Government Lease Terminations Under DOGE—Impacts, Rights, and Remedies
Go-To Guide:
The Trump administration and DOGE have terminated nearly 100 leases including 1.4 million square feet in Washington, D.C.
If it exercises its rights to terminate during “Soft Terms,” the GSA could save up to $1.87 billion annually by 2028.
Government Lease Reductions and Market Impact
The Department of Government Efficiency (DOGE) and the Trump administration have been working to reduce federal office space and are seeking to terminate a large percentage of the approximately 7,500 General Services Administration (GSA) leases throughout the United States to reduce excess office space and associated costs. As of March 5, 2025, DOGE’s website lists 748 lease terminations among all federal agencies.
GSA manages a significant portion of existing federal leases and currently oversees 149 million square feet of office space throughout the United States, paying approximately $5.2 billion annually in rent to private landlords. DOGE’s primary focus thus far is on leases falling under GSA’s responsibility, but other federal agencies such as the Department of Veterans Affairs (VA) also hold a considerable number of leases that may be subject to future scrutiny.
The National Capital Region (Washington, D.C., and the close-in Maryland and Northern Virginia suburbs) has been particularly impacted by these efforts, with 11 leases that total 1.4 million square feet already terminated. Despite improvements in the office leasing market, declines may be in store for other localities with a federal government presence.
Government Lease Termination Provisions
Government leases typically limit the government’s ability to terminate before the natural expiration of the lease term. Unlike most government contracts, government leases usually lack a Termination for Convenience clause and are frequently divided into two distinct terms, a beginning “Firm Term” and a subsequent “Soft Term” (e.g., 15 years “Firm” followed by five years “Soft”). During the Firm Term, the government is prohibited from unilaterally terminating a lease unless the lessor is in material default and will not or cannot cure. If the government unilaterally terminates a lease during the Firm Term, the boards of contract appeals and courts, under well-settled case law, routinely require the government to pay all the remaining rent due to the lessor for the balance of the Firm Term as damages for such termination.
During the subsequent Soft Term, however, the government has broader termination rights, provided proper notice is given. These rights are set forth in GSA’s standard lease provision (with similar provisions in other government agency leases like the VA’s):
The Government may terminate this Lease, in whole or in parts, at any time effective after the Firm Term of this Lease, by providing not less than XX days’ prior written notice to the Lessor. The effective date of the termination shall be the day following the expiration of the required notice period or the termination date set forth in the notice, whichever is later. No rental shall accrue after the effective date of termination.
As a result of this structure, Soft Term leases face a greater risk of imminent termination. This year, GSA has the right to terminate 21.2 million square feet of leased space across more than 1,000 properties. By 2028, this termination right will expand to encompass 53.1 million square feet, or 35.5% of its leased space, spanning 2,532 properties.
Termination generally means that all remaining rent obligations of the government are ended. However, if the lessor still has incurred but unpaid or not fully amortized costs such as for tenant improvement work, the lessor should be able to submit a termination settlement proposal to the government seeking those costs plus a reasonable profit. Moreover, a relatively rare form of GSA lease permits the government to terminate only the services portion or operating cost rent; even if the termination is for default, the lessor will continue to receive the “base rent” for the balance of the lease term. This is known as a “credit” lease and the terms will readily identify it as such.
How Lessors and Lessees Are Adjusting
In light of potential lease terminations under the DOGE mandate, lessors should closely examine their GSA and other government agency lease portfolios, particularly focusing on leases nearing expiration, those about to enter into a Soft Term, or those with early termination options under particular lease amendments or supplemental lease agreements. Lessors should work to avoid possible defaults in lease performance and other instances of non-compliance with lease terms and conditions that may enable GSA to pursue a termination for cause. Some lessors are exploring early termination agreements and ensuring government assets are removed on time to avoid issues related to holdovers or rent claims. Furthermore, lessors should be aware of provisions in their loan agreements that require notice to lenders or other actions required upon receipt of any notice of non-renewal or termination of a lease.
Improper terminations may lead to litigation under the Contract Disputes Act (CDA), which creates a remedial scheme for resolving contract-based claims against the government. The CDA also provides an avenue for lessors to protect their rights if the government relinquishes and exits leased property without a specific termination right.
Meanwhile, government leasing agencies are evaluating their current and future office space needs in light of the changing requirements. Relocation planning and exploring alternative office spaces could play a key role in minimizing operational disruptions. Given the DOGE mandate, the agencies may also explore adjustments to lease terms or buyouts as options to maintain flexibility and manage potential costs.
Additional Author: Olivia Bellini
Boosting Boston’s Housing: City & State Partner to Overcome Market Challenges
According to recent news coverage, about 30,000 housing units proposed for Boston are approved by the Boston Planning Department (BPD) yet unable to break ground due to market conditions. In response, the Wu administration, in partnership with the Commonwealth of Massachusetts, is advancing the following strategies to facilitate construction commencement: revising affordable housing agreements, providing direct public funding through a newly launched fund, and granting tax abatements, tax credits, and grants for office-to-residential conversions.
Revised Affordability
The Inclusionary Development Policy (IDP) originally created by a mayoral executive order in 2000, and now codified in Article 79 of the Boston Zoning Code, requires developers of market-rate housing projects to include a prescribed number of income-restricted housing units at prescribed affordability levels. The BPD prefers on-site IDP units, although compliance may be achieved by creating off-site units near the project or by paying into an IDP fund in an amount based on the project’s location in a high, medium, or low property value zone.
