from Local Attorney, Michael H. Wasserman

Monday, February 23, 2009

Proposed Law Would Protect Some Condo Landlord's

Some people buy condominiums to live in. Others buy condominiums and then offer the units as rental properties to others. Still others rent out condominiums when they want to sell but cannot find a buyer and they need the income to cover their expenses.

It turns out however, that many condo owners do not want to allow rentals in their buildings. In those instances, efforts are undertaken to impose rental restrictions of the association, by means of amending the governing rules; the Condominium Declaration and/or By-Laws. Naturally, this can be a terrible problem when the rules change after a rental situation has been created.

Enter West Suburban State Rep.s Sandra M. Pihos & Karen A. Yarbrough who have introduced legislation to address this issue. House Bill 821 proposes to amend the Illinois Condominium Property Act by offering "grandfather" protection to such landlords. If a condo owner's association changes the riles, he or she would be allowed to continue the rentals, without fines or penalties until such time as he/she sells the condo unit.

Foreclosure Properties never die....and won't just likely fade away either.

We were reminded this weekend that the housing market turmoil is taking its toll on us; the (former) home-owners; their pets; and ALL THE REST OF US WHO OWN or WISH TO OWN HOMES.

The Tribune devoted extensive coverage to the phenomenon of "ghost towns" in Englewood, Garfield Rogers & Washington Parks. Foreclosures force families out of their homes. But those homes remain leaving neighborhoods without neighbors. I first wrote about this problem back in January, 2008. Two more Sunday Trib articles here, and here.

The Indianapolis Star reports on increasingly dogs & cats are being abandoned as owners lose the ability to care for their pets.

But the foreclosures are effecting ALL of us, even if we do not live in those worst hit areas. A new study by Deutsche Bank confirms something I wrote about three weeks ago: there is a large (and growing) inventory of bank-owned (foreclosed) properties. As banks release those properties back into the marketplace, the resulting torrent will almost certainly pressure home prices downward and further slow sales of privately owned homes.

DB looked at the largest 26 real estate markets in the U.S. REO inventories in 8 of those markets exceeded the number of listings in their local MLS. REO properties bested MLS listings 2:1 in 5 of those 8 markets
Overall, DB estimates that the total of foreclosure properties in those markets equaled 77% of all MLS listings.
There are a couple of caveats that may effect the study's numbers:
  • The report counted REO properties, homes scheduled for auction, and assumes two thirds of all pre-foreclosures will end in foreclosure. The bailout package may negate that assumption somewhat.
  • There is some measure of overlap between REO properties and MLS listings, that is, some REOs are also listed in the MLS. The statistics suggest how many REO properties may not be in the MLS, as opposed to trying to show what percentage of properties in the MLS are bank-owned.

So, what is all of this going to mean for us? The National Association of Realtors wants homebuyers' to "get off the fence." I'm not so sure that makes sense for buyers just yet.

Prices are already dropping. Nationally, home prices are down 26% from their peaks, with a little more than 1/2 of the decline coming in the last six months of 2008.

All of this is in turn will impact on the expectations of non distressed property owners (and distressed developers/builders), who will need to at least consider further price-cutting to secure sales.

Not many good options here. Leave the properties off the market and release them at a measured rate? It is hard to justify holding onto empty properties from any policy standpoint other than to support home prices. These properties cause a blight on their neighborhoods and will only deteriorate from neglect over the passage of time. Banks will incur the carrying costs associated with taxes, insurance (?) and will only realize gain (or moneize losses) when they can sell these assets away. Waiting is bad.

Release them all at once? The value of everyones property will drop due to a sudden, torrential flood of new "inventory" to be "absorbed" back into the market. Prices will drop. Market times will soar. Acting too quickly is bad.

What are your thoughts on this matter? How can we return these properties to productive use and preserve current market pricing?

