Wednesday, September 18, 2013

Waiver of Subrogation Clauses

I have a client who owns several residential and commercial rental properties and I have prepared lease templates for him for his use.  These templates include a so-called "Waiver of Subrogation" clause, and the client asked me what this means.  As I was writing him a reply, it occurred to me that i might as well do a post here on this very topic.

To start, of course you have to understand what subrogation is in the insurance context.  It means that if there is an insurance claim paid out by your insurer to you for any reason, and it is then determined that another party is responsible, the insurance company would have the right to go after the negligent party for recovery of what it paid out. 

Most leases provide that both landlord and tenant must maintain insurance.  If there is a loss, then the party sustaining the loss would submit a claim for recovery under his/her policy.  If the claim is a covered claim, the insurer would pay that party under the policy regardless of who is responsible for the damage.  The subrogation waiver essentially provides that if there is a loss caused by the negligence of one party to a lease, the negligent party is will not be liable for the resulting damage to the extent that the damage is covered by applicable insurance proceeds.  It prevents either party from going after the other party, or its insurer, for recovery of a claim paid regardless of who is responsible, so long as the damage is covered by insurance. 

An example where a waiver of subrogation would come into play would be if a landlord's property was damaged.  The landlord would submit a claim and receive recovery under his/her policy if the loss is covered by the policy.  If it turns out the property was damaged by the tenant, then absent the waiver, the landlord's company would be required to pay the claim, but then it could seek to collect damages from the tenant.  With the waiver of subrogation, the landlord's insurer could not pay the claim and then try to collect reimbursement from the tenant; rather if the claim was covered, landlord would receive payment and the insurer would not be able to seek recovery from the tenant thereafter.

Generally, a waiver of subrogation clause in a lease is something that both parties would want to have, since it protects each against liability for damage they may cause which is covered by  insurance.

Friday, September 13, 2013

When Your Appraisal Comes In Low

First in a series of articles addressing mortgage lending challenges...

You find the house of your dreams.  You sign a purchase and sale agreement containing a mortgage contingency, which allows you to get out of the deal and get your deposit back if you are unable to secure a mortgage commitment by a certain date.  You apply for your mortgage with a lender who has no doubt told you "no problem" and may even already have given you a pre-approval letter.  You think the process is just a formality.  Well, beware, my friends, because in today's residential mortgage lending industry, there is no such thing as an easy process.  One of the pitfalls along the way could be the scourge of the low appraisal.  If the appraisal comes in lower than the purchase price, and you intended to borrow 80%, your loan amount will be reduced in order to maintain an 80% loan-to-value ratio, meaning you have to come up with more cash to close.  You may not have the extra cash, or you may have earmarked it for some other purpose.  Yet, your lender has issued a loan commitment letter (though for the lower amount), so the seller argues that the mortgage contingency is satisfied.  What are you to do?
This article in the New York Times talks about your options with the lender.  As a buyer's attorney, I would always try to include in the purchase and sale agreement some language requiring that the property appraise for no less than the purchase price.  I also include language stating that if the appraisal is lower than the purchase price, the seller has the option to reduce the sale price to the appraised value or some other amount mutually acceptable to the buyer, and if they are unable to come to terms, then buyer can terminate and recover the deposit.  Without this protective language, a buyer might find themselves in a squeeze. 

Tuesday, September 3, 2013

Estate Planning is Important!!

Well, it has certainly been a long time since I posted on this blog.  I have been posting on my business facebook page ( and between that and all the things that life tosses ones way, this blog became relegated to the back burner.  But now I am going to try to revive it, and hope you will find the new posts as helpful as those which were posted in the past.

Today's topic is estate planning.  I came across a survey performed by Lexis Nexis in 2011, and wish to re-post some portions of the report here, because I think the points it makes are important.

Survey Finds Most Americans Recognize the Importance of a Will or Estate Planning, Yet Few Have Necessary Documents in Place
Results Show Less Than Forty Percent of Parents with Minor Children Have Wills
July 19, 2011 — NEW YORK - A new national survey commissioned on behalf of LexisNexis®, finds the majority of Americans (60 percent) believe that all adults should have a will or estate planning documents in place, yet only 44 percent report that they currently have any such documents. In stark contrast, more than one third (36 percent) of Americans with minor children do not believe that wills or estate plans are among the most important documents to have on hand. Rather, adults with minors in the household rank birth certificates (76 percent) and titles/deeds for property and vehicles (70 percent) as the most important. In addition, although the majority of parents with minors in the household (75 percent) understand that a court will decide who the children’s legal guardian becomes if there is no will at the time of both parents’ death, only 39 percent have any estate planning documents in place.
"The 2011 Wills & Estate Planning survey shows parents may not be taking the necessary steps to ensure their wishes for the care of their children and estate are followed in the event that both parents were to pass, for example due to an accident," said David Palmieri, vice president and managing director of Marketing and Consumer Solutions at LexisNexis. "Additional research indicates that many parents consider wills to be more appropriate for those with significant wealth and as a result, they risk leaving the fate of their children in the hands of the courts instead of being directed by an enforceable legal document."
Reasons given for not making a will or estate planning a priority vary widely. According to the survey, 37 percent of Americans cite a current focus on "essentials," such as paying bills and buying groceries, as the top reason they don’t have any estate planning documents. Other reasons cited by survey respondents include:
  • Not necessary (18 percent)
  • Too complicated to deal with right now (16 percent)
  • Too expensive (14 percent)
  • Belief that their spouse and/or children will automatically receive any assets that they have (13 percent)
  • Too time consuming (6 percent)
 Other findings indicate that age and gender play a role in whether a person has a will or estate planning documents. For example, the majority of Americans report that they are most concerned about preserving their health (70 percent) and having enough money to retire (50 percent) as opposed to protecting their financial assets (43 percent), while women are more likely to be concerned about maintaining their weight (47 percent) than protecting their financial assets (44 percent).
Additionally, Americans 18-34 years old are more likely to report that they are most concerned about preserving their health (64 percent), having enough money to retire (52 percent) and maintaining their weight (51 percent) rather than protecting their financial assets (44 percent). Interestingly, one in five Americans 18-34 years old (22 percent) believe it is becoming less important to have wills because people are living longer, healthier lives.

There is no need for me to repeat any of the messages of the above article-- they speak for themselves.  Let me just say that everyone should have an estate plan, regardless of your age and stage of life.  Parents of minor children should provide for guardians and create trusts to manage assets until the children come to an age which is appropriate for them to inherit a potentially large sum.  Older folks should put their affairs in order as a true and huge gift to their surviving children upon death.  These are just two examples of classes of people who should do estate planning, but it applies to anyone and everyone with assets and opinions about where those assets should go upon death.  So delay no longer--- call me to get started on that estate plan you have been putting off for any number of years.  You will not be sorry.