When is a Corporate-Owned Property Owner-Occupied

[BLIND JUSTICE]

IN NEW JERSEY: Hello, when my partner & I purchased our house -- a 3-family -- we bought it as a corporation.

I lived in the house & my apartment has never been rented out to anyone since we purchased the house.

We were in the process of completely gutting my apartment, & it was no longer livable, so I temporarily moved in w/ my sister. The reason we gutted was to get a more accurate estimate from the contractors, as the house is about 130 years old & we were told that sometimes those plaster walls can hide substantial work that the contractor would charge extra for. In other words, we wanted to minimize the surprises.

As a huge unforeseen financial complication, when one of the contractors looked around the basement, he found that the main beam of the building was COMPLETELY SNAPPED!! This explained that the sagging in this old brownstone was due to more than age!

OUR HOME INSPECTOR NEVER MENTIONED A WORD ABOUT THIS, & WHEN WE CALLED HIM, HE SAID THAT HIS CONTRACT STATES HE HAS NO LIABILITY.

We called our homeowner's insurance agent, who sent in an engineer & we were promptly informed that we had 30 days to correct this emergency repair, or we would lose our insurance. WHAT A NIGHTMARE!

To cut this shorter, the huge financial burden this unexpected dilemma cost us was not just in dollars, but in time. This because we no longer had enough funds to do our renovation right away. We were delayed over a year.

In the meanwhile I was sued by a tenant who claimed that the house is not owner-occupied. The Court agreed, stating that because the house is being renovated and owned by a corporation, it cannot be owner-occupied. Is this correct? I lived in the house for over a year before we started gutting it, and no one else has lived there.

QUESTIONS:

1. CAN A HOUSE BE LEGALLY "OWNER OCCUPIED" IF IT IS OWNED BY A CORPORATION WHOSE ONE PARTNER LIVES IN IT?

2. CAN A PERSON TEMPORARILY MOVE OUT OF AN EXTENSIVE RENOVATION & STILL CLAIM THE HOUSE AS "OWNER OCCUPIED"?

Thank you very much for your time.

[Mr. Knowitall]

The owner-occupied issue is arising in what context? Your failure to comply with security deposit laws?

[BLIND JUSTICE]

Well now, whether I failed to comply with sec. dep. laws - or not - would depend on the answer to my post's question - would it not?

My partner & I own our corporation, which owns the house. I lived in the house until demolition rendered it temporarily unlivable.

If, by these facts, the house is deemed to be legally owner-occupied, then I would not have violated the security deposit laws. Instead, it might very well be a possibility that the Judge was, perhaps, legislating from the bench?

Specifically to the point which is seemingly clearly delineated in NJSA 46:8-26, "Application of act" i.e. the Security Deposit Act -- which states:

The provisions of this act shall apply to all rental premises or units used for dwelling purposes except owner-occupied premises with not more than two rental units where the tenant has failed to provide 30 days written notice to the landlord invoking the provisions of this act.

I would be thankful if you would answer my post's question with the proper legal answer -- if you know it.

Thank you for your time, Mr. Knowitall.

[SChinFChin]

I'm looking at the issue that the property is owned by a corporation, which for many reasons is not the recommended way for holding property. The way the law looks at "owner occupied", it is EXACTLY the same person on the deed as the person living there. A corporation is an artificial person, separate from the owners, and cannot be EXACTLY the same person that is living there.

So if you were "John Smith" and you form a corporation called "ABC". Then ABC goes out to get a loan without a personal guaranty. If you didn't pay, got sued, "John Smith", the first thing you'll say is "I don't owe the money, ABC owes the money, because John Smith is not ABC, and I didn't personally guaranty it". If you say so, you'll be perfectly correct.

But then turn the situation around, which is what you have here. Now it is to your advantage to say ABC and "John Smith" is one and the same, so if ABC owns it, John Smith is the partner, so ABC and John Smith is one and the same. No, I don't think so. The law is pretty clear that a corporation insulates a person from the entity, and it can work to your advantage or to your disadvantage.

The reason a corporation is NOT generally used for holdng properties are many. Depreciation schedules are longer. If you check with tax lawyers, you would not enjoy the "homeowner capital gains exemption" when you sell. In most states, "ABC Corp" cannot claim homeowner rebates as a "John Smith" can. Stepped up basis on death does not apply to the corporation because the corporation did not die. Generally, for banking and insurance purposes, it would be a commercial loan, not the cheaper "owner occupied" variety. Some towns require family units living there, as often corporate owneships are used to hide the use of the property as "short term hotels" if they are near vacation spots.

So for all these reasons, general business law, tax laws, insurance laws, zoning laws, the law makes a major distinction between a corporation owning a property versus a person owning it. Now, are you going to argue that the corpoartion is not the person everywhere else except when it comes to tenant deposits??

In your case, a court has ruled on it, so all of this is "moot". I also know from experience owning 2 to 4 family properities that special exemptions are carved out for legal "2 family homes", which they describe as a home containing no more than two rental units, and laws exempt owners from compliance with deposit requirements, racial discrimination, and so forth. Based on the reading of the law you described, it pertains to a legal 2 family home, not to a three family home with two units rented out. So, you would not even be protected based on the 2 family exemption.

This not to mention the argument that you are actually living somewhere else, and NOT really IN CONTROL of the property as expected of an owner occupied. For most insurance purposes, once the owner is not there for 60 days, it is deemed NON OWNER OCCUPIED, as the owner is no longer capable of controlling it, regardless of the reason why you can't live there. Owner cccupied properties get special treatment becuase the owners live there, take better care of it, so it enjoys some previleges.

So even if you prove the stupid judges are all wrong based on the "corporate ownership" standpoint, you still cannot prevail because the law is written for legal 2 families, and only when the owner acutally lives there.

[BLIND JUSTICE]

Thank you for your time SChinFChin, I have an "itchy thought" & was wondering if you might scratch it a bit:
I'd like to know how "Citizen's United" changes or contradicts, if at all, this distinction between the corporation & the individual.

As you wrote, "A corporation is an artificial person, separate from the owners, and cannot be EXACTLY the same person. . ." Are you, in effect, asserting that the actions of a corporation cannot reflect the actions of the individuals which own it, much less the individuals it employs?

Also, I'm "itching to know" if an "artificial person" can have the same Constitutional Rights as a real person.

As always, thank you for your time. . .

[Legal Beagle]

That is a VERY good question that I am sure MANY people have been wondering about. I am curious to know what the legal experts here think of the new Supreme Court ruling on the matter.

[flyingron]

No, a corporation isn't a PERSON under the law. It is however a distinct entity from any person however.

[aaron]

A corporation is a "fictitious person", entitled to some of the rights of personhood (e.g., to sue and be sued in its own name and capacity); but it's not a human being and is not going to be deemed a "person" in the sense of owner occupancy laws.

[SChinFChin]

That is a VERY good question that I am sure MANY people have been wondering about. I am curious to know what the legal experts here think of the new Supreme Court ruling on the matter.

Here is a chart that may answer this question. See:

http://motherjones.com/politics/2011...nce-flow-chart

[Mr. Knowitall]

Let's be careful about both waking up old threads and hijacking them.