April 16, 2007

Deja vu all over again.

Current events are eerily similar to those immediately preceding WWII. We have a pacifist, defeatist congress actual sitting down with murderous dictators who are actively in the process of killing Americans. The feckless, incompetent Nancy Pelosi has taken it upon herself to go into the heart of enemy territory and to make believe that she is some kind of peacemaker by interceding with one of our most bitter enemies, the murderer of Prime Minister Hariri in Lebanon, Mr. Assad. While Assad laughs at her (and us) she claims to be representing Israel which of course she does not. How she or the liberals think that this can possible benefit our country is difficult to imagine. How naive can these people possibly be? In their zeal to undercut our military at all costs and weaken our country in the eyes of the world, they advocate attempting to sit down with our enemies to try to “understand” them. Do they not understand that our enemies do not want peace and that they have no terms to discuss? We have a neo Nazi in the Mid East named Ahmedinijad who has told us that he is developing a nuclear bomb to drop on Israel. We have no reason to doubt his sincerity. Instead of doing what is necessary, Ms. Pelosi thinks that she can go to Teheran and convince him that if will just be nice all will be forgiven. And all of this is based not upon our national interest but in an attempt to undercut an unpopular president and score political points. Make no mistake, many serious mistakes were made in the prosecution of the war. Many serious mistakes are made in the prosecution of all wars, the most serious of which probably occurred in the War of 1812 and the Civil War. Back then of course, the object was to turn the mistakes around for victory and for the good of the country, not to focus on defeat and to score political points against a president. I can only wonder what the liberals would be complaining about were it not for the war. They and all of us have certainly done well financially during the last eight years. Instead of celebrating our success, the libs want to undo the tax cuts that have created the new wealth and plunge us into a recession. Or maybe we should follow blindly along the global warming path which will also seriously affect our economy. Why the libs would want to foist economic disaster on us based upon junk science is truly bewildering. Why wouldn’t they want to know the truth? Why do they threaten any scientist who disagrees with them. Science is not based on “consensus”. It is based on fact. There is no such thing as a scientific theory being “proved” because a majority of scientists, many of whom do not even specialize in the area in question, think that something is so. Galileo anyone?

In any event, I stray (there is so much nonsense and hypocrisy on the left that it is hard to stay on course). Back to the similarities between current events and WWII.

In 1936, Chamberlain went to Munich to treat with Hitler and returned with the infamous “Peace in our time” document. In 1939, after Germany invaded Poland and war was declared between France , Britain and Germany, Parliament wanted to examine the debacle that left England at the mercy of Hitler and unprepared for war by attacking Chamberlain and his administration. Churchill, in an address to Parliament state that “If the present tires to sit in judgement on the past, it will lose the future”. Sound familiar? Isn’t that what Pelosi, Reid and company are doing just now? And to what end?

And in 1940, in a message to one of his generals, Churchill wrote : “Although revenge has no part in politics (are you listening in Washington?) and we should always be looking forward rather than back, it would be a miracle to suppose that a solution of our difficulties with Vichy will be resolved by a policy of mere conciliation and forgiveness. … It must be remembered that these men have committed baseness on a scale that has earned them the lasting contempt of the world … . The idea that we can build on such men is vain. …” Again, this is precisely the Democrat play book, make believe you are doing something by making believe that you can talk to people who have never wavered in the commitment to kill us. It makes us look silly and weak. One has to wonder whether even they really believe what they say.

Lastly, on 12/30/40, during one of his fireside chats, Rooselvelt, explaining “lend-lease” to the American public (who for the most part, were still neutral) said “there is a danger ahead – danger against which we must prepare. But we cannot escape danger by crawling into bed and pulling the covers over our heads”. To read these words and view the current position of the libs is actually frightening. For those of you who have been reading my letters over the years, you will be familiar with Santayana’s famous dictum that those who refuse to learn from the past are doomed to repeat it. It is too bad that those of us who have learned will suffer along with the fools!

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Board interview points for prospective purchasers

April 13, 2007

This is capitalized because it was written as a presentation and I needed the large letters for my weak eyes!

HELLO LADIES & GENTLEMEN

I AM GLAD YOU WERE ABLE TO COME.

I AM GOING TO DISCUSS THE FINANCIAL ASPECTS OF THE BOARD APPROVAL PROCESS AND, WHERE APPLICABLE, ANCILLARY FACTORS THAT TOUCH UPON THE FINANCIAL ASPECTS OF THE APPLICANT AND HIS OR HER SUITABILITY.

FIRST SOME COMMENTARY

THERE ARE MANY WHO BELIEVE THAT THE REQUIREMENTS PERTAINING TO FINANCES PLACED ON AN APPLICANT ARE QUITE ONEROUS. INDEED, MANY APPLICANTS HAVE COMMENTED THAT IF THE BOARD MEMBERS THAT WERE EVALUATING THEM HAD TO COMPLY WITH THE SAME REQUIREMENTS THAT MANY WOULD NOT PASS.

BE THAT AS IT MAY, REJECTION OF APPLICANTS WITHOUT EXPLANATION HAS RESULTED IN THE BILLS BEFORE THE LEGISLATURE REQUIRING BOARDS TO DIVULGE THEIR DECISION MAKING PROCESS. SO FAR, WE ARE FORTUNATE THAT NONE HAVE BECOME LAW. HOWEVER, CONTINUING COMPLAINTS MAY RESULT IN SUCH A LAW IN THE FUTURE AND IT IS MY BELIEF THAT WE MUST DO EVERYTHING IN OUR POWER TO AVOID SUCH AN OUTCOME.

AS YOU KNOW, THE INTERVIEW PROCESS COVERS MANY AREAS OF WHICH THE FINANCIAL AREA IS, PERHAPS, THE MOST IMPORTANT.

AS YOU ALSO KNOW, THERE CAN BE NO DISCRIMINATION IN MAKING YOUR DECISION WITH ONE EXCEPTION – FINANCES. REJECTION OF AN APPLICANT BASED UPON FINANCES CANNOT BE CHALLENGED AS DISCRIMINATORY PROVIDED THAT THE DECISIONS ARE UNIFORM AND MADE PURSUANT TO A SET OF GUIDELINES THAT ARE UNIFORMLY APPLIED.

THEREFOR, THE BOARD SHOULD ESTABLISH A SET OF FINANCIAL GUIDELINES THAT SHOULD BE FOLLOWED WITH ALL APPLICANTS. MORE ON THIS LATER.

THE BOARD MAY HAVE INCOME REQUIREMENTS, ASSET REQUIREMENTS, MAXIMUM DEBT TO INCOME RATIOS AND CASH DOWN PAYMENT REQUIREMENTS. MOST OF THESE HAVE BEEN THE SUBJECT OF NUMEROUS ARTICLES AND DISCUSSIONS AND NEED NOT BE DEALT WITH IN DEPTH HERE BUT I WILL BE HAPPY TO ANSWER QUESTIONS LATER. SOME BOARDS INSIST ON AT LEAST 20% DOWN. SOME BOARDS WANT NO MORE THAN 30% OF INCOME GOING TO PAY DEBT, SOME BOARDS MAY REQUIRE A MINIMUM LEVEL OF ASSETS. NONE OF THESE REQUIREMENTS SHOULD BE “ONE SIZE FITS ALL” AND EACH SHOULD BE TAILORED TO THE CHARACTERISTICS OF THE PARTICULAR BUILDING.

AGAIN, SOME OF THE REQUIREMENTS ARE QUITE INTRUSIVE. YOU MAY REQUIRE AN APPLICANT TO SUBMIT SEVERAL YEARS OF TAX RETURNS, PROOF OF INCOME WITH W-2S AND/OR 1099s AND ADDITIONAL PROOF OF OWNERSHIP OF ANY OTHER ASSETS THAT THE APPLICANT WANTS THE BOARD TO CONSIDER.

THE BOARD THEN CAN USE THIS INFORMATION TO DETERMINE PURSUANT TO THE AFOREMENTIONED GUIDELINES WHETHER OR NOT ANY PARTICULAR APPLICANT MEETS THE CRITERIA FOR APPROVAL. HOWEVER, MEETING THE CRITERIA SHOULD NOT BE THE ONLY TEST RELATING TO FINANCIAL VIABILITY OR APPROVAL.

FOR EXAMPLE, AN APPLICANT MAY NOT MEET THE STRICT INCOME CRITERIA BUT MAY BE PAYING ALL CASH. AN ALL CASH PURCHASER MAY NOT HAVE A HIGH INCOME BUT MAY NOT NEED AS HIGH AN INCOME AS WOULD OTHERWISE BE NECESSARY IF THEY HAVE NO MORTGAGE. RETIRED PERSONS ON LIMITED INCOMES THAT HAVE SOLD A PRIMARY RESIDENCE AND ARE RELOCATING TO SMALLER, MORE AFFORDABLE DWELLING COME TO MIND. WHILE THEY MAY NOT MEET THE STRICT INCOME CRITERIA, THEY WILL PROBABLY BE AN EXCELLENT MEMBER OF THE COMMUNITY AND WILL PROBABLY BE WELL ABLE TO AFFORD IT. THE APPLICANT MAY NOT MEET THE FINANCIAL CRITERIA BUT MAY A YOUNG PERSON WITH EXCELLENT PROSPECTS WHOSE INCOME HAS NOT YET STARTED TO GROW AND/OR WHOSE LIABILITIES (STUDENT LOANS ETC) MAY BE HIGHER THAN THE GUIDELINES ALLOW. SUCH A PERSON MAY HAVE A HIGH INCOME BUT MAY NOT HAVE ENOUGH CASH TO MAKE A 25% DOWN PAYMENT ESPECIALLY IN VIEW OF THAT FACT THAT PRICES HAVE RISEN DRAMATICALLY OVER THE LAST FIVE YEARS. INDEED, MANY UNITS NOW SELL FOR 3,4 OR $500,000. IN SUCH A CASE, A 25% DOWN PAYMENT REQUIREMENT MEANS THAT A YOUNG PERSON HAS TO COME UP WITH AS MUCH AS $150,000 CASH INCLUDING CLOSING COSTS TO BUY. NOT MANY YOUNG PEOPLE HAVE THAT AMOUNT OF MONEY AND GETTING IT FROM A THIRD PARTY JUST TO MEET AN ARBITRARY LIMIT DOES NOTHING FOR THE COOP SINCE THEY REALLY DO NOT HAVE THE MONEY ANYWAY. CASES SUCH AS THESE REQUIRE A BIT MORE STUDY AND PERHAPS SOME FLEXIBILITY. IN ANOTHER SITUATION, AN APPLICANT MAY HAVE MORE THAN ENOUGH MONEY AND ASSETS BUT SIMPLY IS NOT BE SUITABLE FOR RESIDENCY IN YOUR BUILDING. IT IS IMPORTANT TO HAVE A MIX OF RESIDENTS IN ORDER TO KEEP YOUR BUILDING VIBRANT AND ATTRACTIVE. REQUIREMENTS THAT ARE TOO HARSH WILL EXCLUDE MANY YOUNG PEOPLE WHO HAVE EXCELLENT INCOMES BUT HAVE NOT ACCUMULATED ENOUGH CASH TO PUT DOWN $150,000.

IF THE APPLICANT IS A NICE PERSON, HAS GOOD REFERENCES AND EXCELLENT PROSPECTS AND WOULD MAKE A GOOD ADDITION TO THE BUILDING, THE BOARD MAY DECIDE TO ACCEPT HIM ANYWAY. MANY BOARDS INSTINCTIVELY FEEL THAT PROFESSIONALS ARE TO BE PREFERRED. WHILE THAT MAY OR MAY NOT BE TRUE, EXPERIENCE SHOWS THAT PROFESSIONALS ARE OFTEN NOT WORTH THE TROUBLE. IN MY MANY YEARS OF EXPERIENCE IN THIS FIELD, PROFESSIONALS HAVE CREATED A DISPROPORTIONATE AMOUNT OF PROBLEMS. YOU SHOULD NOT JUDGE A BOOK BY ITS COVER.

