Tax law and 1031 exchange 2018

Tax Reform is behind us and we are happy to report that Section 1031 remains in the Tax Code. Now that investors and businesses have seen the details of the tax legislation, interest in structuring real estate transactions as 1031 tax deferred exchanges has seen great momentum. Here are some points to consider when contemplating a 1031 tax deferred exchange:

  1. 1031 Exchanges are used to defer taxes only on real estate. 1031 Exchanges for personal property were eliminated in the Tax Cuts and Job Act of 2017.
  2. 1031 Exchanges allow taxpayers to defer capital gain taxes and depreciation recapture taxes and the 3.8% Net Investment Income Tax.
  3. To completely defer payment of any capital gains taxes, taxpayers need to purchase Replacement property with a value equal to or greater than the property that is being sold. In some cases the taxpayer may purchase a property of lesser value and still defer a significant amount of tax.
  4. 1031 Exchanges follow strict time limits. Once the Relinquished property is sold, taxpayers have a total of 180 calendar days to purchase Replacement property. Within the first 45 days of the 180 the taxpayer must identify the Replacement property that they intend to purchase.
  5. Exchanges between related parties are allowed, but specific rules must be followed. Buying from a related party requires advanced planning.
  6. Partnerships may participate in 1031 exchanges. However, if the partners do not wish to stay together for the exchange, there are several interesting structures that can be considered.
  7. Taxpayers must utilize the services of a “Qualified Intermediary” when participating in a 1031 tax deferred exchange. The Intermediary provides guidance, proper documentation and secures the taxpayer’s funds between the sale and purchase.
  8. 1031 Qualified Intermediaries are not regulated by the Federal Government, nor most State Governments. Therefore, it is up to taxpayers to ascertain the competency and safety of their chosen Intermediary. Questions that should be asked include:
    • Who owns the 1031 Intermediary and how financially stable are the owners?
    • What criteria does the 1031 Intermediary use to select its depository banks?
    • Does the Intermediary have a Fidelity Bond, Errors and Omissions insurance and a Corporate Guaranty?
    • Does the Intermediary have Certified Exchange Specialists® on staff?
    • Is the 1031 Intermediary a member in good standing in the Federation of Exchange Accommodators (FEA)?

Patricia A. Flowers
Vice President
Certified Exchange Specialist
New England Region

(877) 781-1031 Toll Free

Rezoning, Variance, or Conditional Use Permit in MA

Which One Can Solve Your Zoning Problem in MA?

You’re considering the purchase of a particular property, but know it doesn’t conform to the city’s zoning ordinance. As such, you’ve negotiated the purchase contract so that closing is conditional upon you first being able to bring the property, and your intended use of it, into compliance.

What type of application do you make? Rezone it to a district that expressly permits the existing use or the one you desire? Seek a conditional use permit (“CUP”) under the current zoning district where your use is a permitted conditional use? Or is a variance from the ordinance’s regulations the right decision?

In covering the topics below for rezoning, conditional use permits, and variances, this article will help you understand which avenue might make the most sense for you. In this article we’ll cover:

How these three options differ
What purpose each is intended to foster
Examples of the options
Common issues faced by parties making these requests
Which governmental entities review your application, which one makes the final decision, and what are the procedures for each proceeding, and
If the decision is appealed to the courts, how the court makes its decision
It should be noted there are no universal laws, set of terms, or processes for zoning. They vary on a state-to-state and city-to-city basis. So while this article will give you an understanding of some widely used concepts and their application, you’ll have to work with a land use lawyer to determine how (or even if) your city implements these ideas.

Rezoning, Variance, or Conditional Use Permit in MA

Rezoning in MA

Let’s start with rezoning, but first, a quick caveat: although there are two types of rezoning actions, (1) an amendment to the zoning ordinance’s text that impacts all properties, or (2) an amendment to the ordinance’s map to change the use district of an individual parcel, because the first action is less common, this article will consider only the second.

