Restoring Balance to the Commercial Foreclosure Process

Restoring Balance to the Commercial Foreclosure Process
By Ellen M. McDowell, Esq.

Picture yourself representing a client whose business recently failed. Your client owned the building out of which she operated and personally guaranteed the mortgage on the building. Business has been bad for months and the bank finally foreclosed on the property. Your client believes the building is worth $500,000. She owes the bank $525,000. She has come to you to discuss filing a bankruptcy since she does not have the ability to pay the Bank and she has a relatively small amount of trade debt as well. She also has a home with equity of $100,000.

Logic would dictate that you would be safe advising your client that since the Bank now owns the property worth around $500,000, client’s obligation to Bank is somewhere in the neighborhood of $25,000, right? The answer is not so clear, at least in New Jersey.

In the spring of 2010, the New Jersey Appellate Division decided Borden v. Cadles of Grassy Meadows II, LLC , 412 N.J. Super. 567 (App. Div. 2010). The facts in Borden are complicated and tortured, but the short version is that the Bank obtained a judgment against the borrower and Borden, one of the guarantors of the debt, for $4 million. Around the time the judgment was entered, guarantors obtained an appraisal valuing the property at between $3.7 million and $4 million. At Sheriff’s sale, a third party bidder paid $640,035 for the property. Notably, no objection was made to the sale.

Years later, the Bank assigned the judgment to a different party and the assignee began to pursue Borden as guarantor. Borden sued to prevent enforcement of the judgment on the basis that (1) the holder of the judgment had waited too long to collect the debt and (2) Borden was entitled to a credit for the amount generated by the Sheriff’s sale of the property. The trial court agreed and extinguished the judgment against Borden. On appeal, the Appellate Division reversed, holding that the burden was on the guarantor to object to the sale within ten days after the sale under R. 4:65-6, thus initiating a deficiency action to determine the amount remaining on the debt. Since Borden had failed to object to the sale or otherwise take steps to seek a court determination of the remaining balance due, the Court found that Borden had waived his right to a credit and was obligated for the entire amount of the claim, presumably $4 million plus interest.

The Borden decision sent shock waves through commercial bankruptcy practices all over New Jersey. Too often debtors retain counsel long after the Sheriff’s sale takes place and the time to object to the sale under R. 4:65-6 has passed. Under Borden, this would result in debtors and guarantors being liable for the entire amount of the Bank’s claim, regardless of the amount
generated at the sale or the value of the property now owned by the Bank.

In another sea change, however, the Bankruptcy Court in New Jersey recently held that a Chapter 13 debtor whose property was foreclosed on in 2010 and taken back by the Bank was entitled to a credit for the fair market value of such property even though she did not object to the sale.

In In re Karagiannis, 2011 Lexis 1806 (Bankr. N.J. 2011), Judge Stern conducted a painstaking analysis of New Jersey law as it pertained to Borden and its genesis. While the decision is well reasoned and thorough in its application of the law to the facts before the court, it is clear that Judge Stern was offended by the notion that the Bank in that case might obtain a windfall if he applied the holding in Borden and refused to allow a credit for the value of the property taken back at the sale. Judge Stern offered that such a result would be, in his opinion, “rank unfairness.” Id. at 4.

Although Judge Stern set forth several reasons why Karagiannis should be distinguished from Borden, including the extreme facts of the Borden case, the overriding basis for his opinion was his belief that fairness and equity demanded that the debtor be given a credit, especially in the bankruptcy context, where the Court has jurisdiction to “determine the value of a claim secured by a lien on property in which the estate has an interest.” Fed. R. Bankr. P. 3012. In fact, Judge Stern called that valuation hearing “a bankruptcy process imperative.” Id. at 59.

Judge Stern’s opinion in In re Karagiannis is the right decision. While the outcome of Borden may have been required under the facts of that case, it did not lead to a fair and equitable result for the parties. In re Karagiannis restores balance to the commercial foreclosure process, at least in New Jersey Bankruptcy Court.


***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

Commission Rebates

Commission Rebates

Although signed into New Jersey law over a year and a half ago, until recently, I’ve had very few inquiries about rebates of real estate commissions. As you likely know, the Act permits licensed real estate brokers to provide a purchaser of residential real property a rebate from the commission the broker receives. Its enactment was a significant departure from prior New Jersey law.