IN ADDITION, IT IS VERY IMPORTANT TO REMEMBER THAT, AT THE END OF THE DAY, THE COOP HAS LITTLE OR NO DOWNSIDE RISK IN ANY CASE. THE COOP HAS A LIEN FOR MAINTENANCE THAT IS SUPERIOR TO ALL OTHER LIENS, INCLUDING THAT OF A MORTGAGE. THUS, IN THE EVENT OF NON PAYMENT OF MAINTENANCE, THE PROPRIETARY LEASE ALLOWS THE COOP TO UNDERTAKE VARIOUS ACTIONS TO PROTECT ITSELF FROM FINANCIAL LOSS SUCH AS RERENTING THE UNIT FOR THE ACCOUNT OF THE SHAREHOLDER AND DEDUCTING ITS MAINTENANCE AND COSTS FIRST AND/OR SELLING THE UNIT TO RECOUP ANY LOSSES IN CONNECTION WITH THE OWNERS DEFAULT INCLUDING ALL MAINTENANCE AND FEES.. THAT IS THE PURPOSE OF THE RECOGNITION AGREEMENT.

WHERE A PURCHASER HAS A MORTGAGE, IT IS ALSO IMPORTANT TO REMEMBER THAT A BANK HAS ALREADY REVIEWED THE APPLICANT AND DECIDED TO LEND HIM MONEY. IN THAT REGARD THE BANK HAS FAR MORE TO LOSE THAN THE COOP. WHILE SOME SAY THAT THIS IS NO LONGER AS IMPORTANT A FACTOR AS IT USED TO BE, AS A RESULT OF THE SUB PRIME MORTGAGE PROBLEM, I DON’T THINK THIS WILL BE PROBLEM IN THE FUTURE. THEN AGAIN, THERE ARE MANY BUILDINGS THAT CATER TO SUB PRIME PURCHASERS.

CREATING FINANCIAL GUIDELINES THAT ARE TOO STRICT CAN ALSO HAVE A NEGATIVE IMPACT ON THE BUILDING BY UNDULY LIMITING THAT POOL OF PROSPECTIVE PURCHASERS.

AS FOR THE GUIDELINES, AS A GENERAL RULE THE BOARD SHOULD SEE AT LEAST TWO OR THREE YEARS OF TAX RETURNS, DO A FULL CREDIT CHECK AND GET A CREDIT SCORE AND REQUIRE A REASONABLE DEBT TO INCOME RATIO. HOWEVER, AS I MENTIONED BEFORE, THESE THINGS CANNOT BE WRITTEN IN STONE. OFTEN THOSE WITH THE BEST FINANCIALS TURN OUT TO BE THE WORST OWNERS. THUS IT IS EVEN MORE IMPORTANT FOR BOARD NOT TO BE BLINDED BY STRICT NUMERICAL CRITERIA. THE BOARD MUST CONSIDER THE WHOLE PACKAGE, NOT JUST FINANCIALS

IN CLOSING, THERE ARE FOUR POINTS I WOULD LIKE TO EMPHASIZE;

1) APPLY THE GUIDELINES AS UNIFORMLY AS POSSIBLE WHEN MAKING YOUR DECISION BUT NOT SO HARSHLY AS TO RENDER YOUR BUILDING UNAFFORDABLE TO THOSE WHO MAY MAKE EXCELLENT RESIDENTS,

2) WHEN DECIDING TO BEND THE RULES, BEND THEM FOR THE POSITIVE, NOT THE NEGATIVE

3) BE FLEXIBLE NOT DOGMATIC. IF AN APPLICANT LOOKS GOOD, MAYBE HE IS GOOD AND DESERVES TO BE IN YOUR BUILDING EVEN THOUGH THE CRITERIA ARE NOT STRICTLY COMPLIED WITH AND

4) DON’T FORGET THAT THE COOP HAS THE ULTIMATE ABILITY TO COLLECT ANY MONIES OWED TO IT IN THE EVENT OF DEFAULT AND HAS VIRTUALLY NO DOWNSIDE RISK.


MOLD IS A FOUR LETTER WORD

April 8, 2007

MOLD IS A FOUR LETTER WORDby Stephen J. Lehrman

Mold is a four letter word that has been and is increasingly on the mind of every owner, landlord and Board. Indeed, mold is rapidly becoming the next “lead paint” issue for owners, operators and managers of commercial property, both residential and commercial. This article will attempt to give a overview of the various issues involved, the recent court decisions dealing with the mold issue, the position of insurance companies and an overview of potential liability issues. The article will conclude with a recent actual case history.

