RE Newsletter 04-10

THE NJAR OFFERS A CLARIFICATION ON THE IMPACT OF THE THREE DAY ATTORNEY REVIEW PERIOD AND THE HOME BUYER TAX CREDIT DEADLINE

As the deadline for utilizing the federal home buyer tax credit draws near, there has been some confusion regarding the April 30, 2010 deadline and the three day attorney review period in New Jersey. In order to use the tax credit, the Internal Revenue Service (IRS) required that the buyer enter into a binding contract to buy a principal residence on or before April 30, 2010. According to the mandatory attorney-review language required by the New Jersey Supreme Court, the contract is final and binding unless your lawyer cancels it within the following three business days. As long as the contract is signed on or before April 30 and the attorney does not cancel the contract, the buyer should be able to take advantage of the tax credit assuming he/she meets the other qualifications.

More on the Tax Credit

As the deadline nears, Philadelphia Inquirer columnist Alan J. Heavens has been getting a lot of questions from his readers about the federal tax credits for home buyers.

First, he reminds us about the basics: Under the current program, if you sign and agreement of sale to purchase a house after November 6, 2009, but on or before April 30, you may qualify for a credit on your income tax. The home sale transaction must be concluded – that is, settlement made – on or before June 30.

The maximum credit for a qualified first-time buyer is $8,000 – up to 10 percent of the purchase price – depending on income limits of $125,000 for single tax-payers and $225,000 for married couples filing joint returns.

For the tax-credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three years before the purchase.

The maximum credit for repeat buyers – those who have bought houses before and have owned and lived in them for five consecutive years out of the last eight – is $6,500. The same income limits apply.

For both credits, the purchase price of a house must be less than $800,000.

Mr. Heavens then propose and answers some questions.

Question: Will it be possible to get this tax credit for 2009?
Answer: Yes, though you will need to file an amended return to do so. Complete IRS Form 5405 and attach a copy of the settlement statement. If the house is brand-new, a copy of the C.O. will suffice.

Question: Why can’t I claim the credit if I’m buying my grandmother’s house?
Answer: Home purchases from relatives of the taxpayer or the taxpayer’s spouse do not qualify. The IRS defines relatives as ancestors (parent, grandparent), lineal descendants (child, grandchildren), and spouses.

Question: My spouse has owned a house, but I haven’t. Do I qualify?
Answer: Married couple are not eligible to claim the first-time-buyer tax credit if either spouse has previously owned a home. They may, however, qualify for the repeat-home-buyer credit.

Question: I’m probably not entitled to the whole $8,000 credit being offered now. How do they determine a “partial credit”?
Answer: The credit is phased out for individuals with modified adjusted gross income of $125,000 for singles and $225,000 for joint returns.
If your modified adjusted gross income if $140,000, you are $15,000 above the single payer limit. The “phase-out range” is $20,000 (above $145,000 you get nothing,)
You determine the amount of the partial credit, then, by dividing $15,000 by $20,000, to get 0.75. Multiply $8,000 by 0.75, then subtract the result $6,000, from $8,000. The answer is $2,000.

-Dan Posternock


BEDNOBS & BROOMSTICKS…NOOKS AND CRANNIES…

In January of 2009 we told about a case in which a two-week summer tenant was trying to hold Prudential Fox accountable for failing to warn the renter about an inconspicuous and unexpected drop from a master bedroom doorway onto an outside deck which had no handrail. The property’s condition allegedly lead to a fall and serious injury to one of the tenants. At that time, an Appellate Court upheld a trial court’s dismissal of the case, determining that the realtor had no obligation under current law to “search every nook and cranny” of rental property.

Last November we informed you that the highest court of this State would be offering its viewpoint on the issue. At that time the Supreme Court heard oral argument from attorneys in the case, including one arguing on behalf of the New Jersey Association of Realtors. Central to the court’s decision would be whether to expand Hopkins v. Fox & Lazo, a 1993 case in which a realtor was held liable for failing to warn a person of a hard-to-see step while at an open house.

Last week the Supreme Court affirmed the dismissal of the case but apparently not without some serious wrangling. The decision is the result of a three-justice to three-justice stalemate, resulting in both concurring and dissenting opinions.

A syllabus issued by the Office of the Clerk offers the following insights.

Justice LaVecchia filed a separate CONCURRING opinion, in which Chief Justice Rabner and Justice Rivera-Soto join, stating that she and her concurring colleagues would affirm the judgment of the Appellate Division substantially for the reasons expressed in Judge Sabatino’s thoughtful opinion. The disinclination to adopt an extension of Hopkins in this case arises from a conviction that Hopkins must be limited strictly to the factual context of an open house to sell real property, as no such limiting determination need be made to resolve this case. Rather, her affirmance of the grant of summary judgment to Prudential hinges on the specific facts, the most central of which is that the Reyes family resided in the summer home for nine days before the injury to Hermes Reyes. Hopkins established the proposition that realtors owe a duty of care to protected invited visitors to a marketed piece of property from physical conditions that the nature and duration of their visit might not afford them the opportunity to recognize for themselves. Here, a nine-day actual occupancy offered ample opportunity to the occupants to inspect and discern physical defects of the property. The facts of this case simply do not compel an extension of the Hopkins duty of care to plaintiffs’ cause of action. Justice LaVecchia also takes issue with the dissents’ suggestion that an extension of the Hopkins duty to inspect under the circumstance presented here would not impair the short-term rental market in New Jersey. To the contrary, expected increases in insurance premiums that would follow from an extension of the duty would impact the cost of short-term rentals.