Sunday, February 22, 2009

A Cautionary Tale for Real Estate Agents

I have posted before about various mortgage frauds. Others have reported about problems with bogus deeds. Here is a new one (to me, anyway) that might keep a realtor or two awake at night. This comes from Kelly Willey, a realtor in Abingdon, Maryland on Active Rain: A crazy internet "Nigerian" hijacks a realtor's listing, assumes her name on craig's list and offers the home for rent below market to lure "tenants." C.I.N. tells the "tenant" to send him a check and he'll mail the keys. Yikes!

I had not heard of this type of rental scam before, stealing an agents name and listing. Judging by the feedback to Kelly's post, this is an emerging problem in a number of communities. Only a matter of time before we start seeing it here. I suppose that it is inevitable that scamming and thievery increase when times are tough.

Kelly found out about the scam when "tenants" started calling her So what can be done to guard against frauds

Wednesday, February 18, 2009

Jones Day: Block Shopper's Chop Blocker ?

Blockshopper has been around Chicago for several years now, and recently rolled out a significant expansion of both its local and national coverages. I first wrote about them a year ago.

The beauty of the site is clearly in the eye of the beholder. If you want to know (even more about) who bought the house up the street (and what they paid), the site is just the cat's pajamas. If you just bought a house and want to hold on to a hopeful thread of a delusional belief that there is still a conceptual right to privacy in such matters, the site is a veritable nightmare.

At the end of the day, you really have to hand it to the folks who launched the website. They only publish data already available to the public at large, so its not like they are creating anything new or showing the world anything that the world doesn't already have access to. They are simply aggregating it in a way that no one has before them.

What can the common man do? Not much. Which is why we have lawyers.

Credit the suits at Jones Day (I was going to link to their website just there but elected not on to see why) for at least a small victory over the reviled real estate tattlers.

Here are the background details from the "Citizen Media Law Project"

Founded in 2006, is a start-up local online real estate news service covering Chicago, South Florida, Las Vegas, and St. Louis. Its reporting staff is made up of ex-print journalists who collect public real estate sales data, then use information in the public domain (e.g. company web sites) to write news stories about recent transactions. BlockShopper currently produces upwards of 1,000 stories per month and has produced more than 8,000 since its founding, many of which appear in print newspapers as part of content-sharing partnerships with companies like Tribune. Three of those stories, all on BlockShopper's Chicago web site, reported the real estate transactions of partners and associates from Jones Day, the large international law firm.

Jones Day sued on Aug. 12, 2008 in federal court in Illinois. The complaint alleges that infringed and diluted the firm's service mark and violated state trademark and unfair competition laws by using the word "Jones Day" when referring to the real estate transactions of Jones Day attorneys, linking to its site and using lawyers’ photos from its site. The firm contends that these activities creates the false impression that Jones Day is affiliated with or sponsors

Jones Day sought a temporary restraining order preventing BlockShopper from writing about its lawyers or linking to its web site. BlockShopper agreed to take down the three stories temporarily, to avoid the expense of arguing both a TRO and then
the complaint itself against a large law firm.

Blockshopper says it spent more than $110,000 defending itself against the lawsuit, which settled last week. "They had no shot at winning, but they were going to bleed us dry," said co-founder Brian Timpone. Cleveland Plain-Dealer.

Under the settlement, Blockshopper can continue to publish links to Jones Day but they can't be "embedded links." Those are defined as hyperlinks that are placed on a word or name. Instead, BlockShopper will have to place the Web address next to references to the firm. In other words, instead of writing Daniel P. Malone Jr. is an associate in the Chicago office of Jones Day," BlockShopper must write "Malone ( is an associate . ..

So, in the end, what did Jones Day accomplish? The bloodsucking lawyers forced the
evil website gossips to spend $100,000 plus in legal fees. (Heaven alone knows what they charged off internally for their own efforts). They had the "offending" entries removed from the web site for a period of months. They forced a change in the type of hyper-links that the B-S can use.

Hoo hah. Good work boys. Justice served. I know I'll sleep better tonight.

More Good News for Buyers - for the rest of us? not so much...

Downtown 2008 4th quarter condo sales cratered. As the kids might say, Duh!

