RESALE DISCLOSURE CERTIFICATES

Sellers of condominiums and townhomes are required byMinnesotalaw to provide to buyers a resale disclosure certificate.  However, many lenders who are selling property they acquired from foreclosure believe they are exempt from obligations that exist under state statutes.  In many cases, these lenders are from out-of-state and do not believe specific state disclosure requirements apply to them.  This has become even more pronounced with the recent explosion of properties owned by lenders and HUD.  Despite the arguments by the lender, the obligations under the condominium act apply equally to them.  Lenders and HUD are not exempt from providing purchasers of homes in common interest communities the resale disclosure certificate. 

 In situations of a resale of a home in a CIC (common interest community) which would include most condominiums and townhomes, the owner is required to make a request on the community association or its property management company for the resale disclosure certificate, and the owner is required to provide the resale disclosure certificate to the buyer prior to closing.  The contents of the resale disclosure certificate are found in the Minnesota Common Interest Ownership Act (MCIOA).  The association may charge a “reasonable fee” for preparing the certificate and providing any association documents related to that disclosure.  Those association documents include the Declaration, the Articles of Incorporation, the By-Laws, the Rules and Regulations (if any), any Amendments to those documents, and certain financial documents of the association. 

 There is not an exemption under the statute for a lender or HUD to this requirement.  A frequent argument by lender is they are selling the property “as is”, and, therefore, are not making a disclosure.  However, an “as is” sale is not exempt to the obligation to provide a resale disclosure certificate.   

The lender’s refusal to provide the certificate becomes a problem for the listing agent.  If the owner/lender is refusing to provide or pay for the preparation of a resale disclosure certificate, the listing agent needs to make sure that all potential buyers and their agents are aware of the fact that a certificate will not be forthcoming.  Buyer’s agents involved in these transactions, if not having received a resale disclosure certificate, should immediately inquire of the listing agent.  To the extent that the certificate is not provided, the buyer’s agent needs to make clear to the buyer that they will not be receiving a certificate. 

Potential buyers may not know what a resale disclosure certificate is and all the information that is contained in that form.  It is critical that the agent inform the buyer of what is in the form and what information they will not be getting.  If the buyer still wishes to proceed forward, they must understand they are doing so without critical information which would assist them in making decisions to purchase the property.  This information may include information about assessments owed on the property, litigation that the association may be a party to, defects that may exist with the property, and rental or pet restrictions.  These are important facts that the buyer should know prior to making decisions to purchase.

The statute does provide that the purchaser may rescind the transaction to the extent that they do not receive the resale disclosure certificate and the association documents before closing.  However, once the transaction closes, the purchaser will not be able to seek rescission because of the absence of the certificate.  However, to the extent that the buyer was unaware of the existence of the certificate, they are not without remedy.  They can pursue the real estate agents and the seller for not providing the certificate to the extent that the information, if included in the certificate, would have advised the buyer of potential issues with the association which are leading to monetary damages to this new buyer.  In other words, if the buyer closes and discovers that there is a large assessment or that he cannot use the unit in the manner in which he intended, he may have suffered damage for which he can seek recovery.  To the extent that the certificate was not provided by the seller and neither the listing agent nor buyer’s agent advised the buyer of the absence of this form, that buyer may have a cause of action against the real estate agents for negligence and potentially against the seller for violation of the statute and non-disclosure of material fact.

 Therefore, it is critical for real estate agents, whether they are the listing agent or the buyer’s agent, to emphasize the need for the resale disclosure certificate even with a reluctant seller.  These documents are important to the buyer but they also provide a certain level of protection to the real estate agents because they are an additional disclosure of material facts which could affect the buyer’s use or enjoyment of the property.

