Homophobia is Still Rampant in Many Law Firms

ENDA appears to be going nowhere this year and as a result LGBT employees in a majority of states - including ever backwards Virginia - will continue to have no employment non-discrimination protections. That includes LGBT attorneys and paralegals who either cannot get hired by law firms in the first place or who must live in fear in the professional closet so as to not be fired from their jobs. The other side of the coin, of course, is that of whether or not LGBT clients want to utilize law firms that would not hire them or other members of the LGBT community as an employee.

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While this post will focus on Virginia, the problem identified occurs all over the country where states do not protect LGBT citizens from employment discrimination. As I have noted before, I was forced from a large law local firm in 2004 because I was gay - true, they tried to dress it up as something else, but one did not need to be a NASA scientist to know what was going on - and I have a good friend who experienced a similar fate when his sexual orientation was discovered at another prominent local law firm.
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The major disconnect in this wide spread picture is that most prominent law schools require interviewing employers as a condition to recruiting on campus to abide by employment non-discrimination policies that bar discrimination based on sexual orientation. In Virginia, the leading law schools, The University of Virginia School of Law (my alma mater), The College of William & Mary School of Law, The Washington & Lee University School of Law, and The University of Richmond School of Law all have such policies (click on the school to view its respective policy). Research has shown that Virginia’s mega law firms – Williams Mullen, P.C., McGuire Woods, L.L.P., and Hunton & Williams - actually have such policies in place at their firms, as does Leclair Ryan. Yet, the majority of Virginia law firms that conduct on campus interviews do NOT actually have official non-discrimintation policies that comply with the law school mandated non-discrimination policies. In fact, two local law firms - Wolcott Rivers Gates and Willcox & Savage, P.C. - have fired LGBT staff due to their sexual orientation.
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Of the other locally based law firms, one - Kaufman & Canoles, P.C. - has a nondiscrimination policy that on its face excludes sexual orientation. The rest as well as some in other parts of Virginia have non discernible non-discrimination policy whatsoever: Vandeventer Black, L.L.P., Watt Tieder Hoffar & Fitzgerald LLP, Taylor & Walker, P.C., Christian & Barton, P.C., Hirschler Fleischer, P.C., and Huff, Poole & Mahoney, P.C (Taliban Bob McDonnell's former firm). Obviously, something is seriously wrong with this picture if these firms are allowed to recruit on campus at leading laws apparently giving a wink and a nod to the law schools' non-discrimination policies.

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LGBT clients need to be aware of more than just a law firm's supposed reputation if they want to be assured that they will receive respectful and knowledgeable representation.

Dissolving Same Sex Relationships - Tips For A Smoother Breakup

While I do not handle regular divorce or family law matters in my law practice, I have come to represent on a number of occasions one of the partners in LGBT relationship who are splitting up and in need of sorting out their frequently intertwined assets, preferably with as little animosity and hatred as possible. In fact, I am representing two such clients currently. Since same sex relationships in Virginia receive zero recognition, ownership rights in and the methods for the dissolution of gay and lesbian relationships usually come down to issues of contract and property law, with a jointly titled residence generally being the issue that leads to legal warfare. Although jointly titled investment accounts, vehicles and other items can bubble to the surface and create conflict as well.

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One way to avoid battles over a co-owned residence is to have a written - and preferably recorded - agreement that spells out what will happen if the couple splits. Given the number of gays in the military in this area it is even possible to have such agreements drafted in a manner that make them appear to an outside party as nothing more than a joint ownership/investment agreement with buy-sell options and/or rights of first refusal. Thus, they do not create a possible trigger under "Don't Ask, Don't Tell." Sadly, most couples do not take these types of precautions and so the battle begins as the relationship falls apart. A relatively recent story in the New York Times looks at "pre-coupling" measures that can be taken to make a potential split down the road easier and perhaps even less hostile. Here are some highlights:

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[W]e asked several experts on same-sex issues what gay couples need to think about before legally partnering, and what they’ll probably need to consider should they decide to split:
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Get it in writing. Even though prenuptial agreements or domestic-partner agreements can be contested and may not be enforceable in some states, they can be useful in outlining how assets should be divided in the event of a split, especially if a couple doesn’t have access to divorce court. “Those documents often do clarify intentions and create enforceable obligations,” said Jennifer Pizer, director of Lambda Legal’s national marriage project.
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You can also get creative, said Joyce Kauffman, a lawyer in Cambridge, Mass., with a same-sex clientele, and “put language in it that says if we are not able to divorce, wherever we live, we want this to be viewed as a binding contract and it can be enforced.”
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Children. Same-sex marriage, civil unions and comprehensive domestic partnership laws generally recognize children born into these relationships as the children of both parents. But the parent-child relationship can be contested in some states, which is why parents without biological ties to their children should adopt them (or move to a state where they can). So if a couple splits, the relationship between the nonbiological parent and child will be protected — as will the parents’ obligations to the child — and any custody issues can be decided in a family court.
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Dissolve all unions. All legal unions should be dissolved through the legal system whenever possible. If you don’t (or can’t), the states that respect same-sex marriage may continue to view your former spouse or partner as the next-of-kin, which means that person may have legal rights to make medical, financial and other important decisions if you become incapacitated.
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“If a married gay man who can’t get divorced in his home state is traveling in a state that recognizes him as still married, his estranged husband will have a full range of default legal rights,” Ms. Pizer said. Some of those rights can be overridden with legal documents like medical and legal powers of attorney, but failing to sever your legal ties can also cause problems if you attempt to remarry or repartner.
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Dividing assets. Heterosexual couples can divide their assets with few, if any, tax implications in a divorce. One spouse can sell property to the other without worrying about capital gains taxes, and they can transfer an unlimited amount of assets to each other without incurring gift taxes. (While all individuals can give up to $13,000 in cash and other assets to as many people as they desire, anything above that is considered a taxable gift; everyone has a $1 million lifetime exemption.) But this is a big gray area for gay couples. The Internal Revenue Service hasn’t issued any guidance for same-sex couples, but you can assume that it doesn’t recognize gay marriage because of the Defense of Marriage Act, the federal law that bans same-sex marriage. That means that gay couples are not entitled to tax-free division of assets in a divorce (though they may not have to pay related state taxes if they live in a state that recognizes gay unions).
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So if a gay spouse wanted to transfer his share of the house to a spouse as part of a divorce agreement, any amount above $13,000 could well be considered a taxable gift. (Both spouses would need to file a gift tax return on amounts that exceeded $13,000, which would exhaust part of their lifetime exemption).
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“And the sale of one same-sex spouse’s appreciated property to the other, as commonly occurs in divorce, could result in a reportable capital gain,” said Allen Drexel, a family lawyer in New York who works with same-sex couples. But the gay partner selling his share could use the $250,000 exclusion on capital gains, as long as it’s a primary home; there are no exclusions for vacation homes or other property.
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And if a gay couple without access to divorce court can’t figure out a way to equitably split assets on their own, they may need to resort to other legal remedies. “For example, if you own property together and don’t want to, you may be able to file a petition to partition or a similar action, which will result in a court order to sell the property,” Ms. Kauffman said.
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Retirement Plans. When heterosexuals divorce, they can also split qualified retirement plans like 401(k)s without triggering federal income taxes or penalties by using a “qualified domestic relations order,” or QDRO. Individual retirement accounts can be transferred tax-free, too. But gay couples must withdraw the amount and pay all taxes and any penalties. That’s why it pays to compensate a gay spouse with other assets, if you have them, before dipping into a retirement plan . . . .
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Alimony. Typically, the person who pays spousal support can treat those payments as a tax deduction, while the recipient must report it as taxable income. But the I.R.S. hasn’t issued any guidance here either, and the person paying spousal support may not be able to deduct these payments, and he or she could could incur a federal gift tax liability, Mr. Drexel said. “The jury is still out on this very important question,” he added.
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Bottom line: in states that do not allow same sex marriage - and even in those that do because of the Defense of Marriage Act - dissolving same sex relationships and unwinding property interests can be difficult and usually will need to involve both an attorney and a tax advisor.

Finding LGBT Friendly Legal Counsel

It can be a challenge for LGBT Virginians to find "gay friendly" legal counsel to handle their legal matters from a sympathetic and respectful perspective. Since my firm has been marketing to the LGBT community for a number of years now, we receive many calls from LGBT Virginians - sometimes from hundreds of miles away - seeking legal representation in areas of the law that this office does not handle. I endeavor to refer these people to other counsel that I know are both competent and gay friendly if not actually gay to insure that the legal representation provided will be thorough and that the clients will not be sold out by counsel afraid to stand up to frequently anti-gay biased judges (two judges in Norfolk spring immediately to mind in this regard, but the problem is really state wide).