That being said, let’s get to work.

Definition of Rezoning in MA

Rezoning is the act of changing a property’s use district (e.g., commercial, residential, industrial, agricultural, and sub-districts within each) to a different district with regulations permitting the applicant’s desired use.

For explanations of other zoning terms, you can check out our article on common zoning terms.

Purpose of Rezoning in MA

The purpose of zoning is to regulate land uses to serve the health, safety and general welfare of the public. To achieve this purpose, zoning laws address the impacts of land uses, including such things as:

Protecting all properties from potentially negative consequences of neighboring, incompatible uses
Protecting the value of properties by permitting them the most appropriate land uses, and minimizing potentially negative impact of nearby uses
Controlling the location and negative impacts of nuisance-like uses, and
Providing adequate public services (e.g., transportation, water and sewers)
Accordingly, a rezoning might be allowed where one of these objectives (or similar ones) is no longer being met by the existing use designation, and the proposed use would further one or more of these goals.

Examples of Rezoning in MA

Rezoning may be appropriate in a number of different circumstances. For example, where a city wishes to replace an undesirable use with a more attractive use, it may initiate a rezoning to a district that doesn’t allow the undesirable use. This can occur, for instance, when a city replaces an intensive multi-family residential district to a less-intensive single-family district to reduce potential strains on public infrastructure, or other general welfare objectives.

Similarly, a property owner can seek a rezoning to change the use district to permit a new use that has become more appropriate due to the city’s development. For example, where undeveloped ground on the edge of the city limits had been limited to agricultural uses, and the city’s growth resulted in residential uses approaching the agricultural district, a retail commercial use may be appropriate to support the shopping needs of these neighborhoods. So long as the comprehensive plan included objectives for the city’s development that address the public need being filled in a rezoning application (here, supporting residents’ shopping needs), the rezoning may comply with the plan even if it didn’t specifically project the particular growth.

Requirements for Approval of a Rezoning in MA

First and foremost, the rezoning application must comply with the procedures described in the municipality’s zoning ordinance, including things like (1) meeting with neighborhoods potentially impacted by the change, (2) meeting with city staff prior to application to discuss potential issues and ensure the application is in proper form, and (3) that any application fees are paid.

Secondly, the rezoning generally must comply with the comprehensive plan. As the plan is a guiding, and not binding document, the city may exercise some flexibility in finding compliance. The retail scenario above is a good example: the plan didn’t project that retail would be appropriate in the subject parcel, but it did note that retail to support residents was one of the plan’s objectives.

The city will then determine if the proposed use is either a permitted use or a conditional use within the proposed district.

Common Rezoning Issues in MA

Next, let’s take a look at some common zoning issues. In this section we’ll talk about regulatory takings, spot-zoning, and “Not In My Backyard”, or NIMBY opposition.

Regulatory Taking
As described in our practical guide to zoning, if a city-initiated rezoning, and its attendant regulations, effectively deprive a landowner of all economically reasonable use or value of their property, it can be considered a regulatory taking. A taking occurs when the government exercises its power of eminent domain to acquire ownership of private property for a public use or benefit. While a government has this right, if it does so, it must compensate the landowner for the loss of its land.

In the case of a regulatory taking, although the government hasn’t taken title to the property, because its regulations rendered the land essentially worthless, the regulation is viewed as a taking, and the landowner must be compensated.

As described in this article on zoning terms, spot-zoning occurs when a single parcel is zoned differently than surrounding uses for the sole benefit of the landowner. Such zoning is unlawful. Although property may lawfully be zoned differently than surrounding uses, pursuant to guiding planning documents (e.g., the comprehensive plan), policies and zoning ordinances, such varying uses are typically permitted only because they serve a public benefit or a useful purpose to the surrounding properties.

A simple test to determine if a rezoning is spot-zoning is to consider whether the rezoning complies with the comprehensive plan. If it does not, then it is spot-zoning. A fix for this scenario is to amend the plan and ordinance to allow for the proposed use before the rezoning occurs.