For stalled projects, the BPD and the Mayor’s Office of Housing (MOH) have been willing in certain circumstances to revise a project’s IDP commitments given the difficult financial environment and the urgency to build more housing. This strategy is not part of a formal program and does not follow rigid procedural rules.
Examples of recent proposals include:
A payment in lieu of half of the approved on-site IDP units based on the applicable property value zone and conditioned on building permit issuance within a specified timeframe, with the contributed amount being directed to an identified nearby affordable housing project; and
A commitment to deliver 4% instead of 18% on-site IDP units in an initial building, and to construct a separate project in close proximity with larger, more deeply affordable units, funded with proceeds from the sale or refinancing of the initial building.
In each case, affordable housing agreements with MOH were amended with a limited administrative process.
Momentum and Accelerator Funds
MassHousing is administering a newly created Momentum Fund, supplemented for Boston projects by the City of Boston’s Accelerator Fund, providing additional equity alongside private equity to improve the economics of stalled projects. The resulting noncontrolling investment would:
Comprise a quarter to half of the total ownership interests;
Be committed before construction financing closes;
Be funded when permanent financing closes; and
Be coterminous with the project’s senior loan up to 15 years.
The Momentum Fund is capitalized with $50 million as part of the Affordable Homes Act signed by Governor Healey in August 2024, and the Accelerator Fund is capitalized with $110 million proposed by Mayor Wu and approved by the Boston City Council in January 2025. MassHousing will review applications and handle underwriting, and will consult with the BPD on applications for projects in Boston.
To receive funds, projects must create at least 50 net new housing units, at least 20% of them income restricted at 80% AMI, and must demonstrate that they are energy code compliant and can commence construction within 6 months of the commitment of funds.
Resources for Office to Residential Conversions
Boston’s Downtown Residential Conversion Incentive Program supports downtown office-to-residential conversions in light of the post-pandemic decline in office utilization paired with businesses vacating Class B and C properties in favor of Class A properties. Eligible proposed conversions must be IDP and energy code compliant, and must commit to commence construction by December 31, 2026.
Developers under this program can obtain tax abatements of up to 75% at the standard residential tax rate for up to 29 years as memorialized in a Payment in Lieu of Taxes (PILOT) agreement, along with fast-tracked project impact review and reduced mitigation and public benefit commitments.
By the end of last year, 14 submitted applications to the Conversion Program representing 690 housing units resulted in 4 project approvals, with submissions and approvals continuing this year based on an extension of the program through December 2025.
Separately, the Commonwealth’s Affordable Housing Trust Fund has allocated a total of $15 million for grants to conversion projects of at least 70,000 square feet. This fund can provide up to $215,000 per affordable unit and up to a total of $4 million per project. The City of Boston will apply to the state for such funding on behalf of qualifying project applicants. As of early March 2025, about $7.5 million of the original pool is still available. In addition, the Affordable Homes Act establishes a tax credit program for qualified conversion projects covering up to 10% of total development cost to be administered by the Executive Office of Housing and Livable Communities (“EOHLC”). EOHLC is currently developing guidelines for implementation and is seeking input from developers and other interested parties.
Litigation Risk for Mortgage Lenders with a Less Active CFPB
With the recent developments at the Consumer Financial Protection Bureau (CFPB), many mortgage lenders have been left wondering about the extent to which the CFPB will enforce federal laws governing the mortgage lending industry. Many industry participants expect a significant reduction in CFPB enforcement activity for the foreseeable future. While the states could ramp up their enforcement efforts to account for a less active CFPB, mortgage lenders should also recognize that borrowers – and by extension the plaintiff’s bar – could step in to any gap left by the CFPB and exercise their private rights of action under various federal and state laws governing mortgage lending.
While the torts adage of “anyone can sue anyone over anything” still rings true, we have identified several prominent mortgage lending laws below that provide borrowers a private right of action and pose litigation risk for mortgage lenders. Mortgage lenders should continue to ensure compliance with these laws for both short-term and long-term mitigation of potential liability. Failure to mitigate these risks today could lead to deficiencies in compliance that are compounded across multiple loans over time and create greater lender exposure to potential borrower litigation.
Federal Law Private Rights of Action
Truth in Lending Act (TILA)
TILA imposes various requirements on mortgage lenders, including disclosure-related requirements for both open-end and closed-end loans. Under 15 U.S.C.A. § 1640(a), a borrower is provided a private right of action for a creditor’s violation of TILA that generally must be brought within one year of the violation. A creditor is liable for actual damages sustained as a result of its TILA violation, attorneys’ fees, and statutory damages depending on the circumstances of the transaction, such as damages between $400 and $4,000 for closed-end mortgage transactions. Some jurisdictions allow for the application of vicarious liability on creditors for the acts of its servicers under TILA(see e.g., Montano v. Wells Fargo Bank N.A., 2012 WL 5233653 (S.D. Fla. Oct. 23, 2012)). TILA also provides for borrower class actions and limits a lender’s liability in those cases to the lesser of $1 million or 1% of the lender’s net worth.
