New Foreclosure Bill Signed into Law by Strickland

On June 11, 2008, House Bill 138 was signed by Governor Strickland. The legislation becomes effective 90 days after the Governor's office files the approved law with the Ohio Secretary of State, which usually occurs 2 days after the signing date. The new forclosure bill establishes several measures to address the foreclosure crisis in Ohio, makes it easier to determine a property owner after a foreclosure, and requires sheriffs to file deeds with the county recorder within 14 days of a foreclosure sale.

Analyses of the bill prepared for the Ohio House and Senate can be accessed at the links provided below:

• House Analysis


• Senate Analysis

Special credit is owed to Harold L. Hom, Esq. who prepares a summary of new Federal and Ohio laws for the Lorain County Bar Association's Legal Times from which this information was obtained.

New Eviction Notification Program Established in Cuyahoga County

Beginning in August, a new eviction notification program will notify tenants residing within Cuyahoga County, Ohio that their rental property is undergoing foreclosure proceedings. The program, established through the efforts of the Department of Development of Cuyahoga County, Ohio, the Cleveland/Cuyahoga County Office of Homeless Services, Cleveland Tenants Organization, Cleveland Mediation Center, Case Western Reserve University, United Way of Greater Cleveland and Policy Matters Ohio, will match foreclosure filings with residential rental properties located within Cuyahoga County. Cleveland Tenants Organization will then send letters notifying the tenants of these properties of the foreclosure proceedings. Tenants facing eviction will also be offered local resources for assistance in finding new housing. The program may offer assistance to landlords facing foreclosure in an effort to prevent the eviction and displacement of tenants. The program is also seeking funding to provide financial aid to tenants facing eviction.

For additional information, see Brian Albrecht’s article on Cleveland.com. For further information regarding the program, see Cleveland Tenants Organization website or contact the organization at (216) 432-0614.

Mortgage Crisis Help Is On The Way

The New York Times reported today that the U.S. House of Representatives approved legislation created to help alleviate our Country’s housing crisis.

Key provisions of the legislation:

1) Authorize the FHA (Federal Housing Administration) to insure up to $300 billion in refinanced loans for lenders who agree to reduce the principal balance of their individual borrower's loans to approximately 85 percent of the home’s current value. This measure could help as many as 400,000 homeowners at risk of losing their homes to foreclosure due to adjustable-rate mortgages they can no longer afford.

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2) Provide for a future bail out (if needed) of Freddie Mac and Fannie Mae (who together guarantee about 80 percent of new mortgages) by raising the national debt limit by $800 billion in the event our government needs to rescue these hemorrhaging companies.

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3) Provide approximately $15 billion in housing-related tax incentives, including a $7,500 tax credit for first-time home buyers who meet certain income qualifications.

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4)Authorize state and local housing agencies to issue $11 billion in tax-exempt bonds to refinance bad mortgages.

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5) Call for more stringent oversight of mortgage brokers.

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6) Set new disclosure requirements.

The President has indicated support of the bill and the Senate is expected to approve the legislation as early as this Saturday.

Click here for the full story online.

Landlord not (Legally) Responsible for “Verbally Hostile Housing Environment" (caused by its tenant) in Ohio

If a landlord fails to provide heat in the winter, fails to supply running water, fails to abide by building codes, or fails to make repairs such that a leased residential property is not in habitable condition, that landlord has violated the Ohio Landlord-Tenant Law (Ohio Revised Code Chapter 5321).

What if the Landlord, however, literally fails to provide “Quiet Enjoyment” to one Tenant, as a result of the acts of another tenant?

Recently, the Ohio Supreme Court ruled (in Ohio Civil Rights Commission. v. Akron Metro Housing Authority [OCRM v. AMHA], 2008 Ohio LEXIS 1770) that a landlord does not have to serve as a referee and separate two feuding tenants, even if one neighbor has accused the other of spewing racial insults. The ‘Quiet Enjoyment’ covenant a landlord gives to a tenant typically protects the tenant from interference from its possessory rights, not a guarantee of respectful behavior from other tenants.

The OCRM v. AMHA case centered on two families who lived in the same public housing apartment building, just two doors apart. Both tenants began feuding in August 2001, when the Kaisks (the family that was the subject of the abuse) moved in. Both sides admitted taking part in shouting matches. Both reported problems to the landlord and to police. The Kaisks eventually asked to move to another housing complex, which the Landlord granted, but the lawsuit covered the time period when the Kaisks were subject to the verbal abuse.

