Thursday, April 29, 2010

The Middle Game

In legal, and other, affairs, too little attention is paid to the middle game. It tends to be all about beginnings and endings. This insight has proved of great help in assisting clients deal with matrimonial and other family related matters. I recently helped a client settle a messy divorce. She graciously gave me permission to speak, in general terms, about it. There were two critical turning points. The first came after efforts to negotiate a fair early settlement failed. The other side made a “final” offer on the low end of what was acceptable. The client and I met, and she said that while she could live with this, she could never feel comfortable with herself unless she rolled the dice and let the Court decide some of the key issues. We then made a motion for interim relief, and got just about everything we were asking for.

The second occurred when we took another look at the husband’s valuation of some assets that were difficult to assess as they were luxury items that he was in the business of purchasing. A formal appraisal would have been expensive and sent out a signal (we are ready to litigate again) that we did not want to do. Instead, my client went online and found a company willing to give an informal valuation of the items in question. It turned out to be almost double what her husband had said.

A phone call to his attorney followed; the settlement negotiations got back on track, and the case was resolved fairly. At both points in the process we resisted the temptation to move too quickly to the end game. My client and I are glad that we played from the middle.

Mortgage Madness

A fall out of the financial meltdown is that routine real estate transactions have become more complex and stressful. It used to be that the buyer did some preliminary work with a bank or a mortgage broker to determine what type of financing was available. Then, once a bid was accepted on the property (a coop or condo, for example), a contract was signed and a deposit, usually 10 percent, put down. The contact allowed 45 days to secure a firm mortgage commitment with the seller agreeing to return the down payment if it was not.

Since the crisis, banks have made it much harder to obtain a mortgage and no longer give firm commitments. Sometimes you don’t know until days before closing whether financing is actually available. For the seller, this means that a deal might fall through at the last minute and other potential buyers lost; for the buyer it can mean forfeiting a substantial down payment. There is no easy solution to this problem. What used to be a straight forward, low risk arrangement is now fraught with uncertainty and even peril. Each situation must be examined carefully to determine the vulnerabilities on each side.

An important part of my job is helping the client weigh the risks and the scenarios that might unfold. Sometimes that leads to a smaller down payment (so less of the buyer’s money is at risk), and sometimes dispensing with the mortgage contingency at all, when financing is reasonably certain, even without a firm commitment. In one case it meant asking the seller to extend the mortgage deadline until the bank made up its mind; in another, in the case of property that was difficult to sell, it meant allowing the buyer to proceed without a mortgage deadline. Welcome to the brave new world of post meltdown real estate deals. In it we also have to learn to play from the middle.

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