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Of late, I have been receiving telephone calls providing tales of opposing attorneys - particularly in divorce cases - who advertise themselves as "gay friendly" yet who willingly and viciously play the "gay card" in courtroom hearings to harm their client's gay former spouse to the maximum extent possible in the divorce case. Obviously, most attorneys who do this hope to prejudice the court and/or brutalize the opposing party. In this vein, I received a call yesterday from a gay man whose estranged wife is being represented by an allegedly "gay friendly" attorney with a large area firm that advertises on Equality Virginia's legal resource page. This attorney reportedly is playing the gay card for all it is worth in the divorce hearings - even to the point allegedly of representing that the gay father can only have supervised visitation. Moreover, he is with a law firm that, in my opinion, is not only extremely homophobic, but would never have an openly gay attorney in its employ.
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Unfortunately, as the economy has nose dived, cynical attorneys and firms that are seeking to bolster falling revenues are waking up to the fact that the gay community is a potentially lucrative market niche. In my opinion, these attorneys and firms in reality care NOTHING for the LGBT community or individual LGBT clients and are after one thing only: gay dollars. As a result, they are not invested in seeing that LGBT clients receive justice in the courts. It's all about money and when a client comes along who wants to engage in vicious gay bashing to win in a case, these attorneys and firms quickly jump right on board (even though such conduct is probably a violation of the attorney Rules of Professional Conduct and raise issues under the Canons of Judicial Conduct as well).

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With the growing awareness of the size and purchasing power of the LGBT community, numerous websites are springing up that allow attorneys to advertise themselves as gay friendly (some sites allow the attorney to advertise that they are gay and out) . Similarly, some LGBT organizations such as Equality Virginia, provide legal resource listings as well. The problem is, no one seems to check behind attorneys and firms seeking to be listed. In the situation I mentioned, the Virginia Beach firm has itself listed as a legal resource on Equality Virginia's website, an issue that I have raised with Equality Virginia for investigation.
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So what should the LGBT client seeking legal counsel do? The first advice is to check behind the listing with people in the LGBT community. Is the attorney advertising to the LGBT market out professionally? If not, does the attorney claiming to be "gay friendly" support local LGBT organizations as a member, sponsor or through some other means? If in doubt, the LGBT client should call local LGBT organizations to see what, if anything, is known about the attorney participating in and advertising to the community. Likewise, call other advertising attorneys in other areas of legal specialization to determine what they know of the attorney/law firm in question. Bottom line: do your homework to make sure you will truly be hiring an attorney who will advocate your case.

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LGBT clients need legal counsel who are not afraid to call out the opposing counsel and/or the presiding judge if they engage in or allow gay bashing to occur in the case. Gay bashing and playing the gay card is NEVER appropriate. Do not allow yourself to fall victim of a cynical and opportunistic attorney who only wants your money and who will disparage you behind your back while happily taking your money.

Avoiding Foreclosure Rescue Scams

Foreclosure rescue scams target homeowners facing foreclosure, particularly if they are equity-rich but cash-poor. Rescue scams cost consumers thousands of dollars and, often, their most valuable asset — their homes. With foreclosure rates on the rise, foreclosure rescue scams are also increasing. The elderly, and people with low incomes or blemished credit, are particularly vulnerable. Before entering into any such transaction, it is crucial that the homeowner consult a competent real estate attorney. Moreover, NEVER, EVER sign paperwork at the kitchen table that has not been reviewed by some third party looking out for your interest. Some of the scams utilized are as follows:
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Phantom help - The rescuer charges excessive fees for telephone calls and paperwork that the homeowner could have handled them self, or promises representation and services that never materialize. In either event, the homeowner may have little or no financial resources remaining to save the home after paying these worthless fees.
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Bailout - The rescuer bails out the homeowner by helping “dispose of” the house. The homeowner typically surrenders title to the house while believing they can stay on as renters and/or buy the house back once they resolve their financial matters. Too often the terms are so onerous, however, that repurchase becomes impossible, the homeowner permanently loses possession, and the “rescuer” walks off with all, or most, of the homeowner’s equity.
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Bait and switch - Rescuers tell the victims they will obtain a new loan that will solve their problems. In reality, the homeowner signs documents that give the scammers ownership of the home, while the victims remain responsible for the mortgage repayment obligations. Many homeowners believe that they were signing documents for a new loan to make the mortgage current, or arranging for an intermediary to negotiate more favorable terms with the lender.
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There are a number of things that a distressed homeowner should do to help themselves. Here are some of them:
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1. Make sure that your home actually is in foreclosure. If you are behind in your mortgage payments, you will receive a delinquency notice from the lender. These letters notify you of your delinquency and give you a chance to resolve the debt. If you receive a Notice of Trustee’s Sale, or similar document, your home is in foreclosure, and you need to respond accordingly IMMEDIATELY. Contacting an attorney on the eve of the foreclosure sale is too late..
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2. Ask your lender about renegotiating or refinancing your loan or working out a payment plan. Be honest about your financial situation. The sooner you contact your lender, the sooner you may be able to remedy the problem.
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3. Contact your attorney, not one referred by the individual or company that is involved in the foreclosure prevention/agreement.

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4. Do not sign a contract under duress. Request time to review documents or to have them reviewed by your attorney. If you do not understand a document’s contents, ask a trusted family member, attorney, or financial planner to review the documents with you.
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5. NEVER accept verbal representations. Obtain offers in writing, and review all written offers
Thoroughly with a trusted independent advisor.

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While Virginia has passed legislation directed to limiting the ability of scammers to operate in the state, crooks are very resourceful and the legislation in and of itself doesn't mean that scammers will not continue to find ways to take advantage of distressed homeowners.

Will Recession Force Restructuring of Legal Profession?

An interesting column is in today's New York Times that looks at the legal profession as it is buffeted by the recession and corporate clients seeking to drastically control their legal expenses. For consumers how things shake out may make for better, more cost effective ways to secure legal services without paying excessive fees to big law firms, especially as attorneys leave large firms and open smaller operations. In short, it may be come easier to secure attorneys with big firm knowledge at smaller firm pricing - something my firm offers.

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The reality is that the current set up of large law firms is much like a plantation system with a huge overhead factor where the often grossly over paid partners oversee the laborers made up of the associates. In some cases the partners do little - the real work is done by associates - yet bill crazy amounts for their inflated time. Meanwhile, associates are pressured to bill literally every minute of their time to generate required billable hours and collect fees. Associates often feel themselves to be like rats on a wheel with no way of exiting. Meanwhile life among the partners is no cake walk either and in many firms life among the partner ranks is like being in a piranha tank. Savvy consumers should use the current upheaval to their advantage. Here are some column highlights:

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The economic downturn is hitting the legal world hard. American Lawyer is calling it “the fire this time” and warning that big firms may be hurtling toward “a paradigm-shifting, blood-in-the-suites” future. The Law Shucks blog has a “layoff tracker,” and it is grim reading. Top firms are rapidly thinning their ranks, and several — including Heller Ehrman, a venerable 500-plus-lawyer firm founded in 1890 — have closed.
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The employment pains of the legal elite may not elicit a lot of sympathy in the broader context of the recession, but a lot of hard-working lawyers have been blindsided, including young associates who are suddenly finding themselves with six-figure student-loan debts and no source of income.
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The silver lining, if there is one, is that the legal world may be inspired to draw blueprints for the 21st century. The changes are likely to begin with compensation. . . . Lower pay should mean that associates will not need to work the grueling hours many have been forced to. And it will mean less pressure to go into private practice for law graduates who would rather do something else.
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Clients are also likely to benefit — and consumers, since legal fees are built into the cost of almost everything. Even before the downturn, big-firm clients, led by the Association of Corporate Counsel, were pushing to phase out the billable hour — which can go as high as $1,000. Tight corporate budgets will give clients more leverage to push to pay by the project or for successful outcomes.
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Law schools may also become more serious about curriculum reform. The Carnegie Foundation for the Advancement of Teaching released an influential report that, among other things, urged law schools to make better use of the sometimes-aimless second and third years. If law jobs are scarce, there will be more pressure on schools to make the changes Carnegie suggested, including more focus on practical skills.

Lower Your Taxes By Appealing Assessments

One result of the decline - or depending where one lives, the collapse - of the residential real estate market is that many homeowners are likely to find themselves with tax assessments that exceed the current market value of their homes. If you believe that you are in such a circumstance, you need to check your assessment against the current market reality in your neighborhood in terms of current sale prices and/or via an appraisal. City assessments are an inexact science at best and are not always quick to catch up with market changes, especially when prices are falling. This is especially true in neighborhoods that have been plagued by numerous foreclosures and/or short sales. A recent Virginian Pilot story looks at the situation in the southside of Hampton Roads. Here are some highlights:

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As home prices fall across Hampton Roads and city assessors scramble to keep up with changing values, persuading a city to lower an assessment - especially by $10,000 or more - could mean hundreds of dollars in tax savings. In the past year, the median price for homes in South Hampton Roads has dropped 7.4 percent, according to Real Estate Information Network, the Virginia Beach-based multiple listing service. Sales of existing homes also have fallen to unusually low levels - another problem for cities trying to value them.

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"We're all up against the same thing," said Jerry Banagan, Virginia Beach's assessor. "The volume of sales is down so much that (it) makes it harder to do an assessment and make comparisons." Several cities have already announced that median assessed values will decline this year. Despite that, for homeowners who think their properties still are overvalued, now is the time to challenge the assessment.

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"If you disagree, you call into the office. We will put them in touch with the appraiser who is responsible for their property." Minor discrepancies such as mistakes in square footage, damage that has occurred in the past year, or the fact that a home is unfinished, are often resolved quickly.

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"We normally get 300 to 500 calls a year," said Chesapeake Assessor William L. Rice. "Out of those, we'll do about 75 or 80 home visits. We come out and take a look. If there's something wrong, it's often something on our property record cards." The assessor shares with the homeowner recent sales in the neighborhood that were used as comparisons.

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If the city does not agree to change the assessment, the last recourse for a property owner typically is to appeal to the city's Board of Equalization. Boards meet at various times, depending on the city.

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Depending upon one's circumstances, filing an appeal with the Board of Equalization may make sense and could translate into savings for a number of years to come. Since each local city has its own process, it is important to file a timely appeal. The burden of proof in an appeal lies with the taxpayer:

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Section 58.1-3379.C of the Code of Virginia: "the burden of proof shall be upon a taxpayer seeking relief to show that the property in question is valued at more than its fair market value, that the assessment is not uniform in its application, or that the assessment is otherwise not equalized. In order to receive relief, the taxpayer must produce substantial evidence that the valuation determined by the assessor is erroneous and was not arrived at in accordance with generally accepted appraisal practice."

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Set out below are the schedules for the cities in south Hampton Roads:

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Chesapeake Board meets: May
File appeal by: May 1
(757) 382-6235
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Norfolk Board meets: July and August
File appeal by: May 31
(757) 664-4732
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Portsmouth Board meets: April
File appeal: Office recommends as soon as possible before the board meets.
(757) 393-8631
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Suffolk Board meets: May
File appeal by: April 30
(757) 514-7475
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Virginia Beach Board meets: December
File appeal: The city accepts appeals all year.
(757) 385-4601

33,000 Local Homeowners Owe More Than Homes are Worth

The caption of this post is the headline from a new Virginian Pilot article that looks at the faltering residential real estate market and the fact that more and more homeowners are "underwater" on their properties. Here are a few highlights:

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More than 33,000 homeowners in Hampton Roads owed more on their mortgages than their homes were worth at the end of 2008 as home prices continued to fall, according to a report released Wednesday by a mortgage research firm. That's roughly 13 percent of all mortgages in the local market, . . .
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Across the country, more than 8.3 million homeowners owe more than their homes are worth, representing about 20 percent of all outstanding mortgages, First American CoreLogic reported. The majority of such "negative equity" mortgages are in states such as California, Florida, Texas and Michigan. In Virginia, 19.6 percent of all mortgages were underwater.

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Brian Holland, president of Virginia Beach-based Atlantic Bay Mortgage Group, said many of the region's upside-down loans could be attributed to mortgages guaranteed by the Department of Veterans Affairs with no down payments. "Your typical VA buyer is going to fund 100 percent," said Holland, whose firm handles such loans from 19 mortgage offices in Virginia and the Carolinas. "After fees associated with the sale, they're automatically underwater."

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"The ones who are really impacted by this are the ones who have to sell," she said. "Then you're forced in to a short-sell situation." A "short sale" means selling a house for less than the amount the seller owes the lender. Lenders agree to take a loss on the short sale to avoid the added costs of a foreclosure plus trying to maintain and resell the property.

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Negotiating a short sale is NOT an easy process and is something that neither most homeowners looking to sell or buyers looking to purchase have the where with all to undertake. Worse yet, many Realtors are rather clueless in how the process works as well. Michael B. Hamar, P.C., has experience in such transactions and can assist in expediting the process which can take weeks or months depending upon the lender involved and the particular circumstances.

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In addition to the overview article on this blog, a detailed piece - with sample forms and exhibits - on negotiating a short sale is available upon request. It is not posted on this blog because of its length and numerous exhibits. Anyone interested in learning more should e-mail the office at mike@hamarlaw.com We also provide resources for for sale by owner ("FSBO") transactions which can save the seller the 6% real estate commission otherwise payable to a realtor. This savings can significantly improve the out of pocket loss for a homeowner who is "underwater" on their property.

INVESTOR ACQUISITION OF MULTIFAMILY OR COMMERCIAL REAL PROPERTY – CHECK LIST

DUE DILIGENCE INVESTIGATION ITEMS
1) Inspection of Property
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2) Inspection of Books and Records – If Applicable
a) Income/Operating Statements
b) Rent Roll - Security Deposits
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3) Environmental, Termite and/or Moisture Reports
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4) Insurance and Paid Receipts
a) Hazard or Builder’s Risk
b) Liability
c) Flood
d) Business Interruption
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5) Title Commitment
a) Mechanic's Lien Coverage
b) Zoning Endorsement
c) ALTA 8-Environmental
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6) Legal Description
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7) Appraisal
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8) Physical Survey
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9) Evidence of Compliance with Governmental Laws
a) Americans with Disabilities Act
b) Chesapeake Bay Preservation Act
c) Wetlands
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10) Evidence of Zoning Classification
a) Lot Size - may be grandfathered non-conforming use
b) Permitted Uses
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11) Evidence of Street Access and Utility Availability
a) Water
b) Sanitary Sewer
c) Drainage
d) Electric
e) Gas
f) Telephone
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12) Building Permits
a) Scope of Rehab
b) Cost vs. % of assessed value
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13) Plans, Drawings and Specifications
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14. Non-Bankruptcy Status of Seller
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DOCUMENTS RELATING TO ACQUISITION OF PROPERTY
15. Contract
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16) Deed
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17) Bill of Sale – If Applicable
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18) General Assignment
a) Licenses and Permits
b) Service Contracts
c) Management Contracts
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19) Assignment of Rents, Leases and Security Deposits
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20) Closing Statement
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21) 1445 Tax Certification
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22) 1099 Tax Certification
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23) Commercial Affidavit
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24) Virginia Department Taxation Form R-5
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25) Seller/Owners Affidavit
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26) Owner's Title Policy - Mortgagee Title Policy
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27) Organizational Documents of Seller Entity
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28) Resolution/Unanimous Consent of Seller Entity
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29) Evidence of Good Standing of Seller Entity
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NOTE: The foregoing Check List is for educational purposes and contains items that may not be applicable to all transactions which can vary substantially based on the particular facts and circumstances of and type of property to be acquired, as well as its condition. Therefore, the Check List should not be relied upon as a substitute for individualized legal advice addressing one’s particular situation.

PITFALLS FOR INVESTORS RENTING SINGLE FAMILY HOMES

INTRODUCTION: From time to time real estate investors may rent single family residences to unmarried individuals, whether in terms of an unmarried couple with children, a group of college students, or perhaps by leasing out portions of the residence to separate individuals. While such action is commonplace, particularly in view of the changing nature of “families” and the need on the part of investors to keep properties leased and generating cash flow for debt service. However, many investors probably do not know that by doing so they may be unwittingly setting themselves up for misdemeanor prosecution depending upon (1) the jurisdiction in which their rental property is located, and (2) that jurisdiction’s restrictions concerning what constitutes a “family” for zoning purposes.
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LOCAL ZONING ORDINANCES: Each local city in the Hampton Roads area has adopted a Comprehensive Zoning Ordinance which typically appears as annex or some similar designation to the City’s Code of Ordinances. Each Zoning Ordinance contains provisions establishing different zoning classifications and the requirements/restriction applicable thereto and set out definitional terms, including what is a “family” for the purposes of single family residential zoning districts. In addition, these ordinances or the related City Code establish various criminal and civil penalties for violations. No two of these Zoning Ordinances are the same and, therefore, investors with rental properties need to be aware of the specific restrictions that apply to their properties. The various definitions of what is a “family” for zoning purposes in the area cities range from three (3) unrelated individuals in Newport News to five (5) unrelated individuals in Chesapeake. (NOTE: Detailed information on a city by city basis is available upon request)
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ENFORCEMENT OF ZONING RESTRICTIONS: Enforcement of zoning restrictions is not consistent either from city to city or even within the same city. Typically, unless a violation is picked up during an inspection triggered by some other issue, property owners only receive a summons based on a complaint from a neighbor. Often the complaints are anonymous. Once a complaint is received, inspectors will come to the property and verify whether a violation exists. If a violation is discovered, a warning letter or in some cases a criminal summons will be issued to the property owner of record. Usually, if the violation is corrected within a timeframe specified by the Codes Enforcement office, the matter can be dismissed. If not resolved, however, a criminal conviction can and will be entered against the property owner.
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If a summons is issued for violating the single family restrictions of the Zoning Ordinance, generally it will NOT be possible to secure a license to operate a rooming house or a boarding house because such a use is NOT consistent with the single family residence zoning district. Should an application be submitted, action by the Planning Commission and City Council will be involved and the aggrieved neighbor(s) will speak in opposition and it will be unlikely that a permit would be issued.

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Real Life Example: An unmarried couple in Norfolk owned a home and leased out a room to a tenant. Subsequently, another unmarried couple was allowed to move into the home after one of the parties to that couple lost their job and that couple was unable to remain in their rented apartment. A neighbor made an anonymous complaint, inspectors appeared and a criminal summons was issued because the five occupants exceeded the four (4) unrelated person limit of the Norfolk Zoning Ordinance. Because the zoning of the property in question was single family residential, it was impossible to get a permit for a rooming house and the only way in which the owners could avoid a conviction was to make the homeless couple move out.
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MORAL FOR INVESTORS:
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1. Before leasing a property to a group of unrelated individuals, make sure that you know the limitations imposed by the governing zoning ordinance.
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2. Make sure that the lease form utilizes requires that the tenants comply with all applicable governmental regulations and ordinances and that failure to do so is grounds for immediate termination of the lease if not immediately rectified.

PITFALLS, DANGERS AND RISKS OF "SUBJECT TO" REAL ESTATE TRANSACTION

WHY USE "SUBJECT TO" TRANSACTIONS? There are a number of reasons why "subject to" real estate transactions are attractive to real estate investors and make economic sense, whether the investor's goal is to acquire rental properties or to rehab and sell fixer upper properties.. These attractions include most significantly:
(1) The purchaser may be required to pay little or no down payment to close the purchase.
(2) Since the purchaser need not go through a loan application and approval process, there is no limit to many properties an investor can buy.
(3) Subject to loans stay in the seller's name are not on the purchaser's credit, and the purchaser is not personally liable on the loan, although record title transfers to the purchaser.

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WHAT ARE THE PITFALLS AND RISKS OF "SUBJECT TO" TRANSACTIONS? There are a number of inherent risks and dangers associated with purchasing real estate pursuant to a "subject to" transaction. Among these risks are the following:
(1) Subject to sellers may be in serious arrears in their mortgage payments and may owe significant unpaid principal payments, large sums of unpaid accrued interest and/or penalties.
(2) Subject to sellers may be in foreclosure or on the brink of the commencement of foreclosure proceedings. Once a property goes into the foreclosure process, it may be either (A) impossible to stop the foreclosure without refinancing the loan or (B) more expensive to bring the loan back into good standing because of advertising and legal costs incurred by the lender.
(3) Subject to sellers may be in bankruptcy or end up in bankruptcy between the date of contract signing and closing. Once a seller is in bankruptcy, NO conveyance of the subject to property can be made without the approval of the U.S. Bankruptcy Court. Unapproved transfer of title may be set aside by the Bankruptcy Court without any assurance of compensation to the investor who may have paid delinquent amounts owed on the existing mortgage.
(4) Subject to sellers may have numerous judgment liens, tax liens, and other liens that attach to the subject to property.
(5) Conventional mortgage loans contain "due on sale" clauses and, if the mortgage lender learns that the seller has transferred title to the property, there is a very real risk that the lender will call the loan and/or commence foreclosure proceedings. Therefore, (A) monies paid by the purchaser to bring the loan current may be lost and (B) the purchaser may be faced with the need to refinance the property on an emergency timeframe.
(6) Subject to sellers with financial problems may have purchased or refinanced the property with less conventional lenders and the loans may have prepayment penalty provisions which may not be discovered except by reviewing the recorded deed of trust or by securing a pay off statement.
(7) If the purchaser acquires the subject to property for less than fair market value, other unpaid creditors of the sellers may attack the transfer if the seller subsequently files for bankruptcy protection.
(8) Many subject to sellers are unsophisticated and may claim that they did not understand (A) that their credit was to remain tied up by the existing mortgage loan and/or (B) that they could be liable for mortgage payments should the purchaser fail to make such payments.

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HOW DOES A "SUBJECT TO" PURCHASER AVOID SUCH RISKS?
(1) Independently Confirm the Mortgage Status. Do NOT rely on the seller's representations as to the status of the existing mortgage on the property. Subject to purchasers or their legal counsel should ALWAYS obtain a written statement from the mortgage lender confirming the payment status of the loan. This can take the form of a payoff statement - which will reflect escrow deficiencies and prepayment penalty amounts - or other written account summary.
(2) Obtain a Title Commitment from an Experienced and Reputable Title Insurance Company. Because many subject to transaction sellers are in precarious financial condition, it is crucial that a title exam be conducted to identify (A) all mortgages that attach to the property, (B) any state or federal tax liens that may attach to the property, and (C) any other judgment liens that may attach to the property. This latter category of judgments can relate to unpaid medical bills, defaulted credit card accounts, unpaid utility bills, or even delinquent child support payments.
(3) Independently Confirm that the Seller Has Not Filed for Bankruptcy Protection. Do NOT rely on the seller's representations that he/she has not filed for Bankruptcy protection, particularly since creditors can put a debtor into involuntary bankruptcy. A purchase should NEVER make payments to bring a mortgage loan current without first verifying that the seller is not in bankruptcy. If such payments are made and the seller is in bankruptcy (or thereafter goes into bankruptcy), the purchaser will be an unsecured lender seeking payment from a seller that may have no ability to make repayment
(4) Have a Contingency Plan to Deal with Due on Sale Clauses. While many "subject to" purchasers use seller transfers to (A) land trusts where the purchaser is the actual beneficiary or (B) limited liability companies ("LLC") where the seller is the only member and then transfer the membership interest to the purchaser to attempt to avoid the mortgage lender's right to call the loan, these precautions are NOT a guaranty against a loan being called should a lender discover the transfer of title. Some lenders apply the prohibition against the transfer of any interest in the mortgaged property VERY, VERY strictly. Therefore, a transfer to a land trust or LLC (which by law constitute a separate legal "person" distinct from the seller) will sometimes trigger the due on sale clause, if discovered by the lender. Similarly, if a more lenient lender inadvertently learns that the real beneficiary of the trust or the ownership of the LLC has changed to someone other than the seller, then a mandatory call of the loan may also occur.
Because of this latent risk, a subject to purchaser should ALWAYS have a contingency plan as to how the property can be refinanced if the mortgage lender learns of the transfer of title and calls the loan. A subject to purchaser should also be mindful that even if he/she is not liable on the mortgage loan, if a foreclosure occurs and a deficiency judgment is entered against the subject to seller, the seller may attempt to recover the amount of the deficiency from the purchaser based on the purchaser's contractual agreement with the seller to pay the balance of the loan.
(5) Utilize a Purchase Contract that Affords the Purchaser Numerous Rights of Termination. Because it is often only after a purchase contract is signed that a purchaser is able to commence his/her due diligence investigation, the purchase contract should afford the purchaser the ability to terminate the contract should the due diligence investigation disclose additional judgments, liens, bankruptcy proceedings, etc. NOTE: Included in the handouts is a sample contract form.
(6) Give the "Subject To" Seller an Opportunity to Consult Legal Counsel. Often subject to purchasers act in haste to secure the seller's signature on the purchase contract in order to "beat out the competition." The danger in this approach is that the seller may later claim he/she was mislead and/or misunderstood the details of the transaction. A court would very possibly defer to the unsophisticated seller as opposed to an experienced investor.
(7) Remember that "Sometimes, No Deal is Better Than a Bad Deal." Too many investors rush to buy a property without adequately verifying delinquent mortgage payments, the existence of other liens, actual rehab costs and/or whether or not the seller has sought bankruptcy protection in a case that is not yet closed or dismissed. Properly investigating ALL relevant facts can avoid monetary loss and headaches.
(8) Purchase Proper Insurance Coverage: Remember that insurance naming the seller as the insured does NOT cover you as the subject to purchaser. Therefore, be sure to obtain hazard insurance naming your as the owner/insured. In situations where the property will be vacant and under significant rehab, a builder's risk policy should be used in stead of a homeowner policy.