The Plaintiff in OCRM v. AMHA argued that the same civil rights protections that guard against hostile work environments should apply in residential landlord-tenant situations, especially since the lease agreement allowed the Landlord to evict a tenant who disturbs another's "peaceful enjoyment."

The Landlord argued that a landlord-tenant relationship is not the same as that of an employer and employee since a landlord is not responsible for its tenant’s tortuous actions, while an employer is liable for the acts of its employees (if the acts are within the “scope of employment”). Furthermore, the Landlord argued that landlords can't violate free speech and other rights of tenants by evicting them on account of the language they use, even if the lease purports to give them that authority.

The Ohio Supreme Court, in a unanimous decision (that overruled the previous Ninth District Court of Appeals) agreed with the Landlord, reasoning that the amount of control that a landlord exercises over its tenant is not comparable to that which an employer exercises over its employee. Because a landlord has less control of its tenant than an employer has of its employee, the Court held that a landlord is not responsible to third persons for such wrongdoings of its tenant.

The OCRM v. AMHA case falls in line with longstanding Ohio law providing, with limited exceptions (e.g. lease language/contract obligations; and limited duty re: common areas), that a landlord has no duty to provide its tenants protection against criminal acts, even if the alleged perpetrator is another tenant. Landlords are limited in the actions they may take against tenants allegedly engaged in illegal (as well as tortuous) activities. The Ohio Supreme Court in State Ex Rel. Pizza v. Rezcallah, 1998 Ohio LEXIS 3258, explained that landlords have no duty or authority to conduct, for example, regular drug searches or self help eviction based on suspicion that a tenant is conducting illegal activities.

So, if you are a landlord (or you represent one), do these cases mean sit back, relax and do nothing when tenants are misbehaving, especially when you suspect criminal activity?

The simple answer is: no.
First of all, your Lease may have contractually bound the landlord to take certain security measures and the failure to initiate same would trigger a default on the part of the landlord.

Second, nuisance law (both common law and statute based) is still alive and well in Ohio. While the Ohio Supreme Court in Rezcallah held that the State could not padlock a Landlord’s premises as a result of its tenant creating a public nuisance (in the form of illegal drug activity), and that the Landlord should not have to assume the role of the police, the landlord could indeed be guilty of maintaining a nuisance stemming from its tenant’s illegal drug activity.

Pursuant to Ohio Revised Code Section 3767.02-.03, whenever a nuisance is thought to exist, an action may be brought against the Owner, under Ohio’s “statutory nuisance law”, whether or not the Owner participated or acquiesced in the activity causing the nuisance. Ohio Revised Code Section 3719.10 “completes the picture” by providing that felony violations of Ohio’s criminal drug offenses on real estate constitute a nuisance subject to abatement (regardless of who is causing the nuisance).

The owner of real estate is expected to be proactive, and take actions it lawfully can, such as calling police when activity is suspected, and taking the tenant to eviction court when the illegal activity is confirmed. Violations and abatement orders under the above-mentioned statutes will be less egregious for owners that in good faith, try to lawfully abate nuisances, vs. collect rent and bury their heads in the sand.

The OCRM v. AMHA case should only be remembered as a narrow case that declined to hold a landlord legally responsible for a “hostile housing environment” initiated by one tenant against another tenant. Hopefully, landlords will look at this case like a Good Samaritan Law, and use the knowledge that they can’t be held responsible for causing the bigotry, as incentive for trying to remove it from their premises; that’s good for the tenants, good for business, and good for the “moral bottom line”.

The Risk of Investing in a TIC Venture in Today's Real Estate Environment

A recent article published in the Wall Street Journal by Jennifer Forsyth, illustrated perfectly the risk inherent in investing in a tenant-in-common (TIC) real estate venture. The article, titled "How 1 Property Sank the Savings of 35 Investors," was published on July 10, 2008 (page D1) of the WSJ and chronicled the troubles of a small TIC real estate venture in which the sole tenant of a building went bankrupt, leaving the TIC investors holding the bag.