Home Ownership and Equity Protection Act (HOEPA)
HOEPA governs abusive lending practices related to high-cost mortgages. Although HOEPA is technically part of TILA, federal law imposes additional lender liability for HOEPA violations. In addition to the lender liability for TILA outlined above, a lender that violates HOEPA is required to refund all finance charges and fees that were assessed in connection with the particular loan pursuant to 15 U.S.C.A. § 1640(a)(4). Moreover, violating HOEPA’s disclosure requirements (creditor’s must “clearly and conspicuously disclose” the borrower’s rights of rescission) may trigger an extended right of rescission, which expires three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first (15 U.S.C. § 1635(f)).
HOEPA is also important to consider as industry changes related to interest rates may impact the prevalence of loans that fall under HOEPA. For some mortgage lenders, this new interest rate environment may lead to the lender making an increased number of high-cost mortgage loans.
Homeowners Protection Act (HPA) – PMI Cancellation Act
While seen more prominently in the servicing context, HPA outlines requirements regarding borrower paid private mortgage insurance. More importantly in the originations context, HPA requires the lender provide certain disclosures to borrowers at consummation regarding rights to cancel PMI and the necessary procedures for doing so (12 U.S.C. § 4903(a), (b)). HPA creates a private right of action for violations, and the borrower may recover actual and statutory damages, attorneys’ fees, and costs (with class action defendants liable for costs and attorneys’ fees) (12 U.S.C. § 4907(a)). The borrower must bring an HPA claim within two years of the discovery of the violation.
Equal Credit Opportunity Act (ECOA)
ECOA creates various requirements for lenders related to the extension of credit, including obligations in evaluating a borrower’s credit application and an obligation to provide specific borrower notifications. Under 15 U.S.C.A. § 1691e, a lender is liable for any actual damages, attorneys’ fees, or punitive damages resulting from a violation of ECOA. The punitive damages are capped at $10,000 for an individual borrower, or in the case of class action, punitive damages are capped at the lesser of $500,000 or 1% of the lender’s net worth. Pursuant to 12 CFR § 1002.16(b)(1), a borrower’s claim for an ECOA violation must be brought within five years of the violation or within one year of an administrative enforcement action that is brought within five years of the violation.
Real Estate Settlement Procedures Act (RESPA)
Pursuant to 12 U.S.C. § 2607(d), RESPA provides a private right of action and treble damages for a number of violations, including Section 8 prohibitions on kickbacks and unearned fees. Similarly, borrowers may bring a private action for violations of RESPA Section 9’s prohibition on required usage of title insurance providers under 12 U.S.C. § 2614. Such claims must be brought within one year of the alleged violation. Moreover, 12 U.S.C. § 2605(f) establishes a private right of action for borrowers where the lender fails to provide a notice disclosing whether the loan may be assigned, sold, or transferred. Costs, attorneys’ fees, actual damages and statutory damages are all recoverable (the latter when a pattern or practice of noncompliance is established). Claims under this provision must be brought within three years.
State Law Private Rights of Action
While federal law tends to be at the forefront for most mortgage lenders, all states also have laws that can impact mortgage lenders, including laws that provide borrowers a private right of action against lenders. And at times, these state laws can present an easier route for borrower recovery compared to federal law. For example, federal law prohibits unfair, deceptive, or abusive acts or practices (UDAAP) in the mortgage lending context. This prohibition is indeterminate to the point that it could be applied in a wide variety of factual scenarios. Many states have a comparable prohibition, although the state version of UDAAP typically only prohibits unfair or deceptive acts or practices (UDAP). And while there is some variation in whether state UDAP laws apply to mortgage lenders, almost all state UDAP laws provide borrowers, individually or as a class, a private right of action, unlike the federal UDAAP law.
Many states also regulate a lender’s ability to make high-cost mortgage loans. As indicated above, there are various legal requirements, such as conducting an ability to repay analysis, a mortgage lender must typically satisfy before or in connection with making a high-cost mortgage loan. Many states provide borrowers a private right of action for a lender’s violation of these laws, which can result in anything from lenders refunding excess interest to lenders having to pay actual and statutory damages.
The federal and state laws discussed above are only a portion of the laws governing mortgage lending that grant borrowers a private right of action. Mortgage lenders should keep this in mind even if the CFPB takes a backseat in enforcement, because at the end of the day, those laws are still valid and enforceable in a court of law.
Listen to this post
San Francisco Further Incentivizes Residential Conversion Projects by Waiving Development Impact Fees
In a further effort to revitalize and reimagine its downtown core, San Francisco’s Board of Supervisors has passed and the Mayor has signed legislation exempting certain residential conversion projects from development impact fees, including the City’s substantial inclusionary housing fee. The legislation exempts projects that replace non-residential uses with residential uses from development impact fees and affordable housing requirements and removes the deadline to apply to the City’s Commercial to Residential Adaptive Reuse Program.
Background
Policymakers at City Hall have steadily ramped up incentives to convert underutilized commercial space to housing. In July 2023, the City adopted the Residential Adaptive Reuse Program (“Program”), which is designed to facilitate new residential projects in the downtown core by exempting certain projects from a range of Planning Code standards and requirements, including rear yard, open space, streetscape improvements, dwelling unit exposure, bike parking, transportation demand management, and dwelling unit mix requirements. As originally adopted, the Program required that conversion projects submit applications by December 31, 2028.
