two housesOn April 5, 2017, in an Article 78 proceeding, Tavano v. Zoning Board of Appeals of the Town of Patterson, 2017 NY Slip Op 02661, the Second Department reversed a trial court decision and reinstated a decision of the Zoning Board of Appeals of the Town of Patterson.  The zoning board had granted petitioner Tavano’s application to establish a legal non-conforming use of a second building on his property, referred to as the “cottage.”

Tavano argued that the cottage located at his property was a leased residential dwelling and that its use preexisted the Town’s 1942 zoning ordinance, which provided that “a building, structure, or premises could be used as a rooming or boarding house so long as there were no more than three boarders or roomers.”  Id.

In reversing the trial court’s finding, the Appellate Division noted that petitioner owned property in Brewster that is improved with a single family dwelling constructed in 1947 and a cottage constructed in 1955.  Tavano lived in the single family dwelling and rented the cottage.

Although the Appellate Division did not affirmatively state that its decision rested on the fact that the cottage was constructed in 1955, well after the 1942 zoning ordinance was enacted, and thus, Tavano could not establish entitlement to a legal nonconforming use, the Court did state that “to establish a legal nonconforming use, a property owner must demonstrate that the allegedly preexisting use was legal prior to the enactment of the zoning ordinance that purportedly rendered it nonconforming.”

Here, and without benefit of the trial court opinion, it appears that the relevant question was not only whether the cottage was constructed prior to enactment of the 1942 ordinance, but also whether Tavano’s use of the cottage constituted use as a rooming or boarding house.

In reinstating the zoning  board’s decision, the Appellate Division relied upon the long-standing legal principle that ‘[t]he determination of a zoning board regarding the continuation of a preexisting nonconfirming use must be sustained if it is rational and supported by substantial evidence, even if the reviewing court would have reached a different result”

Consequently, and as all land use lawyers will attest, even if the trial court or reviewing court would have reached a different result than that zoning board, deference is to be afforded to the zoning board.  Finding that the “ZBA’s determination that the cottage did not constitute a rooming or boarding house under the 1942 zoning ordinance was not arbitrary or capricious”, the Appellate Division reversed the trial court and reinstated the zoning board’s decision.

childrightslogoenSometimes called a “case of the race,” the common law doctrine of vested rights is “one of the most troublesome areas of land use regulation.”  Exeter Building Corp v Town of Newburgh, 114 AD3d 774 [2d Dept 2014].

In New York, the “vested rights” doctrine is equitable in nature and implicated when a property owner or developer seeks to continue the use of property in a way that was permissible before an  enactment or amendment of zoning regulations no longer permits it.   Town of Orangetown v. Magee, 88 NY2d 41 [1996].

Generally, an owner of real property can acquire common-law vested rights to develop property in accordance with the prior zoning regulations when (1) in reliance on a legally issued permit, the landowner (2) effects substantial changes and incurs substantial expenses to further the development and (3) the landowner’s actions relying on the valid permit(s) are so substantial that the municipal action results in serious loss rendering the improvements essentially valueless.  Id.  As a result, the “race” becomes whether the developer gets the project completed or at least substantially completed to satisfy the Magee test before the municipality get its zoning code in place.

Recently, in Exeter Building Corp v. Town of Newburgh, the Court of Appeals affirmed a determination by the Appellate Division holding that the developer had not vested a plan to build 136 townhouse units, because it could not have reasonably relied on valid permits when warned repeatedly of a rezoning by the Planning Board.  In Exeter, the Court of Appeals refined the reliance test in Magee, holding that is was not “reasonablefor the developer  to rely on a conditional  site  plan approval placing emphasis on the Town Planning Board’s repeated warnings of the proposed rezoning.

Now, not only must developers listen for the starting gun in a vested rights case, but they must also consider the reasonableness of a municipality’s warning. Such an additional qualifier seems to give the government a head start.

For a detailed discussion of vested rights and the underlying Appellate Division case, see one of our earlier blog posts, Appellate Court Rules on Common-Law Vested Rights.

 

The orientation of a tennis court in a north/south direction is a benefit to competitive players interested in fair tennis play. Even the Appellate Division, Second Department, agrees.