In a TIC ownership structure the investors buy a fractional ownership in a commercial property. Each fractional interest is recorded by separate deed, can be bought and sold, can be mortgaged separately and, assuming strict compliance with IRS regulations, can be utilized in a 1031 like-kind exchange. It was this latter feature that made the structure attractive to some. A real estate investor that has sold his/her investment in a commercial property may reinvest the proceeds in a like-kind property within a limited period of time and defer the taxes on such sale. These are called 1031 exchanges and are subject to many IRS requirements. 1031 exchanges are worthy of their own post on this blog sometime in the near future; so stay tuned.

The beauty of a TIC structure is that an investor can pool his or her sales proceeds with other investors by acquiring a fractional ownership of a much larger piece of commercial property than could otherwise be afforded by the investor. A management company hired by the TIC investors then manages the property for them.

However, the IRS has quite a few requirements to be met if the TIC investors want the structure to be recognized by the IRS and accepted as an appropriate investment vehicle for their tax-free exchange. These IRS requirements includes that certain critical decisions must be decided unanimously, and the delegation of decision making authority to one representative must also be unanimously approved. With a large group of TIC investors, the ability to obtain that unanimous agreement is difficult at best and can take a considerable amount of time to achieve. Essentially, one investor can play the spoiler and there is nothing one can do about it.

In the situation that was the subject of Ms. Forsyth's article, the commercial property was a Phoenix bottling plant that housed Le-Nature's bottling company. When the company went bankrupt and its lease was terminated, the TIC investors learned that in additional to no longer receiving their portion of the rent proceeds, they would be responsible for the mortgage payments after the interest reserves ran out.

Most of these TIC arrangements have a sponsor that puts the deal together. In this case the TIC sponsor attempted to find a new tenant, but the TIC investors could not unanimously agree on lease terms in any timely fashion and the potential tenant went elsewhere. The TIC sponsor also tried to line up a sale of the building, with the same disastrous result as the TIC investors could not come to any unanimous agreement. Many of the investors were over 65 years old and have lost a significant portion of their investment.

The story of this venture gone awry perfectly illustrates the downside of a TIC investment structure when the real estate market is shaky. While TIC investments are likely to remain a viable option for many, it is not without its risks and needs to viewed carefully.

Tax Increment Financing (TIF), An Overview

Special thanks to Matthew Galan, a summer associate at Kohrman Jackson & Krantz, for his assistance in the preparation of this article.

I. What is TIF?

TIF stands for Tax Incremental Financing. TIF is a tool for economic development that communities use in an attempt to stimulate private investment and development in targeted areas. The community, through a TIF, captures the increase in tax revenue generated by the private development itself. The community then uses those very same excess tax revenues to pay back the private investors that footed the initial bill for the public improvements and infrastructure required to make the new private development a success.

TIF requires significant communication and coordination among a variety of players and levels of government, as well as analysis and planning. This is one of the more administratively complex programs available to local legislative authorities, so prudent use of experienced legal counsel is recommended for the creation of a successful TIF.

II. When is TIF used?

A TIF is used to address site and infrastructure development obstacles for a project. Obstacles can include site assembly and preparation, environmental contamination, public infrastructure, blighted conditions that impair development, investment needs for commercial districts or large areas, targeted investment of tax revenue needs, lack of private commitments, and TIF district expansion constraints.

Effective use of a TIF targets districts in need of public investment to address infrastructure issues, blight and generation of new development. Use of a TIF is appropriate when comprehensive economic and redevelopment plans are integrated and can only be completed “but for” the TIF (i.e. without the TIF, there would be no project). Lastly, TIF’s are best used when clear objectives and thresholds for projects are established through broad community representation on a TIF advisory board.

III. Why would a community want TIF?

The use of a TIF can aid a community’s fight against blight by incurring the costs of development or by reimbursing a developer for redevelopment costs that normally fall upon the developer alone. Depressed areas are redeveloped, the community and local economy is improved, and property taxes remain unchanged.

Property taxes remain the same under TIF because TIF is not a method of taxation. Rather, TIF is a creation of new debt through the issuance of bonds. For example, the community sells bonds to raise money for an urban renewal project, which are the incurred costs. As the renewed area becomes more valuable, it generates more property tax revenue for the community compared to the area in its blighted state. The increased difference in tax revenue from renewal is used to pay the debt service on the bonds.