The statute imposes several restrictions on who may provide and receive a rebate, conditions concerning the providing of a rebate, limitations on the nature of the rebate that may be paid and requirements on the advertisement of rebates. The provisions were summarized by President Robert Pimienta in his bulletin of February 2010.

Who may provide / receive a rebate and conditions concerning the providing of a rebate
• Only a real estate broker may provide the rebate. A broker-salesperson or salesperson may not provide a rebate.
• A rebate may only be provided to a purchaser of residential real property. A rebate may not be provided to a seller or to a lessor or lessee.
• The broker and the purchaser must contract for a rebate at the onset of the brokerage relationship in a written document, an electronic document or a buyer agency agreement. The document or agreement must specify the terms of any rebate to be credited or paid by the broker to the purchaser. The broker must provide the document or agreement to the purchaser at the outset of the brokerage relationship.
• The broker must comply with any State or Federal requirements regarding the disclosure of the payment of the rebate.
• The broker must recommend to the purchaser that the purchaser contact a tax professional concerning the tax implications of receiving the rebate.
• The broker must disclose the payment of the rebate to all parties involved in the transaction, including any mortgage lender.

The nature of the rebate that may be paid
• The rebate must be
- In the form of a credit to the purchaser and reducing the amount of the commission payable to the broker paying the rebate or a check paid by the closing agent made at the time of closing; and
- Calculated after the purchaser negotiates the rebates commission rate with the broker paying the rebate.
• The rebate must not be
- Paid to an unlicensed person for any act that requires licensure;
- Contingent upon the use of other services or products being offered by a broker or an affiliate of a broker; and
- Based on the use of a lottery, contest or game.

Advertisements of rebates
• Advertisements regarding permitted rebates must include:
- A disclosure concerning the purchaser’s obligation to pay any applicable taxes for receipt of the rebate; and
- A notice that the purchaser should contact a tax professional concerning the tax implications of receiving the rebate.
• In all such advertisements, the required disclosure and notice must be conspicuously displayed in the advertisement and the size of the text shall be equal to or larger than the size of the text used for the advertisement.

Mr. Pimienta reminded licensees contemplating offering rebates to purchasers that other Commission rules that guide their conduct, continue to apply. For example, advertisements regarding rebates must also comply with N.J.A.C. 11:5-6.2(r) which provides that no advertisement shall contain false, misleading or deceptive claims or misrepresentations. Moreover, when acting as an agent for a client, licensees operate as fiduciaries who must protect and promote the interests of their client. See N.J.A.C. 11:5-6.4(a). Licensees are prohibited from making any false promise or any substantial misrepresentation. See N.J.S.A. 45:15-17(a).

A Shamless Plug

There’s this story about a big storm that comes and throws thousands of starfish onto the beach. The next day, they’re broiling in the sun, and a guy starts throwing them back into the ocean. Another guy comes along and says, “There’s thousands of them – how are you going to make any difference?” And the first guy picks up another starfish, throws it in, and says, “It made a difference to that one.” Here at McDowell Riga Posternock, P.C. we’d sincerely appreciate the opportunity to “make a difference” to you, your family, your friends, your colleagues and your customers. Please call me at 856-642-6445, or email me directly at danp@mrpattorneys.com.

-Dan Posternock

***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

Information You Should Know – But Advice You Cannot Give

Information You Should Know – But Advice You Cannot Give
As you know, new construction is typically covered by a new home buyer's warranty issued by a private plan pursuant to the New Home Warranty and Builders' Registration Act.

Last week the Appellate Division, Superior Court of New Jersey, issued an opinion in Frumer v. National Home Ins. Co. establishing arbitration as the exclusive remedy for all structural disputes under the standard Home Buyer's Warranty (HBW) Corporation's (HBW) policy. However, the Court also noted that workmanship/system defect claims are subject to an election of remedies. In other words, the homeowner can elect arbitration or pursue other remedies (i.e. a lawsuit), but not both, for workmanship/system defect claims.

Now that you know this information, what should you do if one of your buyers contacts you to find out what to do after they encounter a problem with their new home which the builder will not address? Should you find out whether it’s a structural issue or a workmanship/defect claim and then explain that they must elect their remedy for the latter? Of course not, that would be providing impermissable legal advice. You should tell them to immediately contact a knowledgeable and competent attorney. They can find one by calling 856-642-6445.


