TABLE OF CONTENTS
Coming in 2015: Simpler Mortgage Disclosure Forms (and a replacement to the HUD-1 Settlement Statement)
Focus on Possession and Knowledge to Identify Potential Landlord Liability for Injuries on Leased Property
Planned Communities – Can They Really Fine Me?
The Benefits of Title Insurance and How Barley Snyder Can Help
Coming in 2015: Simpler Mortgage Disclosure Forms (and a replacement to the HUD-1 Settlement Statement)
By: Sarah Yocum Rider
As part of the continued reform of the home mortgage market, the Consumer Financial Protection Bureau (“CFPB”) issued a final rule on November 20, 2013 in an attempt to increase fairness and clarity in residential lending. The new “Know Before You Owe” forms will replace the existing federal disclosure forms (the Good Faith Estimate, the Truth in Lending Disclosure and the HUD-1 Settlement Statement) and will hopefully help consumers both better understand their mortgages and make loan comparisons.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) directed the CFPB to combine and simplify the disclosures that consumers receive in connection with applying for, and closing on, a residential mortgage loan under the Truth in Lending Act and the Real Estate Settlement Procedures Act. Although the new rule was issued in November 2013, the rule only becomes effective August 1, 2015, and will apply to transactions for which a creditor or mortgage broker receives an application on or after that date.
Borrowers frequently have questions and concerns regarding the terms of their residential loans because the forms used by lenders are very complex and often received on very short notice. The new standardized forms, available to view on the CFPB website (www.consumerfinance.gov/knowbeforeyouowe), have been redesigned to simplify important information.
The new Loan Estimate will replace the current Good Faith Estimate and the current Truth in Lending Disclosure. The new Closing Disclosure will replace the current HUD-1 Settlement Statement.
The final rule also includes certain requirements related to the timing of providing the Loan Estimate and the Closing Disclosure to borrowers in order to give borrowers more time to review and understand the terms of their loans. Starting in August 2015, lenders will be required to provide borrowers with the Loan Estimate three business days after the loan application is submitted. An additional requirement, which may prove more problematic, states that the Closing Disclosure (the new HUD-1) must be provided to borrowers at least three business days before the closing. Providing the Closing Disclosure three days before closing is a major adjustment of current practices, as the typical scenario is that the final HUD is approved by the lender 24-48 hours (or even as soon as a few hours) before closing. Either the CFPB will need to relax this requirement in certain circumstances or lenders and settlement agents will need to significantly adjust their practices.
Overall, the Loan Estimate and the Closing Disclosure appear to be a significant improvement over the existing disclosures, particularly the Truth in Lending Disclosure, which is the cause of much confusion. Once lenders, consumers, attorneys and settlement agents become comfortable with the new documents, they will hopefully assist in causing the residential mortgage application process and closings to run more smoothly.
Focus on Possession and Knowledge to Identify Potential Landlord Liability for Injuries on Leased Property
By: Matthew M. Hennesy
While the general rule is that a landlord is not responsible for injuries suffered by a tenant or the tenant’s guest on the leased property, there are several circumstances where the landlord can be held liable. The exceptions to the rule focus on the landlord’s possession over the leased property and the landlord’s knowledge of potentially dangerous conditions. Landlords and tenants that consider the landlord’s possession and knowledge of conditions will be better situated to identify and address liability situations.
Possession
The general rule is that a landlord out of possession is not responsible for injuries suffered by a tenant or the tenant’s guest on the leased property. There are instances, however, where a tenant leases property, but the landlord maintains control over a portion of the property. Where the landlord reserves control over a portion of the property, the landlord can be held liable for injuries caused by dangerous conditions on or negligent maintenance of that portion of the property that the landlord controls (the “reserved control exception”).
The most obvious instances of reserved control involve “common areas” such as shared steps or hallways in buildings leased to multiple tenants. The applicability of the reserved control exception is not limited to such well defined “common areas.” A court in Pennsylvania determined that a tenant seriously burned by steam from a radiator connected to a central steam-heating system controlled and operated by a landlord could hold the landlord liable under the reserved control exception. Generally, the owner of a building that leases out different parts of the building has control over those areas not specifically leased by tenants and can be held liable for negligent maintenance of those areas even though the tenants may have a right to use them.