Justice Alvin files a separate DISSENTING opinion, in which Justices Long and Wallace join, stating that the discordant results in this case and Hopkins are difficult to reconcile. The real estate broker, when holding an open house, has a duty to warn of dangerous conditions, even if receiving no financial benefit from the visitor, but has no corresponding duty to a short-term renter from whom a financial profit is made. This cannot be the result the Court had in mind in Hopkins. The failure to place on brokers a reasonable duty of care in the present case is a sharp departure from our evolving common law standards. Tort law does more than allocate costs among responsible tortfeasors; it also is aimed at reducing the number of preventable accidents. Simple economics, moreover, suggest that when imposing a duty of care results in fewer accidents, there will be fewer insurance payouts, which ultimately should lead to an overall reduction in insurance premiums. In short, imposing a duty of care should have no adverse financial impact on the short-term rental market. The logic and commonsense of Hopkins lead to an imposition of a duty on brokers to warn of reasonably discoverable dangerous conditions in the homes they are leasing to short-term renters. Moreover, whether Hermes Reyes had “ample opportunity” to discover the defect, or should have known of the defect, has nothing to do with Prudential’s duty to warn. Rather, whether Hermes should have discovered the danger implicates the doctrine of comparative negligence, no duty, and therefore would be a question for the jury to determine. Justice Albin and his dissenting colleagues would impose a duty on brokers, like Prudential, to inspect and warn short-term renters of reasonable discoverable dangers on the premises.

We believe this dicta foreshadows future battles about this issue before the courts of this state.

-Dan Posternock


Is My Dream Kitchen Making Us Sick?

News stories regarding granite countertops potentially affecting radon levels in the home always generate questions from homeowners and potential buyers. Here are the facts:

What is radon and why is it a concern?

Radon is a radioactive gas that comes from the breakdown of naturally occurring uranium in soil and rock. It is invisible, odorless and tasteless, and can only be detected by specialized tests. Radon enters homes through openings that are in contact with the ground, such as cracks in the foundation, small openings around pipes, and sump pits.

Radon, like other radioactive materials, undergoes radioactive decay that forms decay products. Radon and its decay products release radioactive energy that can damage lung tissue. The more radon you are exposed to, and the longer the exposure, the greater the risk of eventually developing lung cancer. Radon is the second leading cause of lung cancer in the United States, resulting in 15,000 to 22,000 deaths per year. Radon is the leading cause of lung cancer for non-smokers.

What does that have to do with granite?

Most rocks have a small amount of radioactivity in them due to the presence of minerals containing the radioactive elements of uranium, thorium and potassium. Granite may contain more of these elements than other types of rocks.

So, should I have my kitchen countertops tested?

The New Jersey Department of Environmental Protection (DEP) recommends that all homes be tested for radon. The testing device must be placed in the lowest livable level of the home -- that is, the lowest level of the home that is used, or could be used, as a living space. This would include, for example, a first floor without a basement, and a finished or unfinished basement, but not a crawl space. Test kits should not be placed in areas exposed to direct sunlight, drafts, high heat, or high humidity; or in kitchens, bathrooms, laundry rooms or closets. It is not recommended to conduct radon tests in kitchens because moisture, heat and exhaust systems can impact the testing conditions.

If a homeowner is insistent regarding testing of the kitchen area because of granite, in addition to testing the lowest livable level of the home, they can test a room adjacent to the kitchen. The test should be conducted in accordance with the routine radon testing instructions and approved methods. The device should not be placed under a bowl or in any way be confined or covered because the radon concentration would be artificially enhanced and it would not provide the true concentration in the home.

I didn't get a radon test when I bought my house. Is it too late?

While radon testing is normally done along with the pre-purchase home inspection, it can be performed any time.

What if I get a high reading?

In view of the potentially serious public health problem, the U.S. Environmental Protection Agency (EPA) and the Department of Environmental Protection (DEP) recommend that you take action to mitigate your home if your test results indicate radon levels of 4 pCi/L of radon or more. There is no safe level of radon since lung cancer can result from low exposures to radon, however, the risk decreases as the radon concentration decreases. If your test result is less than 4 pCi/L, you may want to discuss with mitigation companies whether the radon level can be brought down still further. In about half the homes that have been mitigated in New Jersey, radon levels have been brought to less than 1 pCi/L.

Information courtesy of Ken Wehn and Victory Home Inspections, LLC
856-235-0564

***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.