Beware! You may be bound by an Unsigned Purchase and Sale Agreement

A recent decision in Massachusetts Superior Court has held that a series of emails between and buyer and seller containing all of the material terms of an offer to purchase, and indicating acceptance of those terms, was sufficient to create a binding contract between the parties, even though the actual purchase and sale agreement was not executed by the parties.  In reaching this finding, the court applied principles of the Uniform Electronic Transaction Act to the ancient statute of frauds law (which requires a contract for the transfer of real estate to be in writing), and concluded that the conduct of the parties in using email to negotiate the terms of the transaction constituted an agreement to conduct the transaction by electronic means.  Since the exchange of emails contained all of the material terms of the deal and the parties expressed an intention to be bound, the Court found that an enforceable contract existed despite the lack of an actual executed purchase and sale agreement.

This case follows a series of prior decisions in which Offers to Purchase have been held binding in cases where the terms are sufficiently complete and definite and the parties intended to be bound at the time.  Many parties erroneously believe that an Offer to Purchase, and now written email negotiations, are just a formality, or an expression of intent, and that a binding contract is created only upon the execution of a final written purchase and sale agreement.  This recent case adds yet another twist to the proposition that the parties may be bound even in the absence of a signed P&S if their email negotiations are comprehensive enough. 

So buyers and sellers beware:  if your Offer, and now your email negotiations, contain all of the material terms and evidence an intention to be bound, you may indeed be bound to such agreement even if you never reach the point of executing a purchase and sale agreement. The law appears to be catching up to the 21^st  century, and some very ancient principles are now being interpreted in the context of modern technology.

Asset Protection and MassHealth Qualification

My older generation of estate planning clients often ask how to protect assets from being spent down on long term care in the event the client becomes ill and needs to enter a nursing home.  Many clients want to protect the assets they have worked so hard to generate over their lifetimes and do not want to end up spending all assets on care for the last chapter of their lives.  This question triggers a discussion of “Medicaid Planning”, which is a way to protect assets so as to qualify the client for governmental benefits in the event he or she must enter a nursing home.  The governmental benefit in question, formerly known as Medicaid, is now called “MassHealth”.

As the population ages and the government’s burden increases, it has become increasingly more difficult to qualify for MassHealth, and the regulations are being modified regularly to limit eligibility. MassHealth qualification mandates that an applicant have not more than $2,000 in “countable assets”, and limits income as well.  Clients who have in excess of $2,000 in assets will often ask about “giving away” their assets (usually by transferring them to their children) in order to qualify.  Unfortunately, the days of simply taking everything out of mom’s name are gone.

When applying for benefits, you must disclose all assets including any transferred away within the preceding five years.  Certain assets are considered “non-countable”, but MassHealth will “look back” at all asset transfers during the five years prior to the date of application, and if the applicant has transferred any countable assets for less than fair market value during this five year period, he or she will become ineligible for MassHealth benefits for a period of time which is related to the value of the assets transferred.  Important to note is that the disqualification period runs not from the date of transfer, but rather from the date when the individual enters a nursing home and is “otherwise eligible” for MassHealth coverage. In other words, the penalty period does not even begin until the individual applies for benefits. 

Some feel that planning for MassHealth best requires planning ahead by transferring assets at least five years in advance of the time when a nursing home is likely to be needed.  Of course, it is impossible to predict the future, so even the best planning may be thwarted by an unexpected illness.  MassHealth planning necessarily requires that the individual give up all elements of ownership and control over otherwise countable assets, which is something that many clients are not comfortable doing, especially while still relatively young and healthy.  The client must weigh the relative benefits of planning for MassHealth qualification against the risks of giving up all control and ownership of assets at a time that may be premature.  Fortunately, there are steps an individual may take even at the last moment to protect at least some assets from being accessed to pay for nursing home care. 

Because of the difficulties described above, LONG TERM CARE INSURANCE has become a very popular and well-advised product.  A long term care policy may provide necessary funds to cover not only nursing home expenses, but many other in-home and community-based medical services as well.  (MassHealth benefits will only pay for residential, institutional care.) The different options for long term care insurance are beyond the scope of this article, but if you are age 50 or older and concerned about paying for medical care as you age, investigating and procuring long term care insurance may be a worthwhile endeavor.

Massachusetts Uniform Probate Code

Uniform Probate Code delayed to March 31

Almost three years ago, the Massachusetts legislature voted to adopt and implement the new Massachusetts Uniform Probate Code, which substantially changes the probate process in Massachusetts as well as matters relating to guardians, conservatorships and other matters under the jurisdiction of the Probate Court.  The new law was to go into effect on January 2, 2012; however it has recently been announced that the House voted to delay implementation of the new Massachusetts Uniform Probate Code until March 31, 2012.  The Senate is expected to vote similarly this week.

This does not come as a surprise to me, since as of last week one Probate Court clerk indicated that there are no forms or procedures yet in place to support the new procedures mandated by this law.  This is not the first postponement of the Code's implementation.  Time will tell whether the March 31 deadline will be met, or whether a further postponement will occur.  So for now, probate in Massachusetts remains as it has for a century or more.