Essentially, the community is selling debt as bonds to investors. These investors are paid a return on their investment through the property tax revenue of a refurbished parcel of land. The community does not have to raise property taxes because the refurbished parcel generates the increased tax revenue through its more valuable redeveloped status. The developer profits from the undertaking because it does not have to foot a portion of the cost of refurbishment. The community gains urban renewal from a private developer without footing the bill or assuming financial risk. Lastly, the bond holders, through increased tax revenue, collect a fixed return on their investment.

IV. What are the advantages of using TIF?

· Can be a powerful tool to help finance projects.
· Does not divert funds from an existing budget so political support can be more easily acquired.
· TIF use can overcome site problems or costs.
· Correct use can generate new investment, employment, and tax revenues.

V. What are the disadvantages of using TIF?

· Tax revenue for other government uses and services is diverted (investors have to be paid back).
· Obstacles to development may not be overcome, but rather subsidized (i.e. without the TIF, would the project happen anyway?).
· TIF is a complex, costly, and time consuming tool for financing public infrastructure.
· There is incentive for higher density development to cover financing costs (most bang for your tax buck).

VI. Examples of TIF

A. Good Example

There is a vacant building on a piece of land in your city. The location has some strong commercial potential if public improvements are made to entice business development. For whatever reason, such as inadequate infrastructure, private development is unlikely in this location.

To foster development, the local government and school board agree to participate in a project to redevelop the area. Certain parcels of land are formally designated as a TIF district. Improvements under the newly created tax increment district are planned to include infrastructure. At the time the TIF district was created the property is assessed at a base value of $1 million. The taxes on the base assessment continue to go to the local government, county, school board, and other public entities that receive income from property taxes in that district. Upon improvements to and development of the land in the TIF district, the parcels now have an assessed of $11 million.

The tax increment of the project is the newly assessed value of $11 million minus the original assess value of $1 million. The additional revenue of $10 million is not taxed for the general fund. Instead, the money is separately taxed and deposited into a special fund in an amount equal to the new property tax liability. This additional money is devoted to repayment of the bond investors, and upon termination of the project, to the three original participants (city, county, school board). Because the value of the parcel increased to a substantial degree, the TIF not only increased the value of the parcel, but also generated enough money to repay investors.

B. Bad Example

Your city has an area where mixed development consisting of both residential and commercial uses could succeed. There already are some small businesses present, but the addition of a large centrally located department store is believed to be crucial in rebuilding the retail power of the area.

The area, as currently assessed, is valued at $30 million. In preparation of the private developer’s vision, the redevelopment authority plans on purchasing land, relocating businesses, and constructing plazas. The assessment of the newly completed property is estimated at $50 million. The redevelopment authority sells $15 million in bonds to get the project started through initial public improvements.

The project is completed without a multiplier effect while subsidizing competition for other department stores. The forecast for the project is overstated, and the newly assessed value is only $35 million, a $5 million increase. With such a limited increase, the city cannot repay the debt of $15 million. The city must now increase taxes to retire the debt. All the city accomplished was a job shift and some increased economic activity.

VII. What can a community do to make TIF a reality?

The TIF process is complex. Communities must first determine how best to administer a TIF and exercise its powers to encourage targeted development or redevelopment. To designate a TIF area, the community must conclude that the proposed area qualifies under the applicable state statute. In Ohio, the Ohio Revised Code Sections are 5709.40-43 for municipalities, 5709.73-74 for townships, and 5709.77-79 for counties.

After legislation is enacted authorizing the use of TIF, necessary steps must be taken (contract, constitute boards, incur long-term debt) to effectuate the development or redevelopment. The use of experienced legal professionals to navigate these complexities is not only helpful, but practical.

If the TIF project is successful, the increased assessed value of the TIF area will produce incremental tax revenue. The community can use this money to pay off its incurred debt by contributing to the development or redevelopment. After the statutory period of time expires, or when the debt is retired, the TIF district will terminate and the community (and other recipients of property taxes in that area) will receive both the base tax revenue and the incremental tax revenue from the former TIF district.

Cleveland's 55 Public Square Office Building Sold

On July 11, 2008, 55 Public Square located in downtown Cleveland was acquired from Willet Companies LLC of New York for an undisclosed amount by Optima International of Miami, the same company that bought One Cleveland Center in May 2008. Occupancy at 55 Public Square, consisting of approximately 420,000 square feet, is about 85 percent full.

