What Is Constructive Eviction?

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Realtor.com quoted me in What Is a Constructive Eviction? A Rental Gone Very, Very Wrong. It opens,

Most renters have certainly heard of eviction—the dreaded process in which a landlord kicks out a tenant for not paying rent or some other major infraction. But what is a constructive eviction?

That’s a whole different ballgame, where a landlord essentially “evicts” a tenant by not fixing an uninhabitable rental. And while “constructive” may sound like a positive word, it’s not. It means the landlord is failing to fulfill his legal duty.

Constructive eviction is rare, but tenants who face this dire scenario should know their rights, and how to fight back.

How Constructive Evictions Work

“A common way landlords attempt to force out tenants would be by failing to provide heat in the winter,” says Brooklyn Law School professor David Reiss. Other ways a landlord could run into constructive eviction territory include turning off the water supply or failing to clean up flaking lead paint or toxic mold.

Constructive evictions are uncommon, because most landlords will usually help tenants with an issue. Or, if they are reluctant at first, they’ll eventually reach a compromise with a tenant through the court system, says Boston attorney Robert Pellegrini.

As such, tenants should attempt to work through any problems with the landlord first. That said, if a property owner won’t budge and the living environment puts a renter in harm’s way, a tenant can pursue a constructive eviction claim.

How To File A Constructive Eviction Claim

Unfortunately, tenants can’t file a constructive eviction claim if their floors creak or if their walls are painted a hideous shade of avocado green.

“More minor conditions like peeling (nonlead) paint, stuck windows, and drafty doors would be weak bases for a claim,” says Reiss.

Pellegrini agrees, adding, “The standards are very high for this, because you’re basically asking the court to conclude that the landlord essentially evicted you when he hasn’t.”

Here are five things a tenant must demonstrate to an attorney to prove a constructive eviction:

  1. Your landlord owed you (the tenant) a duty, such as providing heat in the winter or a residence free from toxic mold.
  2. The landlord neglected the duty.
  3. The apartment became uninhabitable as a result of the neglect.
  4. You gave the landlord notice of the neglect and time to take care of it.
  5. You left the apartment within a reasonable amount of time after the landlord’s failure to fix the issue.

Jumbo Mortgage Deals Ahead

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The Wall Street Journal quoted me in Attention, Jumbo-Mortgage Shoppers: Deals Ahead (behind paywall). It opens,

With more lenders offering jumbo loans, borrowers have more bargaining power to negotiate the best terms.

During the first quarter of this year, 20.3% of all first mortgages originated were jumbo loans, according to Guy Cecala, CEO and publisher of trade publication Inside Mortgage Finance. That’s up from 18.9% last year and 5.5% in 2009, just after the financial crisis.

“At the end of the day, it’s all just supply and demand for capital,” says Doug Lebda, founder and CEO of LendingTree, an online financing marketplace. “Over 60% of people still don’t think they can shop for loans—even rich people. But everything is negotiable.”

Since only a small percentage of jumbo loans are sold to investors, the “vast majority are winding up on bank balance sheets,” according to Michael Fratantoni, chief economist of the Mortgage Bankers Association. But because these loans are held in a lender’s portfolio and aren’t subject to the guidelines of investors purchasing them—as opposed to conforming loans, which must comply with hard-and-fast parameters established by Fannie Mae and Freddie Mac—terms and underwriting standards vary widely.

“Borrowers may find more flexibility with lenders that keep mortgages on their own books,” says David Reiss, a Brooklyn Law School professor who specializes in real estate. “These lenders can usually take a more individualized approach to underwriting than a lender that sells its mortgages off to be securitized with a whole bunch of other mortgages.”

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Here are a few things to consider when negotiating a jumbo loan:

Prepare before applying. “Jumbo lenders are focusing on borrowers with good credit and resources,” said Brooklyn Law School’s Mr. Reiss. Before applying, borrowers should clean up their credit report and keep debt in check. Lenders look at total debt-to-income ratio and overall credit to determine how strong a buyer is; the stronger the buyer, the more the negotiating power.

Create a relationship. “If you’re a substantial borrower with a substantial relationship with a bank—one of our wealth clients—the guidelines might get a bit more flexible,” saysPeter Boomer, executive vice president of PNC Mortgage, a division of PNC Bank NA.

Don’t hesitate to negotiate. “They are the customer, and the lender is not doing them a favor,” says Mr. Lebda, of LendingTree. “People are ecstatic when they get approved for a mortgage, but they actually need to think about it the other way—that the lender should be ecstatic for giving them a loan.”