NIMBY Opposition
An acronym for “Not In My Backyard,” NIMBY is an organized opposition to a rezoning based on the assertion that the new use will negatively impact the objecting parties’ properties. Such protest can occur in all three of the zoning actions considered here, but for sake of brevity, we’ll consider it as applied to rezoning requests.

NIMBY participants are most often residential property owners, and object to uses they believe will negatively impact their homes, including uses like:

Landfills, quarries, and industrial or manufacturing uses
Halfway houses and homeless shelters
Low-income housing
Adult uses, and
Large-scale commercial developments (e.g., office complex, shopping mall, sports complex)
In considering such protest, cities will try and balance what the public as a whole needs (e.g., residents generally need shopping centers and roadways) with the desires of neighboring residential property owners.

One way to balance these potentially incompatible needs is the imposition of conditions on the new use. For example, if residents oppose construction of a new sports complex on the grounds that it will create consistent and disruptive noise, the city could require the development to employ larger setbacks or construct noise-buffering structures.

Variances in MA

Now that we’ve covered rezoning, let’s next move onto variances.

Definition of Variance in MA

A variance is an administrative, discretionary, limited waiver or modification of a zoning requirement. It is applied in situations where the strict application of the requirement would result in a practical difficulty or unnecessary hardship for the landowner. Typically, the difficulty or hardship must be due to an unusual physical characteristic of the parcel.

Types of Variances in MA

There are two types of variances: an area variance and a use variance. Not all jurisdictions permit both (jurisdictions that don’t allow for use variances generally believe the proper remedy for such situations is a conditional use permit).

An area variance is an exception to the district’s applicable regulations to allow the landowner to enjoy the same use of similarly-situated owners who do not suffer the unusual physical characteristics of the subject land.

A use variance permits a landowner to enjoy a land use that is otherwise prohibited in the existing district. Because use variances are more rare, we’ll just consider area variances.

Purpose of Variances in MA

Firstly, jurisdictions would prefer as an equitable matter that a landowner enjoy the same privileges and burdens of similarly-situated owners, provided the applicant didn’t cause the irregularity.

Secondarily, there is some risk that absent a variance option, where a strict application of the regulations would unreasonably deprive a landowner of all economically reasonable use or value of their property, it may be considered a regulatory taking. Better to allow small deviations where no substantial harm is caused than to risk having to compensate a landowner for a regulatory taking.

Examples of Variances in MA

Likely the most common area variance requests relate to setbacks (the distance between a building and a street or other protected feature, e.g., river). For example, a variance reducing the setback from a roadway might be appropriate where a (1) residential parcel is shaped oddly, and (2) because of this physical irregularity the applicant could not build a home of similar size to its neighboring, regularly-shaped, residential properties, if (3) the full setbacks were required.

Requirements for a Variance in MA

As with all zoning requests, a variance application must comply with the zoning ordinance (procedurally and substantively) and comprehensive plan (though, as noted above, not all jurisdictions require compliance with the plan, and not all jurisdictions require a plan).

The applicant must establish that its property (1) has an unusual physical characteristic the applicant didn’t cause, and (2) if the subject regulation were strictly imposed, it would result in a significant and unnecessary hardship to the owner’s use of its property.

Because the variance allows an owner to operate under less stringent regulations, a city will want to ensure the variance isn’t simply a favorable treatment of the applicant. In order to verify that this isn’t the case, cities will look to earlier, similar variance requests. If they were granted, this supports the validity of the current variance request.

Common Issues with Variances in MA

Sometimes people protesting the issuance of a variance will argue that the owner purchased the property knowing its unusual physical limitation would require a variance. However, this alone will not prohibit the issuance of a variance.

If a city grants a variance that appears to be essentially a favor to the applicant, or the applicant failed to show the hardship created, some may argue it is an unlawful spot-zoning.

