News and Insights on Connecticut Real Estate Law

Connecticut Ranked as One of the Least Expensive States for a Closing

Mon, 16 Aug 2010 00:00:00 GMT

Connecticut is close to being in the top-10 least expensive states in which to close on a home, according to a new survey. The survey ranked Connecticut 39 nationwide in total closing costs. This is an improvement from the state's ranking as 24th most expensive in 2009, according to Bankrate.com. This year, those closing on a home in Connecticut can expect to pay $3,391.

This new survey contradicts the common belief that closing on a home is expensive in Connecticut because of the requirement that an attorney be involved to conduct the closing and to issue title insurance. Title companies do not conduct closings in Connecticut, which is common in some other states, such as Florida.

The most expensive states to close on a home were New York, Texas and Utah, Bankrate.com said. The total costs for New York were $5,623.

Residential Property Condition Disclosure Reports

Thu, 15 Jul 2010 00:00:00 GMT

A recent case in the Connecticut Appellate Court highlights the importance of proper disclosure when completing a Residential Property Condition Disclosure Report. In that case the owner of a house had covered up a substantial crack in the foundation and floor slab when he refinished the basement. When the owner later sold the house, he stated “unknown” in response to a question about foundation problems. Before purchasing the house the buyers completed a home inspection, but there was no way anyone could have discovered the crack. After a heavy rain flooded the basement the buyers subsequently discovered the crack and sued the seller.

The contract contained the following language, which is standard in many residential real estate contracts: “The BUYER agrees that he has inspected the Premises, is satisfied with the physical condition thereof and agrees to accept at closing the Premises in the present condition on an ‘as is’ basis . . . . Neither SELLER nor SELLER’s agents have made any representations or warranties as to said Premises on which Buyer has relied other than as expressly set forth in this Agreement.” The seller argued that this language was controlling and absolved the seller from any liability for any misrepresentation about the condition of the property.

The court rejected that argument, stating that such language did not protect the seller when the misrepresentation was negligent and not innocent. In this case, the court stated, the seller had full knowledge of the crack in the foundation and did not disclose it to the buyers. In addition, the court placed substantial emphasis on the buyers’ inability to discover the crack through their home inspections. The court stated that “[t]he defendant’s mis-statement served to conceal his actual knowledge of a defect in the condition of the property that he sold to the plaintiff.”

This case, decided by the Appellate Court, is a clear statement of the importance of being very careful when completing these disclosure reports. They should not be rushed. If a seller fails to disclose the existence of any defect of which he or she has actual knowledge, the seller could be held responsible for any damages incurred by the buyer.

Congress Extends Tax Credit

Thu, 01 Jul 2010 00:00:00 GMT

The U.S. Congress on Wednesday approved a bill extending the closing deadline for homebuyers trying to take advantage of a popular tax credit.

Homebuyers with contracts signed by April 30 who failed to go to closing by the June 30 deadline will now have until September 30 to complete their purchases. The House of Representatives on Tuesday approved the bill and it now goes to President Barack Obama for his signature.

The $8,000 tax credit for first time homebuyers and $6,500 credit for others purchasing a new primary residence was a highly popular temporary measure by the Obama administration to jump start home sales during the economic recession.

In order to qualify for the credit a homebuyer must still have signed a binding contract by April 30, 2010. But now the closing deadline has been extended until September 30th. This will assist those persons who have not been able to close because of financing or other issues.

Broker's Liens

Fri, 29 Jan 2010 00:00:00 GMT

Connecticut statutes provide two procedures for real estate brokers to protect their ability to collect commissions due in connection with sales and leases of real estate. These procedures can be used when a broker is concerned that he or she will not able to collect a commission (i.e., concerned about getting “stiffed”).

Section 20-325a of the Connecticut General Statutes grants to brokers the power to record a lien to protect their rights to a commission. This section applies to both sales and leases. The statute provides that a broker “who has performed acts or rendered services relating to real property … shall have a lien upon such real property” for the amount of the compensation due. The lien does not attach, or become enforceable, until all contingencies to the transaction have been satisfied. At that point the broker must record the claim for lien in the land records where the property is located. If the contract is with the buyer, then the lien can only be recorded after the sale occurs. The broker must also serve a copy of the lien on the owner property and comply with other notice requirements as described in the statute.

There are many other strict requirements a broker must follow in order to use this procedure. The broker must be properly licensed; there must be a written agreement meeting the requirements of the statute; the agreement must provide notice that the broker has these lien rights; and other requirements. Any broker who intends to file a lien must follow the requirements of the statute carefully.

As long as attention is paid to the necessary details, this statute does provide some options for a broker who feels he or she is not going to get paid. It must be employed prudently, because the last thing anyone wants to do is kill the deal.

There is another, lesser known statute which provides protection for brokers in commercial lease transactions. Connecticut General Statutes section 20-325k provides that a commission agreement that provides for future payments, such as the in the case of a lease renewal, will be binding on subsequent owners of the property, including someone who acquires the property through foreclosure, if the broker records a notice of commission rights and complies with the requirements of the statute. If the lease renews after the property is transferred, then the new owner will be obligated to pay any commission that is due on the renewal. Again, the statute should be reviewed carefully to ensure compliance with the various requirements.