The mold issue will definitely not be going away anytime soon. Despite the fact that there are currently no universally recognized guidelines pertaining to mold contamination, the plaintiffs bar has seized upon mold as its next gravy train. Mold damage cases are exploding in number and courts, juries and regulatory agencies are granting large awards despite what appears to often be a complete lack of proof, scientific or otherwise, of actual damage. It seems as though the mere mention of the word creates hysteria and legal consequences.

Mold is universal. It is everywhere all the time and is, for the most part, not harmful. It is a virtual impossibility to remove all mold from everywhere. Anywhere there is moisture there is mold and that is anywhere there are humans whether in apartments, houses or offices. There are mold spores in every kitchen and bathroom everywhere in varying quantities. Mold is rarely, if ever, a problem except in two situations: where a the health of a particular individual is adversely affected by mold or where a particular individual wants to make it appear as though he/she has been adversely affected by mold for monetary gain. The latter predominate.

The cause of mold of the greatest concern to IMPACT readers is moisture. Moisture may penetrate living space from outside as a result of a leak or other cause of water penetration or it may arise inside the unit as a result of condensation, poor ventilation or poor hygiene. It may or may not be noticeable. Since very few people are adversely affected by mold, complaints are generally made when the occupant actually sees a mold growth. Most often the owner/landlord merely removes the mold with no further problem. However, the problems arise when the occupant insists that the mold has made him sick, requiring extensive mold testing and remediation. It is interesting to mote that mold testing indicates the presence or absence of mold and quantifies the infestation but since there are no current guidelines (a situation that is changing as we speak), the result is amorphous. That, however, will not prevent the determined tenant from seizing upon the result for the purposes of complaint or otherwise. In some cases, occupants develop actual symptoms and seek medical advice which may or may not relate the symptom to a mold infestation. Thereafter, the occupant will request that owner do a test or have a test done themself. If the result of the test indicates a high incidence of mold, the occupant will insist upon remediation. Of course, the level of mold is that as compared to all measurements of mold in similar environments and does not mean that any particular mold level is toxic or harmful to any particular individual, only that there is more mold in one unit than there is in the average of other units.

If the infestation is caused by a leak from outside, it must be repaired which may entail significant cost to the property owner. It may come from an interior leak with similar consequences. It may also come from poor ventilation in a bathroom or kitchen or a simple lack of hygiene on the part of the occupant. Although I am unaware of any case law on that particular issue, it will be interesting to see what the courts decide to do with such a defense. As you know, the courts have not allowed the defense of “contributory negligence” (in general) in lead paint cases, treating lead paint in the absolute despite a clear showing by the owner that the occupant failed to take even the slightest action to prevent the damage. Everyone is always a victim with no personal responsibility.

The mold scenario generally unfolds upon receipt of a complaint by owner/board from an occupant. Despite the lack of scientific guidelines, such a complaint should be taken seriously and investigated. Upon investigation, if it appears to be a problem, an expert should be called in to do a test and, based upon the result, remediation may be necessary. It is beyond the scope of this article to discuss remediation. While there is little or no evidence that mold is toxic and the burden of proving damage due to mold is on the occupant, it is wise to remediate since one never knows how the damage issue will be dealt with in the future.

Of course, remediation can be quite expensive and not necessarily permanent, especially if the cause is poor hygiene.

Generally, after remediation, the matter is closed except for those few who decide to sue for damages and/or complain to regulatory agencies. In the event of a lawsuit, insurance is generally not available, most commercial policies containing mold exclusions. It is therefor all the more important to make an record by doing a thorough inspection with a proper team. The cause must be found and if mold is detected the condition should be identified and quantified with an eye on EPA guidelines in order to show reasonableness in the event of future litigation. (The EPA guidelines referred to in the preceding sentence do not refer to levels of mold and/or the effects thereof but to remediation procedures. In addition, the guidelines are just that – guidelines. They do not have the force of law and, indeed, the guidelines themselves state that while mold MAY cause harmful effects, there is no proof. However, following the remediation guidelines will obviously be of help in the event of litigation.)