AVOIDING REHAB INVESTOR PITFALLS

In the course of representing real estate investors, particularly those just entering into the business, some completely avoidable title and zoning problems consistently arise, usually as a result of the investors’ desire to minimize acquisition closing costs. Depending upon the exact nature of the problem, solutions – IF feasible – can take months or thousands of dollars to cure and have the potential for significant financial loss.
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I. COMMON TITLE, ZONING, AND BUILDING CODE PROBLEMS: Among the most frequent problems arising are the following:
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1. Unanticipated encroachments, including discoveries in older neighborhoods with narrow lots that the principal dwelling encroaches onto the adjoining lot.
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2. Non-conforming lots, especially in older neighborhoods subdivided prior to the 1950 that do not meet the current minimum lot size requirements of the current Zoning Ordinance.
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4. Unanticipated rehab/repair costs due to current building code and fire code requirements (e.g., nonconforming stairways, exterior wall fire blocking; fire retardant siding and window placement).
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II. WHAT PREVENTIVE AND/OR CORRECTIVE MEASURES ARE AVAILABLE? The majority of the above described problems can be avoided through proper due diligence. In the worse case, if a problem is not avoided there can often be solutions, albeit it sometimes costly and/or time consuming.
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A. ENCROACHMENTS.
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1. Best Solution: Obtain a physical survey. The easiest way to avoid acquiring a property that either contains improvements that encroach onto an adjoining lot or that have problematic encroachments from adjacent properties is to obtain a physical survey prior to closing which will disclose any encroachment issues which then become a title defect to be resolved by the seller. If the problem is significant and cannot be resolved, then the investor will be in a position to terminate the purchase contract and receive a refund of the earnest money deposit. The cost of a typical residential lot survey is between $250 and $300.
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2. Post Closing Solutions. If a survey is not obtained at the time the investor’s purchase, the problem typically arises when the rehab is complete and purchaser of the rehabbed property obtains a survey prior to closing of the out sale. If the survey shows an encroachment problem, there are several possible solutions:
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(A) Removal of the Encroachment. This may or may not be feasible. If the encroachment involves a house or other significant structure encroaching onto a neighboring lot or parcel, moving the problem structure is most likely not feasible.
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(B) Negotiation of an Encroachment Easement. This will involve negotiations with the adjacent landowner to try to reach an acceptable agreement that will allow the encroaching structure to remain in place with the permission and agreement of adjacent landowner. Typically this cure also involves attorney fees for document preparation and, more importantly, payment of some type of fee to the adjoining landowner if the investor owned improvements encroach on to the adjoining lot. Obviously, the cost of a physical survey would have been far less expensive in most instances.
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(C) A Suit to Quiet Title Based on Adverse Possession. Provided the encroachment has existed for at least fifteen (15) years, the last recourse is to bring a suit to quiet title based adverse possession. This is the worse case scenario and is generally used only if (1) the dwelling or other major improvement on investor’s property encroaches onto an adjacent property, and (2) the investor and previous owners of the investor property can meet the statutorily required 15 year period of exclusive, actual, continued possession, under a colorable claim of title.
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In a relatively recent Virginia Supreme Court decision, Quatannens, et al v. Tyrrell. (Record No. 032562 - September 24, 2004), involving a residence and improvements in Alexandria, Virginia that encroached onto the adjacent lot a distance of 100 feet along the lot line varying in width from 8 to 20 inches, the Court found that the owners of the encroaching property met this standard and had acquired title to the land under the encroaching improvements. The strip of land contained a small portion of a room of the Quatannens' house, part of a brick walkway, part of a paved parking area, and one side of a brick arch over the walkway at the front of the Quatannens' house, all of which have existed since at least 1976. Needless to say the costs and extended period of time involved in litigation made the cost of a physical survey look minute.
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B. ZONING AND BUILDING CODE ISSUES A number of local cities have seen a trend in more and more rehabilitation and flipping of homes in older, often lower priced, neighborhoods that were subdivided shortly after 1900 to 1920. The neighborhoods frequently contain long narrow lots, often only 25 or 30 feet in width. Because of various revisions to the Comprehensive Zoning Ordinances and a trend of requiring larger lot sizes under the various residential zoning classifications in most cities, an increasing number of investors run the risk of discovering that they have purchased a property only to be prohibited from rehabbing and reselling the property as planned. Similarly, homes built in this time period frequently do not meet current day building code requirements and, depending upon the magnitude of the intended rehab project, may have to be brought up to current code standards. Obviously, this has the potential to be a very expensive proposition.

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1. Best Solution. Utilize a Purchase Contract that affords the purchaser numerous rights to conduct a due diligence investigation within a prescribed period and the right to terminate the contract if the due diligence investigation proves unsatisfactory. The goal is not to make an “AS IS” seller do repairs, but rather to give the purchaser a way out of the contract if the property has structural and/or zoning and building code problems. If a seller will not agree to this type of provision, the investor should be forewarned that the seller may know that the property has major problems.

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For zoning and permitted use issues, investors buying property in one of these older, narrow lot neighborhoods, the due diligence investigation should ALWAYS include verifying that the property is a properly grandfathered non-conforming lot AND that the magnitude of the proposed rehab work will not trigger a prohibition against the restoration of the property.

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The best means of doing satisfying the first phase of this test is to obtain a determination letter from the Zoning Department of the applicable city confirming that the property is either (1) a permitted conforming lot/use, or (2) a permitted non-conforming lot/use.

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Even if the property is a permitted nonconforming lot/or use, the investor needs to go on to the second step of inquiry, namely will the magnitude of the proposed rehab work trigger a restriction against such work on a nonconforming property. At a minimum, the investor should calculate the realistic cost of the proposed work and then compare that figure to the current assessed value of the property. If the cost of the work exceeds 50% of the assessed value of the property – 30% in the case of Portsmouth – the investor may not be able to secure a building permit for the proposed changes without, at minimum, being required to bring the structure up to current building code requirements. This requirement, obviously, could greatly increase the cost of rehabbing the property.

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By way of example, the City of Norfolk defines a non-conforming lot and a nonconforming use as follows:

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Lot, nonconforming. A lot which lawfully existed prior to the adoption, revision, or amendment of this ordinance, but which fails by reason of such adoption, revision, or amendment to conform to the lot regulations of the district in which it is located.

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Nonconforming use. A use lawfully established prior to and being conducted on the effective date of these regulations or any amendment hereto which renders the use nonconforming, which does not conform to the requirements of these regulations for the Zoning District in which it is located.

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The City of Norfolk Zoning Ordinance also provides as follows concerning alterations and improvements to nonconforming structures (most other area cities have similar definitions and provisions on nonconforming lots and uses):

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12-3 Structural alterations prohibited; exceptions. A nonconforming structure may not be enlarged or structurally altered in a manner which increases the nonconforming condition, unless such alteration or enlargement conforms to the following provisions:
(a) The total structure as enlarged or altered does not exceed the maximum density or intensity limit for the applicable district; and
(b) The use of the structure is conforming; and
(c) The property owner or developer applies as provided in section 12-5.1 below and obtains a determination of "no adverse impact" based on the following:
(1) The proposed uses are compatible, and
(2) The intensity of development on the site of the proposed expansion will not increase more than ten percent after the proposed expansion; and
(3) The expansion will not result in the reduction below acceptable levels in the lot coverage ratio, off-street parking, landscaping, or the increase in signs above acceptable levels.
(d) Structural alteration for structures located in the Historical and Cultural Conservation Districts shall be as allowed in Article II, Chapter 9, Section 9-0.8.
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12-4 Expansion of nonconforming uses. Nonconforming uses may be expanded only if approved as special exceptions pursuant to the standards and procedures set forth in Article V, Chapter 25. No application for a special exception to expand a nonconforming use shall be approved unless the applicant can demonstrate that there will be no adverse impact within the Zoning District in accordance with the requirements of section 12-5 below.