David McGee’s practice is based in the litigation section at Thomsen & Nybeck, P.A.  Dave brings his 20 plus years of experience representing Community Associations in construction defects and insurance disputes.  Dave has recovered millions for Associations in disputes with developers, contractors and insurance companies, and heads up the firm’s “Property Insurance Claims” Group.  Dave has been named a “Top Lawyer” by Minnesota Law & Politics and Minneapolis/St. Paul Magazine for a number of years.  Dave has represented clients in numerous appellate cases including Chapman Place Ass’n, Inc. v. Prokasky, 507 N.W.2d 858 (Minn. Ct. App. 1993); Ly v. Nystrom, 615 N.W.2d 302 (Minn. 2000); and Peggy Rose Revocable Trust v. Eppich, 640 N.W.2d 601 (Minn. 2002).  Dave represents clients in arbitrations, mediations, court actions, trials, and appellate work.  Dave is a frequent lecturer and has written numerous articles in the area of Insurance, Construction, and Real Estate Law.  He is also a qualified neutral under Rule 114 of the Minnesota General Rules of Practice (mediation and arbitration).

TOP TEN MISTAKES PEOPLE MAKE IN THEIR DEPOSITION

Being a trial lawyer for over 20 years I have seen many cases succeed and fail.  In many of these cases, I can point to a single event as the moment when the case’s outcome was foretold.  More often that moment is during a deposition.  A deposition of a client, witness or adversary can be the proverbial “thrill of victory or agony of defeat.”

For those who are blissfully ignorant of what a deposition is, let me share a brief description.  A deposition is the questioning of a witness, under oath, in the presence of a court reporter.  The opposing attorney is normally the one doing the questioning and it is usually the by-product of litigation.  The court reporter records the questions and answers provided by the witness and all other matters that may arise during the time of the deposition.  A written transcript is created which becomes part of the record of the case.

This is a list, by no means comprehensive, of what I believe are the top ten mistakes deponents (the person being deposed) make during their deposition:

10.       Lying.  We all know lying is bad but in a deposition it can be criminal.  Giving  a deposition is testifying under oath, just as in Court and the penalties of  perjury do apply.

9.        Not saying you do not know when you do not know.  A deposition is not like a  high school math test where you have to answer every question.  If you do not know the answer to a question, simply say, “I do not know.”

8.        Not saying you do not recall when you do not recall.  No one is expected to recall every facet of their life.  When asked what the name of your Great Aunt’s cat is, it is perfectly alright to say “I do not recall.”  (However,  it would be helpful to your case if you can recall the facts which are beneficial to your case.)

7.        Dressing for failure.  While a tuxedo is not necessary, dressing as if you are  on your way to the beach or recovering from an all night bender, is probably not presenting the best appearance.  It has been my observation over the years that a neat and well dressed witness is treated with more respect by the questioner.

6.        Not answering the question.  Too many deponents believe that they are    faster or smarter than the attorney asking the questions and answer not the   question posed but the one they think the attorney is getting to.  All that does is slow down the process and unfortunately make the deposition last longer.    Answering the question posed is the quickest way to end the deposition and it      may turn out that the attorney never gets to the follow-up questions that you  anticipate he would get to.  You should not withhold information but you are  not required to volunteer it either. 

5.         Grunting, groaning or nodding your head.  The court reporter is taking down everything stated in the room but they cannot take down non-verbal signals or indecipherable emanations coming from your mouth.  Your answers must be clear and articulate.  This avoids any ambiguity when the transcript is put into written form. 

4.         Fighting with the questioner.  If you are represented by counsel at your deposition and if your counsel does not object to a question and tell you not to answer, you should assume that the question is not objectionable.  As such, unless otherwise told by your attorney, you are required to answer the questions posed by the questioner even if you do not want to answer or would prefer not to. 

3.         Guessing.  The old line from Dragnet is appropriate here “just the facts.”  You are testifying to your knowledge regarding the events of which you are aware.  You are not there to guess about the facts or circumstances.  You should restrict yourself to answering things of which you are personally aware.  If you are asked to guess, your answer should be that you do not want to guess, and that you don’t know.