Bringing Debt Collectors to Heel

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TheStreet.com quoted me in Debt Collectors Hounding You With Robo Calls? Here’s What To Do. It reads, in part,

Mike Arman, a retired mortgage broker residing in City of Oak Hill, Fla., owns a nice home, with only $6,000 left on the mortgage. He’s never been late on a payment, and his FICO credit score is 837.

Yet even with that squeaky clean financial record, Arman still went through the ninth circle of Hell with devilish debt collectors.

“The mortgage servicer would call ten days before the payment was even due, then five days, then two days, then every day until the payment arrived and was posted,” he says. “I told them to stop harassing me, and that my statement was sufficient legal notice under the Fair and Accurate Credit and Transaction Act (FACTA). But they said they don’t honor verbal statements, which is a violation of the law. So, I sent them a registered letter, with return receipt, which I got and filed away for safekeeping.”

The next day, though, the mortgage servicer called again. Instead of taking the call, Arman called a local collections attorney, who not only ended the servicer’s robo calls, but also forced the company to fork over $1,000 to Arman for violating his privacy.

“That was the sweetest $1,000 I have ever gotten in my entire life,” says Arman.

 Not every financial consumer’s debt collector story ends on such an upbeat note, although Uncle Sam is working behind the scenes to get robo-calling debt collectors off of Americans’ backs.

The latest example of that is a new Federal Communications Commission rule that closed a loophole that allowed debt collectors to robo call people with impunity.

Here’s how the FCC explains its new ruling against robo calls.

“The Telephone Consumer Protection Act prohibits most non-emergency robo calls to cell phones, but a provision in last year’s budget bill weakened the law by allowing debt collectors to make such calls when the debt is owed to, or even just guaranteed by, the federal government,” the FCC states in a release issued last week. “Under the provision passed by Congress, debt collectors can make harassing robo calls to millions of Americans with education, mortgage, tax and other federally-backed debt.”

“To make matters worse, the provision raised concerns that it could lead to robo calls not only to those who owe debt, but also their family, references, and even to someone who happens to get assigned a phone number that once belonged to another person who owed debt,” the FCC report adds.

Under the new rules, debt collectors can only make three robo calls or texts each month per loan to borrowers – and they can’t contact the borrower’s family or friends. “Plus, debt collectors are required to inform consumers that they have the right to ask that the calls cease and must honor those requests,” the FCC states.

That’s a big step forward for U.S. adults plagued by debt collection agency robo calls. But the FCC ruling is only one tool in a borrower’s arsenal – there are other steps they can take to keep debt collectors at bay.

If you’re looking to take action, legal or otherwise, against debt collectors, build a good, thorough paper trail, says Patrick Hanan, marketing director at ClassAction.org.

“Keep any messages, write down the phone number that’s calling and basically keep track of whatever information you can about who is calling and when,” Hanan advises. “Just because you owe money, that doesn’t mean that debt collectors get to ignore do-not-call requests. They need express written consent to contact you in the first place, and they need to stop if you tell them to.”

Also, if you want to speak to an attorney about it, most offer a free consultation, so there isn’t any risk to find out more about your rights, Hanan says “They’ll tell you right off the bat if they think you have a case or not,” he notes.

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Going forward, expect the federal government to clamp down even harder on excessive debt collectors. “The Consumer Financial Protection Board takes complaints about debt collector behavior seriously, and has recently issued a proposal to further limit debt collectors’ ability to contact consumers,” says David Reiss, professor of law at Brooklyn Law School. “In the mean time, one concrete step that consumers can do is send a letter telling the debt collector to cease from contacting them. If a debt collector continues to contact a consumer — other than by suing — it may be violating the Fair Debt Collection Practices Act.”

Micro-Units for Millennials

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Construction Dive quoted me in An Emerging Megatrend? Developers Experiment with Microunits to Target Millennial Market. It opens,

As U.S. home prices and rents continue to soar, some developers are taking aim at a new target market — those willing to sacrifice square footage to be able to live near their work and area nightlife at a more budget-friendly price.

These microhousing units, also known as microapartments and microcondos, have most of the amenities of their full-size counterparts but typically range from around 350 square feet to 550 square feet, with some buildings offering up units at a relatively roomy 1,000 square feet. Many also come outfitted with furnishings specifically designed for the unit — folding beds, hidden storage and convertible pieces that do double duty, such as a dining table that also functions as a work desk.

However, the growing concept is seeing mixed results in the U.S. Is microhousing just a passing fad as younger renters look for an affordable stepping stone to a larger space, or does it represent a shift in what some Americans are looking for in a home?