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12-5 Determination of impact of expansion of nonconforming structures and uses.
12-5.1 Applications for "no adverse impact" status. Applicants seeking to apply for "no adverse impact" status must submit to the division of land use regulation a plan, drawn to scale, detailing the following information:
(a) All existing and proposed uses on and adjacent to the site on which the nonconforming use or structure is located.
(b) All existing and proposed structures, yards, utility easements, rights-of-way, water bodies, floodplains and wooded areas on and adjacent to the site.
(c) The number of square feet of all buildings and structures on the site of the proposed expansion, before and after the proposed expansion.
(d) The density (in terms of dwelling units per acre) and the intensity (in terms of floor area ratio or gross square footage) before and after the proposed expansion.
(e) The building coverage ratio before and after the proposed expansion.
(f) The number of parking spaces, total square feet of signs on the site, and square feet of landscaping or buffers, before and after the proposed expansion.

12-5.2 Finding of "no adverse impact"; approval of expansion. The city council, after review of the recommendation of the city planning commission, may make a finding of "no adverse impact" and approve the expansion of a nonconforming use or structure based on the general standards and considerations for special exceptions found in section 25-7.

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12-6 Change of use. A nonconforming use may be changed as follows:
(a) A nonconforming use may be changed to a permitted use or special exception use for the Zoning District in which the property is located. If the change of use is to a special exception use, a special exception approval shall be required pursuant to Article V, Chapter 25.
(b) A nonconforming use may also be changed to another nonconforming use found only in the same category of Zoning Districts (e.g., residential, office/business, commercial, industrial) and only if approved as a special exception pursuant to the standards and procedures set forth in Article V, Chapter 25.

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12-7 Ordinary repair and maintenance of nonconforming structures permitted. Ordinary repairs and maintenance may be made to a nonconforming structure. The building official shall determine what constitutes "ordinary repairs and maintenance" in accordance with the Uniform Statewide Building Code.

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12-8 Restoration or removal of damaged nonconforming structures.
12-8.1 Restoration. If a nonconforming structure is destroyed or damaged by a fire, flood, hurricane, vandalism, or similar abnormal and identifiable event, and the cost of restoring the structure to its condition immediately prior to the event does not exceed 50 percent of the current assessed value of the entire structure, then the structure may be restored to its original nonconforming condition, provided that a building permit is secured, reconstruction is started within 180 days from the date of the damage, and such reconstruction is diligently prosecuted to completion. The building official shall determine the cost of restoration.

12-8.2 Removal. If a nonconforming structure is destroyed or damaged by a fire, flood, hurricane, vandalism, or similar abnormal and identifiable event, and the cost of restoring the structure to its condition immediately prior to the event exceeds 50 percent of the current assessed value of the entire structure, then the structure shall be removed unless the restored structure, and the use thereof, would conform to all requirements of the Zoning District in which it is located.

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12-8.3 State of emergency declaration. In the event that a state of emergency is declared by the President of the United States or the Governor of the Commonwealth of Virginia, nonconforming structures damaged to an extent that the cost of restoring the structure to its condition immediately prior to the event exceeds 50 percent of the current assessed value of the entire structure may be restored to its original condition without conforming to current regulations on yards, height limitations or parking regulations. In no case shall the degree of nonconformity existing at the time of the state of emergency be increased. All other zoning regulations including but not limited to, use restrictions, density provisions and flood plain regulations shall apply.

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12-9 Discontinuation of nonconforming uses. If a nonconforming use is discontinued for a period of two years, then that use shall not be renewed or reestablished and any subsequent use of the lot or structure shall conform to the use regulations of the Zoning District in which it is located.
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The only exception to the foregoing restrictions is pursuant to a newly enacted amendment to Section 15.2-2307, Code of Virginia of 1950, as amended, which became effective on July 1, 2006. Under this statutory provision, if the damage or destruction of a nonconforming property is due to natural disaster or an act of God, regardless of the cost, the owner my restore the structure to its original nonconforming condition within two (2) years of the date of damage or destruction, PROVIDED, the repair, rebuilding, and replacement work must comply with the then current building code requirements

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2. Post Closing Solutions. If an investor finds after closing that his/her newly acquired property is located on a non-conforming lot and/or may be a nonconforming use, the situation is not necessarily hopeless. One should ALWAYS meet in person with the Zoning and Building Code officials of the applicable city. Before doing so, the investor should verify (1) when the nonconforming lot was subdivided, (2) when did the use first begin and did it predate the adoption of the Zoning Ordinance or the amendment thereto changing the zoning district or lot size requirements for the district in which the lot is located, (3) was there ever common ownership of an adjoining lot on which the original structure has been removed, and (4) was there a cessation of the use for more than two (2) years. The City’s position will be that the burden of proof on these issues is on the property owner, but (A) pleading hardship and (B) documenting that the rehab work will be first class can have an influence on the City’s willingness to work with the investor. City official can be decidedly more helpful when convinced that an investor did not have notice of a nonconformity problem and that the investor is not a “coat of paint and cheap carpet replacement” rehabber.

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The first question is easily met by confirming the date the subdivision plat creating the lot was recorded. In the older, historic neighborhoods, these subdivisions virtually always predate the Zoning Ordinance. The second question can often be answered through city tax assessment records which generally show the date a structure was built. If this does not work, generally the building codes offices will have information on when the structure was built. The third question is one that often is not easily answered without doing some investigative work and/or additional title work, but can be very important. The last question likewise is usually more difficult to establish, but one point to begin is with water and electric billing histories.

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III. CONCLUSION. While many of the above described pitfalls can be cured post closing, the best approach is to avoid them from the outset by proper due diligence, spending some extra money for surveys and owners title insurance, and by working with experienced legal counsel.

BASIC STEPS AND CONSIDERATIONS FOR A SECTION 1031 EXCHANGE

Introduction: A possible tax deferred exchange under §1031 of the Internal Revenue Code of 1986, as amended (“IRC”), is something every seller who has not used the property to be sold as his/her principal residence for two or more of the past five years may wish to consider as a means to avoid capital gains tax. A successful tax deferred exchange under §1031, however, requires some basic pre-planning and coordination as well as the use of a qualified intermediary in order to prevent any deemed or constructive receipt of the sales proceeds from the relinquished property which would destroy the tax deferral of such sale. This summary of the steps involved in a 1031 exchange provides a preliminary overview and does not address all issues involved in a 1031 exchange and is not meant to replace the requirement that a would be exchanger should always review the entire transaction with tax and/or legal advisors. Likewise, it does not address the issues of so-called reverse exchanges and other variations to the typical sale and purchase sequence. This said, the following is an outline of the steps in a 1031 tax deferred exchange of real property.
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1. Basic Requirements: To qualify for a tax deferred exchange, a few basic elements must be satisfied: (a) both the relinquished and replacement properties must be like kind real property - i.e., held for rental/investment; (b) typically, the taxpayer seeking to defer tax is one or more individual taxpayers reporting their real estate transactions on their individual Form 1040 tax returns (although entities such as limited liability companies can utilize 1031 exchange procedures); (c) the relinquished and replacement property are both within the United States of America; and (d) a qualified intermediary and qualified trust accounts are utilized for the proceeds of the relinquished property to ensure that the taxpayer(s) are not in actual or constructive receipt of the sales proceeds of the relinquished property.
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2. Sales Contract for the Relinquished Property: The first step in a tax deferred exchange is to execute an assignable sales contract that describes the seller as the exchanger “or assigns.” In addition, it is also advisable to include a “cooperation clause” in the sales contract. An example of such a clause is as follows:
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Tax Deferred Exchange by Seller. Seller may structure the transfer of the Property as a tax deferred exchange to Seller pursuant to Section 1031 of the Internal Revenue Code, and Purchaser agrees to cooperate with Seller, and to take such action as Seller may reasonably request in order to consummate such transfer. Seller is granted the authority to transfer its rights to this Agreement but not its obligations under an Assignment of Rights Under Contract or similar document to be signed by a qualified intermediary to be selected by the Seller, such assignment to be acknowledged by Purchaser prior to passing title and ownership. At the request of Seller, Purchaser will sign the written Assignment of Rights Under Contract referred to in this paragraph with the clear understanding that all obligations under the Agreement remain with Seller and that Seller shall directly deed the legal title to the Property over to the Purchaser as noted in the agreements between Seller and the qualified intermediary. In connection with the foregoing, Purchaser will have no obligation to (a) acquire or enter into the chain of title to any property other than the Property, or (b) incur any cost, liability or obligations of any nature whatsoever as a result of its limited participation in the exchange for which Purchaser would not be reimbursed by Seller at Closing.

