Affordable Housing is an Economic Development Benefit

real estate and family home concept - male and female hands holdWhen we think of economic development opportunities that lead to greater prosperity, we are likely to think of major employers such as factories, corporate offices, universities or health care centers. While these are essential to job growth and overall economic health, it is important to mention an often-overlooked sector that provides substantial economic development benefits to the community – affordable housing. According to multiple studies in cities throughout the country, affordable housing provides far more than a social or physical benefit to those fortunate enough to live in safe, clean and affordable housing.

Construction of new affordable housing as well as programs that rehabilitate existing housing stock to make it affordable create a host of jobs, from architects to contractors to others employed in the construction trade. Local businesses that supply building materials and other supplies benefit from the sale of such products or services to the building contractors. Local governments reap the benefit of increased income in the form of occupational license fees or net profits from the jobs and services being provided. Often, affordable housing is constructed on vacant, underutilized parcels because they are more cost-effective to develop. This increases the value of the property, which in turn means increased property taxes that flow to local and state governments and local school boards. This new or renovated affordable housing often increases the value of neighboring properties and can stabilize marginal neighborhoods.

Affordable housing provides economic benefits to those who live in it, too. Households that pay less from their paychecks for housing costs can afford to spend more on other items, including groceries, clothing and health care. They can also afford to save more for emergencies or for major purchases such as a car or education. This provides these households with greater economic stability because it is easier to avoid living from paycheck to paycheck. They are less likely to face eviction or the stress of moving from place to place because they fall short of rental or housing payments. Persons who live in affordable housing tend to be more stable, long-term employees because they do not need to move so often and face difficulties coming to work regularly. Businesses benefit by having a stable employee population because it reduces employee turnover and related costs in training new employees. It also reduces problems associated with lack of dependability as to whether a sufficient number of employees will show up to work their shifts.

Government policies that encourage affordable housing, including programs that provide incentives for private developers to build affordable housing (for example, providing density bonuses or other regulatory relief if they include a certain number affordable housing units in their projects), are an important, if underutilized, way to grow the economy and contribute to the overall prosperity of the entire community.

CWestover

Christine Neal Westover is an attorney in the Lexington office of McBrayer . Ms. Westover has extensive experience practicing law in both the public and the private sector. The focus of Ms. Westover’s experience and area of practice is land use law since her assignment in 1991 as legal advisor to the boards, commissions and divisions of government within Lexington Fayette County on all matters related to planning, zoning and land use law. Ms. Westover has an extremely deep and broad expertise of the laws governing land use in Kentucky and the procedural and substantive complexities that underpin planning and zoning matters. She also has significant experience dealing with governmental divisions such as Building Inspection, Code Enforcement and other administrative bodies due to their regulatory authority in land use matters. Ms. Westover can be reached at cwestover@mmlk.com or (859) 231-8780, ext. 137.

This article is intended as a summary of  federal and state law and does not constitute legal advice.

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The Truth in Lending Act and Rescission: Lessons Learned by Lenders from Jesinoski v. Countrywide

The Supreme Court just made mortgage rescission a little bit easier for borrowers and scarier for lenders in Jesinoski v. Countrywide Home Loans. Under the Truth in Lending Act, 15 U.S.C. §1601-1677 (“TILA”), mortgage lenders are required to disclose the rights of obligors and other material disclosures to borrowers. Borrowers have a right of rescission for three days from the transaction or until the disclosures are made, up to three years after the transaction. The borrower must give notice to the lender of his or her exercise of the right to rescind within those time periods.

In Jesinoski, Countrywide failed to make the necessary disFamily meeting real-estate agent for house investmentclosures to the Jesinoskis as lenders. Three years to the day after the completion of the mortgage transaction, the Jesinoskis sent written notice of their intent to rescind the mortgage to Countrywide. A year and a day later, they filed suit. The question before the Supreme Court then became whether written notice was sufficient under the Truth in Lending Act as the Third and Fourth Circuits held (and the Consumer Financial Protection Bureau agreed), or whether the borrower must also file suit, as the Eighth, Ninth and Tenth Circuits held. The Court decided that the language of the statute makes clear that written notice alone is sufficient to fulfill the terms of the statute. The Court rejected Countrywide’s argument that there was a legitimate dispute over the adequacy of the disclosures that required the borrower to file suit to settle.