The Draw of Smaller Spaces

Jam-packed cities like Tokyo are prime markets for these tiny units because the cost of land is at a premium, according to David Reiss, professor of law and academic program director at the Center for Urban Entrepreneurship at the Brooklyn Law School. Microunits are particularly appealing to single, young professionals who spend a lot of time working and hanging out with friends rather than entertaining in their own homes, he said.

The primary draw, however, is “location, location, location,” Reiss said. “When young adults are choosing between a small space in the center city or a larger space further afield, there will always be some who opt for the former.”

This hasn’t always been the case, according to architect David Senden, partner at international design firm KTGY. Americans used to put a premium on living space, but there’s been a “shift on the priority list,” and “location and has jumped to the absolute top,” he said. There’s also a growing desire for shorter commuting times.

However, whether the overall demand for microhousing is on the uptick is debatable. Some developers see microunits as the solution that will provide millennials with the opportunity to live in vibrant urban settings, as well as offer baby boomers or those looking to downsize a minimalist living space without having to give up the modern conveniences they’ve come to expect.

When Microhousing Is a Viable Concept

Reiss said population density  and high prices need to be components of any successful micro project . When prices, in both rent and homes, “outpace middle-class income,” as they have done in cities like San Francisco and New York City, then some people will give up square footage in order to stay close to their friends or jobs. “The microunit might present a very attractive trade-off of space and cost for that demographic,” he said. Reiss added that New York City is even amending its zoning laws to allow for more micro developments.

Loan Mod Racketeering?

James Cagney in "Public Enemy"

James Cagney and Mae Clarke in “Public Enemy”

Bloomberg BNA Banking quoted me in BofA Must Face RICO Claims on Loan Modifications (behind paywall). It opens,

Bank of America must face claims that it and another company violated federal anti-racketeering laws by denying loan modifications to eligible borrowers, a federal appeals court said Aug. 15 ( George v. Urban Settlement Svcs., 10th Cir., No. 14-cv-01427, 8/15/16 ).

The ruling by the U.S. Court of Appeals for the Tenth Circuit reinstates purported class claims by Richard George and other borrowers that Bank of America and Urban Settlement Services (“Urban”), a settlement company, feigned compliance with guidelines under the Home Affordable Modification program (HAMP) while modifying as few loans as possible.

A district court dismissed the claims, saying the plaintiffs failed to sufficiently allege the existence of an association-in-fact enterprise under the Racketeer Influenced and Corrupt Organizations Act (RICO), but the Tenth Circuit reversed, saying they made a “facially plausible” claim.

The ruling sends the case back to the district court to consider that and other allegations.

Case Moves Forward

The decision is the latest in connection with HAMP, a 2009 Treasury Department effort aimed at stabilizing the housing market that was closely related to disbursement of government funds to banks under the Troubled Asset Relief Program. Bank of America received $45 billion in TARP funds.

The plaintiffs are represented by Steve Berman, Ari Y. Brown, Kevin K. Green, and Tyler S. Weaver in the Seattle and San Diego offices of Hagens Berman Sobol Shapiro.

“We are more than pleased the court has ruled our complaint has sufficiently alleged that Bank of America’s massive HAMP mortgage-modification program was in fact a RICO enterprise,” Berman, the firm’s managing partner, said in an Aug. 15 statement. “For years, we have tirelessly fought this major Wall Street kingpin to right the wrongs it committed against hundreds of thousands of homeowners and taxpayers who footed the $45 billion government bailout BoA took in, only to have it used to propagate a scheme to squeeze every dollar from BoA customers and wrongfully foreclose thousands of homes in the process.”

Bank of America spokesman Rick Simon said the bank denies the claims, which he said paint a false picture of the bank’s practices and its employees.

“In fact, Bank of America has been an industry leader in HAMP and other beneficial mortgage modifications,” Simon told Bloomberg BNA in an Aug. 15 e-mail. “We are reviewing the Circuit court’s decision and considering our options.”

The lawsuit, which involved loans originally held by Countrywide Home Loans, said Bank of America and Urban were part of a fraudulent scheme to keep borrowers from acquiring permanent HAMP loan modifications, allegedly because defaulted loans were more profitable.

They said Urban functioned as a “black hole” for HAMP-related documents submitted by borrowers, ensuring that trial modifications would not be made permanent.

Tenth Circuit Reverses

In its September 2014 ruling, the district court said the plaintiffs failed to allege, as required by RICO, that Bank of America was distinct from the alleged racketeering enterprise.