Speaking of Home Warranty Policies
Do you collect a commission for home warranty policies which are purchased during a transaction in which you're involved? If so, do you perform a service that can be documented which is actual, necessary and distinct from your primary services?

HUD has issued an interpretive ruling on this issue which concludes that:

(1) a payment by a Home Warranty Company (HWC) for marketing services performed by real estate brokers or agents on behalf of the HWC that are directed to particular homebuyers or sellers is an illegal kickback for a referral under section 8 of RESPA (12 U.S.C. 2607);

(2) Depending upon the facts of a particular case, an HWC may compensate a real estate broker or agent for services when those services are actual, necessary and distinct from the primary services provided by the real estate broker or agent, and when those additional services are not nominal and are not services for which there is a duplicative charge;

(3) The amount of compensation from the HWC that is permitted under section 8 for such additional services must be reasonably related to the value of those services and not include compensation for referrals of business.

Under the interpretive statement, in order to receive compensation from the HWC for the purchase of a home warranty, both the broker and the agent must perform some actual service, separate and apart from the realtor services. The realtor or broker must fully disclose in writing to the consumer that the broker or agent will be compensated by the HWC, that the consumer may purchase a home warranty from other vendors, or may choose not to purchase any home warranty. In addition, the compensation must be reasonable in relation to the services performed.

Examples of actual services that are compensable:

*general marketing of the HWC, i.e. the broker may accept an advertising fee from the HWC for a general advertisement in a publication;

*Conducting actual inspections of the items to be covered by the warranty to identify pre-existing conditions that could affect home warranty coverage;

*recording serial numbers of the items to be covered;

*documenting the condition of the covered items by taking pictures and reporting to the HWC regarding inspections;

*other services to be performed as specified in a contract between the HWC and the broker or agent, and the broker or agent has documented the services provided to the HWC;

*the broker or agent is by contract the legal agent of the HWC, and the HWC assumes responsibility for any representations made by the broker or agent about the warranty product;

Examples of payments that are characterized as illegal kickbacks:

*payments that are solely contingent on an arrangement that prohibits the broker or agent from performing services for other HWC;

*payments to real estate brokers or agents by the HWC that are based on, or adjusted in future agreements according to, the number of transactions referred;

* payments to the broker or agency for marketing the HWC to a specific client.

As they used to say on Hill Street Blues, "Be careful out there".

-Dan Posternock

***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

Effective June 1st, Barron & Posternock are merging:

THERE REALLY IS NO SUCH THING AS A FREE LUNCH—OR A FREE APPRAISAL

This month we look at what types of incentives the New Jersey Real Estate Commission allows licensees to offer to potential clients.

THERE REALLY IS NO SUCH THING AS A FREE LUNCH—OR A FREE APPRAISAL

The New Jersey Real Estate Commission’s rules on licensee advertising limit the types of incentives licensees can provide to potential clients. The rules apply to all categories of advertising, including “publications, radio or television broadcasts, all electronic media including E-mail and the Internet, business stationary, business cards, business and legal forms and documents, and signs and billboards.”

Under N.J.A.C.11:5-6.1(m), licensees are permitted to offer “free, discounted or other services or products in advertisements or promotional material,” but:

“No offering of free, discounted or other services or products, including the offering of a free appraisal, shall be made by a real estate licensee in any advertisement or promotional material or otherwise where the promotion or offering involves a lottery, a contest, a game or a drawing, or the offering of a lot or parcel or lots or parcels, or where the consumer is required to enter into a sale, listing or other real estate contract as a condition of the promotion or offer.”

This rule specifically prohibits a Licensee from offering “free or subsidized homeowners warranties, property, radon and pest inspections, surveys, mortgage fees, offers to pay other costs typically incurred by parties to real estate transactions, and coupons offering discounts on commissions charged by brokerage firms.” Anything that confers a “monetary benefit” on the consumer is included in the prohibition.

Likewise, verbal offers of free or discounted services in exchange for signing a listing agreement are not permitted. Under NJSA 45:15-17(j), an agent is prohibited from making using any “plan, scheme or method” of promoting the sale of real estate using a contest, lottery, or offer or free or discounted services.