Lets try to quantify that. According to Crain's, quarterly sales were actually negative 253 for the quarter. Put another way, more buyers walked away from contract than signed new ones. For the entire year, only 644 new construction condos sold. Compare that to 2007 when 3,724 units sold or 2005 (the market peak) when 8,162 units closed.

So where is the good news for buyers? Another 4,734 condos are expected to be completed this year downtown. This is on top of thousands of other condos that are completed but haven’t yet sold.

Developers are going to be stressed to the max, trying to sell off unsold units. Their lender's are going to start pressuring for loan repayments. The likelihood of developer defaults and foreclosures seems pretty strong.

Then consider the folks who did not walk away from their downtown condo contracts. A great many were "investors" who wanted to buy and flip. Those speculators are out there too, also hoping to unload their properties. As soon as possible.

Prices are going to drop. Downtown Buyers are going to see (I predict) some truly wonderful opportunities.

What do you think?

Friday, February 13, 2009

GLASS HALF FULL - a Lesser Home Buyers Tax Credit Due

Real Estate professionals were a twitter all week about the Senate's proposed $15,000 home buyers tax credit. Alas, it was not to be. It appears that the final version of the Recovery & Reinvestment Act will have a much lesser sort of tax credit.

  1. A credit of up to $8,000
  2. for first-time home buyers only (have not owned a principle residence in three years)
  3. If they buy before December 1
  4. But, phases out for couples with incomes above $150,000 and single filers with incomes above $75,000.
  5. Must be repaid if the property is sold within three years.
a summary of the act, here:

Sunday, February 8, 2009

Good News for Real Estate Investors

While I may have my doubts about the proposed home buyer tax credit, I have no such doubt about Fannie Mae's latest pronouncement.

On Friday, Fannie Mae announced that it is removing the "four property" cap it imposed on real estate investors last year and will now fund loans to "high-credit quality, bona fide investors" for the purchase of up to ten investment properties.

The loan guidelines are reported as:

  • 720 minimum credit score
  • 75% maximum loan to value for purchases
  • 70% maximum loan to value for refi's, including "cash-outs," to the limit (ok, that assumes that you have that still much equity left in the property)
  • Starting March 1, 2009
Ok, truth be told, the four building restriction was only announced last fall and went into effect in December, so it was only a thorn in our sides for what, five weeks? But it most certainly was a thorn in the side of many investors. Why did the government stick it? Lenders needed to try to stem the tide of defaults on investment loans. For Fannie Mae, this was a classic case of closing the barn door after the cows had gotten out. By that point, there were simply too many unwise loans given to too many speculative investors buying condominiums to flip or to developers converting three-flats or other buildings into condominiums for those speculators. Those loans have been most vulnerable to defaults, distressed owners & foreclosures.

But kick starting the real estate markets take a higher priority right now. Investors and going to lead the way. A different type of speculation, perhaps, but this time the tighter screening of borrowers should filter out riskier loans.

This is great news for anyone who was capped by the "old" limit.

This is equally good news for anyone who has been sitting on the sidelines waiting to buy an investment property or two.

It seems to to me that there is a vast inventory of REO (bank owned) properties on market, or coming soon. Prices have certainly dropped. Interest rates are still very attractive. There is a certain "dis-satisfaction" with stock market returns now.

Is now the time to take on a (another) rental property?

Friday, February 6, 2009

Reflections on the Proposed Homebuyers Tax Credit

Earlier this week, the U.S. Senate approved an amendment to the proposed economic stimulus plan that is of particular interest in the real estate community. The Liberman-Isakson Amendment, as proposed, would extend and broaden last years first time home buyers tax credit. (Keep in mind that the Senate has not yet voted on the bill; the House still has to agree, and the President must sign the law before it might take effect.)

Here are the essential points as proposed:

  • Home Buyers will receive a pure tax credit (a reduction of the taxes otherwise owed)
  • The credit would be 10% of the purchase price, up to $15,000.00.
  • Provided that the home purchased becomes the buyers primary residence, for at least two years
  • You can only use the tax credit one time.
  • If the home is purchased in the first year this law exists, you can elect to take the credit as if the house was purchased on December 31, 2008 (that is, the credit can be applied on 2008 returns.
  • Or, if a home buyer prefers, the credit can be split between two tax years. This could help some taxpayers who do not earn enough to pay more than $7500 in income taxes a year (the amount owed by a typical family of four who earn about $92,125)
So what is different from the current credit?
  • The credit is no longer limited to first time home buyers
  • The credit has doubled in size
  • The credit no longer carries the five year repayment limitation (but again, there is a two year recapture period if the house is sold or the buyer does not move in)
The home buyer's tax credit is not a new idea. Senator Isakson based this proposal on a similar $2,000 credit that was offered to taxpayers in recession-plagued 1975. Proponents claim that within one year of enacting that stimulus credit, real estate prices stabilized and two-thirds of the then available home inventory was purchased.

So, whats not to like?

At this point, we need all the help we can get, in stabilizing declining home values, stemming the flood of repossessions and restarting the markets. Anything that makes buying easier (or at least more advantageous); anything that makes people feel better about spending large sums of money, from precious savings amid all this uncertainty; anything that reassures citizens and investors who are fearful of further erosion of their economic well being is welcome.

The market needs a shot to bolster consumer confidence and large tax credits like this are a terrific start.

But this proposal is hardly a panacea and must be understood for what it really is. Consider:

  • According to an article in yesterday's New York Times, the proposed tax credit will cost us all about $18.5 billion dollars
  • Bloomberg is reporting that a family of four earning about $122,000 would completely wipe out the income taxes they would otherwise owe this year if they bought a house, but a family earning half that amount would get about $2,300 less in tax benefits for buying a home than they would under current law.
  • Lower-income people whose taxes over two years don’t total $15,000 won’t get the full benefit and in many cases would get a better deal under current law, which requires the government to send a check for the difference between taxes paid and the $7,500 credit.
  • There is some suggestion (i have not been able to fully verify this yet) that this credit might only apply to homes purchased with a minimum down payment of 5% or more of the purchase price. If so, this will likely exclude home buyer who utilize a VA, FHA or Rural Development mortgage programs.
  • FHA guaranteed loans are getting harder to come by. Some FHA backed lenders are imposing lending standards that are far stricter than the government's "minimum" lending guidelines.
  • Mortgage lenders are still being extremely tight fisted in making purchase money mortgage loans. Buyers must have strong credit scores, and generally speaking must be prepared to make hefty down payments (20%) for their homes. Given that last years stock market collapse halved most savings and investments, and as it gets tougher to pay bills, it is hard to imagine how many homeowners people can still qualify for Fannie Mae & Freddie Mac financing.
  • Then once home buyers start looking for new homes, keep in mind that Fannie & Freddie are imposing new fees and pricing for condo buyers. The credit will help, but the closing costs will hinder.
  • Finally, as the tax credit stimulates buyers to get back into the market, they are going to want to look at new construction products. That segment of the industry is suffering the effects of over-supply. This credit is likely to spur builders to start constructing even more new homes, which will (i suspect) aggravate or at least extend this problem.
The net effect? It seems to me that this is more of the same, it terms of what we are already seeing in the real estate markets. This tax credit is going to benefit the most financially secure amongst us. By and large, I suspect limits the benefit to the upper classes, and perhaps the most disciplined and fiscally conservative parts of the middle class. Wouldn't these folks pretty much be expected buy homes if they wanted to anyway? with or without the tax credit? Those who are the best able to afford new homes (and who already have capitalized on recent mortgage interest rate dips) are going to be winners. The folks who are on the margins, people with lower credit scores or who have lost larger portions of their accumulated savings are likely to miss out. The rich will indeed almost certainly richer.

Overall, I still support this tax credit. The prime objective has got to be an effort to kick start real estate sales, without regard for who is buying. BUT, fixing the market will require a much broader commitment to supporting people trying to stay in their existing homes and mortgages, and helping solve housing problems for people who can no longer qualify for conventional or FHA guaranteed loans.