The Tenth Circuit reversed in a decision by Judge Nancy Moritz, who wrote for a three-judge panel. The plaintiffs, she said, “don’t contend that either a parent corporation or its subsidiary corporation is the enterprise. Rather, they assert that BOA and Urban—two separate legal entities— joined together, along with several other entities, to form and conduct the affairs of the BOA-Urban association-in-fact enterprise.”

According to the plaintiffs, she said, Bank of America and Urban “performed distinct roles within the enterprise while acting in concert with other entities to further the enterprise’s common goal of wrongfully denying HAMP applications.”

That is enough to “plausibly allege” that Bank of America meets the “enterprise” requirement, she said.

Crisis Cases Continue

Brooklyn Law School Professor David Reiss said the decision shows that financial crisis-era litigation is not over. “This case is an example of litigation that arises from the supposed fixes for the crisis—fixes that were often implemented poorly, as can be seen from a variety of cases and regulatory actions,” Reiss told Bloomberg BNA in an Aug. 15 e-mail.

The lawsuit alleged in part that documents submitted by borrowers were intentionally “scattered” across various computer databases and systems, allegedly with the goal of creating the appearance that borrowers had not completed the paperwork required to convert their trial plans into permanent modifications.

Reiss called it significant that the court accepted, for purposes of a motion to dismiss, the plaintiffs’ theory that the alleged “black hole” treatment of documents could rise to the level of a RICO violation.

“While courts have held against defendants in individual cases with similar facts, the possibility that they could hold against lenders and servicers in a class action raises the stakes quite a bit for defendants,” Reiss said.

No Mortgages for New Moms

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Realtor.com quoted me in Mom on Maternity Leave Denied a Mortgage: Could It Happen to You? It opens,

Hopeful home buyers can be denied loans for all kinds of reasons, from a poor credit score to low income. It sucks, but it makes sense: Lenders prefer giving cash to people who can pay them back. (Can you blame them?) Yet, sometimes people are turned away for dumb reasons. Take, for instance, the recent case of a Philadelphia mom who was denied a mortgage because she was on maternity leave. It was even paid maternity leave, with a firm date to return to her job. What’s up with that?

According to the Washington Post, the mom in question (who remains anonymous) had applied for financing with her husband to fund renovations on a house in Philadelphia. But due to her maternity leave, her pay stubs showed she was on “short-term disability,” which prompted the loan’s underwriter to surmise she might not resume working full time—even though her employer was happy to submit a letter indicating the day she’d return to the office.

And this mom is hardly alone: Over the past six years, the Department of Housing and Urban Development has documented over 200 cases alleging maternity-related discrimination against women seeking mortgages. In one case, a lender in Arkansas allegedly told the applicant that she’d have to be back at work before her loan could close!

And this is a shame, because housing discrimination—based on gender, familial status, disability, race, and other factors—has been illegal since the Fair Housing Act of 1968. Yet apparently it still exists even at prominent mortgage companies, as evidenced by the cases against Wells Fargo, Bank of America, PNC Mortgage, and others.

As for why this happens, experts surmise it’s because some lenders have outdated notions of women in the workplace, presuming most will bail or scale back on their jobs once kids enter the picture, permanently reducing the family’s income and eligibility for a loan. But it’s hardly the norm: Census data suggest that more than half of first-time mothers return to work within three months. Another study by the Department of Health and Human Services’ Maternal and Child Health Bureau found that the average maternity leave lasted a mere 10 weeks.

Bottom line: These days, many moms return to the office—yet some mortgage companies have missed that memo. But luckily, some moms are fighting back—like the Philadelphia woman above, who has recently reached a “conciliation agreement” with the lender, Citizens Bank of Pennsylvania. Although the company denied discriminating against her, it also agreed to conduct fair lending training sessions with staff.

And more should follow, Shanna Smith, president and chief executive of the National Fair Housing Alliance, told the Post: “There needs to be much better training for [lenders] about how to deal with interrupted income for loan closings when a woman is pregnant and [on] paid maternity leave.

All of which may have women everywhere wondering: If they hope to buy a home, might maternity leave get in their way? And if so, what should they do? Probably the first step is just knowing that it’s wrong: Maternity leave—paid or unpaid—is not a legitimate reason to refuse a loan.

“It always helps when you know your rights,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “If your lender appears to be violating fair lending laws, you may want to raise the issue directly with your banker and ask to speak to the supervisor to ask the bank to clarify its policy. If your lender continues to enforce a discriminatory policy, you can reach out to the relevant regulators, including HUD and the Consumer Financial Protection Bureau.”