1.  Many people realistically don’t  know if they qualify for the credit:  Many of my clients, but not all, make a nice amount of income and therefore, based on the income limits set forth by the IRS, may not even qualify for this credit to begin with.  However the majority of first time purchasers I have spoken to (and not just my clients) have had absolutely no contact with his/her accountant before proceeding with the purchase to make sure there are no caveats involved in qualifying for this credit.  They just are hoping they qualify.  Nice.

2. An $8000 credit on a $600,000.00 residence is like me enticing you to buy a Mercedes by offering you a free snickers bar and one shoe.  Lets face it, $8000 is $8000 and were in a recession.  But I would base my decision on whether or not to buy now on factors such as the neighborhood, the price of the place, the interest rate you’re receiving, whether or not you see yourself living there for more than 7 years, and/or whether or not the floors are caving in.  Over the life of a loan for a property worth $600,000.00 or even less, $8000 would mean absolutely nothing at all.  Doesn’t matter, people are still offering their first borns for this credit.

3. If you are purchasing a new construction condominium and you haven’t had the place inspected AND you’re rushing forward because you wanted to fit into this 8k credit, then you’re signing a letter absolving me of any responsibility as your attorney.  Look, I’m not a real estate broker, you can go to Trulia.com for that, but lets face it, there are serious legal consequences involved in buying a home, especially if its a new construction.  Half of Park Slope is suing their developers because their windows are falling off.  Williamsburg looks like California after the Gold Rush left town.  The most important thing I tell clients these days is to get their place inspected and to make sure to list the things that need repaired inside the actual contract itself.  If you’re foregoing this crucially important step which can ultimately cost you tens of thousands of dollars down the line because of an 8k credit, then we you have some ‘splainin to do.

At the end of the day what I see, and what I completely empathize with, is that people are very emotional about the places they want to live and purchase.  The ones that are completely unemotional (Ive found something cheap in a decent neighborhood with a low interest rate, low common charges, good condition, and I get this 8k credit) are the ones that may very well come out ahead.

Ive spoken to several New York City Real Estate attorneys last week, who, like me, were burning the midnight oil attempting to get deals done in time for the deadline.  And they all say the same thing:  We’re happy this is finally over.

In the simplest way of saying this, lets compare what happened during the mortgage crisis and whats happening now.  During the real estate bubble, individuals were purchasing real estate in lets say the West Village, New York.  And they didnt have any income verification or any money to put down for an apartment.  No problem.  Banks were giving out financing like crazy and so the purchasers would take out 100% financing.  Sometimes they would even walk away from their New York City purchase WITH MONEY in their hand after they purchased a unit for a few million.  We know how the story ends.  It’s not a stretch to say the majority of people who purchased homes in the West Village, Park Slope, Williamsburg, or anywhere in New York City with 100% financing have either foreclosed, are behind in their mortgage payments, or are having issues.

During this bubble, FHA wasnt a word that was used much.  The FHA is basically a government agency that insures the loans private lenders give out, and there were caps on those loans in 2004, 2005, etc.  Here is an explanation from the New York Times:

“F.H.A. insurance was created for minority and low-income families who could not come up with the traditional down payment of 20 percent required by private lenders. Buyers receive loans from government-approved lenders and are required to document their income and assets. They must pay a substantial insurance premium of 1.75 percent of the loan. But in return, their down payment can be as low as 3.5 percent”

So basically the FHA wasnt insuring very many loans then (proportionate to the loans being taken out.)  So if a purchaser just bought a new condo in Union Square New York, and he/she stopped paying, the bank was screwed, and maybe the underwriter of the loan, but not the government.

Fast forward to 2009.  This Manhattan Real Estate Attorney is seeing tons of deals being financed using FHA Loans, for individuals who have very little if anything to put down.  Sound familiar?  Well for the privilege of receiving an FHA loan, which now insures the Private lender that Uncle Sam will step in if the purchaser of that condo in the Financial District defaults, all the purchaser has to do is put own 3.5% of the purchase price.  And guess what?  The credit requirements aren’t too stringent to get a loan.  Lastly, a seller can actually give a concession to help the purchaser pay for the closing costs for his/her shiny new construction closing in Park Slope. Does any of this sound familiar?

Lets go a bit further.  That same New York Times article states:

“At Guarantee Mortgage Corporation, which has 150 mortgage brokers in the Bay Area, Seattle and Portland, Ore., F.H.A. loans have grown to about 15 percent of its business, from less than 3 percent a few years ago.

“”It sure has helped us put a lot of deals together,” said Guarantee’s chief sales officer, Bob Siefert. He predicts that a quarter of Guarantee’s deals will soon be guaranteed by the F.H.A.

