Benny L. Kass

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Real Estate Law
Hosted by Benny L. Kass
Wednesday, Oct. 25, 2000; 1 p.m. EDT

Only after entering into the process of buying real estate do many consumers realize just how little they know about real estate law. What are the legal obligations of both the buyer and the seller? Are there different legal ramifications for buying a home or a condominium, and what are they? What are the buyer's and seller's legal obligations to condo and homeowner's associations?

Benny L. Kass writes the "Housing Counsel" column in The Washington Post, navigating the legal issues and responsibilities of both buying and selling real estate. How do you plan for capital gains, or what can you do if you're faced with a buyer who's dragging his or her feet? Kass has the answers.

Kass is a Washington, D.C., attorney with the law firm of Kass & Skalet, PLLC. Prior to his private practice, he worked as counsel to both Senate (1965-69) and House (1962-65) subcommittees, and was an attorney with the U.S. Maritime Administration (1969-71). Kass holds a Bachelor of Science degree in journalism from Northwestern University in Evanston, Ill., a law degree from the University of Michigan Law School and a Master of Laws degree from George Washington University Law School. In addition, he has also served on various legal and consumer-related counsels and commissions in the District of Columbia.

The transcript follows.

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.

Washington, D.C.: Hello,

I live in the "up and coming area" of Columbia Heights, D.C. When I leased my newly renovated apartment, I was told that it was slated for a condo-conversion in the near future. What sort of buyer benefits am I entitled to as the current tenant, if any? I've heard that D.C. has a tenant-friendly conversion policy.

I really like my neighborhood and would love to own my unit, but I'm getting antsy as I see real estate prices sky-rocketing up 14th St. Is it worth it to keep paying rent, expecting to get some big benefit when my unit comes up for sale?

Thanks for your advice. As a first-time home buyer, I've found your columns really helpful.

Benny Kass: You are in luck. D.C. has perhaps the best tenant oriented laws in the country -- with the possible exception of Santa Monica. Here is a general summary of your rights. If the owner of the building has not received authorization from the District to convert to condo, he will have to get 50 percent of the eligible tenants in the building to vote for conversion. (There are a number of variations on this theme, and since I don't know your building, I can't give you a specific answer on this).

Additionally, as a tenant, you cannot be evicted without court order. And the landlord cannot evict you just because he/she wants to sell. You have the right to purchase your unit at a price offered by the landlord and have a number of days in which to make your decision. There is a form which the district puts out which the landlord must send you, called a TOPA form (from Tenant Opportunity to Purchase Act) Finally, you have 15 days -- after you exhaust all of your other rights -- to match any contract which the landlord may have received.

And finally, even if you don't want to buy (or can't) you have to be given 90 days in which to vacate and the written notice must be in english and spanish.

Thus, since landlords have to face up to all these rights, they often negotiate with their tenant to either buy at a good discount or give them a good cash bonus to leave early. You should try to negotiate with the landlord as soon as you know that the building may be converted.

Good luck.

Silver Spring, Md.: Last year, we bought a single house. The inspector told us before the settlement that he suspected that the bathroom in the master bedroom was leaking because the tiles on the wall and on the floor were broken. Since he can prove it, he mentioned cosmetic problems for the bathroom. We found later that it was leaking. Can we sue the seller for not disclosing the defects?

Benny Kass: Maryland law requires a seller to disclose all known defects in a house -- or disclaim any knowledge of defects, thereby putting the burden on the buyer to find out what's wrong with the house. My answer would depend on what your seller disclosed to you. It will, however, be a problem in that you were on notice of the problem before you went to settlement. Out of curiosity, why didn't you raise those problems with the seller before or at settlement. Settlement is the time (and perhaps the last time) to raise problems with the house.

Litigation is expensive; we lawyers love to take good cases. But you may have to pay and no one knows if you will win or not. I often suggest that if you want to gamble, go to Las Vegas, where you may at least have more fun.

What will it cost to repair the leaks? Does it really pay to litigate, and instead perhaps you should just bite the bullet and fix up the problem. That would, of course, depend on the cost. You have to compare the cost (both financially and emotionally) of litigation with the cost of repairs. Keep in mind that our courts follow the American rule of legal fees: each side pays his/her own fees unless there is a statute on the books (or a contract provision) authorizing legal fees to be paid to the successful person in court.

Washington, D.C.: I want to sublet my coop apartment. What are my legal responsibilities to my coop board?

Benny Kass: The first thing you have to do is read your legal documents -- which should include the articles of incorporation, the bylaws, the house rules and the proprietary lease. These documents may actually cover whether or not you can lease. Some cooperatives just do not permit subleasing at all; others have time limits on the number of years which the unit can be rented. Thus, you must check with the board president and/or property manager.

Oversimplified, your legal responsibilities are that you are a member of the cooperative, and must follow their rules and regulations. If you do not like them, you will have to get on the board, and encourage the membership to amend the legal documents.