In March 2024, San Francisco voters approved Proposition C, which waived the City’s real estate transfer tax for first-time transfers on non-residential properties converted to residential use, so long as the property owner receives approvals to convert the property before January 1, 2030. Despite these incentives, residential conversion projects have remained relatively rare.
The Waiver
The new legislation is the City’s latest attempt to chip away at a major challenge for conversion projects in the bay area: high costs. The legislation takes aim at this challenge by waiving development fees and development impact requirements imposed by Chapter 4 of the City’s Planning Code on any net new gross floor area of non-residential use that is converted to residential use, in an amount up to 110% of the gross floor area of the converted uses. Development fees and programs eligible for this waiver include the Transit Impact Development Fee and the Inclusionary Housing Fee.
Eligibility
To be eligible for the waiver, projects must be located in a C-3 zoning district, or a C-2 zoning district east of or fronting Franklin Street/13th Street and north of Townsend Street.
Additionally, projects must replace gross floor area of an existing non-residential use (other than a hotel) with gross floor area of a residential use. This can occur by a change of existing gross floor area or demolition of existing gross floor area and construction of new residential gross floor area. Mixed-use structures are also eligible for the waiver.
The waiver only applies to the first 7,000,000 square feet of gross floor area that replaces non-residential uses, and eligible projects must receive a building or site permit within five years of final entitlement approvals.
The new legislation will be effective on April 6.
Entitled to Stay Relief? Prove it.
Bankruptcy is a headache for lenders.
For example, you make a commercial real estate loan and record your deed of trust. The borrower pays you for a time but then defaults. You tried loan forbearance and modification, but it was unsuccessful. The borrower falls further and further behind on the loan. You are left with no choice but to foreclose on your collateral.
You start a foreclosure special proceeding in state court. You pay your attorney and a foreclosure trustee. After what seems like forever — months of continuances, no payments, and possible depreciation of your collateral — the clerk of court authorizes the sale of the property. Another month goes by, and a sale is conducted. Your credit bid is the only bid for the property. Nine days of the upset bid period pass, and you are one day away from owning the property. Then, an unwelcomed companion arrives with your morning coffee: A NOTICE OF BANKRUPTCY CASE stamped with the official seal of the United States Bankruptcy Court.
Your borrower has filed for bankruptcy, and the automatic stay is in effect. You cannot complete the foreclosure. You do not own the property. Your loan is not off the books.
Now, you pay your attorney to represent you in the bankruptcy. The borrower has filed Chapter 11, says he intends to reorganize and needs the property to succeed. The bankruptcy case languishes for six months. Finally, the debtor concedes that reorganization is unlikely, and the bankruptcy court dismisses the case. You can now resume the foreclosure, but by law, you must conduct a new sale. You can’t just let the original upset bid run for the full 10 days. You conduct another foreclosure sale, you credit bid again, and nine days of the upset bid period pass. Then, in the words of Yogi Berra, it’s déjà vu all over again. Your borrower filed a second bankruptcy, and the automatic stay has blocked the completion of your foreclosure.
Now what? A creditor can move for relief from the automatic stay. This article focuses on real property collateral and when a debtor has schemed to delay, hinder, or defraud its creditors by transferring an interest in the property without permission or by filing multiple bankruptcy cases affecting the property.
A recent decision by the Honorable Ashley A. Edwards, the newly-appointed bankruptcy judge for the Western District of North Carolina, stresses the importance of proving the material facts necessary to pierce a debtor’s automatic stay shield.
Stay relief is an exception to the broad protections of bankruptcy afforded a debtor. The creditor must prove that the specific facts warrant it. Our illustration, with the back-to-back bankruptcy filings, looks like an easy win for the lender. However, the bankruptcy court denied the lender’s motion for stay relief. Why? Because it appears the lender filed a motion and did little else to establish the key facts to support stay relief.
The bankruptcy court pointed out that the lender offered no evidence at the hearing – no documents, exhibits, or witness testimony. The bankruptcy court also held that establishing a “scheme” is a heightened burden. Courts define “scheme” narrowly. The facts must establish a debtor’s “intentional artful plot or plan,” not just “misadventure or negligence.” Stay relief is appropriate where facts establish multiple property transfers without consideration to circumvent a creditor’s rights and remedies. Reliance on public records alone is insufficient. The court will want testimony from key participants in the scheme.
Despite the two bankruptcy filings during the upset bid period, sufficient facts remained unclear to the bankruptcy court to permit stay relief. Even with judicial notice of the multiple bankruptcies, the court required additional facts showing a scheme and relating to the use, tenancy, and status of the property.
This case underscores an important lesson: if you’re going to seek stay relief, follow the Powell Doctrine and deploy every relevant fact in your arsenal to support all the elements of your motion. Don’t simply file a motion, show up at the hearing, and expect the court to “get it.” Descend on the courthouse with your witnesses and exhibits and be ready to conduct a mini-trial. This is time-consuming and expensive, but it will put you in the best position to win.
An Unanticipated Complication of Investing in SFR: Investors Sometimes End Up Being HOA Managers
Build-to-Rent (“BTR”) is a subsector of Single Family Rentals (“SFR”). As a subsector of SFR, BTR occupies a unique space within the U.S. residential rental market. The broader category of SFR includes scattered homes for rent, while BTR communities are entire neighborhoods of new homes being rented instead of sold to homebuyers.