2.         Don’t treat the attorney as your friend.  Experienced attorneys try to build a rapport with the person they are questioning in an effort to have them put their guard down to elicit answers to questions which may not have otherwise been provided.  The attorney asking you questions, especially in the area of litigation, is usually representing the opponent.  The opposing attorney has a client to represent.  That client’s interests are generally adverse to yours.  Therefore, the attorney is not your friend.

1.         Talking too much.  Having sat through hundreds of depositions over the years, I have wished for the creation of a button which I could push that would send a shock wave to the deponent which would remind them to only answer the question posed and then stop talking.  Many depositions are prolonged and unnecessary information is disclosed when a deponent, for whatever reason, simply cannot answer only the question that is asked.  Experienced attorneys often try to elicit this by pausing between questions and waiting for the deponent to fill in silence with more testimony.  What this does is diminishes the previous answer and potentially opens up additional areas for inquire.  Simply put, the best way to conclude a deposition is to answer the question and then stop talking.  If the questioner wants additional information, they will ask more questions.

The outcome of depositions routinely has an impact on the overall case whether it is the information derived from the deposition or the parties’ evaluation of the deponent as a potential trial witness.  Following these ten simple rules can help deponents give better testimony, or, at least stay out of trouble.

David McGee’s practice is based in the litigation section at Thomsen & Nybeck, P.A.  Dave brings his 20 plus years of experience representing Community Associations in construction defects and insurance disputes.  Dave has recovered millions for Associations in disputes with developers, contractors and insurance companies, and heads up the firm’s “Property Insurance Claims” Group.  Dave has been named a “Top Lawyer” by Minnesota Law & Politics and Minneapolis/St. Paul Magazine for a number of years.  Dave has represented clients in numerous appellate cases including Chapman Place Ass’n, Inc. v. Prokasky, 507 N.W.2d 858 (Minn. Ct. App. 1993); Ly v. Nystrom, 615 N.W.2d 302 (Minn. 2000); and Peggy Rose Revocable Trust v. Eppich, 640 N.W.2d 601 (Minn. 2002).  Dave represents clients in arbitrations, mediations, court actions, trials, and appellate work.  Dave is a frequent lecturer and has written numerous articles in the area of Insurance, Construction, and Real Estate Law.  He is also a qualified neutral under Rule 114 of the Minnesota General Rules of Practice (mediation and arbitration).

Attorney’s Fees Arrangements In Construction Defect Litigation

Aside from taxes and death, paying the attorney may be the most disliked activity an Association Board undertakes.  But, like seeing a doctor to treat an ailment, attorneys are necessary in many cases for an Association to meet its goals of recovering money in construction defect cases.  How the Association pays the attorney in construction defect cases (this would also include cases against remodeling contractors) can be broken down into three general types of fee arrangements. 

The first and the most longstanding arrangement is the hourly fee arrangement.  In this arrangement, the Association is billed typically on a monthly basis for the actual hours spent by the attorney (including costs advanced by the attorney) in pursuit of the matter.  The Association pays as it goes, and when a recovery is made, the Association receives 100 percent of the recovery (assuming they paid their bills).

The second arrangement, which is suddenly popular, is the contingency fee arrangement.  The attorney is paid a percentage of any recovery that is made in the litigation.  Therefore, a 33 percent contingency fee arrangement means that the attorney is paid one-third (1/3) of any money that is recovered in the litigation and the Association receives two-thirds (2/3) of the money (minus any costs advanced by the law firm in the case).

The last arrangement is the flat fee arrangement.  This is not as popular as the previous two and sometimes is mixed with an hourly fee arrangement.  For example, the attorney may charge a flat fee to take the matter up to mediation and charge an hourly rate going through to trial.

The question most Associations have is which fee arrangement is the best?  As is expected when a lawyer is writing an article, the answer is “it depends.”  There are two primary goals the Association Board should seek to achieve in any fee arrangement.  First, to recover as much money as the Association needs to repair the conditions that exist at the Association after considering all the risks.  Second, that the Board be cognizant of its fiduciary obligations to the members to protect the Association’s finances and to keep as much money for the Association while advancing the first goal.