Disclose, Disclose, Disclose

To make the point, the rule also requires that the licensee provide the consumer with a written disclosure, delivered to the consumer at the time of the offer, which shall state in a clear and conspicuous manner that the consumer is “not required to enter into any sale, listing, or other real estate contract as a condition of their receipt and use of the free, discounted or other services or products included in the promotion or offer.”

This disclosure must also state whether the consumer is “required to perform any action to qualify to receive the free, discounted or other services or products offered,” and specify the actions. If the delivery of the offered services is to occur separate from the time of the offer, the delivery date must also be specified in the disclosure.

If the licensee is receiving compensation for participating or promoting the offer, the amount of the compensation must also be disclosed to the consumer. If the compensation arrangement between the licensee and the person paying the licensee is subject to RESPA, then all RESPA formalities of disclosure must be followed, as well.

What is the effect of this rule?

The practical effect of this rule is that a Licensee cannot attract new clients with offers of free or discounted appraisals, home warranties, home inspections, and the like, if the offer is conditioned on the client signing a listing agreement.

A licensee’s offer to reimburse a potential client for a service at settlement still falls under the rule’s definition of “monetary benefit,” and is not permitted.

Likewise, the licensee cannot reduce his or her commission at settlement in order to “pay” for the offered free or discounted service. That, too, is a monetary benefit to the consumer, and is prohibited by the rule.

A licensee also can’t verbally make the offer to a consumer. While a verbal offer may not technically fall under the definition of “advertising,” it would still fall under the broad category of “plan, scheme or method” to offer free or discounted services in exchange for signing a listing agreement, and that practice is prohibited under NJSA 45:15-17(j).

So what is a licensee to do?

So how can a licensee offer of a free or discounted service and still comply with the rule? The rule itself gives us a clue. N.J.A.C. 11:5-6.1(m)(4)(ii), provides that the disclosure the licensee is required to provide to the consumer must list the specific actions the consumer is required to take in order to receive the offer. The rule goes on to state: “[f]or the purposes of this paragraph, a consumer’s attendance at any listing presentation, informational session or other meeting is considered to be an action by the consumer.”

So under the rule, an advertisement could offer a free or discounted service to a consumer in exchange for that consumer’s attendance at a presentation or meeting. The advertisement must contain a disclaimer that states the specific actions the consumer needs to take to receive the offer, the date of delivery of the free or discounted service, and also conspicuously note that the consumer is not required to enter into a listing agreement to receive the offer. If the licensee is being compensated for participating in the offer, that information must be included on the disclosure.

-Melanie M. Levan

***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

Cancelled Mortgage Debt - Bulk Sales Addendum

This month we offer an informative article on the tax consequences of cancelled mortgage debt and an update from the NJAR regarding the Bulk Sales Act.

A TAX TEXT ON CANCELLED MORTGAGE DEBT

By Kenneth R. Harney

With hundreds of thousands of homeowners having negotiated loan modifications or short sales or been foreclosed upon during the past year, the Internal Revenue Service has issued fresh guidance on how to handle canceled mortgage debt in the upcoming tax season.

It’s a huge issue, widely misunderstood by consumers, and involves potentially billions of dollars of tax liability.

When most debts are canceled by a creditor, such as unpaid balances on student loans or credit cards, the forgiven amounts are treated as ordinary, taxable income by the Internal Revenue Code. But under a special exemption adopted by Congress covering distressed home mortgages, many owners can escape the ultimate double-whammy: Getting kicked while you’re down, hit with extra taxes because your mortgage went seriously delinquent or you lost your house.

In its latest guidance, the IRS focuses on several key points that owners – and former owners – need to know. Tops on the list: Just because a lender wrote off a portion of your mortgage debt, this doesn’t mean you automatically qualify for special tax treatment. To the contrary, there are essential tests you need to pass to qualify: The debt your lender canceled must have been used by you “to buy, build or substantially improve your principal residence.”

There’s a lot packed into these words, so it’s important to parse them carefully. Start with the house itself. It can’t be your second home, an investment condo, a weekend retreat or a seasonal home you occupy for less than half the year. It can only be your main residence, and fully documentable as such.