Some F.H.A. borrowers here say they have the cash for a full down payment but would rather invest it in the stock market or use it for remodeling.”

And even more troubling, courtesy of the LA Times:

“This year alone the agency has backed nearly 2 million mortgages worth at least $328 billion. It insured 21.5% of all new mortgages last year, up from fewer than 6% in 2007.”

Look here is the issue for me.  If you’re looking to buy a condo in the East Village, and you have money for a downpayment, thats great.  Good luck to you and I’d love to be your East Village Real Estate Attorney.  And for the many people who are using FHA to buy homes they can afford all over Greenpoint Brooklyn, Williamsburg, or wherever, good luck to you too.  But this Manhattan Real Estate lawyer fears that FHA is being overused.  Really, the only distinction between this subprime mess and FHA is about 3.5%.  In other words, where before you could buy a condo in Harlem and finance all of it, now, after everything that weve gone through in the Real Estate market, you could buy a condo, but only finance 97.5%!  Its insanity to me.  Its almost like this is an artifical prop to the real estate market all over New York, let alone the country.  Except the difference is, when people start defaulting on their purchase of a Condo in Brighton Beach, the lender wont be on the hook, we will.

And some more news:  Representatives in Congress are looking at way of INCREASING the amount an individual can borrow to qualify for an FHA loan.  The limits on an FHA backed loan is now about $730,000.00.  Which means the government is insuring every penny of that loan if the purchaser defaults.  This is downright scary in my opinion.

Heres the deal:  Many people are buying in Park Slope, specifically new construction condominums, and many of them have absolutely no idea what they are getting into.  Many of these new construction sites have used materials that you wouldn’t use to build a dog house (even for people who don’t love dogs, of which Ive found none).  The materials are ridiculous.  They’re absurd.  They’re cheap.  But the fact is they were used and the owners now have the privilege of living in new buildings where the elevators dont work, they hear their neighbors coughing (or…you know…) and/or the actual owners are suing the developers.

Why am I creating such a doomsday picture?  Because I am a jewish guy from Brooklyn and its in our blood to kvetch.  Not really.  I am saying this because I know of many individuals who have had the same problem.  Dont be fooled.  New construction doesn’t mean better.  New construction doesnt mean less headache.  New construction doesn’t mean more value over the long term.  Please, please, please make sure to have your potential new home inspected by an inspector with a great reputation.  In this economy, no one in Brooklyn wants to shell out a few hundred bucks if they are not going to buy a place.  But think about it.  You’re trading in a few hundred dollars for perhaps a life time of headaches and expenses.

Don’t get me wrong.  There are some places which were built well during the Real Estate boom in Brooklyn.  In my opinion, not legal, just personal, they are just few and far between.  If you see that your new construction has multiple mechanics liens filed, and there are lawsuits pending, then there is a good shot the developed weren’t shopping at the expensive aisle at the Home Depot.

Always remember:  Caveat Emptor.  That cost me about $150,000 and 3 years of education to learn.  Its fancy schmancy Brooklyn lawyer talk for  Buyer Beware.

1.  Pleasantness on the phone during the initial call.  Lawyers may think I’m crazy for saying this, and thats fine, but I think one of the most overlooked keys in picking out a good Real Estate Attorney in Manhattan, Brooklyn, etc., is the way he/she talks and LISTENS to you during the initial phone call.  Are you being rushed?  Is the attorney not listening to what you’re saying?  Is he/she simply trying to force you to come in for an appointment?  If thats the case, this should raise a red flag.  As lawyers, after a few real estate deals, most of them seem to look and sound a like.  The problem is that there are critical differences in each and every deal and you don’t want to use someone who may think of you as Real Estate closing #45 for the year as opposed to Don and Alice, or Don and Adam (its 2009) buying their first home.  Again, the tone of the phone call may not mean the attorney will never listen to your issues, but it may be a red flag to look out for.

2. Fees.  Im going to get killed for saying this, and rightly so, but I haven’t come across any deal, which in my mind, validates a lawyers fee over $1500 at most.  Unless the lawyer is setting up a Sponsor for new construction, the work is the same for a $400,000 and a $1.4,000,00.00 deal.  The amount of work that can go into a closing may differ, but it won’t differ greatly.  Watch out for this.

3. Responsiveness.  This is the most crucial aspect of picking and sticking with an attorney.  If you email, call, write him/her, do they get back to you in a reasonable (24 hour) period of time.  If not, in my opinion, that is a serious serious problem.  In my Brooklyn office, there are approximately 30 attorneys within a span of 3 city blocks.  The only legitimate way to differentiate yourself is through responsiveness.  We as attorneys MUST get back to you clients quite quickly, otherwise we run the risk of you leaving and going somewhere else.  Thats why its critical that your attorney get back to you quickly.  I have clients who barely ask a question through the entire closing process and I have others who think they’re getting paid by the question.  Either way if you’re attorney doesn’t respond its a problem.  Especially if you brought it up to them (usually a message from his/her receptionist saying “why doesn’t the attorney call me back) and they still don’t respond.