Washington, D.C.: My mother bought a condo in Maryland, about two years ago. I live there, pay the mortgage and condo fees. The rationale is that she will have a place to live when she gets older. We now want to switch ownership from her, to me. My thought is to add my name to the deed, and refinance. With that said, is it possible, and can I eventually own it free and clear and have her name removed? Or is there a better solution?

Benny Kass: Your questions raise many issues, too many to answer in this chat. Furthermore, I need more specifics about your situation. You have raised legal, title and tax issues and you should consult with your tax advisor and your attorney before taking any steps. Depending on whether the condo has appreciated in value, I really don't recommend that parents put their children on title with them; there are tax considerations which must be looked at -- and looked at very carefully. You may find that when you sell the property, you will have to pay a lot of capital gains tax.

However, to specifically (but generally) answer your query: Yes, you can go on title with your mother (the county will not charge you a recordation/transfer tax since the transfer is between mother and child). You can then refinance or pay off the loan. If you really want to go this route, have your mother sell you the property for market value (or a little less). If she has lived in the property for two out of the last five years, she will not have to pay capital gains tax on the first $250,000 of profit. Then you get a new loan in your name only; your basis for tax purposes is high and you solve your problem.

I do need more info, however, to give you a specific answer.

Arlington, Va.: I know this may be off the topic. But, have you heard of pre-paid legal? If so, is it legitimate to have? It sounded good when I heard it but I just don't see the need. Any thoughts?

Benny Kass: Nothing is off the topic when it comes to real estate; I have seen it all. Yes, there are pre-paid legal plans available, similar to health plans. Your employer may have such a program; otherwise, I suggest you contact your local bar association in Virginia (or the American Bar Association in Chicago, or for that matter search the Web) and you will find out more about these plans. Sometimes they make sense.

Old Town Alexandria, Va.: Hello Mr. Kass, and thank you for having this discussion. I am building a new home in Lorton, Va. with a reputable builder, and I am doing it without representation. My question is two-fold. First, is it necessary to have legal counsel at closing and if so what price range should I be looking for? Secondly, I will be renting my current home in Old Town and I was interested in knowing how may years can I rent it before the capital gains tax would be levied on the sell.

Benny Kass: Asking a lawyer if one should get legal representation is perhaps an oxymoron (Did I spell that right? There is no spell check on this program). Yes, you should have a lawyer but not only for settlement. You want your attorney to assist you if there are any problems with the house construction; you want to make sure that you will not suddenly see mechanics liens crop up on your title (you should get the builder to get you a general release of mechanics liens before he gets paid in full). I do not practice in Virginia and can only give you general advice here. As to the cost of legal services, shop and compare; but make sure that your attorney is licensed in Virginia and has familiarity with real estate.

As to your second question: Under the new law, you must have owned and used (i.e., lived) in the house two out of the previous five years before sale in order to take advantage of the $250/500,000 exclusion from gain. Talk to your tax advisor before you decide to rent.

Capitol Heights, Md.: We are seven days away from closing. The home inspection has been done and all nine minor repairs have been done. The buyer is purchasing this home under a program for first-time home buyers. It was just discovered that the program does not cover the area where the home is located and the buyer will be responsible for $2,100 more than expected.

The buyer's mortgage company and the agents are willing to work out a plan where fees, commissions and other financial matters can be altered in order for the buyer to purchase this home. She refuses to work out her financial matters and wants to be released from the contract. What are the seller's rights in this matter? Is the buyer in jeopardy of being sued by the sellers? Please respond.

Benny Kass: Wow, what a mess. Someone did not do his homework and that may be the buyer, the broker and/or the mortgage lender. Once a legal contract has been signed, it is a legal document. The only way to get out from under the contract is (l) if there are contingencies, such as financing or home inspection or (2) the other party is not following the terms of the contract. I would have to read the contract to see if there is a financing contingency and if it is not too late to back out based on that contingency clause.

However, why should the mortgage lender be off the hook? It made representations to the buyer that the program was available and now it turns out that it is not. Why should the buyer -- who relied on the representations of the lender -- have to suffer?

Unless the buyer really wants out of the contract for other reasons (and I am not sympathetic to this situation) I would suggest that everyone meet in one room and resolve the matter. Perhaps everyone could give a little (its called a settlement) so that the buyer can go to settlement.

The buyer may also want to file a complaint with the appropriate governmental agency.

Bear in mind, that these are general comments, based only on my knowledge of the facts from the question. I make no allegations against anyone at the present time.

Good luck!

Bethesda, Md.: How does one go about cancelling a contract with a seller's agent? My parents signed up with an agent who is horrible (deceitful) but the contract is until December 31. Is there anything they can do?