As noted below, in contracting to purchase the replacement property, similar provisions should be utilized.
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3. Exchange documents: Once the sale contract is executed, the Seller must enter into exchange documents for the relinquished property sale pursuant to which among other things (a) the sale contract is assigned by the Seller to the qualified intermediary, (b) the Purchaser acknowledges the assignment of the sales contract to the qualified intermediary, (c) the qualified intermediary agrees to receive the sales proceeds and hold the same pending their application to the purchase price of the replacement property, (d) Seller agrees to deed the relinquished property directly to the Purchaser, and (e) the Seller agrees to indemnify the qualified intermediary from loss, damage or liability except for that arising from the qualified intermediary’s breach of its obligations under the exchange documents.
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4. Relinquished Property Sale Closes: Pursuant to the assignment agreement and exchange documents, the Seller directly deeds the relinquished property to the Purchaser and the sale proceeds for the relinquished property are transferred directly to the qualified intermediary. Note: the settlement statement will be signed by the qualified intermediary, as seller, not the exchanger.
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5. 45-Day Identification Period & 180-Day Exchange Period The timelines for the 45-day identification period and 180-day (or the date the tax return is due, whichever is earlier) period for closing on the purchase of the replacement property begins on the date the sale of the relinquished property closes. The 180-day exchange period establishes a deadline that the purchase of the replacement property MUST be closed not later than 180 days from the closing date of the sale of the relinquished property.
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6. Identification of the Replacement Property (or Properties): The Seller/Exchanger must properly identify replacement property (or properties where replacement properties of lesser values than the relinquished property are to be acquired) by midnight of the 45th day after the closing date of the sale of the relinquished property. This means that the Seller/Exchanger must deliver written identification of the replacement property to the qualified intermediary by midnight of the 45th day after the closing date of the sale of the relinquished property is forwarded to API.
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7. Purchase Contract for the Replacement Property. The Exchanger must execute an assignable purchase sales contract that describes the purchaser as the exchanger “or assigns.” In addition, it is also advisable to include a “cooperation clause” in the purchase contract similar to that described, above, for the sales contract.
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8. Coordinate With Qualified Intermediary: Once the purchase contract for the replacement property (or properties) has been executed, the exchanger must notify the qualified intermediary of the terms of the purchase contract and assign the same to the qualified intermediary. The qualified intermediary will execute the exchange documents for purchase and prepare to apply the funds held from the sale of the relinquished property against the purchase price of the replacement property at settlement on the replacement property.
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9. Conclusion of Exchange: At closing of the purchase of the replacement property, the qualified intermediary will direct the seller of the relinquished property to deed title thereto directly to the exchanger and will apply the funds derived from the sale of the relinquished property against the amount owed from the buyer on the settlement statement. Note: the settlement statement will be signed by the qualified intermediary, as buyer, not the exchanger.
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Conclusion: When properly done, a Section 1031 tax deferred exchange can be a very powerful tool to defer tax consequences. However, to avoid potential pitfalls and to ensure that appropriate exchange documentation is utilized and that a proper qualified intermediary is used, would be exchangers should be sure to consult their with tax and/or legal advisors. Any deemed receipt of sale proceeds, a failure to identify replacement property within the statutory 45-day period, or a failure to consummate the purchase of the replacement property with in the 180-day exchange period can be fatal.

Birth Certificate Amendment - Sex Reassignment Surgery

From time to time transgender clients contact the office for assistance in securing an amendment of their birth certificate to reflect a sex change effected through sex reassignment surgery. In Virginia, the process is actually surprisingly straight forward even though Virginia is not what one would describe as a gay friendly state. The process is contemplated by Section 32.1-269.E., Code of Virginia of 1950, as amended, which reads in relevant part as follows:

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§ 32.1-269. Amending vital records; change of name; acknowledgment of paternity; change of sex.

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E. Upon receipt of a certified copy of an order of a court of competent jurisdiction indicating that the sex of an individual has been changed by medical procedure and upon request of such person, the State Registrar shall amend such person's certificate of birth to show the change of sex and, if a certified copy of a court order changing the person's name is submitted, to show a new name.

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The procedure for entry of a court order is as follows: A petition for an order of legal sex change must be submitted to the Circuit Court of the City or County of the petitioner's residence, supported by (1) documentation of the petitioner's prior name change, and (2) certified evidence of the completion of sex reassignment surgery together with a doctor's recommendation for the amendment of the petitioner's birth certificate. Inasmuch as there is no approved court form for this type of petition, it will be necessary to secure the services of an attorney who can prepare the necessary petition and requested final order. Unfortunately, some attorneys have refused to assist transgender clients in the petition process.

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For individuals born outside of Virginia, the second step of the process will be to file appropriate paperwork with the Department of Vital Records of the state of the petitioner's state of birth. In some instances a further order from a court in that state - e.g., Florida - may be required to domesticate the Virginia court order in order for the out of state birth certificate to be amended. Since states vary, it is essential to review the particular requirements for states other than Virginia.

REQUIREMENTS FOR DOCUMENTS TO BE IN RECORDABLE FORM

A. Every writing authorized by law to be recorded, with all certificates, plats, schedules or other papers thereto annexed or thereon endorsed, upon payment of fees for the same and the tax thereon, if any, shall, when admitted to record, be recorded by or under the direction of the clerk on such media as are prescribed by § 17.1-239. However, the clerk has the authority to reject any writing for filing or recordation unless:
(i) Each individual's surname only, where it first appears in the writing, is underscored or written entirely in capital letters,
(ii) Each page of the instrument or writing is numbered,
(iii) The Code section under which any exemption from recordation taxes is claimed is clearly stated on the face of the writing,
(iv) The names of all grantors and grantees are listed as required by §§ 55-48 and 55-58, and if a cover sheet is used pursuant to § 17.1-227.1, that the names of all grantors and grantees on the face of such writing are the same on the cover sheet, and
(v) The first page of the document bears an entry showing the name of either the person or entity who drafted the instrument, except that papers or documents prepared outside of the Commonwealth shall be recorded without such an entry.

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Such writing, once recorded, shall be returned to the grantee unless otherwise indicated clearly on the face of the writing including an appropriate current address to which such writing shall be returned.

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B. The attorney or party who prepares the writing for recordation shall ensure that the writing satisfies the requirements of subsection A and that (i) the social security number is removed from the writing prior to the instrument being submitted for recordation, (ii) a deed conveying not more than four residential dwelling units states on the first page of the document the name of the title insurance underwriter insuring such instrument or a statement that the existence of title insurance is unknown to the preparer.

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C. A document which appears on its face to have been properly notarized in accordance with the Virginia Notary Act (§ 47.1-1 et seq.) shall be presumed to have been notarized properly and may be recorded by the clerk.

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NOTE: Due to changes in the Virginia Code, a Notary may not notarize a signature on a document without notarial certificate wording on the same page as the signature unless the notarial certificate includes the name of each person whose signature is being notarized.

ESSENTIAL LEGAL DOCUMENTS FOR LGBT COUPLES

There are some things same-sex couples can and should do to provide for some of the legal protection automatically conferred on married couples. Unfortunately, far too many such couples fail to take the relatively simple steps to avoid the adverse and/or unexpected effects of current law.
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NECESSARY DOCUMENTS AND STEPS: There are some basic documents and steps that every unmarried couple and every same-sex couple should have prepared and duly signed. These include:

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Will - A will specifies how you wish your property to be distributed upon your death. In a will, you designate the person you wish to handle your estate -- your partner or another individual. Without one, your partner receives absolutely nothing. Pursuant to § 64.1-46 of the Virginia Code, anyone who is over the age of 18 years and not mentally incompetent may make a will and thereby dispose of any estate to which he shall be entitled, at his death, including any estate, right or interest to which the testator may be entitled at his death, notwithstanding he may become so entitled subsequently to the execution of the will. Inasmuch as neither § 64.1-46 or other provisions of the Virginia Code restrict permitted devisees to spouses or blood relatives, both unmarried heterosexual couples and same-sex couples may make wills leaving assets to their partners.