Knowledge
Other exceptions to the general rule revolve around the landlord’s knowledge of dangerous conditions on the property. The landlord’s knowledge of dangerous conditions is key to identifying liability risk. Landlords can be held liable for injuries resulting from a dangerous condition known to the landlord. For example, if a landlord has knowledge of a dangerous condition existing on the property at the time the tenant begins leasing the property and fails to disclose the condition, the landlord can be held liable for subsequent related injuries. Similarly, a landlord can be held liable if the landlord leases the property for a purpose involving the admission of the public and it neglects to inspect for or repair dangerous conditions existing on the property before the tenant takes over control of the property. A landlord can be held liable for injuries if it failed to make repairs after having been given notice of and a reasonable opportunity to remedy a dangerous condition of the leased property. Where the leased property is so dangerously constructed that it is a nuisance per se or the landlord undertakes to repair the property and negligently makes the repairs, the landlord also faces potential liability.
Conclusion
The common thread in the foregoing examples where landlords are held liable for injuries to tenants or third parties is the landlord’s control over the areas where the injury occurred or knowledge of a dangerous condition on the leased property. Landlords and tenants stand to benefit from clearly communicating which areas of a building are under their possession and the existence of dangerous conditions on the property.
Matthew M. Hennesy is an associate in Barley Snyder’s Litigation Group, where he works on a variety of commercial litigation matters including landlord-tenant litigation. Barley Snyder’s Litigation Group has experience litigating a wide array of matters in numerous courts. Through these experiences, we have gained insight on the legal risks faced by businesses, and an invaluable understanding on how businesses can best weather the risk of loss and prevail in situations of conflict. Our experience allows us to spot potential legal risks, assess the likelihood and consequences posed by the risks, and develop cost-effective strategies to manage the countless legal risks faced by businesses today. Our litigation attorneys are aggressive advocates and effective strategists driven to successfully achieve our clients’ goals by understanding their legal risks and using our experience and knowledge to prevail in situations of conflict.
Planned Communities – Can They Really Fine Me?
By: Maria Di Stravolo Elliott
In short, yes. A homeowners’ association for a planned community has the right to fine any of its members for violations of its by-laws, rules and regulations. These fines may result from homeowners taking certain actions with respect to their units that violate restrictions or rights of access imposed on their units, especially if their unit is part of a common element.
In Pennsylvania, a planned community is very similar to a condominium in that there is a homeowners’ association that maintains common elements (such as a recreational park or storm water detention basin) and charges assessments or fees to the homeowners to pay for such maintenance. These common elements are accessible to all other members of the planned community. Unlike condominium owners, the planned community owners do not actually have a percentage ownership interest in the common elements, but rather have a membership interest in the homeowners’ association, which would equate to the amount of fees that a homeowner would pay for the maintenance of the common elements. These common elements can either be a separate lot that is owned by the homeowners’ association (in which case they would be known as “common facilities”) or they can be part of a homeowner’s unit (in which case they would be “controlled facilities”).
For example, a separate lot in a planned community that has a recreational park would be a common facility that is owned and maintained by the homeowners’ association but is not a separate unit. On the other hand, a storm water detention basin that may span across two units would be a controlled facility that is maintained by the homeowners’ association but is owned in part by those two unit owners. The homeowners’ association would have an easement over those two units to access the storm water detention basin in order to maintain it and would impose restrictions on that unit, especially in connection with the storm water basin (such as, the homeowners are prohibited from building any structures that would impede access to the storm water basin).
As a potential and current homeowner in a planned community, it is important for you to read and understand all the restrictions that may affect your unit. These restrictions (and fines that result from violating those restrictions) will not only appear in the rules and regulations of a homeowners’ association, but also in the declaration of the planned community and the by-laws of the homeowners’ association. Potential buyers of a planned community should be receiving and reviewing these documents ideally before entering into an agreement of sale to determine whether or not they can abide by the restrictions placed against the unit they want to purchase, or at the very least, should include a contingency in the agreement of sale that allows the buyers to review and terminate the agreement if they are not satisfied with the documents and restrictions imposed on the unit. However, if such a contingency does not exist in the agreement, the Pennsylvania Planned Community Act does allow a buyer to void a contract until such documents have been given to the buyer and for five days after receipt or until settlement, whichever occurs first. The Pennsylvania Association of Realtors Standard Agreement for the Sale of Real Estate includes such a contingency provision as well.