Benny Kass: Yes, you should be able to get out from under the listing agreement if you are really certain that the broker is not performing as he/she said they would. First, however, I suggest that you talk with the manager of the real estate brokerage firm; explain your concerns. A realistic broker will probably let you out if you have legit concerns; clearly, they do not want an unhappy camper. One note of caution,however: be careful about using the word "deceitful." Truth is a defense to a libel action, but why expose yourself to a suit for defamation.

P.S.: If you are able to easily break the listing agreement, make sure that you have this reduced to a written document. It doesn't have to have lots of legalese; if would be enough if the broker merely gives you a piece of paper on their letterhead stating "the listing dated ____ is hereby cancelled."

Washington, D.C.: Follow up from earlier condo and title deed question:

How do I reach your office for appointment/consultation?

Benny Kass: You can call me at (202) 659-6500.

Reston, Va.: Mr. Kass, we are going to settlement tomorrow. This is our first time buying. In the sales contract, there was literature that stated we could not sue them for any disputes, we could only arbitrate. If the builder puts this type literature in the settlement papers, is this acceptable? Should we fight to remove the right to sue or do most other buyers accept this as the norm?

Benny Kass: That's a very good question. First, we have to determine whether that language is really binding on you. Was it in the contract or only in the promotional literature? If in the latter, it probably is not binding. Builders generally put in a boilerplate clause in their contracts to the effect that anything not contained in the contract is not binding on them. If the arbitration clause is not in the contract, I would argue that it is not binding.

However, if it is in the contract, it will be binding and I seriously doubt that the builder will change its mind. No one likes to be sued. Our courts -- even in Virginia -- encourage dispute resolutions short of litigation and that means arbitration. I suspect you will not be successful in changing it.

However, does the contract say that you have to arbitrate and the arbitrator has to be someone connected with the builder? If that is the case ( I have seen such contract provisions) I would argue that this is not enforceable since the arbitrator must be a neutral party.

While I personally do not fully agree with the concept of arbitration (for too many reasons to spell out here) you should note that arbitration does often work and it clearly is less expensive and much faster than litigation.

Capitol Heights, Md.: We submitted a contract on a single-family home 10/16/00. The seller has not given us a response on our original offer. How long can they hold the contract without responding to the prospective buyers?

Benny Kass: Forever. However, you have the right to void the offer at any time merely by sending the seller (and the broker if there is one) a letter to that effect.

In order to have a binding, legal contract, there has to be (l) an offer, (2) acceptance that offer and (3) consideration -- which usually means the good faith earnest money deposit.

Until an offer is actually accepted, the offeree (you the buyer) have the right to cancel that offer. but it must be in writing. Make sure that your cancellation notice is dated; if the seller accepts before you cancel, you probably will have a valid contract.

Arlington: Mr. Kass,

My question probably isn't typical of what you are expecting today, but I'll ask anyway. I'm currently a litigation paralegal, but when I review the paper I always see lots of ads for real estate paralegals, and I think this would fit better in my life plans as well. What exactly do real estate paralegals do? Is it a lot of paperwork or more research oriented? And would a real estate firm be interested in hiring and training a litigation paralegal for that?

Benny Kass: I was expecting everything today, and it appears that I am getting it. Different law firms use paralegals in different ways. Some lawyers really do not understand the value of a paralegal. In my experience, a real estate paralegal is the person who gets the settlement documents together, prepares the closing statement, talks with lenders, buyers and brokers and coordinates the timing of the settlement. However, different firms have different ideas; I believe that you may find some material on the role and function of a paralegal by searching the Web. Good luck. If you are not happy where you are, I suspect you should have no problem getting a job elsewhere. The real estate market is booming, at least for now.

McLean, Va.: Hello Benny --
I am intrigued by the concept of cooperative apartments. Are there more downsides to a coop that a condominium??

I thought that I once read that if a buyer in a coop defaulted on his/her loan the other members of the coop would have to make good.

Is this true??

Many thanks for sharing your expertise with us!!

Benny Kass: I could write a book on this, and only have a few more minutes on this chat session. As you probably know, in a condominium, the owner owns the "box" called the unit; everything within the box is under the control of the owner. In a coop, however, the cooperative apartment legal association (often a corporation) owns the building and give a proprietary lease to the owner. The building (the corporation) is responsible for all maintenance and all damage that is not caused directly by the owner.

As to default, if a condo owner defaults, the lender can foreclose on the unit. In a cooperative, in some cases the coop would have to make the mortgage good, but usually this is not the case. There is what is known as a recognition agreement signed between owner, lender and cooperative. This spells out the respective rights as between all three parties. If you plan to purchase in a coop, you should read not only the legal documents but the recognition agreement which that cooperative uses. Lots of people live in coops and love them.

washingtonpost.com: That was our last question today for Benny Kass. Thanks so much to Benny, and to everyone who joined us.

This week, washingtonpost.com is featuring a series of discussions with real estate columnists homes as part of the Online Home Buyers Conference. Tune in each day to talk to the experts: