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Pawling Public Radio: This Side of the Law:The Simple Truth, Dangers of Guaranteeing a Loan in the State of New York

This Side of the Law:The Simple Truth, Dangers of Guaranteeing a Loan in the State of New York

Pawling Public Radio: This Side of the Law: Berlandi Nussbaum & Reitzas LLP Hudson Valley | New York | Attorneys

By: Joshua T. Reitzas
Partner – Berlandi Nussbaum & Retizas LLP
April 28, 2013
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Thinking about signing a personal guarantee? Perhaps on behalf of a corporation because the company cannot afford to stand on its own without your assistance?  Or on behalf of a family member whose credit is terrible?  Or even a friend? Well, definitely think again.

Last week, I had the unique privilege of actually arguing in Court the exact opposite sides of the same underlying issue: whether a guarantor has the right to assert a defense on a personal guarantee.  Two different clients, argued in two different types of courts (New York’s version of a “Business Court” and its regular Court), two different types of judges (different demeanor), and a couple of days apart.  In the end, there was only one decision rendered.  New York holds a guarantor strictly liable and defenses, almost always, will likely not be entertained.

What people really need to better understand is that signing personal guarantees may affect them both when the loan is considered in default, as well as when things are status quo (i.e. payments are being made timely).  In a default situation, it is more likely than not that a Lender will file suit.  Further, if the Guarantor sets forth a defense (i.e. answers the complaint), a summary judgment motion will presumably then be filed or at least one should be filed in my opinion (assuming the case was properly made out prior to suit).  This basically means that the Lender will ask the Court for a judgment immediately without having the expense of a trial.  All that would be needed is for the Lender to prove its prima facie case evidencing (a) that the loan was made, (b) that the unconditional and irrevocable Guarantee exists, and (c) the Borrower under the loan has defaulted (i.e. nobody paid the bill).

Assuming the Lender makes this showing, the burden would then shift to the party opposing the motion to produce evidentiary proof sufficient to establish the existence of material issues of fact remaining for trial. In sum, all a Lender needs to do is show the Court the underlying note (i.e. the actual loan document), the actual copy of the Guarantee (i.e. the physical document) and proof that the underlying loan was not paid back (i.e. account statements from the Lender’s financial records and supported by a proper affidavit).  This is a very tough obstacle for any Guarantor to overcome.  In fact, New York is so harsh that even if a Guarantor could assert a defense, it may be completely disregarded.

Now, keep in mind that Guarantees will often times include language in the document expressly mandating that Guarantors waive the right to any possible defense(s), offset(s), or counterclaim(s).  As mentioned earlier, even in the absence of specific waiver language, New York has held Guarantors liable.  So if you are thinking about signing that Guarantee, we suggest that you first analyze the gravity of the situation upon signing a Guaranty – do you really know what you are getting in for?

In one of our cases, the Guarantor purchased a $17,000,000 home and placed ownership into a corporate entity and then executed a Guarantee with respect to the mortgage.  We advised the Lender to pursue a money judgment and not to do a residential foreclose (so as to avoid any possible right to a modification of the loan that may exist otherwise). This is absolutely within the right of a Lender to select the type of remedy in New York.

Finally, Guarantors should be somewhat reticent about executing Guarantees, as the underlying obligation must be accounted for on all bank applications and/or personal financial statements.  Recently, we discovered that a client’s business credit line (which the client personally guaranteed) was not included on a recent bank loan application.  Thank goodness we caught it.  If we did not, the bank may have brought some serious allegations against our client for possible misrepresentation on the loan application.

We recommend that if you are thinking about signing a Guarantee, you first consult with an attorney to know exactly what you are getting in for.  And if you elect not to do so, we suggest reading this article again and again to make sure you completely understand what you may be faced with in the future.

Always feel free to call or write if you have any questions.

Berlandi Nussbaum & Retizas LLP

New York | Hudson Valley

Attorneys

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Berlandi Nussbaum & Reitzas LLP

Hudson Valley | New York | Attorneys

Pawling Public Radio:This Side of the Law: What is Your Home “Worth”?

This Side of the Law: What is Your Home “Worth”?

 Pawling Public Radio: BNR LLP – Law Firm NYC | Hudson Valley

By: Brian L. Berlandi
Partner – Berlandi Nussbaum & Retizas LLP

April 8, 2013

We all know the saying….”Your home is only worth what a buyer will pay for it.” That is ever-so-true in today’s market, where buyers appear to have more leverage than sellers. Those of us who bought homes 5-6 years ago, before the real estate bubble popped, now find ourselves struggling just to sell the same home at a 20-30% discount off our original purchase price. Buyers are being picky and negotiating hard for the prices they want to pay, and banks are employing far more stringent criteria on lending, making it harder and harder for buyers to even get loans.

Even when a buyer is otherwise qualified for a loan (i.e. has a good credit score, stable income, etc.), we are still seeing banks not approve the loan because the home to be purchased does not appraise high enough to meet the necessary loan-to-value ratio. Take a simple example that we see often at BNR:

  • Mr. and Mrs. Sellers want to sell their home in Dutchess County, which they purchased in 2005 for $400,000. They put it on the market with a real estate broker, listing it at $400,000.
  • 18 months go by with no offers, and the Sellers reduce the price 2 or 3 times such that it’s currently listed at $340,000.
  • Finally, Mr. and Mrs. Buyers come along.
  • The Buyers love the home and very much want to buy it, but not for any price near $340,000.
  • The Sellers are very eager to sell (because they already have their eye on a new condo in South Carolina), and after a lengthy negotiation, the parties agree on a $250,000 sales price and sign a Contract for Sale.
  • The Buyers then work with a mortgage broker who submits their loan application to XYZ Bank based out of Plano, Texas.
  • XYZ Bank agrees to make a loan the Buyers on an 80% loan-to-value ratio (or 80% LTV), meaning that, assuming the value of the house is $250,000, XYZ Bank will loan the Buyers 80% of the value (i.e. $200,000). The remaining 20% (i.e. $50,000) will have to be paid by the Buyers out-of-pocket.
  • As part of underwriting the loan, XYZ Bank then sends Mr. Real Estate Appraiser from Long Island to the property to appraise the value of the home and to ensure that it does, in fact, have a value of $250,000.
  • Mr. Appraiser has never heard of Dutchess County before, never mind been here. He has no knowledge of the local market, nor of the appropriate and relevant comparable sales in the neighborhood against which to compare the Sellers home.
  • Nonetheless, he plugs Dutchess County into his GPS, finds the home, does his walk-around, gets back in his car, and heads back to Long Island.
  • The next day, he provides a report to XYZ Bank that states, based on his opinion, the Sellers home has a value of only $235,000.
  • The Buyers then call the Sellers and tell them they have to lower the price (again) because the house is not “worth” $250,000, it’s only “worth” $235,000.
  • The Sellers have a fit and say “no way”.
  • The deal dies, and the Sellers are faced with the decision of either putting the home back on the market, or giving up and just staying put in the home (i.e. South Carolina will have to wait…..)

This scenario has become oh-so-typical. In the end, both parties are disappointed. The Sellers haven’t sold the home they want/need to sell, and the Buyers have not purchased the home they fell in love with.

In the end, it all came down to what the house was “worth.”

So what could have been done differently to create a better outcome? Here are a few tips to consider…

  1. If you are the Sellers, consider hiring a good, local real estate broker who really knows your market well and will price your home appropriately. While you may certainly suffer from the disappointment of selling your home for less than what you purchased it for, a good real estate broker will keep your expectations in line.
  2. If you are the Buyers, consider working with a local bank (and we have many in Dutchess County) who knows the market well and knows what homes in this area are “worth”. If you elect to use a large, national banking institution, at least consider using one that regularly makes loans to home buyers in this market (and there are a few of them out there too). Choosing XYZ Bank in Plano, Texas can be a recipe for disaster.
  3. Lastly, whether you are the Sellers or the Buyers, insist that the Buyers bank utilize an appraiser who knows the market well, who has done many appraisals in your local area, and who can competently assess what your home is “worth” by examining the appropriate and relevant comparable sales in the neighborhood.

Berlandi Nussbaum & Reitzas LLP | Hudson Valley | New York | Attorneys

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Pawling Public Radio: Three Ways to Avoid Liability for Alcohol Served at Association-Sponsored Social Activities

Pawling Public Radio

This Side of the Law: Three Ways to Avoid Liability for Alcohol Served at Association-Sponsored Social Activities

Pawling Public Radio: BNR – Law Firm NYC | Hudson Valley

By Jay Nussbaum
Partner Berlandi Nussbaum & Reitzas LLP
January 17, 2013

Organizing social activities like pool parties, cookouts, and holiday parties is a big part of managing a community association. They bring members together and foster a sense of commu­nity. But association-sponsored social activities can be risky, too, if you serve alcohol.

If a member, employee, or guest drinks too much and gets into an accident, the victims—including the person who caused the accident—may sue the associa­tion and/or manager. And in many states, they’ll have a good chance of winning. The easiest way to avoid liability for alcohol- relat­ed accidents is to not serve alcohol at social events you sponsor. Many community associations are now doing this, making all social gatherings “dry”—that is, alcohol free.