Conditional Use Permits (CUPs)

Finally, let’s take a closer look at conditional use permits and see how these differ from rezoning and variances.

Definition of Conditional Use Permit (CUP)

Conditional use permits (often simply called CUPs) are uses permitted on a permanent basis within a district so long as the governing body’s conditions are met. Permitted conditional use permits are expressly listed for each district in the zoning ordinance. These uses require conditions because in their absence the use could negatively impact nearby properties. Conditional use permits are given at the discretion of the city.

Purpose of Conditional Use Permit in MA

Similarly to the consideration of NIMBY protests, the city understands that some uses, while beneficial or necessary for the community, could cause certain negative impacts (e.g., increased traffic or noise). Imposing conditions that minimize such impacts allows the city to enjoy the needed use while also protecting the uses of nearby land.

Examples of Conditional Use Permits in MA

A common conditional use permit allows for the operation of a home-based business within a residential district. Conditions designed to limit negative impacts of this business on the district could include such things as requiring traffic related to the business to park in certain areas (e.g., the home’s driveway) and limiting signage for the business. Another common conditional use is a church within a residential district, again with conditions to minimize the potentially negative impacts of the church (e.g., parking and additional traffic control improvements).

Requirements for Approval of a Conditional Use Permit in MA

As with the above, a conditional use permit application must comply with the zoning ordinance and comprehensive plan. As relates to the ordinance, this primarily means the requested use is expressly permitted as conditional in the subject district. Where it does, where the applicant accepts the conditions imposed, and where all other ordinance requirements have been satisfied, the conditional use permit is granted as matter of right. If the owner ceases to comply with the conditions, it risks the revocation of the conditional use permit.

Common Issues with Conditional Use Permits in MA

An applicant may argue the conditions imposed are too restrictive and unduly burden its use of his property. Alternatively, those opposing the grant of a conditional use permit may argue the regulations are insufficient to protect against the use’s negative impacts.

Additionally, if the conditional use permit is not in compliance with the ordinance, as with a questionable variance, it may be considered an unlawful spot-zoning.

Procedure for Approval & How Courts Examine Challenges to Zoning Decisions

Now that we’ve covered rezoning, variances, and conditional use permits, let’s next examine the process for getting approvals in place. In this section we’ll also take a closer look at what happens when a zoning decision is challenged in court.

Who Reviews Rezoning, Conditional Use Permit and Variance Applications

Generally an application for the three requests considered here start with the city’s zoning staff. They work with the applicant, explaining regulations under the ordinance, and modifying the application where necessary to make it compliant.

Though the process following staff’s review varies between jurisdictions, generally rezoning and conditional use permit applications are forwarded, along with staff’s recommendation, to the planning commission. The commission is an advisory board of residents who reviews applications with staff and counsel to determine if the request complies with the ordinance and, where required, the comprehensive plan. Following its review, the commission makes a recommendation to the city council, and the council gives the thumbs-up or thumbs-down. It should be noted, that in some jurisdictions the council may delegate its conditional use permit decision-making authority to the commission.

In the case of variance requests, the staff (following its review) forwards a recommendation to the board of zoning adjustment (“BZA”). In some jurisdictions the BZA will make the final approval or denial of a variance application, and in others the BZA will act like the planning commission, only making recommendations to the council. BZA decisions may, depending on the zoning ordinance, be subject to appeal directly to the courts or to the council.


Administrative decisions, however, impact only the individual applicants, and thus provide some due process protections. These typically include the rights to:

Notice of a hearing
Present evidence and cross-examine witnesses
Legal representation, and
A written decision based on the evidence presented
Method and Standard of Reviews for Appeals to the Courts

If a council’s legislative decision is appealed to the courts, the court will generally look at any record of the council’s consideration, as well as making a “de novo” review. De novo is Latin for “anew” and means the court will consider evidence and arguments as if the council proceedings had never occurred. The court may even consider new evidence at trial that was not presented in the decision proceedings.