To avoid the impact of sun glare, a Town of Southampton property owner sought several variances to construct a tennis court in a north/south direction. One of the variances requested a 17-foot setback from the street where 90 feet is required.  (Southampton Town Code, Section 330-11.)   This variance would allow the tennis court to be situated in a north/south direction and thus avoid the impact of sun glare that would occur if situated in an east/west direction.

StockSnap_8ODE0WIMD9A neighboring property owner, located across the street, appeared at the public hearing and opposed the requested variances.  In reaching its 2014 determination to grant the variance application, the Southampton Board of Zoning Appeals found that the proposed tennis court was located 158 feet away from the opposing neighbor’s house and therefore would not create a detriment to the property owner or the surrounding neighborhood.

The Board also relied upon no less than eight (8) mitigating factors, including:

  • Proposed landscape screening;
  • Sinking the court into the ground by four feet, thereby mitigating potential noise impacts;
  • The alternative of constructing a 9,000 square foot house was far more impactful;
  • The goal of distancing the court from the immediately contiguous neighbors was more important than any perceived impact to the opposing neighbor located across the street.

Unhappy with the Zoning Board’s determination, the opposing neighbor commenced an Article 78 proceeding in addition to seeking a TRO and preliminary injunctive relief.  After considering the arguments, by Decision and Order dated May 19, 2014, the trial court (J. Garguilo) upheld the Zoning Board’s decision, while at the same time vacating the TRO and denying petitioner’s request for preliminary injunctive relief.   Petitioner’s attempt to appeal the denial of injunctive relief was dismissed by the Appellate Division as the Second Department held that “appeal from the intermediate order in this proceeding must be dismissed because the right of direct appeal therefrom terminated with the entry of a judgment dated November 10, 2014.”  Id.

By further decision of even date, the Appellate Division upheld the Zoning Board determination, finding not only  “there was no evidence that the granting of the variance would produce an undesirable change in the character of the neighborhood, have an adverse effect on physical and environmental conditions, or otherwise result in a detriment to the health, safety, and welfare of the neighborhood or community . . . [but also] the Zoning Board rationally concluded that the benefit sought by [the applicant}, namely, to maximize its use of the proposed tennis court, could not be achieved by the alternative site proposed by the petitioner.”  Id.

The Appellate Division made the above determinations despite the fact that it found that the variances requested by the property owner were substantial in nature and that the difficulty was self-created. This decision is important to those seeking to uphold a favorable variance grant in the wake of neighboring opposition because this decision demonstrates that focusing on the absence of, or minimal, undesirable change in a neighborhood and detriment to the health, safety, and welfare of a community can trump substantial variance requests, including those that are self-created in nature.

hempDEREGULATING INDUSTRIAL HEMP

Plans to expand New York’s Industrial Hemp Agricultural Pilot Program were recently announced by Governor Andrew Cuomo at one of his State of the State addresses. The program, which commenced in 2016, was authorized pursuant to the federal government’s passage of its 2014 Farm Bill, which specifically allows universities and state departments of agriculture to grow or cultivate industrial hemp if:

“(1) the industrial hemp is grown or cultivated for purposes of research conducted under an agricultural pilot program or other agricultural or academic research; and

(2) the growing or cultivating of industrial hemp is allowed under the laws of the state in which such institution of higher education or state department of agriculture is located and such research occurs.”

The law also requires that the grow sites be certified by—and registered with—their state.

HEMP NO LONGER A CONTROLLED SUBSTANCE SO LONG AS IT CONTAINS LESS THAN 0.3 THC

In 2015, a bipartisan group of U.S. senators introduced the Industrial Hemp Farming Act of 2015 that would allow American farmers to produce and cultivate industrial hemp. The bill would remove hemp from the controlled substances list as long as it contained no more than 0.3 percent THC.

The U.S. Department of Agriculture, in consultation with the U.S. Drug Enforcement Agency (DEA) and the U.S. Food and Drug Administration, released a Statement of Principles on Industrial Hemp in the Federal Register on Aug 12, 2016, to inform the public on the applicable activities related to hemp in the 2014 Farm Bill.