In a recent Federal case in the U.S. District Court for Western New York, the ruling applied New York law to deny insurance coverage for losses allegedly attributable to property damage from mold, irrespective of whether the policy contained a mold exclusion. While two previous Federal Court cases had denied coverage due to express exclusions in the policy, this case went further and held that no coverage existed where the mold was caused by failure to properly maintain the premises, rather than by a fortuitous event (such as a leak, etc.) This is a very interesting decision in that it seems that the reasoning can be extrapolated to argue that an occupants failure to maintain the premises would bar him form obtaining damages as well.

The above case deals with a claim for property damage as opposed to a claim for physical damage.

Claims for physical damage are exploding as well. However, in order to prevail in such a case, plaintiff must prove both causation and damage. Plaintiff must prove both a pathway and adverse health effects attributable to the mold by expert testimony, quite an expensive undertaking with a problematic likelihood of success given the absence of any scientific consensus on the health effects of mold. Indeed, in the recent case of Fraser et. Al. V. 310-52 Townhouse Corp., the Supreme Court (NY) ruled in a lengthy decision that it was incumbent upon the plaintiff to show that the mold condition caused the illness and that the plaintiff had failed to demonstrate that the scientific community supported the theory of damage due to mold.

While the foregoing may all be well and good, here is a review of a recent mold situation that is still ongoing in the City of White Plains.

A tenant in a coop complained of mold. Management inspected the premises, found some mold and did a remediation. Tenant was not satisfied with the remediation, claiming illness caused by mold and had her own testing done which should acceptable levels of mold. Not satisfied with that finding, she hired a second company that came in with unacceptable levels of mold despite the prior remediation. She immediately filed a complaint for reduction of service with DHCR, attaching the findings of her various testing services and complaining of ill health. DHCR, in their infinite wisdom AND WITHOUT ANY INVESTIGATION OF ANY KIND, reduced the rent. Owner filed a PAR which, not surprisingly, was denied. Thereafter, tenant complained to the City of White Plains Building Department who immediately issued an order to the effect that the premises was uninhabitable due to the mold, despite having been given the proof of remediation. The City based its finding upon the tenants claims and the DHCR reduction, again WITHOUT DOING ANY INVESTIGATION OF ANY KIND. Indeed, the City later admitted that it did not have the expertise to even make a determination regarding mold. In addition, the building code does not contain any mold guidelines of which we are aware. Thereafter, based upon an unsupported claim by tenant that she had to vacate the premises, DHCR reduced the rent to $1 WITHOUT ANY ADDITIONAL INVESTIGATION OR FINDING OF ANY KIND. Thus, based upon the same evidence which it used to reduce the rent to the last rent in effect, it again reduced the rent with no additional investigation or findings to $1.

Owner commenced an Article 78 proceeding and, incredibly, the court agreed with owner and remanded the proceeding back to DHCR for a full hearing which DHCR had refused to conduct despite the numerous pleas of landlord. It should be noted that tenant failed to produce even the slightest proof of illness and even failed to produce proof of her claimed relocation despite a DHCR direction to do so. I will keep you advised of the outcome on our website at LKL-LLP.com.

The above is merely another indication of the hysteria and irrationality surrounding the mold issue. This tenant will obviously be unable to produce any proof of harm but she has been able to easily game the system resulting in her using the power of the state to attack the owner without any evidence of any kind resulting in a massive expenditure of both time and money for nothing. THIS is the real problem with mold complaints.

Stephen Lehrman is the managing partner of Lehrman, Kronick & Lehrman, LLP at 199 Main Street, White Plains, N.Y. The firm has been a member of the BRI since its inception in 1978 and specializes in Landlord/Tenant, Condo/Coop and real estate law. You can access our “blog” containing topical information at our website at LKL-LLP.com.


April 1, 2007

Welcome to Lehrman, Kronick & Lehrman.  For those of you who have been reading our newsletters over the years, you will be familiar with our format.  We intend to publish information of topical interest to our readers concerning current developments in the areas of law of interest to you as well as our usual commentary on world events.  I welcome your feedback and I hope you enjoy this new format. Please  advise me of any suggestions that you may have to improve this product. thanks for you interest.

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