Next, the unpaid mortgage balance your lender canceled as part of a modification, short sale or foreclosure cannot have been used for non-qualifying purposes, i.e., for something other than acquiring or constructing the house or making capital improvements to it. Refinanced mortgage debt used for kids’ tuitions, vacation, buying cars or paying off credit card bills won’t make the grade.

The IRS offers a hypothetical example of how borrowers can mess up their chances for tax relief. A taxpayer took out a first mortgage of $800,000 when he purchased his home years ago. Thanks to strong appreciation in property values, the house was soon worth $1 million and the owner refinanced the mortgage to $850,000. The loan balance at the time of the refi was down to $740,000, and the owner used the $110,000 in cash-out proceeds to buy a new car and pay off credit card debts.

Bad move. A year or two later – presumably well into the recession and housing bust – the home value had plunged to between $700,000 and $750,000. The owner then convinced his bank to allow a short sale for $735,000 and to cancel the remaining $115,000 of unpaid debt.

Does the owner get tax relief on the full $115,000 under Congress’ special exemption? No way, according to the IRS. He only escapes income taxes on just $5,000 of the $115,000 because he spent the other $110,000 on a car and credit card balances – neither of which counts as “qualified principal residence” debt.

Greg Rosica, a tax partner with accounting giant Ernst & Young, says misunderstandings of the rules about mortgage debt forgiveness are “commonplace.” People often don’t know that “the equity line [money] you used for vacations” and other purposes “just will not qualify” under IRS rules. Taxpayers who walk away from their houses may be liable for taxes, said Rosica in an interview, if at some point the property “no longer was their primary residence” – say they rented it out for the period between their last payment and the foreclosure – effectively converting the house into rental property, not their principal home.

The IRS highlighted some other key points in its guidance:

--Mortgage cancellation relief is capped at $2 million for singles and married taxpayers, $1 million for married owners filing separately.
--Anyone who’s had mortgage debt cancellation as part of a loan modification or foreclosure should go to IRS.gov and download Form 982 and IRS Publication 4681 for additional filing details. Alternatively they can call 800-TAX-FORM to request copies. Lenders who write off unpaid mortgage balances typically provide borrowers with a year-end IRS form 1099-C cancellation of debt statement, including the amount of the loan forgiven and the fair market value of the property.

If you’ve had mortgage debt canceled but have never received a 1099-C from your lender, get in touch and request it if you want to avoid federal tax hassles.

Ken Harney is a real estate columnist with the Washington Post.

NEW BULK SALES ADDENDUM FOR CONTRACTS OF SALE

The NJAR® Risk Management Committee has developed a new Bulk Sales Addendum for Contract of Sales, which makes the buyers and sellers aware of the requirements. The New Jersey Bulk Sales Law, N.J.S.A. 54:50-38 applies to the sale of certain residential property. Under the law, the buyer may be liable for taxes owed by the seller if the law applies and the buyer does not file the Notification of Sale, Transfer o Assignment in Bulk (Form C-9600) with the Division of Taxation. NJAR®’s legal counsel recommends that all buyers file a Notification of Sale, Transfer or Assignment in Bulk (Form C-9600) with the Division of Taxation, whether it is residential or commercial transaction.

The NJAR® Bulk Sales Addendum to the NJAR® Real Estate Contract, Form #118 is available through the NJAR®online forms or our office by contacting Lori Sacalis at lsacalis@barpostlaw.com.

NJAR® is currently pursuing a legislative and regulatory fix for the Bulk Sales Act. For more information on Bulk Sales, please visit the NJAR® website.

-Dan Posternock

***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

Commuters, Road Warriors & Getting Paid

One of my best friends called me about his son’s job. His son is a crew chief for a company that installs energy systems. Each day he commutes to the company’s central work site and then takes a company truck with a work crew and equipment to job sites throughout the state. The employer now takes the position that the time spent traveling to and from the job sites, which can be up to two hours away, will no longer be compensated. My friend asked, “Can they do that?”

The answer is “probably not.” The answer is found in the Fair Labor Standards Act, 29 U.S.C. §201 et seq. and the Portal-to-Portal Act of 1947, 29 U.S.C. §251 et seq. and the Department of Labor’s regulations. The general rules are fairly simple, but even slight differences in fact situations can make a difference in the outcome.

