This case arose from a $2,166 dispute over construction defects in a kitchen remodel. The case was transferred to arbitration by the superior court. The defendant made an offer to settle which was accepted by the plaintiff. However, believing that she was the “prevailing party” to the lawsuit by accepting the offer, the plaintiff applied to the superior court for attorney fees in addition to the settlement. The superior court and court of appeals agreed that the plaintiff was entitled to attorney fees under RCW 18.27.040(6). The Supreme Court disagreed.

In its decision, the Supreme Court reasoned that we must analyze a settlement agreement in the same manner as any other agreement. That is, one must look to the intent of the parties and focus on the objectives expressed in the agreement. True, the plaintiff was entitled to attorney fees under the statute if found to be the prevailing party at trial. But agreeing to a settlement is not prevailing at trial. And an agreement is an agreement. By accepting the terms of the agreement, the parties reached a full accord, thus precluding an after-the-fact “add-on” for attorney fees. It should be noted that by the time the case settled, the attorney fees were three-times the amount of the original claim…

This decision applies simple, common sense logic to reach its conclusion. This decision also emphasizes the kind of thinking that potential litigants and attorneys should take into account before instituting litigation in matters better suited to small claims court or mediation.

There are a couple good things coming out of the new rules – the borrower may receive assistance with relocation expenses from the lender (up to One Thousand Five Hundred Dollars) and the lender will be offered One Thousand of your dollars for each short sale completed. However, there is nothing to suggest that lenders have to consider a short sale unless the borrower agrees to take back a note for the deficiency (i.e., the difference between the amount the lender would have otherwise realized at closing and the amount short). This is a huge stumbling block as most borrowers, if they could afford to pay the deficiency, wouldn’t be asking for a short sale in the first place. To re-frame the issue, the borrower loses his or her home, then rents an apartment and on top of rent, has a residual note payment due each month to their former lender. A bitter pill, no doubt. That’s of course assuming that the short sale goes through before the foreclosure. Not that all borrowers are innocent victims. But that’s not the issue. The issue is – when are the feds going to deal with the short sale process and create definitive, non–ambiguous guidelines? No time soon I fear.

The really good news in the new program is that lenders will no longer be able to reduce real estate agent commissions. Agents have to work their tails off on these deals; they take months and months to complete, and hours and hours on the telephone for the negotiator, usually a real estate agent or lawyer. Lenders’ are resistant throughout the entire process, and then they want to all but eliminate broker commissions prior to finally approving the sale, if the sale is actually approved. Protecting commissions will incentivize agents and should generate more interest in working these kinds of deals. That alone should be some good news for underwater borrowers.

A seller of commercial real estate must provide a buyer with a disclosure statement about the land unless the buyer waives the right to receive it. The disclosure for commercial real estate concerns title, water, sewer/on-site sewage, structure, systems and fixtures and environmental. The disclosure statement must be provided within five business days, or as otherwise agreed to, after mutual acceptance of a written purchase agreement between a buyer and a seller. Within three business days of receiving the disclosure statement, the buyer has the right to approve and accept the statement or rescind the agreement for purchase. If the seller fails to provide the statement, the buyer may rescind the transaction until the transfer has closed. If the disclosure statement is delivered late, the buyer’s right to rescind expires three days after receipt of the statement.

Generally, complete due diligence on a commercial property acquisition, be it a redevelopment opportunity, development land, improved shopping center, industrial, or office property, always includes comprehensive review of title, utilities, structure, fixtures and environmental. This cost is generally absorbed by the buyer, normally a professional experienced in commercial real estate transactions, with all reports certified to the buyer. However, on smaller deals undertaken with less seasoned, unsophisticated buyers, this law will bring the importance of due diligence to the forefront of the transaction. Often this class of buyer is schmoozed into overlooking proper due diligence during the sell the sizzle not the steak, hard sell process. As an aside, that very pitch, heard by this writer first hand, was advocated by a certain President and CEO of a regional real estate brokerage with international offices, to the commercial real estate investment brokers and sales agents. His name, and that of the firm, shall go unmentioned.

Naysayers may argue that this law will increase the burden on sellers and increase transaction costs. I think it will protect a vulnerable class of buyers who are sometimes encouraged to close quickly without conducing proper investigation. The opt out language in the law, allowing the parties to shift the burden and costs from seller to buyer, negates the increased transaction cost argument. Most buyers will continue to bear the burden of due diligence.

I believe this is a good law protecting a potentially vulnerable, if not financially secure, class of real estate investors. The question becomes what level of detail in the disclosures will be minimally acceptable in litigated cases.

The law goes into effect in 90 days.