Optima is the U.S. branch of a private, global company that invested, prior to its purchase of One Cleveland Center, in oil, gas, telecommunications and manufacturing in eastern Europe. In addition, Optima manufactures rubber and cement in eastern Europe and steel in the U.S. Optima, which is finding investment opportunities in U.S. real estate attractive due to the weak value of the dollar, may look at additional undisclosed Cleveland properties in the future.

For additional information, see Michelle Jarboe’s article on Cleveland.com .

City Agrees to Provide Funding to Developers to Assist in Economic Development Project

Council for the City of Wickliffe, Ohio recently adopted legislation to assist private developers with the costs associated with the redevelopment of approximately 10 acres of blighted property located within the City. Under Ordinance No. 2008-57, Council of the City authorized the Mayor to enter into a contract with LTV Group, Inc., an Ohio corporation, and Milestone Building Company, an Ohio corporation, to provide economic development assistance to partially finance costs associated with the redevelopment of certain parcels of blighted property located on Euclid Avenue within the City.

The proposed economic development project includes the demolition of four buildings to provide space for the construction of 76 condo units and retail stores. The projected cost of the project is $1,300,000. The redevelopment project will result in job creation and employment opportunities in the City.

Under Ordinance No. 2008-57, the City will contribute $300,000 to the proposed project in the form of an 18-month loan to the development companies bearing interest at a rate of 1.5%. If, however, the development companies meet certain prescribed conditions within the 18-month term of the loan, then they will not be required to repay the loan. Ordinance No. 2008-57 provides that portions of the loan will be forgiven upon the satisfaction of each of the following conditions:

• 33% of the loan will be forgiven upon demolition of all blighted structures.
• 33% of the loan will be forgiven upon the commercial site preparation.
• 34% of the loan will be forgiven upon the residential site preparation.

City Council determined that the provision of funding to assist in the redevelopment project to be in the public interest and a proper public purpose under Article VIII, Section 13 of the Ohio Constitution, which provides generally that the making of loans and the lending of aid by a political subdivision for the purpose of creating or preserving jobs and employment opportunities and improving the economic welfare of the people is in the public interest and a proper public purpose. City Council has determined the project to be in the public interest by furthering commerce and industry, by removing blighted structures and by generating property and income tax revenues for the City.

Joint Economic Development Districts (JEDDs)

Special thanks to Matthew Galen, a summer associate with Kohrman Jackson and Krantz for his preparation of this overview on JEDDs.


I. What is a JEDD?

A “JEDD” is short for Joint Economic Development Districts. Sections 715-69-715.90 of the Ohio Revised Code govern JEDDs. In short, a JEDD is a type of contract between the legislative authorities of communities that border or touch each other to develop a specific parcel or parcels of land for a more productive use. Communities that individually lack land development capabilities create and enter into JEDDs with a goal of economic development, job preservation, and/or employment opportunities for their citizens. The combined efforts and shared resources between the communities for the parcel(s) in question aids efficient development. The foundation for a JEDD is cooperation between local communities so that each may economically benefit.

Private developers submit proposals to a JEDD board, comprised of representatives of all participating parties in accordance with O.R.C. § 715.78(A). The best proposal is selected and a contract is formed. Typically, once the land at issue has been developed, the partnering communities share roughly 80 percent of the income tax revenue earned by businesses operating on the JEDD land. The remaining 20 percent of the income tax revenue goes to the independent JEDD board. The JEDD board is responsible for maintaining the JEDD fund that maintains the land. This means there are no additional taxes for the partnering communities.

II. When is a JEDD used?

A JEDD is used when communities desire to work together for shared tax revenue. Communities who desire increased income tax revenue from an industrial opportunity, yet are unable to support the business or industry behind the increase in tax revenue alone, can contract with a neighboring community to share resources. This is done when a town cannot, or will not annex the necessary land. Because both communities are involved and share their resources, economic issues afflicting both communities are alleviated. JEDDs CANNOT be used for residentially zoned areas.

III. Why would a community want a JEDD?

Communities like to use JEDDs because they collect increased tax revenue without having to raise their own taxes or outlaying initial funding for property improvements. Participating communities enjoy increased tax revenue that facilitates a direct benefit for community infrastructure investments. Additionally, JEDD creation can alleviate any annexation pressures between neighboring communities since both equally benefit.

