When a boom real estate market stops booming, even the lawyers find it hard to avoid the squeeze. Tight money and declining property settlements force lawyers who make real estate part of their practice to wait it out, bank on other legal business and learn the art of creative financing.
"It doesn't take a genius to figure out that property isn't being transferred right now," and Christopher M. Reuss of Ruess, McConville, King & Green in Washington.
Reuss' rough estimate is that property settlements at his firm have dropped by two-thirds in the last three months. Benny L. Kass of Washington says his residental settlement business is off by 20 percent. And Jack A. Hillman at Sheeskin, Hillman & Lazar in Rockville, says title orders in his office are down to one or two a week, compared to 15 to 20 weekly in better times.
Tight money may breed new financing schemes, but troubles with an ailing real estate market are not resolved so easily. Last week, the business took an unexpected blow when the two biggest local suppliers of mortgage money stopped providing money here because of questions about the legality of emergency legislation placin a 15 percent interest ceiling on home mortgages in the District of Columbia. The blame, for that goes to the City Council, the lawyers said for not properly passing the law in the first place.
Meanwhile, the real estate lawyers sit out what they hope will be just another short-term slump in a usually healthy and vigorous market.
"It doesn't bother me because it happened before and it's always come around," Hillman said in an interview. The decrease in settlements, which some lawyers described as dramatic, is a big problem for Alexandria lawyer Edward Forman among others. Tight money, he said is "killing" his business.
At Forman & Cherwek, three lawyers, two title searchers, three secretaries and a messenger work on 100 settlements in a good month, Forman said. This month, Forman, who has been in the business for 28 years, said they will be lucky to handle 20 settlements.
"I could see the handwriting on the wall in October," Forman said. It was then that he sent two secretaries off to other jobs. And if the if the situation persists, Forman said, "I'll just have to keep paring down until I do all my own typing."
The tight money has generated new legal problems for buyers, sellers and lawyers -- and the lawyers, as they always do, have responded to the events. Lawyers who once played the traditionally neutral role in a settlement proceeding now say they have become financial negotiators.
There is definitely a demand for more creative financing," said Peter R. Kolker of Zuckerman, Spaeder & Taylor, and it may create new business for lawyers as well. But "the ultimate economic question," Kolker said, "would be whether that business would offset the more traditional transactions like ordinary contracts and settlements."
Lawyers said they now see a greater number of settlements in which the buyer assumes the seller's mortgage because high leading rates and stiff qualifications keep purchasers from getting their own financing elsewhere. Other inventive techniques have been called upon to meet the circumstances.
In Washington last week, the conventional market for buying and selling property came to a halt when Frannie Mae (The Federal National Mortgage Association) and Freddie Mac (The Federal Home Loan Mortgage Corp.) abruptly walked out on the mortgage market. Their action came as a result of a lawsuit brought by the real estate industry which challenged an emergency law banning condominium conversions. D.C. Superior Court Judge George H. Revercomb said the City Council had abused its authority to pass emergency legislation. Thus ensued the questions about the emergency law that set the 15 percent interest on mortgage rates.
The Mae and Mac affair is a quick lesson in the unexpected consequences of sloppy legislating. The D.C. Corporation Counsel's office, the city's own lawyers, had repeatedly told the council that it could not legally use its emergency power to repeatedly enact the same law. Yet, the condominium legislation that eventually led to the mortgage money cutoff had reenacted 10 times, Revercomb said in his ruling.
"Personally, I'm absolutely delighted with what happened in the District. . . It's about time the District government learned that you can't run a government like a social club," said Alexandria real estate lawyer Robert M. Diamond at Thomas & Sewell.
"Unless the situation straightens out fast, you're going to see some litigation out of that," said James B. Deerin, of Repetti, Deerin & Murphy in Washington. Deerin's law firm estimates that $10 million to $20 million in loans would be in limbo unless some remedial legislation is approved.
Other lawyers, including Mark Griffin at Washington's Lambert, Furlow, Elmore, Heidenbergher & Griffin, say they don't expect the complications Deein predicts from Mae or Mac.
A week ago, Griffin said, he saw four, full-price contracts put on the table for a Cleveland Park home well over the $200,000 price range the first day it was on the market.
"You know, everybody's singing the blues and saying it's really bad but when it comes down to it, people are still buying houses and we're still settling loans," Griffin said.
OBITER: Howard B. Eisenberg has been named executive director of the National Legal Aid and Defender Service. Eisenberg 33, was the Wisconsin State Public Defender from 1972 to 1978, when he joined the Legal Aid and Defender Association as director of the defender division. The nonprofit association works with the private bar to provide legal assistance for the poor through 2,600 legal services and defender offices nationwide. . Herzel H. E. Plaine, an administrative law judge of the National Labor Relations Board, has been elected vice chairman of the American Bar Association's judicial administrative division . . . Mary Linnehan has been named director of the internal affairs department of the Association of Trial Lawyers of America, the nation's largest trial bar association. Linnehan will oversee association membership, which currently stands at 48,000. . . The D.C. affairs section of the Bar Association of the District of Columbia will sponsor a seminar Wednesday on "Legislative Process After Home Rule" starting at 8:30 a.m. at the Mayflower Hotel. . . and the ABA has scheduled a national training institute on child advocacy for Friday and Saturday at the National 4-H Conference Center in Chevy Chase, Md.