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Estate Planning for Vacation Homes

Friday, April 9th, 2010

Fredrick P. Niemann, Esq., a NJ Estate Planning Attorney

Whether it is a palatial estate where Rockefellers and Vanderbilts would feel at home or a rustic cabin in the woods complete with an outhouse, a family vacation home often carries sentimental value that doesn’t show up on financial ledgers. That is all the more reason why owners of such homes should plan for the orderly transfer of the home for future generations. With the help of some professional guidance, owners can choose from a variety of options tailored to particular situations and priorities.

The issues that arise most often for second and subsequent generations concern how to allocate both the benefits and the burdens of the vacation home.

  • Outright sale of the property to a third party is simplest, but be prepared for substantial capital gains if the property has been in the family long enough to appreciate in value;
  • A simple bequest can be used to keep the home in the family, but, by itself, it may not address issues such as use and maintenance;
  • A trust, in particular a Qualified Personal Residence Trust, has some tax benefits. The grantor gifts the property but retains a right to use it for a definite term. The value of the gift is calculated as the value of the property, less the retained interest. However, if the grantor does not outlive the retained term, the property will be included in the grantor’s estate;
  • A limited liability company (LLC) has the benefit of protecting assets generally. If someone is injured on the property, the owner’s liability would be confined to the ownership interest in the property;
  • A partnership has the advantage of a formal structure, but each partner would have to contribute.

Additional issues that arise most often for second and subsequent generations concern how to allocate both the benefits and the burdens of the vacation home, that is, the use of the home and expenses, including maintenance, insurance, and taxes. This can be spelled out in writing in as much detail as is desired, but it is not advisable to leave these matters to chance. There is the potential for discord and bruised feelings in even the most congenial families if, for example, one sibling is left out of the prime vacation times while shouldering more than his share of costs for maintenance and repair. Parents might head off at least some of these issues by setting up an endowment to cover ongoing expenses for the home.

Looking a bit farther down the road, whatever legal forms are used should provide a means by which one or more of the family members can sell his or her interest in the home to the remaining family members. Considering that there may be honest disagreement as to the property’s value, it makes sense to look for consensus by using two separate appraisals, one arranged for by the selling family member and one by the remaining owner or owners.

If you have any questions, contact Fredrick P. Niemann, Esq. at 888-800-7442, or info@fnlawyerinnj.com.  He is happy to answer your inquiries.

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Finally, NJ Introduces a Middle Class Friendly Tax Law

Friday, March 27th, 2009

Fredrick P. Niemann, Esq., an Estate Planning Attorney

Pending in the NJ Legislature is a bill to amend the New Jersey transfer inheritance tax to eliminate the tax on brothers and sisters of a decedent for transfers made on or after January 1, 2009.  Presently, transfers to brothers and sisters of a decedent are taxed according to the rate imposed on “Class C” beneficiaries, or at a rate of 11 to 16 percent depending on the amount transferred, with the first $25,000 exempt from taxation.  This bill would effectively treat transfers to a brother or sister of a decedent on par with transfers to other immediate family members, including the spouse, domestic partner, civil union partner, father, mother, grandparent, or child of a decedent.

Fredrick P. Niemann, a Freehold, Monmouth County attorney with significant credentials in estate planning and asset protection offered a supporting statement, “I have counseled families for over a decade about the benefits of strategically avoiding NJ’s punitive, oppressive and grossly unfair tax estate structure on middle and upper middle class families by use of lawful estate planning techniques.  NJ must do more to make this state friendly to what remains of its’ productive and wealth generating residents.  Otherwise, I tell everyone to move to Florida, the southern states or out west where residents are not taxed to death.”

For further information and advice in any elder law matter, do not hesitate to contact me at 732-863-9900 Ext. 101 or 105, or fniemann@hnlawfirm.com.