This case should give all lenders pause when making disclosures – all material disclosures should be (a) as thorough as necessary under TILA, and (b) timely enough to keep the rescission window to three days. The borrower’s right to rescind will expire at the three day mark if the mortgage lender makes all necessary disclosures at the closing table, but make sure the disclosures are complete and meet all TILA requirements. Inadequate disclosure could leave the borrower up to three years to rescind the loan, a lesson lenders just learned from the Supreme Court.

For more information on mortgage rescission or the Truth in Lending Act, please consult the attorneys at McBrayer.

CRichardsonChristopher A. Richardson is an associate at McBrayer, McGinnis, Leslie & Kirkland, PLLC in the Louisville, KY office. Mr. Richardson concentrates primarily in real estate, where he is experienced in residential and commercial closing transactions, landlord/tenant relations, and mortgage lien enforcement/foreclosure. Mr. Richardson has closed innumerable secondary market and portfolio residential real estate transactions and his commercial practice ranges from short-term collateralized financing and construction lending to development revolving lines of credit. He can be reached at 502-327-5400 or crichardson@mmlk.com.

This article is intended as a summary of  federal and state law and does not constitute legal advice.

The Consequences of Walking Away: Breach of Contract in Commercial Real Estate

The temptation happens often: the deal is done, the ink is dry, the contract is finalized…then someone gets cold feet. Buyers don’t want to buy, sellers don’t want to sell, money gets tight, titles can’t be delivered, etc. What makes breach of commercial real estate contracts unique as opposed to most non-real estate contracts is that every single property is unique. No two properties can share the same physical location, but most also won’t share the same size, improvements, buildings, access, resources…the list is endless. It’s not as though the buyer can just buy the same property from another seller, and the seller who loses a buyer also loses expected capital. When one party breaches its duties in a commercial real estate contract, it’s important for the non-breaching party to understand what remedies are available. We’ll explore the most common remedies and what provisions should be in commercial real estate contracts to mitigate the effects of breach.

Specific PerformanceAngry Businessman Tearing Contract Paper

There are two main categories of remedies – legal remedies, which provide monetary remedies and equitable remedies, which do not. The main type of equitable remedy applicable in a real estate contract context is specific performance. Since each property is unique, the argument goes, the only way to make a party whole is to fulfill the terms of the contract. This is done by asking for specific performance, a court-ordered fulfillment of the terms of the contract. It is as simple as the name implies; the court orders the party in breach to perform a specific act: for example, the act of signing or delivering a deed. This remedy generally only applies as against a seller in breach, and this makes sense: there is exactly one property with these characteristics in existence in the known universe, so the buyer has a strong argument that he or she cannot be made whole by mere monetary damages. Courts are generally loathe to force a party to perform an action unless monetary damages are incapable of providing relief. Sellers really only receive money in the transaction, so money is an appropriate remedy.

Damages

Damages, on the other hand, are monetary remedies available to both the buyer and the seller. Actual damages for both parties are usually given as the difference between the value of the property and the agreed-upon purchase price. The seller opposing a buyer in breach will want to argue the purchase price was more than the value of the property, while the buyer opposing the seller in breach will argue the opposite. These damages are often highly dependent on the commercial real estate market at the time, giving one party an advantage. The buyer is also generally able to terminate the contract if the seller is in breach and recover any payments made. Other types of damages may be available to a buyer in a commercial real estate transaction – courts in other states have found lost profit damages for a seller’s breach of a commercial real estate purchase contract.

Contract Provisions

As seen above, buyers tend to have more remedies than sellers, so savvy sellers should include contract provisions that deter breach on the buyer’s part. One of those provisions provide for liquidated damages. Liquidated damages are a fixed sum of money available to a seller in the event of a buyer’s breach. As mentioned earlier, actual damages can be dependent on the market and other factors, so a contract clause awarding liquidated damages in the event of a breach gives a seller some firepower in holding a buyer to the deal.

One other contract provision to consider is the award of attorneys’ fees in case of breach. Both parties should watch the language of any attorneys’ fees provisions inserted into the contract, making sure that the clause includes the word “reasonable.” Otherwise, the other side could run up extensive attorneys’ fees that wind up being almost punitive.

For commercial real estate contract concerns and other issues involving contract breach, contact the attorneys at McBrayer.

J. MarkhamJoshua J. Markham is a member at McBrayer, McGinnis, Leslie & Kirkland, PLLC in the Lexington, KY office. Mr. Markham practices in virtually every aspect of real estate law, including title examination, title insurance, clearing title issues, deeds, settlement statements, preparation of loan documentation, contract negotiation and preparation, lease negotiation and preparation, and any and all other needs related to residential and commercial real estate matters. He can be reached at jmarkham@mmlk.com or (859) 231-8780, ext. 149.

This article is intended as a summary of federal and state law and does not constitute legal advice.

Commercial Real Estate Sales: Initial Considerations in the Purchase of Commercial Real Estate

The decision to purchase, lease, or sell commercial real estate is fraught with multiple challenges for both buyers and sellers. This series of posts will provide a basic understanding of the various aspects of transactions involving commercial real estate. This post will focus on initial considerations for buyers in purchasing commercial real estate.

Buy v. Lease

Real Estate CrisisThe first step in making a decision to acquire commercial real estate is to decide whether buying the property or leasing the property is more beneficial. Both transactions come with various risks and rewards, and both require a thorough understanding of the buyer’s needs, expectations and financial picture. Buying has drawbacks in that it tends to lock up liquidity, may compromise cash flows and ultimately subjects the buyer to the whim of various market forces. At the same time, buying has advantages over leasing if the buyer wants control of the property, wants specific tax benefits, or if land values are appreciating and property would be a suitable investment. Those who wish to forego maintenance issues, stay mobile and keep initial cash flow strong might consider a lease to be more beneficial. A way to make a determination in this area is to conduct a study of future net cash flows as a result of taking either option. Proper economic planning is essential to this determination.

Assembling the Team

A team of various experts is crucial to your decision to lease or purchase commercial real estate to ensure a smooth and beneficial transaction that best protects the buyer’s interests. These professionals operate in conjunction with each other to effectuate the transaction: a commercial realtor will work to identify potential properties; a lawyer will assist in determining whether legally the property is suited for the buyer’s intended use, as well as negotiate the sale and draft necessary documents; an accountant will analyze expenses and provide necessary financial guidance; and a mortgage broker will help secure financing.

It is especially important to consider what research needs to be done before a contract itself is actually drafted. Namely, it is essential to investigate or work with an attorney to investigate aspects of the property such as zoning, permissible uses, and existing restrictions, and then negotiate or draft a contract accordingly to make sure that the buyer gets or can get exactly what she or he wants and needs from the lease or the sale. An attorney will consider these existing factors to evaluate the short term and long term benefits and effects of a contract to lease or purchase to make sure the buyer is protected before he or she signs on the dotted line. Bringing an attorney in on the process earlier rather than later helps to ensure the buyer can maximize the benefits he or she will receive from the lease or purchase of their commercial property.

Start Shopping

There is plenty of work to be done in the actual consideration of specific properties for purchase. Thorough investigation and consideration of each potential site is key. Purchasers should visit multiple properties of varying types and create an ongoing list of the various pros and cons of each. The first consideration of any property is the old adage about the three most important aspects of real estate being “location, location, location.” Further, keep in mind the considerations mentioned above while you embark on your search and be sure to contact the attorneys at McBrayer when you need someone on your team.

Be sure to come back for the next post as this series continues to explore the elements of a commercial real estate sale.

BMacGregorBrittany MacGregor is an associate attorney practicing in the Lexington office of McBrayer, McGinnis, Leslie & Kirkland, PLLC. She is a graduate of Transylvania University and the University of Kentucky College of Law. Ms. MacGregor’s practice focuses on real estate law, including title examination, title insurance, clearing title issues, deeds, settlement statements, preparation of loan documentation, contract negotiation and preparation, and lease negotiation and preparation. She may be reached at bmacgregor@mmlk.com or at (859) 231-8780.

This article is intended as a summary of federal and state law activities and does not constitute legal advice.