But if you do decide to serve alcohol at association-sponsored social events, you can take steps to minimize your exposure to liability. Here are three things you can do:

Pawling Public Radio: Three Ways to Avoid Liability for Alcohol Served at Association-Sponsored Social Activities

  • Have the right kind of insurance coverage. Your general liability policy may already have a clause giving you “limited liquor liability” or “host liquor lia­bility” coverage. These clauses protect you against lia­bility for accidents caused by people who have consumed liquor you served. If you don’t have this coverage, and you plan to serve alcohol at association-sponsored social events, you should get it.PRACTICAL. POINTER: If you have only one activity a year at which you serve alcohol—say, at a holiday party—consider saving money by getting limited liquor liability coverage just for the single event, rather than having it added on to your policy for year-round coverage.
  • Don’t charge fee for admission or alcohol. Just having the right kind of insurance coverage isn’t good enough. If you charge money for the drinks you serve, the limited liquor liability clause won’t help you much. It won’t cover you for injuries for which the association might be held liable as a result of its:
    • Causing or contributing to the intoxication of any person;
    • Furnishing alcohol to an underage person;
    • Furnishing alcohol to an already intoxicated per­son; or
    • Violating any law in the provision of alcohol.

A limited liquor liability clause isn’t intended to cover those in the business of selling, serving, or provid­ing alcohol.  So if you want to serve alcohol at a social function, don’t charge for it. That way, you won’t be con­sidered to be in the business of selling, serving, or pro­viding alcohol, and your limited liquor liability clause should cover you in case there’s an accident.Don’t charge an entry fee, either. Some insurance companies might say that even though you’re not charging money for the alcohol itself, charging for entry into an event at which alcohol is served is the same as being in the business of selling, serving, or pro­viding alcohol. If that’s what they con­clude, they won’t cover you for any accidents that happen. So err on the side of caution and don’t charge an entry fee.

  • Hire professionals to serve the alcohol. An alternative is to “subcontract” the provision of alcohol to a professional, licensed organization that uses trained bartenders. Having a professional bartender can help protect you because bartenders are trained to spot minors and to know when to stop serv­ing guests who are intoxicated—tasks your employees won’t be able to do as well.The other big advantage of subcontracting out the provision of alcohol is that professional companies carry liquor liability insurance to shield them—and you—from liability. Insist that the company you hire name you on its insurance policy as an “additional insured” for the association-sponsored social event. Getting an outside firm to serve the liquor is the way to go, as long as it’s insured and the association is named on the policy as an additional insured. 

Pawling Public Radio: BNR – Law Firm NYC | Hudson Valley

Pawling Public Radio: Three Ways to Avoid Liability for Alcohol Served at Association-Sponsored Social Activities

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Pawling Public Radio: This Side of the Law

This Side of the Law (Listen to the Radio Broadcast)

October 24, 2012

By

Brian Berlandi

Partner – Berlandi Nussbaum & Retizas LLP

Pawling Public Radio: BNR LLP – Law Firm NYC | Hudson Valley

People have long and often said that the best thing about a small town is that “it’s a small town.” I have always found that to be the case with Pawling, where friends and acquaintances can be found on every street corner, at all times of the day, and where people truly care about their neighbors’ well-being. These are the biggest reasons why I was intent upon BNR maintaining an office in Pawling when we formed the firm in the summer of 2011.

BNR is a general practice law firm, which offers our clients a wide variety of legal services, including entertainment law, commercial litigation, congressional investigations, commercial and residential real estate, corporate law, election law, mergers and acquisitions, employment law, intellectual property, tax, and criminal defense (federal and state). As devoted as BNR is to providing high-quality legal services, we are equally committed to improving the way in which clients pay for legal services.  Therefore, we offer a variety of creative fee alternatives to better align our interests with those of our clients. I invite you to visit our website to learn more about our practice and our attorneys. www.bnrllp.com

Although headquartered in mid-town Manhattan, BNR maintains an office in Pawling at 527 Route 22 – across the lobby from Rose & Kiernan Insurance Agency, and in the northern section of the same building in which the Pawling Central School District offices are located.

Moving forward, BNR is delighted to be working with Pawling Public Radio to provide a monthly legal column about new and interesting legal issues on a variety of topics. We hope you will find them compelling. Of course, we welcome any suggestions or requests for topics that are important or relevant to you!

Please don’t hesitate to stop into our office any time to visit, or to have a cup of coffee, or to just say hello, or to discuss any legal needs you may have. We love seeing our friends, and we can never have enough of them! We have already had the pleasure and privilege of working with so many of you, and we would be delighted for the opportunity to help even more of you.

Pawling Public Radio: This Side of the Law |BNR Berlandi Nussbaum & Reitzas LLP Attorneys of New York, Hudson Valley& New Jersey