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New Jersey Adopts Expanded Mandatory Mediations in Home Foreclosures

Monday, December 8th, 2008

MEDIATION EXPANDS STATEWIDE
Foreclosure filings in New Jersey during the past 12 months are up 46 percent over the previous 12 months, and this has spurred the NJ Supreme Court to expand an experimental Middlesex mediation program statewide.  Under the program, the courts will compel mediation between homeowner and mortgage holder any time the owner contests foreclosure of the residence.  The goal is to renegotiate terms and keep owners in their house.  The courts will encourage non-contesting homeowners to change their mind, right up to the date of the sheriff’s sale.  As in Middlesex County, the mediators will be volunteers.  The program will begin in the highest foreclosure vicinages – Essex, Union, Camden, Bergen and Hudson – within the next 30 days and expand to all 21 counties 30 days later.

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Avoiding Foreclosures Through Short Sale

Friday, November 7th, 2008

The intelligent alternative to bankruptcy or to foreclosure proceedings

There has been an unprecedented explosion in demand for attorneys who specialize in representing homeowners who must dispose of their homes through “short sales”.

Short sales are defined as sales where one or more mortgage holder agrees to discount its debt so that the property can be sold at its current market value to a willing buyer.  Currently, short sales account for more than 40 percent of residential transactions and the numbers appear to be increasing.

Short Sales a Market Force

More and more homeowners find themselves overwhelmed by their mortgage debt.  For owners who can no longer afford to keep mortgage payments current, a short sale is the intelligent alternative to bankruptcy or to foreclosure proceedings.  Short sales can preserve a homeowner’s creditworthiness and can help homeowners avoid the harsh long-term consequence of a foreclosure.

Mortgages have become extremely anxious to offer short sale discounts in an effort to minimize their own potential losses and to avoid the protected process of foreclosing.  Qualified buyers, many of whom are prepared to invest significant down payments, are holding out for the lowest possible price.  Mortgage holders agree to absorb the short sale discounts, enabling such qualified buyers to buy “discounted deals”.

For a seller in a short sale, the process tends to be both unique and complex.  It usually involves intermediation between first and second mortgagees as well as the need for extensive drafting of agreements and releases.  Real estate agents can often act most effectively as the preliminary negotiators.  They initiate the short sale process by opening communication with loss mitigation officers, which in itself, is often a cumbersome process.  Agents can provide property specific data to the lender and they can arrange for the homeowner to provide proofs of hardship which are required by mortgagees before they will consider the terms of short sale.  While it is the real estate agent’s work that positions the loan for discounting  by the lender, it is ultimately a skilled short sale attorney, representing the seller, who secures meaningful protection for his clients and who brings the short sale to a successful conclusion.

In a market where an increasing number of homes are no longer worth as much as the liens which encumber them, many consumers are no longer able to afford their scheduled monthly mortgage payments, and judicial foreclosures are taking longer and longer to complete, ultimately increasing the number of short sales transactions.

Loss mitigation officers, who negotiate short sales on behalf of the lenders, are besieged with applications for short sales, from all over the country without having adequate knowledge of the differences among applicable state laws.  As a result, bottlenecks in the negotiation process occur and negotiations extend for several months.  It is among these bottlenecks that attorneys with intimate knowledge of the “workout” process find themselves able to bring order out of chaos and to propose practical and effective short sale formats that can satisfy the needs of both the loss mitigation officer and the homeowner.

Looking Forward

The trend in short sales is expected to continue well into 2010.  this is attributable to the recent failures of major mortgagees and to the fact that more adjustable mortgagors will experience the shock of payment “resets” in the first half of 2009.  Reportedly, more such resets will occur in the first six months of 2009 than have occurred in any one full year period in American history.  These resets are expected to generate a tidal wave of short sales.  In response to the current number of defaults, and in anticipation of even more in coming months, the holders of securitized mortgages are increasingly opting for loan discounting as their alternative to protracted, and ultimately costly, judicial foreclosures.  Simply put, short sales are cheaper and faster.

The increasing willingness of residential mortgages to grant discounts shows a preference for short sales as a practical means to cut their losses and to quickly purge their portfolios of at-risk loans.  Homeowners and real estate agents find a shortage of attorneys who are specifically trained in the specifics of short sales – including the ability to make a case for mortgagees to discount their loan balances – enabling the homes to be sold.  Eroding home prices have left many owners with mortgage debt that far exceeds selling prices of the mortgaged properties.  While institutional mortgages have redeployed personnel into newly created, massive loss mitigation departments, there has not been a corresponding expansion among attorneys who clearly understand the protocol.

Hanlon Niemann has developed real experience to become aggressive short sales negotiators and are currently in strong demand as residential real estate values continue to decline.  The short sale attorney’s role is pivotal to the success of most short sales.  For more information, contact our managing partner, Fredrick P. Niemann at fniemann@hnlawfirm.com. 

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New law makes changes to reverse mortgages

Friday, October 17th, 2008

In addition to addressing the current housing crisis, the Housing and Economic Recovery Act of 2008 makes changes to reverse mortgages, including higher borrowing limits and protections from aggressive marketing.

A reverse mortgage allows a homeowner who is at least 62 years old to use the equity in his or her home to obtain a loan that does not have to be repaid until the homeowner moves, sells, or dies. The new law, which goes into affect October 1, 2008, increases the borrowing level on reverse mortgages. The national limit on the amount a homeowner can borrow will be $417,000. The limit can be increased to $625,000 in areas with high housing costs. The amount a homeowner can actually borrow depends on the home’s value, location, interest rates, and the age of the borrower. Currently, the range in loan limits is between $200,160 and $362,790.

The new law also offers some protections for seniors. High fees and aggressive marketing have been cited as problems with reverse mortgages. Under the new law, fees will be capped at 2 percent of the first $200,000 borrowed and 1 percent on the balance, with a maximum of $6,000 in fees. In addition, the law prevents lenders from requiring borrowers to purchase insurance, annuities, or other products as a condition for getting a reverse mortgage. Lenders are also prohibited from working with other professionals who are trying to sell seniors financial products as part of the lending process.

For a U.S. News and World Report article on the reverse mortgage provisions in the new housing law, click here.

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New Jersey town allowed to zone out

Friday, September 26th, 2008

Without comment, the U.S. Supreme Court has decided not to review  a much publicized case in which Long Branch zoned a self described mission church out of a downtown area marked for development as an entertainment district.  The Third Circuit Court of Appeals in Lighthouse Institute for Evangelism, Inc. vs. City of Long Branch held that the City’s action did not violate the Federal Religious Land Use and Institutionalized Persons Act of 2000.   The court said that the church was not being treated unfairly or unequally under the Federal law.   The decision provides clear guidance now to municipalities in New Jersey and the rest of the Third Circuit states to support their zoning powers to permit or not to permit places of religious worship within specified zoning districts.  

One of the interesting issues of the case was that the city had argued Lighthouse Institute for Evangelism, Inc. did not even qualify as a church subject to the protections of the Federal Act.   Questions concerning this article should be directed to Bonnie Wright, Esq. at bwright@hnlawfirm.com.

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Study: Bankruptcies soar for senior citizens

Friday, September 19th, 2008

First came the health problems. Then, unable to work, Ada Noda watched the bills pile up. And then, suffocating in debt, the 80-year-old did something she never thought she’d be forced to do.

She declared bankruptcy.

While the bankruptcy filing rate for those under 55 has fallen, it has soared for older Americans, according to a new analysis from the Consumer Bankruptcy Project, which examined a sampling of noncommercial bankruptcies filed between 1991 and 2007.

The older the age group, the worse it got – people 65 and up became more than twice as likely to file during that period, and the filing rate for those 75 and older more than quadrupled.

“Older Americans are hit by a one-two punch of jobs and medical problems and the two are often intertwined,” said Elizabeth Warren, a Harvard Law School professor who was one of the authors of the study. “They discover that they must work to keep some form of economic balance and when they can’t, they’re lost.”

That’s precisely what happened to Noda. She worked all her life, on a hospital’s housekeeping staff, and later selling boat tickets to tourists. She cut corners when she needed to but always paid the bills she neatly logged in a ledger.

“I was born during the Depression,” she said. “I paid the bills whether I ate or didn’t, whether I went to the doctor or not.”

It all worked fine for Noda, a widow for 23 years, until she was forced to undergo double-bypass surgery and deal with respiratory problems. She started using two credit cards more frequently for food and bills. Before long, she was $8,000 in debt and behind on car payments.

“I’d go to bed and all I had on my mind was bankruptcy,” she said. “I had nothing left.”