The statute is very clear that the recorded notice does not constitute a lien on the property. As a result, the broker cannot bring a foreclosure action to collect on the lien. This was probably inserted in the statute to provide some comfort to lenders who did not want another lien on the property. But if the statute creates a contractual obligation that did not previously exist, I don’t see how there is much of a difference. Either way the property owner has a new obligation.

Clearly the intent of the statute was to provide some protection to real estate brokers without creating a new way of creating a cloud on title. But I don’t think the statute accomplishes that goal. The existence of such a notice is certainly going to come up as an issue in any closing. The buyer and seller can likely resolve it through a negotiated solution. The buyer may be willing to assume the commission obligation as a cost of doing business. But no lender is going to finance an acquisition with that notice in place, and the lender will insist that it be removed. The broker will then insist that it re-recorded after the closing. But the lender may object to that as well. What if there is a foreclosure? Can the notice be foreclosed out? How can it be foreclosed out if it is not a lien?

There is no easy solution to this issue. The only answer is that counsel for the buyer, seller and lender will have to think and talk it through and come up with a compromise.

Increase in Filing Fees at the Connecticut Secretary of State

Tue, 01 Dec 2009 00:00:00 GMT

Effective October 1, 2009 there has been a significant increase in filing fees at the Connecticut Secretary of State for business and UCC filings. For example, the fee for filing a UCC-1 Financing Statement is now $50 (previously $25), and the fee for filing Articles of Organization for a limited liability company is now $120 (previously $60). The fee increase has not been very well publicized.

New Laws Affecting Real Estate in Connecticut--Part 1

Tue, 22 Sep 2009 00:00:00 GMT

The Connecticut General Assembly was preoccupied with addressing the severe budgetary crisis affecting the state as a result of the current recession. Nonetheless, our representatives managed to get some other work done. This is a first in a series of postings which explain legislative changes to Connecticut real estate laws.

Copies of the complete public acts can be found at the State web site at www.cga.ct.gov. Just click on “Quick Search,” select “Public Act” and enter the public act number set forth below.

Public Act 09-127 (HB 6114). An Act Concerning Disclosure of a Historic District Designation and Leased Items to Prospective Purchasers of Residential Property.

This Act amended Section 20-327b of the general statutes (relating to Residential Condition Reports). It requires disclosure of a leased item (including, but not limited to, propane fuel tanks, water heaters, major appliances and alarm systems) to prospective purchasers of a residential property. It also requires disclosure if the real property is located in a municipally-designated village or historic district, or has been designated on the National Register of Historic Places. The Act requires a statement that information concerning those districts may be obtained from the municipality’s village or historic district commission (if applicable).

Signed by the Governor on June 18, 2009; effective from passage.

Changes to Remediation Standards are Dropped

Tue, 14 Jul 2009 00:00:00 GMT

The Connecticut Department of Environmental Protection decided earlier this summer not to finish the changes to the Remediation Standard Regulations, commonly known as the RSRs. The RSRs provide exact requirements for remediation of contamination in soil and groundwater. Previously remediation standards were handled by DEP on a case by case basis, which was a much more cumbersome process. The RSRs provide a level of certainty, espectially for Connecticut Transfer Act properties.

The new RSRs would have added requirements for new contaminants and would have made the remediation requirements for some other contaminants more stringent. There has been no explanation as to why, after years of work, DEP decided to drop the changes. One reason may be the budget problems facing all Connecticut state agencies. DEP may have decided to devote its limited resources to other priorities. Another reason could be the difficulty in developing a workable transition period. Since most remediation projects go on for many years, it would be difficult to apply the new standards to an existing project. This had become a hot topic.

Requirements for Security Deposits for Residential Leases

Tue, 03 Mar 2009 00:00:00 GMT

The current economic downturn we are all suffering through has brought an increased focus on renting property. Many individuals and families, unable to afford their mortgage or rent, have downsized to save money. Other people looking for investment opportunities have begun buying rental properties. In all of these situations it is critical people know both their rights and obligations with respect to security deposits. Connecticut has some very specific requirements which are not complicated but which can create an unwelcome trap for anyone who does not follow the rules. Note that these requirements only apply to residential property, including single-family homes. They do not apply to commercial property.

Amount: For tenants under the age of 62, the maximum security deposit which can be required is two months’ rent, plus the current month’s rent. For tenants age 62 and older, only one month’s rent is allowed for a security deposit, plus the current month’s rent.

Bank Account: All security accounts must be deposited in a bank account at a financial institution located in Connecticut. That means the account must be set up at a branch here in the state. The account must be used solely for security deposits and cannot be commingled with the landlords own funds. But security deposits from different properties can be commingled in one account. There does not need to be a separate account for each property, although this is a good idea for large properties. Of course, the landlord should keep accurate records of all accounts and security deposits.

Interest. Landlords must pay interest on security deposits at the rate of 1.5% each year. The interest is required to be paid yearly on the anniversary of the start of the lease. If the account earns a lesser rate, the landlord must make up the difference. If the account actually pays more, the landlord can retain the excess.

Refund of Security Deposits. When a lease ends, there are very specific requirements for refunding security deposits. If the landlord does not follow these rules, there are substantial penalties. When a tenant leaves, the landlord should obtain a forwarding address for the tenant. If the tenant provides a forwarding address, then the landlord has thirty days from the end of the lease to return the security deposit (plus the required interest) or to provide a list of any damage to the property and the balance of the security deposit after deducting the cost to repair the damage. The list must be itemized and must list the cost to repair for each area of damage. Of course, damages can include unpaid rent. If the landlord does not have the tenant’s forwarding address, then the landlord has fifteen days following the date the landlord receives the address to return the security deposit or to provide the list of damages. So if the tenant breaks the lease and does not leave a forwarding address, the landlord would not be immediately required to return the security deposit.

If the landlord does not refund the security deposit or provide the itemized list within the statutory time period, then the landlord is automatically liable for double the amount of the security deposit. There is no defense to this liability, even if the tenant has caused substantial damage to the property. Therefore, it is critical that the landlord follow the statutory procedure.

Voluntary Remediation—An Alternative to Transfer Act Compliance

Fri, 12 Dec 2008 00:00:00 GMT

The Connecticut Transfer Act seems to get all the press when it comes to remediation of commercial and industrial properties. There is good reason for this. The Transfer Act affects every sale of commercial property in the State of Connecticut, and even some residential properties. More about the Transfer Act can be found on at the DEP website. But there is an alternative to Transfer Act compliance. It is voluntary remediation under Sections 22a-133w and 22a-133y of the Connecticut General Statutes. One statute is for areas in which the groundwater is GA/GAA, or clean, and the other statute is for where the groundwater is GB/GC, or not so clean. There are some slight differences between the two programs, but the procedure is pretty much the same. The property owner hires a licensed environmental professional (LEP), who investigates the contamination at the property and develops a remediation plan, which is filed with DEP. The property owner, under the guidance of the LEP, completes the clean up of the property in accordance with the DEP standards. When everything is completed, the LEP files a final report. If the DEP has no objections to the report, then the remediation is complete. There is a $3,000 fee payable to DEP for participating in the program, but this fee may be credited against a subsequent Form II fee under the Transfer Act. More information on the voluntary program can be found at the DEP website.

What are the advantages of the voluntary remediation program? If a property owner knows that the property is subject to the Transfer Act and compliance will be required upon a sale of the property, the voluntary program allows the owner to be proactive. The clean up of the property can be completed prior to a sale. This will enhance the property’s market value and marketability. In addition, it will to help to avoid lengthy (and expensive) negotiations with a potential buyer about remediating the property, as well as escrows. It also allows the owner to retain total control over the clean up without the buyer wanting to be involved.

There is another advantage to using the voluntary program. When the Transfer Act was new some sellers may have filed Form I’s, certifying that there has been no spill at the property, when in fact there may been some contamination. This was especially true where the amount of contamination was very small. But DEP is now very careful about reviewing Form I’s and will reject a Form I if there is any evidence of contamination, regardless of how small. So it is better to address the issue head on.

When the owner decides to sell the property, it will still have to comply with the Transfer Act. But the owner will be able to file a Form II, in which the owner certifies that the property has been remediated in accordance with DEP requirements. The advantage of the Form II is that the owner has no post-closing obligations. The filing of the form is all that is required.

Please note that the owner is still responsible for any activities that may have happened at the property since the clean up was completed. For example, if there has been a spill since the completion of the clean up, then on a sale the owner is going to have to file a Form III under the Transfer Act.

Could a Drop in Mortgage Rates Jumpstart a Turnaround?

Thu, 04 Dec 2008 00:00:00 GMT

The New York Times reported today that a drop in mortgage rates has resulted in an increase in mortgage refinancing. According to the Times, the drop in rates was the result of a decision by the Federal Reserve to buy up $500 million in mortgage-backed securities. In addition, both the Times and CNNMoney.com have reported that the Treasury Department is looking into ways to drive mortgage rates even lower. The drop in interest rates, coupled with the nationwide decline in housing prices, just might convince people to jump back into buying homes. This would include not just people looking for a new place to live, but also investors looking to gobble up good deals. With the record number of foreclosures in this country it is important that these houses get back in the hands of people who will maintain them and find occupants for them. Lower interest rates certainly are not going to solve all of the nation’s housing woes, but they could be a good first step.

As the articles noted, lower interest rates aren’t going to help people who can’t afford their current mortgages, because only the most qualified borrowers will get the new lower rate. But there are many proposals on the table to help the millions of distressed borrowers, and hopefully our government will finally find the right plan and get it moving. There is no dispute that stabilizing real estate is critical to reviving our economy.

Yahoo Finance also has a good article.