The contingency fee arrangement sounds attractive to some Boards because there is no monetary payment made as the litigation proceeds.  However, with contingency fee arrangements, the percentage amount paid to the attorney at the conclusion of the case may be much greater than the Association would have spent if it would have paid the attorney on an hourly basis.  For example, let’s assume that the Association has a $600,000 roof defect claim (cost of repair based on expert’s estimate) and has entered into a 33 percent contingency fee arrangement with a law firm.  Let’s assume further that the Association engages in mediation and based upon an evaluation of the risks and benefits and proceeding forward decides to resolve the matter for a $450,000 settlement at the mediation.  In this example, the law firm receives $150,000 in fees plus reimbursement for any costs that they advanced in the litigation (expert fees, filing fees, depositions, etc.).  For this example, let’s say that amount is $10,000.  This leaves the Association with $290,000 ($450,000 – $150,000 – $10,000 = $290,000) to fund a $600,000 repair.

The chief complaint with contingency fee arrangements is that the percentage taken by the law firm (one-third in my example) may not be based or related to actual time spent by the law firm for the work on the matter.  The law firm gets a windfall (they recover more money than they would have had the Association paid on an hourly basis).  This money is, therefore, not available for the Association to fully fund the repair.

The chief benefits of the contingency fee arrangement are the Association does not need to pay money on a monthly basis and if the Association’s claims get dismissed, the Association is not out any money in attorney’s fees (except the Association would still be liable for those costs advanced by the law firm).  In theory these benefits appear sound and advantageous to the Association. However, the Association needs to consider that most attorneys that are proceeding on a contingency fee basis have evaluated the case and generally do not take cases where the risk of getting nothing is present 

The concerns with the hourly fee arrangement are fairly obvious.  The Association may put money into a litigation and not recover enough to merit proceeding with the litigation (the money spent on the litigation surpasses the amount being recovered), or if the Association’s case is dismissed by the Court, the Association will have spent money on attorney’s fees which are not recoverable and a significant loss to the Association.  However, if the case is evaluated correctly and the risk of a zero recovery is not present the hourly fee arrangement is far more likely to net the Association more money as there is no windfall to the law firm. The law firm is compensated for the work they actually did.  This typically leaves the Association with more money to use towards the repairs.

This same concern with contingency fee arrangements can be seen in the flat fee arrangement.  There is one thing that can be said of lawyers, they do not suffer from a lack of concern for money.  The flat fee arrangement usually has a built in cushion for the attorney so they are not left working for free.  The flat fee arrangement, however, does help the Board in its budgeting so the Association knows exactly how much it is going to spend on the litigation. But like the contingency fee, the Association potentially pays the law firm more money then they actually earned.

As can be seen, there are benefits and risks to any fee arrangement.  It is critical that the Board consider all options and work with the lawyers to arrive at a fee arrangement which satisfies the two primary goals of recovering and keeping the most money to repair the conditions.

This post was authored by David J. McGee. David McGee’s practice is based in the litigation section at Thomsen & Nybeck, P.A.  Dave brings his 20 plus years of experience representing Community Associations in construction defects and insurance disputes.  Dave has recovered millions for Associations in disputes with developers, contractors and insurance companies, and heads up the firm’s “Property Insurance Claims” Group.  Dave has been named a “Top Lawyer” by Minnesota Law & Politics and Minneapolis/St. Paul Magazine for a number of years.  Dave has represented clients in numerous appellate cases including Chapman Place Ass’n, Inc. v. Prokasky, 507 N.W.2d 858 (Minn. Ct. App. 1993); Ly v. Nystrom, 615 N.W.2d 302 (Minn. 2000); and Peggy Rose Revocable Trust v. Eppich, 640 N.W.2d 601 (Minn. 2002).  Dave represents clients in arbitrations, mediations, court actions, trials, and appellate work.  Dave is a frequent lecturer and has written numerous articles in the area of Insurance, Construction, and Real Estate Law.  He is also a qualified neutral under Rule 114 of the Minnesota General Rules of Practice (mediation and arbitration).