The usual situation is where an employee commutes from home to a work site before his or her regular workday and returns home after work. This home to work travel is generally not compensable even if the employee is required to report to different job sites, which may be many hours away from the employee’s home. 29 C.F.R. § 785.35. The situation is not any different if employees meet at a central location and either carpool or take employer provided transportation to a distant job site. This is seen as being non-compensable time under the Portal-to-Portal Act of 1974 because it is preliminary to the actual performance of work.

However, the result changes if an employee is required to report at a meeting place or central office to receive instructions, to perform other work or to pick up tools, parts and materials. Then the travel from the meeting place to the designated place to the work is part of the day's work, and must be counted as hours worked regardless of any contract, custom, or practice. If the employee is required to return to the employer’s premises after work, then the return trip is compensable working time. However, if the employee is allowed to go directly home, the time is non-compensable as “travel from work”. 29 C.F.R. § 785.38.

Additionally, if the employee performs work during travel time, he or she must be compensated for the time spent working. This work could include making telephone calls on a mobile telephone, working on a laptop computer, or studying plans and specifications for the day’s work. Obviously, if the employee’s duties include driving a vehicle for the employer, those activities are compensable. 29 C.F.R. § 785.41.

The Department of Labor also recognizes a related concept known as “travel that is all in the day’s work”. The DOL’s regulations instruct that “[t]ime spent by an employee in travel as part of his principal activity, such as travel from job site to job site during the workday, must be counted as hours worked.” 29 C.F.R. § 785.38.

If the employer provides the employee with a vehicle to be used to travel to work, this does not create a payment obligation if; (1) the vehicle is one normally used for commuting such as a car, pick up truck or van, (2) it can be used on the employee’s normal route for commuting, (3) the employee incurs no additional costs for using the vehicle, and (4) the home-to-work drive is within the normal work area. However, if the vehicle is not an ordinary type of commuter vehicle, such as a bus, dump truck or panel van, then the time spent driving to work is seen as being “so closely related” to the employer’s work that it becomes compensable under the FLSA.
Another common scenario is when an employee is called to back to work to attend to an “emergency situation.” In those cases, all of the time spent, including travel time to the work site, is compensable time worked which could result in overtime compensation. 29 C.F.R. § 785.36.

The Department of Labor’s regulations point out that a special problem arises when an employee is sent on a special assignment to another city or distant location. In those circumstances, the travel time, excluding commuting time to an airport or train station and normal meal time, is viewed as integral to the employee’s principal activity and therefore is compensable. 29 C.F.R. § 785.37.

The DOL has also published guidance on how to treat travel away from home on over night business trips. Travel away from home is work time when it cuts across the employee's workday since the employee is simply substituting travel for other duties. This includes travel time on week ends or other nonworking days. For example, if an employee normally works from 9 a.m. to 5 p.m. during the week, travel time during these hours is work time as will be travel time on Saturday and Sunday.

It is important to know that the DOL has an enforcement policy of not counting travel time outside of regular work time (e.g. 9 a.m. to 5 p.m.) as compensable work time. 29 C.F.R. § 785.39.

If you have any questions about an employer’s obligation to pay for commuting or other travel time, or any other wage and hour issue, please contact Tom Barron at 856 642 6445 or at tbarron@barpostlaw.com.

***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

THE STORY OF POLLY & KELVIN

The back story

Polly and Kelvin, two African grey parrots, lived with their owner, Mary, in a condominium in Monmouth County. As one might expect, they made bird noises which could be heard outside their home and their chatter and whistles annoyed the other residents.

The property manager for the Condominium Associate wrote to Mary asserting that she was in violation of two restrictions in the Master Deed. One which provided that:

No bird, reptile, or animal of any kind shall be raised, bred, or kept in any Unit or anywhere else upon the Property except that dogs, cats or other household pets are permitted, not to exceed two in the aggregate, provided that they are not kept, bred or maintained for any commercial purpose, are housed within the Unit and abide by all applicable Rules and Regulations. No outside dog pen, runs or yards shall be permitted.

The other stated that “[n]o noxious or offensive activities shall be carried on…which may be or become an annoyance or nuisance to the other residents…” Mary was given two weeks to remove the birds or the Board would begin assessing a $10.00 per day fine against her unit.

Mary didn’t comply to that notice or several others, including one from the Association’s attorney. The dispute wound its way through alternative dispute resolution before landing in court and being re-directed to non-binding arbitration before a retired judge. That judge’s decision in favor of the Association was rejected by Mary. The parties then agreed to let a trial Judge decide the issue on the papers.

Blame it on the Realtors

The Association presented the trial judge with a certification from the attorney which drafted the Master Deed containing the restrictions at issue. He explained that the Master Deed was originally drafted to bar all pets. However, the exclusive realtor raised a concern that such a prohibitation would be problematic because many prospective purchasers would want to be able to have a dog or cat. Thus, the absolute prohibition was modified. Despite that, he said, the Association’s position was consistent with his intent as the scrivener of the document - - “no bird…mean[t] exactly that, no bird.”

But aren’t Polly and Kelvin household pets?

Mary’s lawyer argued that the word “no” modified “the compound subject birds, reptiles, and any animals” and that the exception for “dog, cats, and other household pets” modified the compound subject, permitting unit owners to have dogs, cats, birds, reptiles, and any animals kept as household pets. In other words, “every single animal in the animal kingdom [is prohibited], except for household pets” like Polly and Kelvin.

Pets can be expensive but isn’t this a little ridiculous.

The trial judge agreed with the Association, and entered judgment in their favor for $37,337.91, representing fees of $24,375.00; costs of $1,561.58.00; arbitrator’s fees of $2,590.86; expert fees of $3,480.47; and fines of $5,330.00 for defendants’ non-compliance, for which defendants were jointly and severally liable. An appeal of that decision followed.

A bird’s eye view: maybe it was the lawyer’s fault.

After determining that the restriction in the Master Deed was “susceptible to at least two meanings” and, therefore, ambiguous, the Appellate Court concluded that the only limitation on the keeping of pets was that the pet be a dog, a cat, or other household pet as that term is commonly understood. Pursuant to Division of Fish and Wildlife regulations, exotic, endangered, or dangerous species of birds, reptiles, and animals are either prohibited from being kept as pets or require a permit to possess as pets. Since an African grey parrot can be kept as a pet with a permit the Court said it was abundantly clear that Polly and Kelvin were household pets that may be kept in Mary’s condominium unit.

A lesson to learn?

This is an example of one more piece of information that you should encourage your potential buyers to obtain. You should consider suggesting that anyone buying a condominium who has pets (or is considering getting a pet) review the Master Deed to be sure they’re permitted. Otherwise you may find yourself chasing your tail in the midst of an expensive lawsuit.

-Dan Posternock

***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

Barron and Posternock are pleased to be participating in MS Walk 2011

Barron and Posternock are proud again be participating is this years MS Walk, being held on Sunday April 17th at Moorestown High School.

http://main.nationalmssociety.org/site/TR?pg=team&fr_id=16403&team_id=232941

General event information is available at:

http://walkpae.nationalmssociety.org/site/TR?pg=entry&fr_id=16403

Please join us in support of this wonderful cause!

Employment Discrimination – Retaliation – Wrongful Termination

On January 24, 2011 the Supreme Court of the United States in Thompson v. North American Stainless, LLP unanimously held that an employee who was fired after his fiancée filed a sex discrimination charge against their common employer had a valid claim of wrongful termination based on the antiretaliation provisions of Title VII of the Civil Rights Act of 1964.

In 2006 the Court held that Title VII’s antiretaliation provision was to be broadly construed to cover a wide range of employer conduct short of discharge which “well might dissuade a reasonable worker from making … a claim of discrimination.” It felt that is was “obvious that a reasonable worker might be dissuaded from making a complaint if she knew her fiancée would be fired.” Accordingly, the discharged employee could bring suit against the employer for wrongful discharge.

This has been the rule in New Jersey under its Law Against Discrimination since 1995.

This rule certainly places employers at increased risk when considering actions against the relatives and friends of a co-worker who has made a charge of workplace discrimination. The employer needs to create a verifiable record or trail which will support the claim that any adverse employment action is based on legitimate, non-retaliatory reasons.

If you have questions about this or any other issue regarding workplace discrimination, please contact Tom Barron at 856 642 6445 or at tbarron@barpostlaw.com.

-Tom Barron

***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.