problems for the joint owners.  A co-ownership agreement should be considered to set forth how the joint owners will use the real estate and how the expenses associated with the real estate will be paid.  That agreement could also address what the rights and responsibilities of the owners would be in the event of one of their deaths or if one of the joint owners decides to separate from the joint ownership.

If one or more of the owners decide they no longer want to be joint owners and if the joint owners cannot agree on a sale of the property or how to divide the property among themselves, the Pennsylvania legal system provides a remedy known as partition, which allows joint owners of real property to sever their ties to one another.  In some ways, partition is like the division of property in a divorce.  Two or more parties are splitting their jointly-owned assets and going their separate ways.  Unfortunately, like divorce proceedings, partition can be costly, time-consuming, and full of aggravation.

In Pennsylvania, partition is a two-step process.  First, the court determines whether partition is appropriate.  Second, the court determines how the real property should be divided up so that each joint owner receives a fair payment or distribution.  The first step to partition is relatively simple.  Any party with an ownership interest in real property has a right to have the property partitioned.  Therefore, all that the party seeking partition has to do is show that he or she has an ownership interest in the property.  Partition does not require the consent or permission of the other joint owner(s).

Determining how the property should be equitably divided among the joint owners is often much more difficult.  Frequently the court will employ a special master to assist with the process.  The first thing to be considered is whether the property can be physically divided.  If a court finds that the property can be physically divided, it must physically divide the property and award each joint owner his or her respective share.  This process may be relatively uncomplicated when dealing with large, undeveloped, and unimproved tracts of farmland or woodland.  More often, partition involves property that is improved with buildings or other improvements that are not easily divisible.  Further, factors such as zoning regulations, access to public roads, soil quality, agricultural conservation easements, etc., can prevent or complicate an equitable division of the property.  Thus, the court must find a way to equalize each joint owner’s share.

Equalizing the shares can be an onerous process, rife with potential for disputes.  Sometimes a joint owner will have to pay another joint owner a sum of money in order to equalize the interests.  If the parties are unable to agree on who gets what part of the property, or if there are more joint owners than parts into which the property can be divided, the court may auction off the parts between the joint owners and make awards of money, real estate, or both, to the parties according to their ownership interests.

Income tax consequences of the division and sale of property is another consideration.  If the division involves two or more properties that are not adjacent to each other, the division may have to be structured as a like-kind exchange under IRC §1031 to defer income tax consequences.

If the court finds that the property cannot be physically divided, it can order that the property be sold.  Such a sale may be limited to the joint owners or open to the public, depending on the circumstances.

The attorneys at Mette, Evans & Woodside can assist you with the various complex issues that can arise from the joint ownership of real property.

Life Insurance Policy

Will Your Whole Life Insurance Expire Before You Do?

By: Gary J. Heim, Esq.

Life Insurance PolicySome farmers have purchased whole life insurance as an integral part of their estate/farm succession plan.  Frequently, the children who are not actively involved in the family farm business (non-farming children) are the intended recipients of those insurance proceeds.  In the parents’ quest to be fair and equitable among the children, the insurance proceeds often pass to the non-farming children to eliminate or reduce the payments that the farming children would otherwise make for the family farm assets they are receiving.  Some of our clients, who have purchased whole life insurance as part of their farm succession plan, however, are discovering, unexpectedly, that their insurance may lapse before their deaths, whether automatically or due to unaffordable premium increases.  If the policy lapses, there are fewer assets to distribute at their deaths.  In the most extreme cases, there are no assets to distribute to the non-farming children.

People expect term insurance (no cash value) to lapse at a certain age.  On the other hand, whole life insurance (any insurance with a cash value such as universal, variable or traditional whole life) is commonly expected to continue until the insured dies… regardless of the age.  But this is a common misconception.

Just as longer life expectancies and reduced investment and interest returns have wreaked havoc in the pension world, these same factors have adversely impacted some (not all) whole life policies.  The most vulnerable policies are those purchased before 2008 when higher investment and interest returns were the norm.

An estate/farm succession plan should be reviewed every five (5) years to evaluate changes in farm/business circumstances, tax laws, Medicaid qualification and assets/debts.  Part of that review should include an insurance company-generated report that projects when the policy will expire under current premium and cash value levels.  The report, commonly referred to as an “in-force illustration,” can be requested from the agent or directly from the issuing company.

If you learn from the report that your policy is projected to expire at a certain age, you can determine whether changes to your estate/farm succession plan are necessary, so all of your children are treated fairly.  The attorneys at Mette, Evans & Woodside are available to counsel and assist you with updates to your estate/farm succession plan, including the interplay of the life insurance component of that plan.