Based upon this review the court will determine if the proceedings violated Constitutional protections, either “facially” (meaning the ordinance on its face was unconstitutional) or “as applied” to the applicant aggrieved by the administrative decision. The burden of proof is placed upon the applicant, who will only prevail if it can establish “by clear and convincing evidence” that it suffered substantial detriment, and that the decision provided no benefit to the health, safety and welfare of the public.

Unlike the de novo review of a legislative decision, administrative appeals are based only on the record created at the proceeding. Following a review of the record a court will consider if the administrative body exceeded or abused its discretionary powers, or acted arbitrarily or capriciously regarding the applicant’s constitutional rights. If there is any evidence supporting the administrative decision, it will be upheld by the court.


Hopefully this article gave you some idea, but in any case, because its only for informational purposes, and not to give legal advice, if you have any particular zoning issues, you should consult a licensed attorney!

Commercial space for lease in North Andover

All commercial real estate properties are zoned for a specific use. A warehouse is a good example of a commercial property zoned for industrial use. Other commercial zoning includes leisure, office, retail, and restaurant. The type of zoning dictates the type of business that can operate out of the commercial building.

North Andover commercial real estate listings include farms, multifamily apartments, office buildings, retail space, vacant land, hotels and motels, gas stations, warehouses, restaurants for lease

  1. 1 bed, 1 bath
    Home size: 1,030 sq ft
    Days on market: 1
    Listed with Century 21 North East
  2. 4 beds, 2 baths
    Home size: 1,934 sq ft
    Days on market: 3
    Listed with Properties Unlimited
  3. 0 beds, 1 bath
    Home size: 394 sq ft
    Days on market: 8
    Listed with RCG Rentals
  4. 2 beds, 1 bath
    Home size: 1,045 sq ft
    Days on market: 8
    Listed with RCG Rentals
  5. 2 beds, 2 baths
    Home size: 1,509 sq ft
    Days on market: 8
    Listed with RCG Rentals
  6. 1 bed, 1 bath
    Home size: 635 sq ft
    Days on market: 8
    Listed with RCG Rentals
  7. 3 beds, 2 baths
    Home size: 1,000 sq ft
    Days on market: 8
    Listed with J. Borstell Real Estate, Inc.
  8. 0 beds, 0 bath
    Days on market: 12
    Listed with Flagship Commercial Real Estate, Inc.
  9. 0 beds, 0 bath
    Days on market: 15
    Listed with Nordlund Associates
  10. 0 beds, 0 bath
    Days on market: 15
    Listed with Nordlund Associates

See all Real estate in the city of North Andover.
(all data current as of 7/17/2018)

Listing information deemed reliable but not guaranteed. Read full disclaimer.

Arms Length Transactions in MA

Arms length transactions in mA are important to understand in commercial real estate, particularly for lenders. To see why consider the following scenario. Suppose you’re the lender to an LLC formed to acquire an office building. However, after closing the loan you discover that the LLC’s managing member is the brother of the seller. It turns out the brothers conspired to transfer the office property at an inflated price. Months later, the borrower defaults and the brothers disappear.

Now you’ve foreclosed on an office that is worth less than the outstanding loan amount. Might have been nice to know the seller and buyer were related and this was not an arm’s length transaction.

Or consider another scenario. Suppose you own several rental properties and then decide to sell them to your son at a market rate. But then later you get a call from your accountant explaining that the gain you made on the sale would be treated as ordinary income instead of a capital gain, and your ability to use a like-kind exchange would be restricted.

Again, might have been nice to know that agreements between certain related parties could have significant tax implications.

These are two examples of non-arm’s length transactions, and a good illustration of why it’s important to understand the concept of an arm’s length transaction.

What makes a transaction arm’s length, and why people care
What types of relationships may cause an entity to characterize the transaction as non-arm’s length

What is an Arm’s Length Transaction?