Some Further Thoughts About Owner's Title Insurance

Back in 2008, I posted an article about whether or not one should purchase owners title insurance when purchasing real estate.  In that article, I set out the many reasons why attorneys feel that owner’s title insurance is absolutely recommended and explained what benefits an owner’s policy will provide.  Over the years, I have consistently advocated that my clients obtain the owner’s policy, and indeed I have always bought owners’ title insurance myself when buying a new property.   I am confident that just about all of the real estate practitioners I know will also advise all clients to purchase owner’s title insurance.

Recently, however, I had a client express some reservations about purchasing the owner’s policy, because, as the settlement statement discloses, the closing attorney, as agent for the title insurance company, retains a portion of the premium as a commission for issuing the policy.  This client felt that it was a conflict of interest for an attorney to recommend that a client buy owner’s title insurance when the attorney will receive compensation from the title company if the client does so.  I completely understand this client’s unease, and indeed feel slightly uneasy about it myself.  Nevertheless, there are several compelling arguments which counteract such perceived conflict, and those reasons bear repeating here:

1.       The attorney takes on additional liability by issuing the title insurance policies.  The attorney is responsible for the title examination, and if an error is made which results in a claim under the policy, it is possible that the title insurance company may have recourse against the attorney after settling a claim with the insured.  The retained portion of the premium is compensation to the attorney for assuming that additional liability.

2.       This is common practice in the insurance industry generally.  Whether you are procuring life, auto, accident, disability or any other form of insurance, it is the norm that the agent is compensated by a commission for the issuance of a policy.  Title insurance is no different.

3.       For all of the reasons stated in my earlier article, it is generally agreed that an owner’s policy is a must.  For most people, real estate is the biggest purchase they will ever make, and it is folly not to avail oneself of the protections an owner’s policy provides. While some may disagree, the majority of those who are experts in the real estate field will strongly encourage any buyer to spend the proportionately small additional, one-time premium and obtain an owner’s policy for maximum protection.

4.       For better or worse, this is how real estate practice works in Massachusetts.  No matter which attorney you retain to represent you in a real estate transaction, that attorney will no doubt also act as a title insurance agent, will issue whatever policies are applicable, and will thus earn a portion of the premium for such work.  Any attorney with integrity will make recommendations based on the clients’ best interest, and not on their own self-interest.   I certainly hope and believe that clients who retain me have complete trust and confidence in my skills and in my integrity, and know that I would never recommend any action simply because I stand to make more money rather than because it is in the best interest of the client.

          So yes, this can be a thorny issue for some, and it is every buyer’s prerogative to decline to purchase the owner’s policy.  In my view, however, it would be poor decision not to buy an owner’s policy simply because of concerns about a perceived conflict of interest.  Trust your lawyer to give you the best advice available, even if it coincidentally means additional compensation to that lawyer.  In my case, I can assure my clients with confidence that I will never put my own self-interest ahead of yours.  That said, I will continue to recommend owner’s title insurance to each and every client I represent, not because I receive compensation, but because it is the smart thing to do.

Off the Radar

As we can all see from the date of my last post, it's clear this blog has fallen off the radar, or at least relegated to the back burner, over the last several months.    Many other more pressing matters interfered, but as I approach the New Year, one of my resolutions is to get back to a regular schedule of blogging in order to keep my loyal readers up to date with information and news on topic of interest.  I have several ideas brewing... separate posts will follow, and apologies for my inattention to this.

Tips for Home Buyers

The Boston Globe Magazine has a terrific article in today's issue on the topic of "building your brain trust" in preparation for purchasing a home or condo.  It touches on all of the main points-- a good realtor, a good mortgage lender, a good home inspector and of course a good attorney are all crucial components to getting through the process with the proper protections and achieving the best outcome.   I can provide excellent recommendations for brokers, inspectors and lenders, and of course I want to be your attorney!  Don't miss this informative article:  http://www.boston.com/realestate/news/articles/2011/05/22/building_a_home_buyers_brain_trust/.

Do I need life insurance?

In the course of working with estate planning clients, I am often asked for my opinion about whether they should have life insurance, and if so how much.  Generally, if you are not responsible for financially supporting anyone else, and you have sufficient assets to cover your liabilities, there is usually no need to purchase a policy.  If, however, a spouse, children or anyone else relies on you for income or financial support, you should definitely have life insurance coverage in place.  Upon your death, the proceeds of the policy will pass to your named beneficiaries to provide them with liquidity and a source of funds.  It is often recommended that you maintain coverage in an amount at least large enough to pay off your mortgage.  If you have young children, you may want it to cover higher education costs as well.   Term insurance will be much less expensive than whole life, which includes an investment component, and the premiums for a term policy will generally be small money in relation to the amount of coverage and thus peace of mind the policy can offer. 

One important point to all the stay-at-home parents out there:  don’t think that just because you have no income, you don’t need life insurance.  If the stay-at-home parent were to die, the survivor would spend a shocking amount of money in child and household care to replace the services that the deceased parent was providing for “free”.  A life insurance policy on the life of the stay-at-home parent will provide an important source of funds to cover those costs.