Since an independent and impartial board manages the JEDD, communities need not have to worry about future jurisdictional boundary issues or responsibilities of the other party. The JEDD contract, enforced by the JEDD board, governs all terms and conditions between the communities. The board does not have more power than the creating communities for which it serves, nor can it cause the creating communities to lose any powers.

IV. What are the advantages of creating a JEDD?

For Townships:

· Townships cannot collect income tax, yet the JEDD provides the township an ability to increase revenues through income and property taxes on previously vacant land.
· JEDDs prevent city or village annexation for a minimum of 3 years, creating a period of cooperation between the township and city or village.
· JEDDs provide a new source of funding for resident services at no additional cost to them.

For Cities or Villages:

· Income tax revenues increase.
· Infrastructure utilities typically increase, thereby increasing tax revenue.
· Economic issues between townships and cities or villages are solved in a cooperative manner.

V. What are the disadvantages of creating a JEDD?

· Negotiating and drafting the JEDD contract is a legally complex and potentially time-consuming process.
· Gaining a majority petition for a JEDD from the property and business owners within the JEDD can be difficult.
· A JEDD contract requires approval from the municipality and unanimous adoption from the township – if not unanimous, then the township voters must approve the contract through election in the township.

VI. Example of a JEDD

Consider for example that a company has contacted your community to relocate its business because of your community’s advanced infrastructure development. Your community is interested, but does not have any available industrially zoned land to make the deal happen. A community that borders yours has some available industrial land that could support the industrial prospect’s needs, but unlike yours, lacks the requisite infrastructure. What can your community do? Your commuity can create a JEDD with your neighbor. This allows the company to relocate its business onto your neighbor’s land while your community extends its infrastructure in support. Both your community and your neighbor now can collect and share equally in the increased income tax revenue brought in by the economic activity the new industry has brought in, such as increases in jobs, consumer spending, or community investment.

VII. What can a community do to make a JEDD a reality?

Townships, cities, and villages who desire economic development and increased local cooperation between sister communities can solicit assistance from legal professionals who are experienced in the intricacies and complexities of JEDD creation. Sections 715.69-715.90 of the Ohio Revised Code outlines the statutory language that governs JEDDs and their creation. These statutes are fairly complex, but with step by step assistance from the right legal professionals, communities can reap the substantial economic benefits JEDDs offer.

Continuing Education: NBI's Ohio CLE Calendar

NBI has just published on its web site a listing of Ohio CLE events for the month of August. Click here to be taken to their Ohio CLE page.

Good News and Bad News Today in the World of Northeast Ohio Real Estate

The bad news first:
In the July 7, 2008 issue of Crain’s Cleveland Business, Stan Bullard reported that a study by Foresight Analytics LLC now estimates delinquencies on construction loans for single family real estate in the Cleveland Metropolitan Statistical Area (MSA) reached 16% at the end of 2008’s first quarter. Most alarming is that the delinquency rate at the end of 2007 was only 3%.
The first quarter rates for the Akron MSA were reported to be 13.6% (2008) vs. 2.4% (2007), and for the Columbus MSA, 10.1% (2008) vs. 2.8 (2007).

Now for the good news:
In the July 7, 2007 Cleveland Plain Dealer, Michelle Jarboe reported that Team NEO’s latest economic review estimates the current, lower than expected vacancy rate for industrial property in Northeast Ohio (10 county area) at 8.4%. Considering that Northeast Ohio now has an estimated 440 million square feet of industrial property (the most since 2000), the vacancy rate is reported to be a healthy, just slightly higher than the national average vacancy rate. In fact, Ms. Jarobe reported that Real Estate Research Corp., a Chicago research firm, recently ranked Cleveland seventh on its list of ten industrial markets for investors to watch in 2008. Here’s hoping that investors build, buy, sell and lease, as well as watch.