Married, filing jointly:
Not over $49,900 – 2.2% of taxable income
Over $49,900 but not over $120,650 – $1,098 plus 3.5% of the excess over $49,900
Over $120,650 – $3,574 plus 6.0% of the excess over $120,650

Head of household:
Not over $37,425 – 2.2% of taxable income
Over $37,425 but not over $90,488 – $823 plus 3.5% of the excess over $37,425
Over $90,488 – $2,681 plus 6.0% of the excess over $90,488

Individual:
Not over $24,950 – 2.2% of taxable income
Over $24,950 but not over $60,325 – $549 plus 3.5% of the excess over $24,950
Over $60,325 – $1,787 plus 6.0% of the excess over $60,325

Rate increases begin in 2012 to adjust for inflation. (Too bad incomes and sales don’t automatically adjust for inflation as well.)

Despite the constant background buzz around the alleged economic “recovery,” there are a lot of duel income families, and individuals, living pay check to pay check, very close to the edge. Many small and mid-size businesses are just getting by trying to keep the doors open. Others are trying to launch. Even with the proposed B&O tax credit these rates are going to kill a lot of struggling small businesses and and families trying to cope. Admittedly, belt tightening will only get our state so far; there are a lot of programs that need funding. Nonetheless, I don’t accept that a personal income tax is good for our state. As other commentators have pointed out, one need look no further than California. No bragging rights in that.

Where will the economy take us this year? That’s the million dollar question. The GNP grew to 5.5%. Manufactures are restocking shelves. Some sectors of the economy are showing signs of life. That’s the good news. Signs of a recovery, but does it have traction? The national debt is approaching $1.3 Trillion. Sales of existing homes are at a 40 year low. Less than 5% of the millions of loan modification requests are getting approved and completed. Banks are taking an equally hard line on short sales. The employment market, particularly where real jobs are needed, is looking as bleak as the housing market with six job seekers for every opening. Locally we have years of office and retail space inventory. Retail real estate rents are almost half of what they were in 2007. You can lease first class retail strip center space for $18.00 PSF; these are store rooms that were pro forma $30.00 PSF space a few short years ago. Secondary space is more dismal. There are some deals being made, but few are bankable leases. The books of developers with extensions on 2007 or earlier construction loans are not looking too good. And a lot of the lenders that put them into those loans are gone; and for good reason. Then there is the $800 Billion of Commercial Mortgage-Backed Securities that are scheduled into default over the next three to four years. If CMBS defaults start to spike at the same time that the next wave of Alt-A defaults are scheduled to renew their upward trajectory, which could be as early as spring, it could set our recovery back a bit. Clearly there will be a lot of opportunity for those who can carve out a niche in these trends. A lot of displaced professionals are starting new businesses and buying franchises. Many of them will prosper and add value to our economy.

Last night the Food Channel has a special show on potatoes. Apparently world-wide consumption of potatoes is at an all time high. At the same time, the Travel Channel had a special on super yachts. Same thing, orders for new super yachts is at an all time high. I don’t watch a lot of TV, but I did find that programming juxtaposition interesting.

It will be in interesting year to say the least.

WASHINGTON, DC — Fannie Mae (FNM/NYSE) is implementing the Deed for Lease™ Program under which qualifying homeowners facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender.

Leases under the new program may be up to 12 months, with the possibility of term renewal or month-to-month extensions after that period. A Deed for Lease property that is subsequently sold includes an assignment of the lease to the buyer.

The program will attract only a small percentage of qualified troubled homeowners. Considering number of qualifying home owners compared to the number of upside down loans, pre- and current-foreclosures, and future rate readjusts, not sure it’s going to make a big dent in the problem. The argument for the plan being, hold off on a foreclosure sale until the market recovers then sell for a higher price point. Critics believe this action only postpones the pain at tax payer expense. Another sign the recession is not over for everybody.

The Mastro “friends and family” investor debacle grinds on. Does anyone have a clue how many other friends and family of other developers are in line for the big burn on limited liability company investments here in Washington State, regionally or nationally? Between your mom and pop developers, syndicators, 1031 exchange partnership members, and REITs, all of whom have heavily leveraged the savings of their investors, there is still a lot of blood being spilt with no tourniquet in sight. Some investors were well disclosed; most not creating a real liability issue for the sponsors. As a side question, why isn’t security law compliance part of the due diligence on a commercial loan application when it should be obvious based on a surface examination of the entity closing the loan that investor funds are at risk? I think a close examination would show that security law violations have been flagrant and widespread in the past decade locally and nationally. Which gets us back to the problem of today’s defaulted commercial loans – as long as the rising tide is lifting boats, no need to ask hard questions or disclose uncomfortable realities. A couple years ago everyone’s financial statements in these deals looked like rock stars. Now you have projects and partnerships in default and foreclosure with no end in sight. Lost are deferred salaries, retirement plans, college education funds, and saving. Despite the continuing reports that the economy is recovering, I think we have a very long, long way to go before all the trouble commercial assets shake out of the system. And the analysis didn’t take an economics degree to figure out in the first place. Assigning unrealistic cap rates to nonexistent income on marginalized deals based on beating the next guy to market never made much sense to me. I guess no one wants to be accused of being a deal killer or having a bad attitude. So scratch that. That’s all for now.