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Trust - A properly established and funded trust avoids publicly probating assets owned by the trust at the time of one’s death and is more difficult to challenge in court than a will. In addition, a trust can provide beneficiaries with creditor protection in certain circumstances. Properly structured, a trust can provide support for one’s surviving partner for the remainder of his or her life, with the remainder to pass to other relatives and designated beneficiaries, bypassing potential taxes associated with the surviving partner's estate. Chapter 4, Title 26 of the Virginia Code governing the appointment, qualification, resignation, removal of fiduciaries, including trustees, contains no provision restricting permitted trustees or trust beneficiaries to spouses or blood relatives. Therefore, both unmarried heterosexual couples and same-sex couples may create trusts naming their partners as beneficiaries in a manner that does not purport “to bestow the privileges or obligations of marriage.”
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Health Care Power of Attorney - A health care or medical power of attorney allows one’s partner regardless of gender to make medical decisions on your behalf in the event you are not able to do so due to incompetency or other incapacity. Properly drafted, a health care power of attorney can also ensure hospital visitation rights to the designated attorney-in-fact
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Advanced Medical Directive - § 54.1-2983 of the Virginia Code provides that any mentally competent adult may, at any time, make a written advance directive (i) authorizing the providing, withholding or withdrawal of life-prolonging procedures in the event such person should have a terminal condition, and (ii) appointing an agent to make health care decisions for the declarant under the circumstances stated in the advance directive if the declarant should be determined to be incapable of making an informed decision. Advance medical directives must be signed by the declarant in the presence of two subscribing witnesses who cannot be the spouse or blood relatives of the declarant.
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There is no statutory restriction that one’s agent must be a spouse or blood relative. Rather, §54.1-2982 of the Virginia Code provides that under any such advance medical directive, an agent means “an adult appointed by the declarant under an advance directive, executed or made in accordance with the provisions of § 54.1-2983, to make health care decisions for him. . ." Such authority includes visitation rights, provided the advance directive makes express provisions for visitation. Therefore, properly drafted and executed advanced medical directives by a same-sex couple should not be deemed to “bestow a privileges or obligations of marriage.”
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General/Business Power of Attorney - This form of power of attorney allows a member of either an unmarried couple or a same-sex couple to authorize their partner to handle their financial affairs in the event of disability or unavailability.
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Title on Deeds and Accounts - How title to property is held can effect both future ownership and tax liability. Joint tenancy with rights of survivorship, for example, will ensure that the surviving partner will have full ownership upon the death of the deceased partner and avoid ownership disputes with surviving blood relatives. However, it can create certain negative estate tax treatment depending on the size of one’s taxable estate. Historically, deeds creating a tenancy by the entirety have been reserved for husband and wife couples. In light of the Virginia Affirmation of Marriage Act cited above, such a deed conveying title to a same-sex couple even though validly married in another state such as Massachusetts would not be effective in Virginia.

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Child Care Power of Attorney - For couples with children who are not the natural or legally adopted children of both partners, it is critical that the non-parent partner be given a power of attorney that authorizes that parent to act on behalf of the natural/adoptive parent. The power of attorney should empower the non-parent partner to deal with medical treatment, schooling, and general care and custody matters.
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BENEFICIARY DESIGNATIONS: Most securities and retirement accounts provide for the designation of beneficiaries. These should be reviewed periodically to ensure that desired goals are achieved and also should include the designation of contingent beneficiaries to ensure the desired parties are named in the event of the death of the principal beneficiary.
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LIFE INSURANCE: Properly utilized, life insurance can provide funding for payment of estate taxes, outstanding mortgages, charitable trusts, education of minors, and other functions.

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NOTE: This article contains a general discussion of estate planning matters which vary greatly in asset structuring needs and potential tax liability based on the particular facts and circumstances of individuals and the nature of their assets. Therefore, it should not be relied upon as a substitute for individualized legal advice addressing one’s particular situation.

STEPS TO DOING A SHORT SALE

STEPS IN SHORT SALES: A short sale is another twist on a subject to transaction. However, instead of bringing the existing financing current and leaving it in place, the goal is to negotiate a discounted pay off with the lender. A "short sale" involves four basic steps.

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1. Gaining Control of Title; Authorization to Release Information. One of the most important steps in the short sales process is getting the deed. Without the deed, the homeowner can back out of the potential short sale even after you have spent hours working on their property. When the homeowner signs the deed over to you, now you control the property and you can go to work by calling the bank. If you cannot secure a deed, you must have a contract with the seller that specifies the terms of the transaction with a discounted mortgage pay off – e.g., closing is to be as soon as possible, but expressly contingent upon a successful short sale on terms approved by the buyer.

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The other essential document is a signed Authorization to Release Information signed by the sellers. Without one, the lender will NOT talk or otherwise discuss the seller’s loan with you.
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2. Contacting the Lender. When you call the lender, you never want to tell them you are an investor. This is one of the biggest mistakes rookies make and will almost always result in the lender not accepting short sales. Therefore, when you call the lender, to request a "short sales packet" or "workout package," indicate that you are the buyer or that you represent the homeowner. Sometimes they may ask if you are a real estate attorney. Just restate what you told them before. Then you'll want to request the "short sales packet" or "workout packet". When the packet arrives it will explain exactly what you need to make this short sales deal successful. Generally among the things you will need to document are distress concerning:
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(A) The distressed nature of the seller (see paragraph 3 below).
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(B) The property: list out all defects to the property and needed repairs to make it marketable (including price estimates). Photos of any major defects can speak volumes to a lender.
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(C) The neighborhood where the property is located: is there a crime problem? What are the number of days on market for sales that have occurred and are they below assessment and/or past sales? One web site that may help in checking comparables is http://www.zillow.com. The other option is to secure comparables through a realtor who is experienced working with investor properties. Remember that many of your big established real estate companies may NOT be familiar with short sales, so do your homework on any realtor you decide to use.
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(D) Itemize in detail the lender’s cost of not doing the short sale: (1) foreclose costs, (2) bankruptcy costs if the sellers file either a Chapter 7 or 13 under the Federal Bankruptcy Code, and (3) the costs the lender will face if it ends up bidding in the property at foreclosure: (A) repair costs, (B) costs of marketing and selling the property, including realtor commission, and (C) carrying costs, including insurance and real estate taxes.
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Lenders do not like to end up owning property, so the more data provided in 2.(B), (C) and (D), above, the more apprehensive the lender will be of holding out for a full payoff amount.

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3. Hardship Letter. A hardship letter tells the lender why the homeowner is not making their mortgage payments. If a job loss or family illness is the cause, explain it in detail and make the lender feel sympathetic, and seek to secure for the seller a Waiver of Deficiency – i.e., a no-collection agreement where the lender agrees to write off of any discounted balance and not pursue collection against the seller. The letter should suggest that the seller is contemplating filing bankruptcy, but would prefer to avoid doing so, if at all possible. Be prepared to provide documentation: sometimes lenders will request bank statement, pay stubs, income statements, and so on to document the hardship.

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Remember, you must be prepared to send them everything they ask for because if you don't, the short sale will not be accepted. They will almost always ask for a HUD-1 and a real estate purchase and sales agreement. Have your real estate attorney’s office prepare a draft HUD-1 and make sure that you have included all amounts payable by the seller for judgments, delinquent taxes, if any, and any other liens (e.g., homeowner association dues). Send everything the lender asks for back ASAP. It usually takes 3 weeks or more to get an answer back from the lender, so you can't afford to wait. If the foreclosure auction is approaching, you can ask to extend the auction which in most cases they will, if they know it is a legitimate offer.

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4. Broker's Price Opinion. Basically a real estate agent will come out and give their opinion on what the house is worth in the form of a Brokers Price Opinion ("BPO"). The key to short sales is the BPO. A glib letter will not suffice. The BPO needs to be documented and show supporting market time to sale and final sale information as available. You want to try everything you can to influence the BPO to come in as low as you can in order to induce the lender to discount the loan payoff.

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5. Letters of Recommendation. If you have successfully closed short sales previously, obtain a letter from the lenders involved that will help convince the current lender that you can deliver.

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6. How Much to Offer. Part of the answer to this question is a function of what you intend to do with the property. If the intent is to rehab it, then the offer should be calculated to allow for satisfactory rehab costs and a profit margin after sale. If the intent is to wholesale the deal, then the offer should be lower to build in an assignment fee and still leave in factors for rehab costs and a profit margin for the ultimate purchaser under the short sale.

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NOTE: A much more complete article with sample forms is available upon request.