When a third party looks at a commercial real estate transaction, it wants to know if the value ascribed to the property under the agreement represents a fair market value. One can be relatively sure of this if the transaction was done at arm’s length, meaning (1) the parties are unrelated (whether in the familial or business sense), (2) they have equal bargaining power, and (3) they are acting in their own self-interest. The seller seeks the highest price, the buyer seeks the lowest price, and market value results.

Where these conditions exist, third parties can generally assume the sales price wasn’t clouded by one party controlling the other, or by collusion between the parties.

In contrast, a non-arm’s length transaction occurs where parties are related to such a degree that their independence is called into question. Where these relationships exist there is a greater likelihood that one party leveraged power over the other, either controlling or influencing their actions, or that the parties acted together, to manipulate the sales price. In short, there is a risk that they didn’t act independently of each other.

So is a non-arm’s length transaction illegal? On its own, no.

In the father-to-son example above, it was clearly a non-arm’s length transaction because of the familial relationship. But, while this relationship may increase the risk for price manipulation, and may thus incur scrutiny from third parties, disqualify it from participating in certain lending programs, or result in certain tax consequences, there is nothing unlawful about a father selling property to his son. There was no price manipulation, no intent to defraud a third party.

Of course, if the related parties (like in the brothers example above) colluded to manipulate the sales price for the purpose of defrauding the lender and obtaining a larger loan, well then, yes, the FBI may care about that one.

The point is that the relationship qualifies a transaction as arm’s length or not. Third parties can decide how they’ll treat the transaction if it is not arm’s length, but non-arm’s length alone is not unlawful.

One caveat to the above: Third parties may define for themselves what qualifies as an arm’s length transaction. This is sensible given that the purpose of this concept is in large part to protect third parties from the risk of manipulated values. Who better to determine that risk than the person taking it? For example, U.S. Department of Housing and Urban Development (HUD) defines an arm’s length transaction as one that meets market value. Period. They don’t care who the parties are. They go right to the finish line. Fair market value? Okay. We’re good.

What Types of Relationships are Deemed Non-Arm’s Length?

While there is no universal list of relationships that result in a non-arm’s length transaction, there are common denominators. Such relationships have either an imbalance of power (e.g., one party has control over the other) or an increased likelihood of collusion, and these increase the risk that parties may manipulate sales prices or conceal important facts about the transaction.

That being said, the following are some of the more commonly qualifying non-arm’s length relationships:

Family members (e.g., child (including stepchildren), parent, grandparent, spouse, legally adopted children, and foster children)
Parent companies and its subsidiaries or affiliates
Principal owners of an entity, and their family members
Management of an entity, and their family members
Guardians and wards
The trustee and beneficiary of a trust, and
Employers and employees
Now, generally where parties fall into one of these categories, they’ll be subject to the third party’s non-arm’s length transaction rules (e.g., don’t qualify for a loan on a short sale). However, third parties may also allow entities to show that the risk attendant to their relationship is not present. This can be as simple as (1) providing independent verification that the sales price is close to fair market value, and (2) filing an affidavit stating that the parties are acting in their own self-interest, are on equal footing, and that no collusion, influence or duress occurred.

Examples of Non-Arm’s Length Transactions Subject to Special Consequences

Internal Revenue Service. You should consult with a tax professional on the intricacies of the IRS’s special treatment of property transfers between related parties. For here though, we’ll just note that these transfers can have significant tax impacts, including, for example, treating capital gains as ordinary income, restricting the use of like-kind exchanges, and characterizing sales as gifts.

Lenders. Especially aware of the risk and cost of mortgage fraud, some banks completely prohibit loans on property for a short sale between relatives. Even short sales between unrelated parties can come under special scrutiny, e.g., lenders often require an affidavit of arm’s length transaction stating that the parties are unrelated, and acting their own best interest.