This case involved the proposed sale of redevelopment property in downtown Vancouver, Washington. The property was one of several acquired by a speculator and promoter of a revitalized downtown Vancouver. As part of the sale Mr. Morrison wanted an option to purchase a condominium in the redeveloped property if there was a residential component.

The buyer and seller executed a purchase agreement. The buyers completed their due diligence and ordered the closing agent to prepare closing documents. Upon examination, Mr. Morrison felt that the language granting his right to purchase a condominium was unacceptable. He refused to close. The buyer’s sued and the trial court ordered specific performance. Mr. Morrison appealed the trial court’s decision.

The Court of Appeals examined the essential terms of a real estate contract, stating that they generally include the “subject matter of the agreement, the consideration and terms of payment.” Hubbell v. Ward, 40 Wn.2d 779, 787, 246 P.2d 468 (1952). When a contract contains all of the material and essential terms of a future contract such that a court can ascertain what the parties must do to constitute performance, then the court may order specific performance. Hubbell, 40 Wn.2d 787.

The Hubbell court separately enumerated 13 specific material factors in a real estate contract (involving structures, not just land): (a) time and manner for transferring title; (b) procedure for declaring forfeiture; (c) allocation of risk with respect to damage or destruction; (d) insurance provisions; (e) responsibility for: (i) taxes, (ii) repairs, and (iii) water and utilities; (f) restrictions, if any, on: (i) capital improvements, (ii) liens, (iii) removal or replacement of personal property, and (iv) types of use; (g) time and place for monthly payments; and (h) indemnification provisions. Hubbell, 40 Wn.2d at 782-83; Kruse v. Hemp, 121 Wn.2d 715, 722, 853 P.2d 1373 (1993).

The court found that the purchase and sale agreement proposed by Morrison contained all of the material elements. However, the court found that a memorandum attached the PSA expressing Morrison’s desire to purchase a condominium to be “ ‘an agreement to do something which requires a further meeting of the minds of the parties and without which it would not be complete.’ “ Keystone Land & Dev. Co. v. Xerox Corp., 152 Wn.2d 171, 175, 94 P.3d 945 (2004) (quoting Sandeman v. Sayres, 50 Wn.2d 539, 541-42, 314 P.2d 428 (1957)). Agreements to agree are unenforceable in Washington. Keystone, 152 Wn.2d at 175.

In looking at the purchase agreement with memorandum as an organic whole, the Court of Appeals decided that because one part of the agreement – the condominium carve-out – was not specific enough to determine what the parties intended, the whole contact failed.

Quite often we see terms added to a standard purchase agreement using NWMLS Form 34 Addendum/Amendment to Purchase and Sale Agreement. This case is a reminder that hastily drafting resulting in ambiguous terms can lead to an unenforceable agreement if one of the parties later decides to back out of the deal. In this case as late as after all conditions have been met and the parties are at the closing table.

Newsweek issued a warning about the impact the commercial real estate bubble will have on the greater economy. (Not that it’s news at this point.) The nation’s offices, hotels, and malls now carry $3.5 trillion in debt. Falling rent and rising defaults could inflict more damage on the greater economy (and result in further cap rate creep) in the coming year. According to sources, Seattle-Bellevue has over eleven years of Class A office inventory based on historic absorption rates. The spread between bid and offer on commercial sales continues to stall activity. Those sales that are closing are for the most part at barn burner prices. There is activity in commercial leasing and sales with some deals closing, however, it’s a tough market with no immediate end in sight. It’s a great time to be a cash buyer.

Housing is showing some signs of life with prices stabilizing in parts of the Seattle market. The Obama first time buyer tax credit is helping. Demand for residential properties priced over $1.5MM, however, is all but dead. Influencers include a general lack of interest in McMansions and lack of creative financing for upper end buyers. The high end outlying market has been way overvalued for a long time now. Financing will loosen up eventually, but the days of no down and easy credit and terms for high end buyers won’t be back soon.

Home inspectors in Washington State must now be licensed. RCW 18.280.020 provides that a person shall not engage in or conduct, or advertise or hold himself or herself out as engaging in or conducting, the business of or acting in the capacity of a home inspector without first obtaining a license as provided in this chapter. Any person performing the duties of a home inspector on June 12, 2008, has until July 1, 2010, to meet the licensing requirements. However, if a person performing the duties of a home inspector on June 12, 2008, has proof that he or she has worked as a home inspector for at least two years and has conducted at least one hundred home inspections, he or she may apply to the board before September 1, 2009, for licensure without meeting the instruction and training requirements of RCW 18.280. In order to become licensed as a home inspector, an applicant must furnish proof of a minimum of one hundred twenty hours of classroom instruction and up to forty hours of field training supervised by a licensed home inspector and pass a written exam. The license must be renewed every two years. A good law and one that was long overdue. Even with licensing in place, however, buyers still need to check the fine print on the contract, particularly the waiver and limitation of warranties.