As a homeowner, you do not want to be faced with the prospect of fines just because you were not diligent in reviewing all planned community documents. In a recent case, a Pennsylvania court allowed a homeowners’ association to fine the homeowners of a unit in a planned community over $35,000, which included attorney’s fees over $19,000, because the homeowners built a dock on their property that abutted a lake. The homeowners’ association filed a lawsuit to have the dock removed and to prevent the homeowners from erecting another dock on their property. The court found that the members of homeowners’ association had an implied easement over the homeowner’s unit in order to access the beaches and waters of the lake. As a result, the court ordered the homeowners to remove the dock and pay the fines.
The homeowners argued against the imposition of the fines because the homeowners’ association rules did not specifically prohibit the placement of docks on their unit. However, the by-laws themselves stated that one of the purposes of the homeowners’ association is to ensure that all amenities, including access to the lake and other recreational facilities, remain open and available to the planned community. Because the Pennsylvania Planned Community Act allows the homeowners’ association to impose reasonable fines not only for violations of rules and regulations, but also for violations of the declaration and by-laws of the association, the court held that the homeowners had to pay the fines. They had violated the purpose of the homeowners’ association’s by-laws to ensure access to the waters of the lake by building a dock that obstructed the access. Interestingly enough, one could have argued that the dock actually made the waters more accessible to the other homeowners, but perhaps the dock was not accessible to the other homeowners by having a locked gate on the dock (the court did not go into details as to why the dock blocked access).
The lesson learned here is that homeowners in a planned community must recognize that their units may be part of, or adjacent to, common elements, and therefore, certain restrictions would apply to that unit. Furthermore, any violations of those restrictions could result in sizeable fines that are enforceable. The only way to prevent those violations and fines is to fully understand all of the documents of a planned community, not only the rules and regulations, but also the by-laws and the declaration. If any questions of interpretation arise, a homeowner would be wise to consult not only the homeowners’ association but also a real estate attorney to better understand the meaning and interpretation of those documents.
The Benefits of Title Insurance and How Barley Snyder Can Help
By: Jeremy D. Frey
When purchasing real estate, it is typically in the purchaser’s best interest to obtain title insurance to protect the purchaser from any defects in title. Title insurance covers and protects against deeds, wills and trusts that contain improper wording or incorrect names; outstanding mortgages and judgments, or a lien against the property because the seller has not paid its taxes; easements that allow construction of a road or utility line; pending legal action against the property that could affect the purchaser or incorrect notary acknowledgements. Title insurance also covers against hidden defects such as forged signatures on the deed, which would mean no transfer of ownership to the purchaser; an unknown heir of a previous owner who is claiming ownership of the property; instruments executed under an expired or fabricated power of attorney or mistakes in the public records. In short, title insurance protects purchasers against many things they would never think of or worry about until it is too late.
If a purchaser is financing the real estate purchase through a bank or other lender, title insurance is almost always required by the lender. Any business that plans to secure a loan with a mortgage on its real estate can also expect the bank to require title insurance to protect the bank’s interest.
While title insurance is often considered a settlement cost, it is important to note that the title insurance premium itself is set by state law. So regardless of who a property owner uses for title insurance, the cost will be the same. It is also up to the purchaser or borrower, as the case may be, to select the title insurance provider. So title insurance is one of the few times where an individual or business can obtain the services of an attorney for no additional cost. At Barley Snyder we have several licensed title agents for two well respected and well known title insurance companies – Stewart Title and Commonwealth Land Title Insurance Company – that provide title services all over the Commonwealth of Pennsylvania. Whether you are buying real estate for the first time, or refinancing an existing multi-million dollar loan for your business, Barley Snyder can provide the title insurance coverage that is required along with the other settlement services that go along with title insurance. In the end, you get the full service of an experienced law firm for no additional cost.