Traditional homebuilders are making their way into the SFR market through their BTR communities. Rather than building homes and selling them as soon as they are completed, many homebuilders have adopted a different strategy. They are holding the homes after completion and renting them. For homebuilders, BTR presents an alternative revenue stream that may provide some protection from the cyclical fluctuations of the traditional homebuilding market. This diversification has insulated some homebuilders from slowed sales in the last two years due to higher mortgage rates. This is good news for shareholders in the publicly traded homebuilders, and also for the tenants in the brand new homes who otherwise could not qualify for or afford to buy a new home.
Additionally, some institutional investors are buying entire communities in one transaction. Both scenarios result in the institutional investor having control of the applicable HOA. Some investors operate their SFR communities like multi-family rental projects whereby the homes are not built on separately platted lots but are constructed on one large lot that can only be conveyed as one property. The norm, however, is that rental homes are individually transferrable lots within community associations. When one entity owns all of the lots within a community association, the need to operate the community association in accordance with its governing documents may be questioned. It is my position that there are benefits to institutional owners in keeping community associations operative and in retaining the expertise of common interest development (aka HOA) experts.
In some neighborhoods, the development and permitting process included a requirement by the municipality that a community association must be formed to maintain shared facilities such as private streets or drainage facilities. In those cases, local law requires that the community association remain active and conduct the required maintenance.
Some communities have common area amenities shared by the residents which are often owned by the community association. If an institutional owner who owns all of the homes does not keep the association’s corporate status active and compliant, there may be title issues with the ownership of the shared amenities. Without an active association, it may not be possible to insure the common amenities.
Additionally, for the institutional owner there is liability protection in the association owning amenities like a swimming pool, tennis courts, or a fitness center. In the event of an injury on those amenities, the association would be the liable property owner, not the institutional owner. This serves to limit liability to the assets of the association, while protecting those of the institutional owner.
The institutional owner may find operating an association burdensome because state laws vary widely and there are many corporate governance laws that apply to community associations differently than other types of business entities. Therefore, institutional investors should consider retaining HOA managers to exclusively handle HOA-related issues within their communities. Such managers have different knowledge and skill sets than the leasing or property managers that might otherwise be engaged by an institutional owner in the operation of a rental community.
Additionally, attorneys who specialize in HOA law and have regional expertise can provide benefit to institutional owners. When an institutional owner owns an entire community, HOA counsel can ensure compliance with niche laws. If you have any questions or would like more information on this subject, please feel free to get in touch with the author of this article.
Why Financial Institutions Should Stay the Course
Introduction
Many regulated businesses believe that the only thing worse than strict regulations is a wholly uncertain regulatory environment. With many rule changes on hold and enforcement actions and investigations being terminated or limited, how do banks, payments program managers, processors, and fintechs move forward? Do they “take their gloves off” and take advantage of a possible enforcement void to maximize profits, or do they stay the course given that there are 50-year-old laws on the books that still apply and probably are not going anywhere?
We say, continue to innovate with the expectation that certain fundamental laws and rules are unlikely to change and that consumers still want and need financial services and products.
The Resilience of Statutes and Regulations
Most financial institutions, payments companies, and fintechs have always designed their products and services for compliance. When new rules and orders come out, they often do not have to make changes because they had a robust compliance program in place and had already been using best practices. Similarly, they are not quick to take advantage of a “bad” ruling, knowing instinctively that a new statute, order, or ruling will soon restore the status quo.
Even in a time of regulatory uncertainty, the primary federal consumer protection rules that have existed since the late 1960s and 1970s are likely to stay in place. These include the following:
The Truth in Lending Act (TILA) and its Regulation Z, which, among other things, require loan disclosures, periodic statements for open-end credit, and prepaid account disclosures, and provide consumers with protections from unauthorized credit card transactions.
The Electronic Fund Transfers Act (EFTA) and its Regulation E, requiring initial disclosures, regulating electronic fund transfer (EFT) arrangements, and providing significant consumer protections from unauthorized EFTs.
The Equal Credit Opportunity Act (ECOA) and its Regulation B, prohibiting impermissible forms of credit discrimination and requiring “adverse action” notices or other notifications regarding credit applications and existing extensions of credit. While the scope of the impermissible discrimination rules may change from time to time, including as a result of court decisions, the basic credit notification requirements are unlikely to change.
The Truth in Savings Act and its Regulation DD, which requires initial disclosures for consumer deposit accounts and, if statements are provided, requires specific information to be included in such statements.
The Real Estate Settlement Procedures Act (RESPA) and its Regulation X. In addition to requiring certain mortgage loan disclosures, Section 8 of RESPA prohibits referral fee and kickback arrangements involving “settlement services.” Here is one area for which the rules might be relaxed. For many years, the ability to enter into marketing services agreements and similar arrangements has been severely limited due to the Section 8 interpretations and enforcement actions of the Consumer Financial Protection Bureau (CFPB). With the CFPB being under new leadership and its future uncertain, marketing arrangements that survived Section 8 scrutiny prior to the CFPB might again be viable.
For all of the above, while enforcement by federal regulators might be reduced, enforcement by plaintiffs’ lawyers likely will not. This seems particularly likely for those laws such as TILA, the EFTA, and ECOA that provide for class-action liability.
State laws governing credit interest rates, loan and other product and service fees, and consumer disclosures also are likely to stay in place. Those laws might shift in some states, particularly those laws that were made more burdensome in recent years, but they are unlikely to go away entirely.
States May Fill the Void
All of the federal laws listed above are “federal consumer financial laws” under the Dodd-Frank Act, and state attorneys general and state regulators are empowered by that act to bring a civil action to enforce any of these laws. The main exception is that a state attorney general or regulator generally may not bring such civil actions against a national bank or federal savings association.
Conclusion
Although there may be some regulatory uncertainty, some things remain constant. Lawyers will be lawyers and lawsuits will be brought, and state attorneys general and regulators can enforce the federal consumer financial laws against most banks and nonbank businesses.
It is just a question of complying with the existing laws, applying common sense rules, and developing attractive consumer options. We are not without regulatory guardrails, but old-fashioned banking with modern innovations still provides routes to develop and market consumer products and services and build customer relationships. Those businesses that continue to innovate can take the lead.
Unclaimed Property Laws and the Health Industry: Square Peg, Round Hole
Likely due to the tremendous number of healthcare mergers, acquisitions, and private equity deals that have been taking place, the industry has recently been the target of multistate unclaimed property audits. This increased scrutiny has highlighted many of the complexities and tensions that exist in this space. At almost every stage of the process, healthcare industry holders are pressured by state unclaimed property auditors and administrators to fit a square peg in a round hole – something both they and their advocates should continue to vigorously push back against.
Determining whether any “property” exists to report in the first instance can be a daunting task in an industry where multiple parties are involved in a single patient transaction that is documented by complex business arrangements between sophisticated parties, which are updated and accounted for on a rolling basis. Unclaimed property audits are conducted in a vacuum of one single holder and use standard document requests that were developed to apply to all businesses, creating unrealistic record retention and management expectations that almost never neatly align with healthcare industry laws or practices.
Making matters worse, unclaimed property auditors and voluntary disclosure agreement (VDA) administrators frequently do not have a detailed understanding of the complex healthcare privacy, billing, and payment practices, yet these practices materially impact how providers manage unclaimed property and when they report it. Getting them up to speed on these laws, practices, and procedures can be very time-consuming. For example, providers or their advisors may need to explain to auditors what HIPAA is or what prompt pay laws are. Many of the payments in this space are managed or funded by the US government, resulting in federal preemption of a state’s ability to demand at least some portion of the funds a review is likely to identify. And while some of the larger healthcare providers and payors have detailed records for more recent periods, the degree of detail requested by the auditors is frequently unreasonable (in both time and scope) and can result in sampling, extrapolation, and grossly overstated audit results.
This article explores some of the unclaimed property law tensions and legal risks that exist for healthcare providers of all sizes.
COMMON PROPERTY TYPES
Some common property types at risk of exposure in the healthcare industry include patient credit balances, accounts payable checks, payroll checks, refund checks, and voided checks. These risk areas can result in unclaimed credit balances for varying reasons, such as overpayment and payment of the same bill by multiple sources. Healthcare providers and insurance companies periodically engage in settlement audits to resolve open items. However, a healthcare provider may make adjustments and write-offs to accounts receivable arising from a settlement, thus creating tension with the statutory anti-limitation provisions of unclaimed property law.
FEDERAL PREEMPTION
Although all 50 states and the District of Columbia have enacted unclaimed property laws, federal laws may preempt their ability to exert jurisdiction and regulate certain (otherwise) unclaimed property. Federal preemption can often be raised as a defense in the healthcare industry where federal law robustly governs the space (such as Medicare) or conflicts with state unclaimed property laws. For example, these defenses can be raised when federal law either establishes or abrogates property rights, claim obligations, and periods of limitation.
PROMPT PAY STATUTES AND RECOUPMENT
Prompt pay statutes are generally designed to ensure that physicians and medical providers are recovering their payment claims with insurance providers in a timely manner. Most states contain laws that typically include (1) a period in which claims are required to be processed, (2) types of claims covered, and (3) penalties for failure to comply. The statutes’ deadlines for making payments typically range from 15 to 60 days, depending on the state. Moreover, recoupment provisions in many states provide that refunds of paid claims by insurers are barred after the expiration of a specific period of time from the date of payment. Under these provisions, insurers cannot avoid this requirement via their contracts with the provider. Individual state statutes will render different results related to the coordination of benefits for federally funded plans such that there is either no recoupment period or a longer one. The finer details of prompt pay and recoupment statutes are important for states and their auditors to understand and, if not properly accounted for in an audit or VDA, can lead to vastly overstated results.
BUSINESS-TO-BUSINESS EXEMPTION
Some states exempt business-to-business payments and/or credit due from unclaimed property reporting. The scope of these exemptions can vary widely and sometimes contain traps for the unwary, requiring careful review before they are broadly implemented into a provider’s reporting process. In many states, there are viable defenses to unclaimed property audit assessments seeking payor funds held by a provider.
REVENUE RECOGNITION BASED ON CONTRACT
Contractual allowance adjustments and accounts receivable credit reclasses in the contractual allowance account can give the appearance of unclaimed property if not resolved timely, accurately, and with the appropriate supporting documentation. Examples of accounts that can give rise to potential unclaimed property credits include expired or outdated contracts between a healthcare provider and insurance company, unaccounted contract revisions or adjustments, and others that are unique to the healthcare industry to account for the complex flow of funds between patient, provider, and payor.
M&A DEALS
Unclaimed property results can vary significantly based on the terms and type of deal. It is best practice for unclaimed property counsel to be involved in healthcare deals to ensure any potential unclaimed property is accounted for. The typical failure to maintain records in a searchable manner post-acquisition may result in either (1) false positives during the next audit in an address review or (2) a windfall for the state of formation if an estimation is performed. Reviewing key provisions in the agreement when conducting a deal can identify complications that may arise and ensure the parties proactively account for any risk and maintain the records needed.
False Claims Acts
Many state False Claims Acts (FCAs) permit a private party (a relator) with knowledge of past or present underpayments to the government to bring a sealed lawsuit on its behalf. When these suits are successful, the relators receive 15% to 30% of any judgment or settlement recovered, which includes treble damages of the alleged unclaimed property liability and interest, per occurrence penalties, and even costs and attorneys’ fees.
In California ex rel. Nguyen v. U.S. Healthworks, Inc., the plaintiff brought a suit alleging that the failure to report credits as potential overpayments violated California unclaimed property law and the state FCA. The California attorney general filed an unclaimed property complaint in intervention against the healthcare provider, identifying the ongoing failure to comply with state unclaimed property law as a key factor in the attorney general’s decision to pursue the case under California’s FCA before agreeing to settle for $7.7 million in 2023.
Other states, including New York, are actively involved in aggressively enforcing their unclaimed property laws as punitively as possible through state FCAs. The U.S. Healthworks case is a cautionary tale for healthcare providers that have not robustly analyzed their unclaimed property law compliance practices.
Maintaining Harmony: Best Practices for Enforcing Community Rules and Covenants
One of the most important roles a community association serves is garnering resident compliance for both community rules and declarations of covenants, conditions and restrictions (“Covenants”).
If done well, enforcement fosters harmony and neighborly behavior within the community. However, to be done well, enforcement of the Covenants must be carried out in a legally sound, fair, and consistent manner. Below are best practices to help community associations effectively and reasonably enforce their governing documents while ensuring compliance with legal requirements and maintaining positive relationships with residents.
Understanding the Difference: Rules vs. Covenants
Before delving into enforcement strategies, it is crucial to distinguish between rules and Covenants. Covenants are recorded restrictions that run with the land. They generally cover long-term property use restrictions and architectural standards. In contrast, rules are policies adopted by the Board of Directors to most commonly address the use of common areas, such as amenities. In some cases, if authorized by the Covenants, the rules may also govern the use of lots or condominium units. While both require enforcement, rules must be consistent with the authority granted by the Covenants and applicable law. Boards should avoid adopting rules that are inconsistent with the association’s governing documents and federal, state, and local law.
Best Practices for Enforcing Rules and Covenants
Know the Governing DocumentsThe Board and managing company must have a clear understanding of its governing documents, including the Covenants, Bylaws, and any applicable statutes that govern enforcement authority. This puts the Board in a position to help the residents also understand the governing documents.
Communicate Expectations ClearlyEnsuring residents are aware of the community’s rules and Covenants can prevent unintentional violations. Regular communication through newsletters, welcome packets, and online portals can help educate owners (who, in turn, can educate their tenants or guests). Once new rules are adopted, they should be widely distributed to the residents using the association’s regular communication channels. Clear communication helps promote compliance by managing expectations.
Adopt Rules to Serve Legitimate Community NeedsRules should reflect the interests of the community and not be overly restrictive or arbitrary. They should balance the rights of individuals with the collective requirements of the association’s governing documents.
Follow a Consistent Enforcement ProcessThe Board of Directors or adjudicatory panel should follow a consistent enforcement process that has been shared with the members. More information regarding the enforcement process can be found here: Navigating the Homefront: A Guide to Handling Violations in Community Associations – Ward and Smith, P.A.
Enforce Through Legal Action When NecessaryIf voluntary compliance is not achieved, the association may need to pursue legal remedies, such as seeking an injunction or filing a lawsuit. However, litigation should be used only as a last resort.
Conclusion
Effective enforcement of community rules and Covenants is essential to preserving the character and stability of community associations. By following these best practices—grounded in legal authority, transparency, due process, and fairness—associations will garner compliance while maintaining positive relationships with residents. A well-run community association upholds the integrity of the community as a whole and reduces the risk of disputes and legal challenges.
IRS Roundup February 17 – March 14, 2025
Check out our summary of recent Internal Revenue Service (IRS) guidance for February 17, 2025 – March 14, 2025.
Editors’ note: With the change in presidential administrations, the IRS has undergone significant transition in recent weeks and issued significantly less guidance than normal. We did not publish the IRS Roundup regularly during these weeks as we awaited new guidance from the agency.
February 19, 2025: The IRS issued Revenue Ruling 2025-6, providing the March 2025 short-, mid-, and long-term applicable federal rates for purposes of Section 1274(d) of the Internal Revenue Code (Code), as well as other provisions.