Wrongfully Withholding Security Deposit By Residential Landlords Just Got More Expensive

As you may know, Ohio’s Landlord-Tenant Act (Ohio Revised Code Chapter 5321) governs the relationship between landlord and tenant for residential property. As you may also know, there are many more tenant protections and landlord obligations for residential property (because of such Act) than for commercial property. For example, while often not advisable, a Landlord in Ohio can utilize “self help” to evict a commercial tenant, provided there is no “breach of the peace” (See Northfield Park Associates v. Northeast Ohio Harness, 1987 Ohio App. LEXIS 10461 [8th Dist.]; Tie Bar v. Buffalo Mall, 1979 Ohio App. LEXIS 8786 [7th Dist.]; Carter v. Standard Oil Co. 1978 Ohio App. LEXIS 7861 [8th Dist.]). Pursuant to Ohio Revised Code Section 5321.15, however, a landlord of residential property may only use the court eviction process to recover possession from a defaulting tenant.

Landlords of residential (vs. commercial) property must also pay interest on their tenants’ security deposits greater than $50 (pursuant to Ohio Revised Code Section 5321.16(a)).

At the end of a lease, if the tenant owes the landlord rent (or has damaged the premises) the standard action of many landlords is to keep the deposit (sometimes “manufacturing” damage claims or other reasons to justify their actions). In such a case of “manufactured claims”, both the residential and commercial landlord would be liable for damages. The residential landlord, however, would also be responsible to pay the tenant’s reasonable attorneys’ fees pursuant to Ohio Revised Code Section 5321.16 (c).

Even reducing a tenant’s security deposit by “valid claims” at the end of a lease can run the residential landlord “afoul” of the Landlord -Tenant Act if the statutory procedure is not properly followed. The residential landlord must, within 30 days of deducting monies from the security deposit, provide the tenant with written notice and an itemization or the landlord will be held to have violated the statute and be liable for damages and tenant’s reasonable attorneys’ fees.

If the above-mentioned penalties for wrongfully withholding security deposit monies were not enough to dissuade residential landlords, the Supreme Court of Ohio, in Klein v. Moutz, 118 Ohio St. 3d 256 (2008), just made it more expensive. The bottom line of the Klein case is that attorneys’ fees at the trial court level, as well as at the appellate level are recoverable by a tenant against a landlord of residential property pursuant to Ohio Revised Code Section 5321.16 (c).

It is not much of a stretch to interpret this holding to mean that any violation by a landlord of any provision of the Ohio Landlord Tenant Act that specifically provides for attorneys fees would make Landlord responsible for same at the trial level as well as at the appellate level. The moral of this story for residential landlords? Play by the rules or you’re liable to get burned, on multiple levels.

Title Insurance and Endorsements--Their Impact On Real Estate Closing Costs

When parties are negotiating the purchase terms of a piece of real estate, the discussion may touch on who pays for the title insurance. Whether the seller pays for it, or the buyer, or both, is something to negotiate and I've seen all of those results. One typical result is for the seller to pay for the title examination and commitment, which can run into several hundred dollars, and the buyer pays for the title insurance premium. However, I've also encountered many occasions where the seller assumes responsibility for paying the title insurance premiums.

A nuance to remember when negotiating this point, particularly if you are the seller or represent the seller, is to address responsibility of payment for endorsements to the title policy separately from the base premium. This is particularly important in a commercial setting. The basic title insurance premium is based upon (i) the purchase price of the property for an owner's policy issued when the property is being sold, or (ii) the loan amount, if a lender's policy is issued pursuant an acquisition loan or a refinancing of the property. However, premium costs can rise rapidly however if endorsements are added to the title policy. Many lenders require a laundry list of endorsements to insure away much of the perceived risk on a loan transaction. This is particularly true for conduit (securitized) loans on a commercial property. The closing costs can increase by several thousand dollars as a result.

Whenever I represent a seller on a commercial real estate sale, even if my client is willing to pay for the title insurance, I separate out the endorsements and require that the buyer is responsible for those costs. Whenever I represent the buyer/borrower on a real estate transaction, I work with the lender's counsel and the title company to have as many of the endorsements removed as possible. You are never completely successful in this endeavor, especially in today's financing environment. However, the removal of even a few endorsements can result in significant savings on closing costs and is well worth the effort.

Wachovia Announces Assistance for Pick-A-Pay Customers

Wachovia Corporation announced this week that it is taking a number of actions to help its mortgage customers deal declining home values and other challenges in today's economy. Effectively immediately, it is waiving all prepayment fees associated with its Pick-A-Pay mortgage to allow customers more flexibility in their home financing decisions. Also, for new loan originations, Wachovia is no longer offering products that include payment options resulting in negative amortization. For more information, check out the Macroworld Investor article.