Federal Housing Administration (FHA). With some exceptions, the FHA requires a 15% equity position for non-arm’s length transactions (i.e., between family members, business partners or other business affiliates). In the case of short sales, the FHA requires that the parties be unrelated. The FHA also utilizes an Identity of Interest Certification where borrowers disclose, among other things, their relationship to the seller.

Veterans Administration (VA). In certain circumstances, the VA will not loan funds for a non-arm’s length transaction, including, for example, “construction-to-permanent financing” (where a veteran seeks a long-term mortgage to replace the interim financing she used to fund construction of the home).

Fannie Mae. With some exceptions, Fannie Mae will allow non-arm’s length purchases, but has different requirements for existing properties vs. newly constructed properties. In short sales, Fannie Mae will require an Affidavit of Arm’s-Length Transactions to confirm that the parties are unrelated, and that no other contracts exist for the property (e.g., resale contracts).

Freddie Mac. Freddie Mac allows for short sales, but only to unrelated parties. As with Fannie Mae, Freddie Mac uses an Arm’s Length Affidavit to confirm there is no relation.

Due Diligence Methods to Determine if Transaction is Arm’s Length

Because of the risk and cost of mortgage fraud committed by related parties, lenders will require the parties to provide a host of items to verify the transaction is arm’s length. The following are common requirements:

Provide a copy of the contract between buyer and seller
Provide an independent appraisal of property
Provide an affidavit of arm’s length transaction disclosing the parties’ relationship
Where the parties are related, but the purchase price is close to market value, have a third party compare the contract terms with those of a similar transaction, but with unrelated parties
Common Fraudulent Schemes by Related Parties – Property Flip and Short Sale

Property flipping involves buying property and then reselling it quickly for a profit. Typically the increased sale price is a result of improvements made by the flipper. The practice of flipping in and of itself is of course lawful. However, as Freddie Mac explains, where the increase in sales price is fraudulent, the act becomes a crime:

Property flipping becomes illegal and a fraud for profit scheme when a home is purchased and resold within a short time frame at an artificially inflated value. The flip typically involves a fraudulent appraisal, which may indicate that renovations were made to the home, when, in fact, there were none, or the renovations consisted only of minor cosmetic improvements.

The harm caused by this scheme is largely to the lender. As first described in the brothers example above, a fraudulently inflated valuation can lead to a lender owning property worth far less than the money it was owed.

A short sale occurs where a property is sold, and the lien holder receives less money from the sale proceeds than is owed by the seller. Banks may approve a short sale where it believes the cost of foreclosing, and then reselling, the property would be more expensive than accepting the loss on the loan repayment. As with property flips, a short sale can be legitimate, but may also be a part of a mortgage fraud scheme. For a more in-depth look at common types of types of fraudulent short sale schemes you can take a look at Freddie Mac’s summary here. The common theme of these schemes is that the bank approving the short sale is somehow deceived when it agreed to accept less money than it was owed.

For a good discussion of different types of mortgage fraud, and ways to protect against them, see this white paper by the Federal Financial Institutions Examination Council

So, what are the consequences of these related party schemes? Well, state mortgage fraud crimes and federal mortgage fraud crimes (where federal agencies were involved, e.g., FHA, where federally regulated financial institutions were involved, or where actions related to the fraud crossed state lines). Federal prosecution can even involve RICO (Racketeer Influenced and Corrupt Organizations Act) charges if the fraud is large enough.

If convicted of mortgage fraud, parties can face significant fines, may be forced to make restitution, and even serve time in prison. State fines, restitution and prison sentences vary, but federal convictions can mean 30-year prison sentences, $1M fines for each count of fraud, and restitution to those parties injured by the fraud.


So, who cares whether a transaction is arm’s length or not? If you’re a lender, you probably raised your hand when you read the question, but for the rest of the professionals in the real estate world, hopefully this article helped you understand why lenders care, why lenders scrutinize related-party transactions, and why lenders ask for so many affidavits.