Noda’s car was repossessed, but her trailer home wasn’t in jeopardy because her daughter owns it. While she’s covered by Medicare and receives $968 in Social Security each month, she relied on her job for other expenses. She had no choice but to get help from Jacksonville Legal Aid and declare bankruptcy.

Most bankruptcies are still filed by people far younger than Noda, but the percentage the younger filers make up has fallen over the 16-year period, according to the Consumer Bankruptcy Project analysis, which will be published in the Harvard Law and Policy Review in January.

In 1991, the 55-plus age group accounted for about 8 percent of bankruptcy filers, according to the study, which looked at more than 6,000 cases filed in 1991, 2001 or 2007. By last year, filers 55 and over accounted for 22 percent.

Each age group under 55 saw double-digit percentage drops in their bankruptcy filing rates over the survey period, older Americans saw remarkable increases. The filing rate per thousand people ages 55-64 was up 40 percent; among 65- to 74-year-olds it increased 125 percent; and among the 75-to-84-year-old set, it was up 433 percent.

A number of factors are contributing to the increase. Higher prices for ordinary consumer goods have hit seniors on fixed budgets. For older Americans living below the poverty level, or not far above, a safety net likely doesn’t exist for economic setbacks such as medical problems. And some fall prey to scams that cripple their finances.

Warren noted increasing numbers of Americans are entering their retirement years with significant debt and are still paying off mortgages. She said it was wrong to assume that lives of luxury are bankrupting seniors; rather, they’re incurring debts to meet needs such as medical treatment.

“There’s no evidence that the problem is consumerism,” the professor said.

Nor is there a significant aging trend to blame. While the country is set to experience a notable age shift in the coming years, no major one took place between 1991, when the average age was 33, and 2007, when it was 36.

Frank and Hazel Peters lived frugally their entire 53-year marriage. They always rented a home but decided after the husband’s retirement from a factory job that they would cash in his 401(k) and buy a manufactured home down a gravel road in tiny Hastings, a town of cornfields and potato farms.

But they fell victim to fraud when they tried to fix a plumbing problem that had black, sulphur-smelling water coming through the pipes of their new home without enough funds to fall back on. They declared bankruptcy.

“We knew we had no other option,” 73-year-old Hazel Peters said. “We’d probably be out on the street.”

Bankruptcy, tough no matter a person’s age, is especially hard when you don’t have many years left to recover. Warren said some seniors fear telling their families because they’re afraid they’ll be put in a nursing home if they’re seen as unable to take care of their affairs.

Many who file also express a sense of relief.

Wilona Harris, 71, filed bankruptcy two years ago because of medical bills she and her husband accrued.

“This phone rang all the time. It made you not even want to pick up. Sometimes you think, ‘Let me go jump off a bridge somewhere,’” Harris said at her Jacksonville home. “You have to cry and try and figure out what in the world could I do.”

At least now, Harris says, she can fall asleep without crying.

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Real Estate Crisis – Foreclosure Procedure Updated

Friday, September 12th, 2008

The New Jersey Supreme Court has adopted a set of new and revised rules on mortgage foreclosure procedures designed to modernize the foreclosure practice in the face of the real estate crisis gripping the nation and particular and New Jersey in general.
 
Going forward, all foreclosing plaintiffs will be required to file a foreclosure specific case information statement with its first pleadings.   In addition, the new rules will require that the foreclosing party serve an affidavit of the amount due along with a Notice of Motion requesting final judgment of foreclosure.   The advisory committee on foreclosure practice in its statement believes that this rule amendment will put lenders, borrowers, and other parties on notice of this specific amount due and how it was calculated.

If you have any questions regarding New Jersey’s foreclosure practice, you may contact Bonnie Wright, Esq., at bwright@hnlawfirm.com.

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Foreclosing Bank Denied Legal Fees and Costs

Friday, September 5th, 2008

In a foreclosure, a plaintiff cannot recover counsel fees against a homeowner or borrower in foreclosure actions prior to filing the foreclosure complaint.  

A recent decision has been rendered by the Appellate Division clarifying when a foreclosing plaintiff can recover counsel fees in a foreclosure action.  

The New Jersey Appellate Division of the Superior Court ruled that the Fair Foreclosure Act which references the New Jersey Rules is a specific limitation on the amount of attorney’s fees a lender can recover.   New Jersey court rules bar the recovery of any amount of attorneys fees unless a Court rule expressly permits those fees.   It was clear to the Court that attorney’s fees to the lender are permitted only when the lender actually files a foreclosure complaint and not before.   The case is significant because in many instances lenders will impose counsel fees and costs incurred prior to the filing of a foreclosure complaint.   This practice has been seldom challenged but with this decision, lenders will no longer be able to charge counsel fees as a condition to reinstating the mortgage unless it has filed a complaint and then has agreed to settle with the defaulting borrower.

For more information contact Bonnie Wright, Esq. at bwright@hnlawfirm.com

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Landlord’s Beware: Commercial Tenant Failure to Obtain Municipal Permits Not Grounds For Eviction

Tuesday, June 17th, 2008

The New Jersey Appellate Division in an unpublished decision, Cesar S. Arredondo v. Nersy Pujols, Docket No. A-5459-05T25459-05T2, ruled that breaches of both of a lease provision and a New Jersey statute for failing to obtain municipal permits before commencing construction work were NOT grounds for evicting a commercial tenant.  Although very fact specific to a landlord with apparently “unclean hands”, this decision highlights pitfalls that can beset a landlord in the New Jersey eviction process.

Cannot Evict for “Minor” Breaches (No Permits, No Insurance, Sidewalk Sales, Etc.)

The Appellate Division agreed with the trial court on the insurance issue and the landlord’s inconsistent testimony.  However, the Appellate Division held that the breach was “not material” to warrant the tenant’s forfeiture of his leasehold interest. The Appellate Division noted that the New Jersey statute specifically provides grounds for an eviction where there is a “…violation of such covenants or agreements” of the lease. See N.J.S.A. 2A:18-53.  However, before a judgment may be entered, the landlord must establish the breach. 

Citing New Jersey case law, the Appellate Division held an eviction based on a “forfeiture” is deemed a penalty for failing to do a particular thing.  In New Jersey, the law does not favor forfeitures and requires a trial court to strictly review the provisions of the lease that a landlord seeks to forfeit the tenant’s interest, resolving any ambiguous language in favor of the tenant.

Based on the testimony and review of the lease, the Appellate Division held the breach was a minor deviation of the lease terms.  The court held that the work was undertaken under the direct order of the plaintiff and done by an independent contractor.  Further, all work was done in a workman-like fashion and that pursuant to the Jersey City inspector, the defendant could retroactively cure any of the code violations by obtaining a permit. 

Concerns for Landlords When Instituting Eviction Action Payment Defaults

This unpublished decision raises a number of pitfalls for commercial landlords. In this case, the landlord clearly failed to submit the proper proofs.  Before instituting an action to evict a tenant, landlords should consider a number is issues including:

1)     What proofs do I have?  In this case, the landlord had serious inconsistent statement, whereas the tenant’s testimony was not questioned.  Further, the tenant had two additional witnesses to prove his case, one being a city electrical inspector; and

2)     Is the Breach “Material”?  Here, failure to obtain permits was not “material”.  However, would that have changed if what the landlord was cited for resulted in a fine or penalty from the municipality?

3)     Can the Breach be Remedied before Trial?  Here, the alleged breach of the lease became a non-issue because it was remedied prior to trial. What other breaches can be remedied?

Strategic Use of Eviction Proceedings

This and other recent decisions by the Appellate Division raise pitfalls for commercial landlords in eviction proceedings. Landlords may think to strategically use the eviction process as a way in which to make the tenants become compliant with the lease.  To lessen the legal costs, landlords should take care to place in their lease that the tenant is required to pay the landlord’s attorney fees. 

In the case discussed, although an eviction did not occur, the act of taking the case to trial precipitated the tenant to obtain the proper permits and get insurance.  However, if a landlord wishes to actually evict the tenant, it is extremely important to sit down with your attorney ascertain “minor” or technical breaches.

For more information on evictions or other commercial lease issues, please feel free to contact Christopher J. Hanlon at chanlon@hnlawfirm.com.

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