February 21, 2025: The IRS issued Notice 2025-15, providing guidance on the alternative method for furnishing health insurance coverage statements to individuals, as required by Code Sections 6055 and 6056. This alternative method allows entities to post a clear and conspicuous notice on their websites, informing individuals that they can request a copy of their health coverage statement. This notice must be posted by the due date for furnishing the statements and retained through October 15, 2026. The guidance applies to statements for calendar years after 2023.
March 5, 2025: The IRS issued Revenue Procedure 2025-17, providing guidance for individuals who failed to meet the eligibility requirements of Code Section 911(d)(1) (foreign earned income exclusion) for 2024 because of adverse conditions in certain foreign countries. The revenue procedure lists specific countries, including Ukraine, Iraq, Haiti, and Bangladesh, where war, civil unrest, or similar conditions precluded normal business conduct. Individuals who left these countries on or after specified dates in 2024 may still qualify for the foreign earned income exclusion if they can demonstrate that they would have met the eligibility requirements but for these adverse conditions.
March 5, 2025: The IRS issued Notice 2025-16, providing adjustments to the limitation on housing expenses for 2025 under Code Section 911. These adjustments account for geographic differences in housing costs relative to those in the United States. The notice includes a detailed table listing the adjusted housing expense limitations for locations worldwide. It also allows taxpayers to apply the 2025 adjusted limitations to their 2024 taxable year if the new limits are higher.
March 6, 2025: The IRS issued Revenue Ruling 2025-7, providing interest rates for tax overpayments and underpayments for the second quarter of 2025 in accordance with Code Section 6621.
March 11, 2025: The IRS issued Notice 2025-17, providing updates on the corporate bond monthly yield curve, spot segment rates, and 24-month average segment rates used under Code Sections 417(e)(3) and 430(h)(2). The notice includes the interest rate on 30-year Treasury securities and the 30-year Treasury weighted average rate for plan years beginning before 2008. It also specifies the minimum funding requirements for single-employer plans, the methodology for determining monthly corporate bond yield curves, and the adjusted 24-month average segment rates for March 2025. Additionally, the notice outlines the permissible range of rates for calculating current liability for multiemployer plans.
Chinese Court Again Rules AI-Generated Images Are Eligible for Copyright Protection
On March 7, 2025, the Changshu People’s Court announced that it had ruled that images generated with Artificial Intelligence (AI) are eligible for copyright protection. This is believed to be the second case regarding AI-generated images with the Beijing Internet Court ruled similarly in late 2023. In the instant case, Lin XX generated an image of a half heart in a city waterfront using Midjourney and further used Photoshop to edit the image. An unnamed Changsha real estate company then used the image in a WeChat posting and further built a three-dimensional installation based on the image at one of its developments.
The Court explained that it first reviewed the user agreement of the AI software involved in the case, and clarified that the assets and rights of the pictures produced by using the software service in the Midjourney software user agreement belong to the user, and logged into the creation platform in court to review the login process, user information, and the picture iteration process such as the modification of the prompts. The court held that Lin’s modification of the prompts and the modification of the picture through the image processing software reflected his unique selection and arrangement, and the image generated by this was original and belonged to the works protected by the Copyright Law. The two defendants violated the copyright by disseminating the picture on the Internet without the permission of the copyright owner. At the same time, it was determined that the copyright enjoyed by Lin should be limited to the picture, and the manufacturing of the three-dimensional installation was only based on the image. The real estate company’s design and construction of the corresponding installation did not constitute an infringement of Lin’s copyright. The court then ruled: 1. The infringing party publicly apologized to the plaintiff Lin on its Xiaohongshu [Red Note] account for three consecutive days; 2. The infringing party compensated the plaintiff Lin for economic losses and reasonable expenses totaling 10,000 RMB; 3. The plaintiff Lin’s other claims were rejected. After the first-instance judgment, neither the plaintiff nor the defendant appealed, and the judgment has taken legal effect.
This is the opposite of the decision reached by the U.S. Copyright Office in Zarya of the Dawn (Registration # VAu001480196) that did not recognize copyright in AI-generated images.
The original announcement can be found here (Chinese only).
Bye Bye Home Buyers? – Proposed Legislation Might Make Home Buyers’ Jobs Harder
One area that we have seen multiple times in TCPAWorld is complaints against parties offering to buy a consumers home.
Well, we have spotted an interesting trend in some state legislatures where bills are being introduced to rein those practices in.
In Tennessee, there is a bill which limits the number of times a developer or someone working on behalf of a developer can contact a homeowner.
In Pennsylvania, a similar bill has been introduced, but the unique factor in that bill is that the Secretary of the Commonwealth must designate a certain geographic region as a “homeowner cease and desist zone”. How long until all of Pennsylvania is a “homeowner cease and desist zone”?
Indiana’s bill is slightly different because it prohibits a telephone solicitor who is NOT a licensed real estate broker from making more than “one unsolicited home purchase inquiry to the same consumer in a single year.”
Typically, when you see multiple states addressing the same or similar issues, there is some model language being used and there are similarities between the states. However, this seems to be different bills and different use cases. Which suggests that these grew somewhat organically in the states.
The other interesting thing is some of the most active lobbyists in state politics are realtors and developers.
So, it will be very interesting to watch as the bills progress to see if there is any traction.