Oh, and if you were considering partnering with a cohort to commit a related-party mortgage fraud scheme, hopefully this last section helped you understand that you should care too. And convinced you not to commit fraud. As always, because this article is only for informational purposes, and not to give legal advice, if you have any particular arm’s length issues, please consult a licensed attorney.

Have you ever come across an undisclosed related-parties transaction? Negotiated with a bank to get arm’s length treatment? Let us know in the comments below (or, of course, ask any questions you may have)!

Andover office space leased to Applegreen

Randy Tibbetts of Faulkner Associates – Keller Williams Realty has leased 1000 square feet of office space at 168 North Amin Street in Andover to Applegreen. Applegreen, an Ireland based company has newly expanded to the US on Long Island and is branching out. Applegreen will use the space as a satellite office to expand into the northeast. Applegreen US offers retail concession stores at its US service stations featuring a quality selection of food and beverage items, automotive accessories and supplies.



About Applegreen

Petrogas Group US INC T/A Applegreen is a 100% owned subsidiary of Applegreen plc, a publicly quoted company listed on the Irish and UK stock markets. From an operational base of 64 sites at the end of 2009, the Group has grown to 152 sites as of 31 December 2014, across the Republic of Ireland (96 sites), United Kingdom (54 sites) and in Long Island, United States (4 sites). Applegreen now offers retail concession stores at its US service stations on Long Island featuring a quality selection of food and beverage items, automotive accessories and supplies. Applegreen operates a distinctive retail led business model which is built around the following key features:

“Low Fuel Prices, Always.” price promise – The Group aims to offer the lowest fuel prices in each locality in which it operates, which drives footfall to its retail, food and beverage offerings;
“Better Value Always” in shop – The Group’s retail proposition aims to provide strong value to its customers particularly through its ‘Better Value Always’ offers. In the Republic of Ireland this is supported by its own distribution centre; and
Quality food and beverage offering – The Group aims to provide a premium food and hot beverage offering at all its outlets. This is delivered through both Applegreen own brand café, The Bakewell combined in a number of locations with international brands such as Subway, Costa Coffee, Burger King and more recently Greggs and Chopstix.
Applegreen retail presence in the US will indeed encompass the “Low Fuel Prices, Always.” and “Better Value Always” commitment in the shop for its customers to ensure it’s most competitive in its locality. There will be a number of new initiatives introduced from our experience in Ireland and United Kingdom which we believe will be positively received by our US customers.

Trevor Moore – Vice President of Retail Operations

Tel: 347-909-0738

Petrogas Group US INC.
797 Old Country Road
New York 11803

Retail space leased to Dani Kaye in North Andover

New space leased by Faulkner & Associates. I recently leased commercial retail space at 85 Main Street in North Andover to a dynamic duo! Jamie Sloan-McCarthy and Ryan McCarthy have transformed the former consignment shop on Main to an upscale trendy boutique that is simply the best in the Andovers!

Dani Kaye is a curated lifestyle store featuring women’s contemporary fashion, athletic wear, and fine gifts. We provide a comprehensive luxury styling experience that takes our clients from work to play. At Dani Kaye, we have over 10 years of experience in NYC luxury fashion to make shopping and styling effortless for busy women on the go. We are excited to open our store and be a part of the community in North Andover.

Fashion comes downtown: Dani Kaye is a new Main Street boutique for stylish women on the go

Dani Kaye 85 Main Street

Dani Kaye opened its doors August 24th and is getting favorable reviews.

Dani Kaye review 1

Dani Kaye review 2

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Jaime Sloan
Owner at Dani Kaye
A 85 Main Street, North Andover, MA 01845
P (978) 341-4200 M (347) 819-4643 E W

Ryan McCarthy
President, Lead Designer And Developer, Muse Intermedia
Phone: (917) 546-3044
Personal: (917) 633-4675
Mobile: (973) 568-5246
Address: 4 High Street, Suite 218, North Andover, MA 01845