Under the pilot program, New York caps the number of sites permitted to farm hemp to ten locations throughout the state. The current research projects are being conducted under the auspices of SUNY Morrisville College and Cornell University’s College of Agriculture and Life Sciences. Governor Cuomo’s proposed amendments will lift the cap and expand the program to private farmers in an effort to “position New York at the forefront of a growing agricultural sector.” In 2015, it is estimated that the industrial hemp industry generated some $573 million in sales in the U.S. alone. Governor Cuomo believes that it could soon be a billion dollar industry; and New York’s Southern Tier, because of its climate and soil, is uniquely suited to be a leader in the industry.

Only time will tell if the industrial hemp industry flourishes as hoped for by the Governor or it goes up in smoke.

pinwheel-wind-power-enerie-environmental-technology

Last Wednesday, LIPA unanimously approved Deepwater Wind’s proposal to build the nation’s largest offshore wind farm approximately 30-35 miles off the coast of Montauk, New York.  Construction will include fifteen turbines with a 90 megawatt capacity able to power 50,000 homes.  The turbines will be built out of sight to address vehement public comments against blighted ocean vistas.

IT IS NOT THE FIRST AND IT WILL NOT BE THE LAST

Long Island’s latest offshore wind farm approval is not the first of its kind in the United States.  America’s first offshore wind farm located three miles off the coast of Block Island, Rhode Island, began delivering energy to the Ocean State in December 2016.  Although our neighbor to the north took the inaugural step, New York leads the charge into the future of offshore renewable energy development.  Our coastline boasts some of the world’s strongest offshore winds, and New York State plans to take advantage of these endless oceanic gusts.

The Montauk project is part-and-parcel of a 250-plus square mile area to be developed, with upwards of 200 turbines generating an estimated 2.4 gigawatts to power 1.25 million homes.  New York is studying a 16,740 square-mile area (an area approximately twice the size of New Jersey) stretching from south of Manhattan eastward into the Atlantic, extending out to the break of the continental shelf.  In addition, last month the federal government leased 80,000 acres of land south of Queens County, New York, to international energy giant Statoil for development.  Statoil endeavors to build seventeen miles offshore and provide 800 megawatts of power.  The federal government recently awarded several other offshore leases for development up and down the east coast, from Rhode Island to Virginia.

NOTES FROM BLOCK ISLAND – THE LOCAL IMPACTS OF DEVELOPMENT

Deepwater Wind’s Block Island project boosted the local economy and showcases many benefits of clean, renewable energy development.  Five offshore turbines harness wind energy capable of powering 17,000 homes.  This wind energy meets 90% of Block Island’s power needs, and additional energy is sent back to the electricity grid.  The developer (Deepwater Wind) is a locally-based company and is an expanding business in the region.  During construction, the project employed more than 300 local workers over two years, including local contractors.  Many more workers will be employed to maintain, repair and update the farm.  Atlantic Pioneer, the vessel that transported the project’s crews, was built in Rhode Island and will service the Block Island farm for at least twenty years.  Lastly, and most importantly, the farm accomplished the overall goal of harnessing wind energy by producing upwards of 30 megawatts of clean, renewable energy.

WHAT’S ON THE HORIZON

New York City and Long Island consume almost half of New York’s annual electricity usage, and continued development of Long Island’s East End fuels electricity consumption.  In an effort to suffice 50% of the State’s electricity needs with renewable energy by 2030, public and private parties alike are investing tremendously to research and develop additional sites to harness nature’s invisible gift.  To provide for efficient and cost-effective paths to develop offshore wind farms, the State issued a Blue Print for the New York State Offshore Wind Master Plan in September 2016 and anticipates releasing an Offshore Wind Master Plan by the end of 2017.

Kadir van Lohuizen / NOOR for New York Times Climate change / sea-level rise in Fiji The shoreline of Vunidoloa is heavily eroded due to the rising waters. Vunidoloa is situated on the Natewa Bay on Viti Levu, Fiji's main island. Vunidoloa has 140 inhabitants and frequently floods due to the rising waters. The situ ation became so precarious that the government decided to relocate the village. Unfortunately the site was poorly designed and is eroding before anyone moved there.

Asharoken, N.Y. January 10, 2017 — Swayed by public opinion, the Incorporated Village of Asharoken (“Asharoken”) opted out of a federal beach nourishment plan implemented by the Army Corp of Engineers (“ACOE”) in order to prevent the general public from accessing the Villages’ private beaches.

Asharoken is a narrow isthmus connecting the Village of Northport on the ‘mainland’ of Long Island with the hamlet of Eatons Neck, which is part of an unincorporated area located in the Town of Huntington. Asharoken is bordered by Huntington Bay, Northport Bay, and Eatons Neck. The eastern coast of Asharoken fronts along the Long Island Sound.

Asharoken Avenue, the village’s main road, is the only land evacuation route for village residents and about 1,400 non-village residents of Eatons Neck.  Without this land bridge, Eaton’s Neck and Asharoken would both be cut off from the mainland.

Asharoken experiences moderate to severe beach erosion on the areas fronting the Long Island Sound. This erosion is caused by storm-induced waves and wave run-up from hurricanes and nor’easters. The village has experienced damages from multiple storm events, most recently Hurricane Sandy in October 2012.

In spite of the known safety risks of their precarious evacuation route, the Asharoken Board of Trustees passed a resolution last Tuesday, effectively opposing a $20 million dune restoration project because of the federal government’s mandate for public access to the beaches when taxpayer dollars are utilized. In order to receive funds for the beach nourishment project, Asharoken would be required to add five public walkways to access the beach and five public parking areas at half-mile intervals along the project’s 2.4-mile stretch along Asharoken Avenue.

Despite a history of rising sea levels, the Asharoken Trustees capitulated to resident outcry over the potential loss of their private beach rights rather than balance their decision on the public health, safety and welfare of the Village and Town residents.

Only time will tell if this game of Russian roulette ends well.

logo-colorBefore we blog our way into 2017, we wanted to take a moment to review the topics that we blogged about in 2016 and to remind our readers that the land use practice group at Farrell Fritz is a diverse group of attorneys, which is why the topics that we blog about are quite diverse.

For example, it is not uncommon for our practice group to be involved in a large-scale transactional development project, while at the same time, we are drafting or answering an order to show cause; drafting easement agreements; exploring an adverse possession claim; resolving environmental issues; preparing, presenting and defending applications; and litigating our way through a criminal zoning code violation.   Our diverse legal talents are reflected in the topics that we chose to blog about in 2016.

We started the 2016 blogging year, for example, discussing riparian rights, climate change,  e-waste regulationsPine Barrens credits and renewable energy.  As the spring and summer approached, we tackled summer rental laws and the controversial role that Air BnB plays in short-term rentals.  During this time, we also blogged about the increasing presence of Vape stores on Long Island and how municipalities are tackling Vape store land use regulations.

One very popular 2016 topic in the land use community focused on the use of Drones and Drone regulation.   We will, of course, follow this developing topic in 2017, so be on the lookout for our Drone updates.favicon

Likewise, and always a controversial land use topic, is the use of moratoriums. Last year we blogged about the Village of Patchogue’s and the Village of Sag Harbor’s use of moratoriums to slow Village development.   We also addressed the hot topic of “zombie houses” by discussing not only what a “zombie house” is, but also blogged about legislation at the state, county and local levels aimed at combating the increasing number of zombie homes and decreasing the negative impact that these homes have on our communities.

 And, always relevant topics in the land use arena, we blogged about easements, SEQRA, farmland preservation, special permits and variances, the Hamptons helicopter route, rezoning the East End in Moriches and Eastport, General Municipal Law 239-m referrals, and non-conforming uses.

Finally, no year in review would be complete without mention of Facebook and the pitfalls that all litigants face when they take to social media during the pendency of a  land use lawsuit.  Check out our post on the monetary and other sanctions that the Village of Pomona suffered.

The above is just a quick snapshot of the topics that we blogged about in 2016.   We will kick off 2017 next Monday, January 9, 2016 with our new year’s post by Charlotte A. Biblow, Esq.   We hope you enjoyed our year in review and that in the coming year, you will help us increase our readership by forwarding our posts to your colleagues and friends and inviting them to subscribe to our weekly blog by email.

Happy New Year to all.

thOn July 11, 2016 and August 22, 2016, we blogged about how to successfully prepare and record a deed in the State of New York.  Just a few days ago, a question arose as to whether joint tenants with rights of survivorship can hold title to real property in unequal interests.  Although I emphatically stated in our July 11, 2016 post that joint tenants can only hold title in equal shares, I wavered in my answer when I was met with opposition by others who emphatically stated that joint tenants can, in fact, hold title in unequal interests.  So this blog post is intended to set the record straight.  Under New York State law, persons holding title to real property as joint tenants with rights of survivorship must hold title in equal interests.

The three types of real property ownership interests consist of (1) tenants by the entirety, reserved to married couples only, which by its terms creates a survivorship interest in each party; (2) joint tenants, which creates a survivorship interest between the parties, and must be clearly stated on the deed in order for the joint tenancy to exist; and (3) tenants in common, which creates no survivorship interest between the parties and is typically used when friends or persons other than married or familial parties purchase, most often, investment properties.  When a deed is silent as to the ownership interest, such as John Doe and Mary Smith, unless John Doe and Mary Smith are married, the law presumes that the parties intended to create a tenancy in common, with no survivorship interest between the parties.

And, to further set the record straight – the term “joint tenants with rights of survivorship” is a misnomer.  The legal term “joint tenants” provides each titled owner with the right of survivorship.  Consequently, when drafting a deed, indicating the ownership interest between the parties as “joint tenants” is sufficient to create a right of survivorship between the parties.  (See EPTL 6-2.2).  Having said that, when creating a joint tenancy between parties, attorneys routinely indicate ownership interests as “joint tenants with rights of survivorship.”

Understanding the three types of ownership interests becomes of utmost importance when multiple parties take title to real property.  For example, in the State of New York, if John Smith and Mary Smith, his wife, take title to real property together with their children Jack Smith and Meg Smith, the interest created here is an undivided 50% ownership interest in the property by John and Mary Smith and a 25% tenant in common interest to each child, Jack and Meg.  The tenant in common ownership interest arises because the deed is silent as to the ownership interests among all four parties.  Upon the death of husband John, Mary remains a 50% owner; and her two children, Jack and Meg, each own the remaining 25%, all as tenants in common.

This scenario would change in the event that Jack, the son, was to die first.  In this instance, John and Mary Smith, husband and wife, remain 50% owners, Meg remains a 25% owner, and the heirs of Jack inherit his 25% interest.  If the deed had read:  “John Smith and Mary Smith, husband and wife, and Jack Smith and Meg Smith, as joint tenants with rights of survivorship”, then each of the parties, regardless of the spousal relationship, would own 25%.  Upon the death of any owner, the surviving parties would equally inherit the decedent’s share.  If Meg were to pass on first, then John’s, Mary’s and Jack’s interests would increase to 1/3 each.

There are numerous examples of cases where the ownership interests of the parties are disputed.  In most cases, the language set forth in the deed by the attorney draftsman is the cause of the litigation.   In reconfirming that joint tenants must hold equal ownership interests, I came across a 1996 Westchester County, Supreme Court case, Prario v. Novo 168 Misc.2d 610, whereby the trial court not only sets out the law, but also provides great examples of who owns what in specific ownership scenarios.  Most drafting mistakes arise when individuals hold title along with married couples.  To avoid creating an ownership interest that the parties did not anticipate, the drafter must carefully read the language set forth in the deed to ensure that the interests created are, in fact, the interests that the parties desire.  Perhaps printing out a copy of Prario, supra, will assist in avoiding critical ownership interest mistakes.

One footnote:  The joint tenant equal ownership interest theory does not necessarily mean that in a partition action, or action for divorce, each party will walk away with equal monetary amounts.  We will leave that discussion for another day!

How The Difference Adversely Impacted A Property Owner In A Condemnation ProceedingToday’s blog post concerns a property owner receiving substantially less than it wanted when its property was taken in an eminent domain proceeding because the “highest and best use” it claimed was applicable to the site required an area variance and a zoning change, rather than a special use permit. The awarded amount was about $1 million less than the property owner was seeking. The case, Matter of the Application of the Town of Oyster Bay v. BPJ Marine Corp., Supreme Court Nassau County, Index # 18701/2010, Justice Thomas A. Adams, December 3, 2013, affirmed, 139 AD3d 741 (2d Dept 2016) pitted BPJ Marine Corp., doing business as Gus Marine in Massapequa (the “Marina”) against the Town of Oyster Bay (the “Town”). It demonstrates the pitfalls facing an owner trying to establish the “highest and best use” of a parcel to maximize the condemnation award when the zoning prohibits the use.

The Marina

The Marina is located on a canal in Massapequa. It is composed of 2 parcels, divided by Alhambra Road. The eastern parcel is about 18,000 square feet in size. About 44% of that eastern parcel (7,900 square feet) is underwater. The eastern parcel has 180 feet of waterfront, all of which is bulk-headed except for a 10-foot boat ramp. The eastern parcel is about 75 feet wide, from the street line to the bulkhead. The western parcel is about 10,100 square feet and does not directly abut the water. Both parcels together are approximately 0.6 acres. The site is zoned as General Business (“GB”).

Prior to 2005, the Town permitted townhouse developments in GB zones as a special use. The site to the north of the Marina was developed as a townhouse complex 7 years before 2005, after obtaining a special use permit. In 2005, the Town enacted a local law prohibiting townhouses in GB zones. That 2005 local law was in effect at the time of vesting. Vesting is the point of time at which title to the land is deemed to be in the hands of the condemnor and no longer in the hands of the private owner. See New York State Eminent Domain Procedure Law (“EDPL”) § 402(B).

The Condemnation

The Town decided to condemn the Marina and made advance payments of $939,000 and $175,536.75 to the Marina. Not unexpectedly, the Marina claimed that the payments were woefully inadequate. The matter then proceeded to court.

The Marina claimed that the “highest and best use” of the site was as a townhouse condominium, asserting that 7 townhouses could be built at the site. The Marina asserted that the western parcel could be used for 2 of the 7 townhouses (with a value of $480,000) and the eastern parcel for 5 townhouses (with a value of $1,231,000.) Taking into account other factors, such as the cost to remediate the bulkhead and backfill it, the Marina claimed that the full value of the “highest and best use” award should have been $1,711,000.

The Town disagreed, asserting that the “highest and best use” of the site was as a marina and based its advance payments on that assessment. The Town presented evidence at trial that a townhouse complex had no reasonable probability of ever being approved for the site. The Marina would need to obtain a change of zone as it could not get a special use permit in light of the 2005 local law. Moreover, since the Marina was a conforming use in the GB zone, it could not take advantage of a Town code provision that allowed the Town to swap out a non-conforming use with a less intrusive non-conforming use.

The trial court and the Appellate Division agreed with the Town. The courts held that there was no reasonable probability that the Marina would get the site re-zoned to permit townhouses because of the express prohibition of townhouse construction in the GB zone in the 2005 local law. The courts noted that even if the zoning board of appeals overlooked that prohibition, the size of the area variance was massive and would not be granted. In making a determination to grant or deny an area variance, the zoning board of appeals would have to consider and balance the following factors: (1) will granting the area variance produce an undesirable change in the character of a neighborhood; (2) can the benefit sought by the applicant be achieved in some other feasible method; (3) is the requested relief substantial; (4) would the area variance, if granted, have an adverse effect or impact on the physical or environmental conditions of the neighborhood; and (5) is the condition requiring the area variance self-created.

The courts determined that the substantial size of the relief militated against the Marina. The courts noted that a townhouse complex under the zoning code needs a minimum of a 5-acre lot. The Marina was asking to build on a site that was less than 1 acre and a significant portion of the site was underwater land. The courts determined that the zoning board of appeals has never granted such an area variance of this magnitude. The courts also found that the problem was self-created because any developer that would submit a plan for seven townhouses on this undersized site couldn’t claim that it didn’t know how drastically undersized it was.

The trial court determined that the appropriate award was $35 per square foot, which amounted to about $732,000.

Although not mentioned in the decisions, since the award from the court was less than the advance payments made by the Town, under § 304(H) of the EDPL, the Marina may be subject to having to repay the amount that exceeds the advance payments. Not a happy ending for Gus Marine.

On July 11, 2016, I began a short blog series on how to successfully prepare and record a deed in New York State.  In that post, we reviewed the various types of deeds available such as warranty deeds, bargain and sale deeds and executors deeds.  We also discussed the importance of securing a copy of the last deed of record and ensuring that when preparing a new deed, you do not deviate from name spellings and owner capacities, such as tenants by the entirety, joint tenants and tenants in common.   The newly prepared deed should reflect the name of the owner/seller as it exactly appears, and in the capacity that the owner/seller received title to the property.

voidable-contractsGiven that my practice areas are land use development and transactional real estate, today’s post will discuss deed transfers where no consideration is paid by the buyer.  You may have occasion to provide no consideration deed transfer preparation when, for example, clients are transferring a real estate asset from their individual capacity to a corporate or LLC capacity.  In other words, the seller is not receiving any money for the transfer because in most instances, the seller is retaining some beneficial ownership in the property.  For instance, if John Smith is transferring a real estate asset to No # Main Street LLC, where John Smith is the sole member of the LLC; No # Main Street LLC may elect not to pay any money for the real estate asset because the transfer is done for liability purposes, and John Smith will continue to remain in possession and control of the asset.  Similar types of no consideration transfers are also popular when a marital asset is being transferred as the result of a divorce or newly married couple.

The examples set forth above are usually undertaken in good faith and with the intent to manage a real estate asset in the manner desired by the owner/seller.  However, attorneys should be careful to ask the right questions to determine the owner/seller’s actual intent in transferring a real estate asset, because no consideration transfers can raise additional title insurance exceptions in the future.   Likewise, no consideration deed transfers can bring unwanted liability, such as existing judgments and liens, upon the new owner and potential state and federal tax consequences to both the seller and no consideration buyer.

How does a real estate practitioner properly transfer an asset for no consideration, while at the same time, ensuring that the parties involved are protected from any negative consequences?  The answer is simple; due diligence and disclosure.  The reasons are abundant as to why It is not sufficient to secure a copy of the existing deed and then simply prepare a new deed.  First, when a real estate asset is transferred for no consideration, the existing judgments, liens and mortgages transfer with the asset.  Although the new buyer does not become personally liable for the debts, the new buyer cannot transfer the asset without paying off the debts.  In the example above, assume that John Smith transferred his real estate asset to No # Main Street LLC, but John Smith failed to advise his attorney that he has a number of judgments and liens against him.  Because the transfer is for no consideration, the judgments and liens against John Smith will continue to run with the land.  Now, assume that John Smith is not the only member of No #  Main Street LLC, but instead, John Smith has a partner, Mary Jones, who has no idea that John Smith has existing debts.  Those debts will now potentially affect Mary Jones’ interest in the real estate asset owned by No # Main Street LLC.

In addition, no consideration deed transfers raise questions with respect to the intent of the seller.  In the above example, perhaps John Smith intended to transfer the real estate asset in an attempt to avoid his existing creditors.  Because No # Main Street LLC did not pay any consideration for the transfer, a title exception will be raised when No # Main Street LLC sells the asset requiring proof that John Smith did not transfer the asset to avoid the existing creditors.  If No # Main Street LLC had paid value for the asset, it is less likely that a title insurance exception would be raised.

Other impacts of no consideration deed transfers include acceleration of existing mortgages.  Most mortgages contain an acceleration provision if the asset is transferred to someone other than the mortgage borrower.  Although in practice it is less likely that the lender will accelerate a mortgage that is not in default, nonetheless, the no consideration parties to the deed must be advised that this risk exists.

Likewise, when transferring real estate assets that arise from a divorce or a new marriage, the attorney preparer should take care to determine whether a value is actually being paid or received for the transfer.  If John and Mary get divorced, and as part of his settlement, Mary transfers her interest in the real estate asset to John, that asset should be valued; and, unless it is specifically defined otherwise, consideration should be paid on the value of Mary’s one-half interest in the asset.  This is where accountants and tax attorneys should be consulted, to ensure that negative tax consequences don’t arise from the no consideration transfer.

Finally, the way to avoid the pitfalls discussed above is to secure, at a minimum, a real estate asset last owner with judgment and lien search from your preferred title insurance provider.   Review the report to determine whether a no consideration deed transfer will raise more questions than it might solve.  Also, discuss the intentions of all parties to a no consideration deed transfer, as negative consequences can arise for all parties involved.