4.   Is he/she showing up to the closing, or is someone else?  Again, something you should ask.  You paid for Rick the Attorney and not Sam the assistant.  If you really want the attorney to show, make sure you ask ahead of time.  If they can’t necessarily commit, you may want to think again.

I will have some more tips up soon, and again, this is personal opinion.  If you’re happy because your aunt Ruth told you that the attorney is amazing, thats fine.  These are just some things I think clients should consider.

Why is that?  Well for starters mortgage rates are great and it looks like they will likely fall to historic lows pretty soon. If people thought 6% was good,  imagine having a 4.5% mortgage 10 years from now.  Perhaps even more importantly is that you are starting to see a ton of unsold inventory around New York City (specifically Brooklyn).  Prices in many of these new construction buildings have dropped anywhere from 10-20% already, and its likely they will fall even further (Im beginning to sound like a sales rep).  But without even expressing opinions on the market (because no one is ever right about that), the one thing you should know is that if you are purchasing any property in New York City right now, keep negotiating as hard as you can.  My clients have had transfer taxes and a large amount of closing costs paid by the sellers on several recent deals (not promising the same will happen to you, but it seems to be happening more and more).  Sellers are sitting on new construction developments with huge construction loans and they have to get rid of these units.  They’re really not interested in keeping your 10% deposits if you can’t close on time as they need the entire purchase price.  Having said that, make sure you are aggressive in terms of the price you ask for, as well as the credits you ask for (transfer taxes, etc.).  When you combine all of these with low mortgage rates, a lot of qualified (say it with me…qualified) people who can afford the home they are purchasing will be in a great position very soon.  

Also, please be wary of this FHA loan nonsense that is flying around.  FHA loans are not some savior loan that will make your couch more comfortable or the air smell fresher as they make it seem on TV.  Its a loan.  With a lot of drawbacks and points and escrow amounts that you have to put aside.  Sometimes its good, and sometimes its not so good.  Make sure you look into the pitfalls and benefits before you decide to go FHA.

First the good news from this Brooklyn Real Estate attorney:  Many new condominiums in downtown Brooklyn are realizing that the Real Estate market is not what it once was and are offering a myriad of concessions including paying transfer taxes, saving potential purchasers thousands of dollars in closing costs.

Now the bad news:  The worksmanship of many of these new constructions leave much to be desired.  Brownstoner.com covers many of these buildings, and their problems, in depth, but suffice to say that the builders were looking for profits and as such have skimped on traditional worksmanship as a result.  In english…some of the buildings stink. Again, we’re not talking about all of them, but many of them have some issues.  An example:  Two clients purchased a brand new construction in the heart of Park Slope about 6 months ago.  They chose a unit that was above the garage.  The building, realtor included, had promised to use noise dampening materials to cut down on any noise the garage door would make when opening and closing.   And they did.  Except the materials they used weren’t the best and weren’t doing the job.  Now you might think that these potential purchasers should not have gone ahead with purchasing a unit above the garage, but when you have numerous people from the building explaining in detail all the steps they would take to make sure the noise was not an inconvenience…and they dont…you begin to realize that there is a problem going on.

There is no easy solution to this problem, but there are certainly proactive steps that you, the purchaser, can take when deciding whether to purchase a new condo in Downtown Brooklyn.  First hire an engineer to do an inspection before making any concrete offers.  While the building may have their own inspector, you should definitely pay a seperate inspector, who has experience dealing with new construction buildings, to come in and take a look at the premises.  She/He may find problems that the inspector for the building didn’t or couldn’t find (cough cough).  Furthermore, it will give you additional piece of mind when you plunk your security deposit down.

There are also certain contractual provisions that your Real Estate attorney can put into the contract that can compensate you in the case of bad workmanship.  Lastly, you should contact the sales agent frequently if you find something is wrong with the new unit after you sign a contract to purchase.  The agent can be incredibly helpful in eliciting a response from the building, especially if you keep at it.

The lesson  from this Brooklyn Real Estate attorney is: caveat emptor, or “Let the Buyer Beware” when you are purchasing a new condo in Downtown Brooklyn.  You can take certain steps to make sure the building you’re purchasing into is structurally sound, and the unit you are purchasing is ok.  Ultimately the decision is yours, but taking proactive steps with all parties involved will go along way towards minimizing any stress you may suffer during the purchase process.

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates.   Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy