REFinBlog

Editor: David Reiss
Brooklyn Law School

January 9, 2017

What Is a Promissory Note?

By David Reiss

by Zoli Erdos

Realtor.com quoted me in What Is a Promissory Note? What You’re Really Promising, Revealed. It opens,

If you get a mortgage to buy a home, you will end up signing something called a promissory note. So what exactly is a promissory note?

In the most basic terms, it’s a legal document you sign containing a written “promise” to pay a lender, says Scott A. Marcus, a shareholder in Becker & Poliakoff’s Real Estate Practice Group, in Fort Lauderdale, FL.

Promissory notes are a standard part of all real estate financing contracts and include basic information such as:

Promissory notes are an important yet often misunderstood part of the loan process.

“The worst mistake someone signing a promissory note can make is to sign a note without reading and understanding all of its terms,” says Marcus.

So let’s clear up a few common misconceptions, shall we?

Promissory note vs. a mortgage: What’s the difference?

Many home buyers mistakenly think that the mortgage—another contract they sign—is their promise to pay back the loan.

Well, they’re wrong! The promissory note is your promise to do that, plain and simple. The mortgage, on the other hand, is a contract that kicks in more when things go wrong.

In a nutshell, a mortgage (also called a deed of trust) is a pledge you sign to put up your property as collateral in case you default on your loan, according to David Reiss, professor of law at Brooklyn Law School and editor of REFinBlog.com.

In other words, if you suddenly find yourself unable to repay your home loan, your lender will eventually confiscate your property and sell it as a foreclosure to help it recoup its losses from lending you all that money.

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January 9, 2017 | Permalink | No Comments

Monday’s Adjudication Roundup

By Jamila Moore

  • Clorox is not happy with an Illinois city. Clorox is suing University Park in Illinois for breach of promise regarding the reimbursement of rents paid. This alleged breach is a difference of 4 million dollars for the company.
  • Washington Mutual Bank was the alleged target of a 10 million dollar mortgage fraud scheme. A New York publisher and mortgage broker is one of four listed as defendants to the alleged crime.
  • Move Inc. sought help from the Ninth Circuit. Move Inc. asked the a panel of judges in the Ninth Circuit to rehear their 130 million dollar mismanagement of their real estate funds case against Citigroup; however, the panel of judges ruled in favor of Citigroup.

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January 9, 2017 | Permalink | No Comments

January 6, 2017

Carson’s Call of Duty

By David Reiss

photo by Gage Skidmore

Dr. Ben Carson

The Hill published my most recent column, Ben Carson’s Call of Duty as America’s Housing Chief. They only allow me to reprint the first 100 words, so you will have to click on the link to finish it:

Ben Carson, the nominee for secretary of the U.S. Department of Housing and Urban Development (HUD), has made almost no public pronouncements about housing policy. The one exception is a Washington Times opinion piece from 2015 in which he addresses an Obama administration rule on fair housing.

While Carson appears to agree with the Obama administration’s diagnosis of the problem of segregation, he attacks its solution. If he refuses to vigorously enforce the rule at HUD, it is still incumbent on him to address the underlying problem it was meant to address.

The rest of it is really interesting, so click on the link to read the whole thing!

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January 6, 2017 | Permalink | No Comments

Friday’s Government Reports Roundup

By Robert Engelke

  • A paper titled, Corporate Landlords, Institutional Investors and Displacement: Eviction Rates in Singlefamily Rentals, documents the eviction crisis in the city of Atlanta and adjacent suburbs and places eviction-driven housing instability in the broader context of changing housing markets, examining the relationships between post-foreclosure single-family rentals, large corporate landlords, and eviction rates.
  • The paper, Predictive Modeling of Surveyed Property Conditions and Vacancy, draws predictor variables from administrative data that is available in most jurisdictions such as deed recordings, tax assessor’s property characteristics, and foreclosure filing, using logistic regression and machine learning methods, to make reasonably accurate out-of-sample predictions of vacancy and property conditions..

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January 6, 2017 | Permalink | No Comments

January 5, 2017

Millennials and Luxury Housing

By David Reiss

 

photo by Jeremy Levine

The Phoenix Business Journal quoted me in Avilla Homes Finds Millennial Niche in Luxury Rental Market (behind a paywall). It opens, 

As home ownership rates declined in the past decade, more and more people have opted to rent homes. This provided a niche market for young professionals: luxury rental home communities.
Arizona-based NexMetro Communities has developed Avilla Homes, which COO Josh Hartmann calls a “hybrid between single-family living and apartment living,” with communities in the Phoenix and Tucson areas, as well as recent expansion into Denver and Dallas suburbs.
Hartmann said the draw of Avilla Homes is it is a unique hybrid: providing the feel of living in your own house without the responsibilities of being a homeowner. It incorporates some aspects of apartment living, such as on-call maintenance, but focuses on the draw of living in a single-family home, such as four-walled individual units with one’s own yard space.
“I think (owning a home) is less of a draw for investment’s sakes and if you take that away, owning a home is a lot of work,” Hartmann said. “You have to be constantly fixing things. What the real draw of our product is that you don’t have to worry about all those things but you still get to live in a home.”
When the project first began in Tucson in 2011, the board of directors thought its main consumer would be people who lost their homes in the recession and were looking to rent. But the project ended up being a success with an unexpected demographic-the millennials.
Hartmann attributes millennials’ attitude toward homeownership and how they spend their money as a factor in the communities’ success. He estimates that about 65 percent of Avilla Homes’ customers are early in their career, between the ages of 25 and 34.
“I just think what they want to spend the dollars they make on is different than what my generation or the generation before me did,” Hartmann said.
David Reiss, a professor of law at Brooklyn Law School says lifestyle changes coupled with the recession caused many people to turn to renting. The nation’s home ownership was down to 63.7 percent in the first quarter of 2015 from about 69 percent in 2004, according to census data.
“Another piece of it is kind of long term trends: Household formation, student loans that millennials have, another thing is income and job security,” said Reiss. ” A lot of things people have in place before they want to be a homeowner are not in many households.”

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January 5, 2017 | Permalink | No Comments

Thursday’s Advocacy & Think Tank Roundup

By Robert Engelke

  • By 2035, one in three U.S. households will be headed by someone 65 years or older. According to a recent report by the Harvard Joint Center for Housing Studies, many of these baby boomers intend to age in place – in other words, stay in their homes or communities.
  • A report by the California Department of Housing and Community Development reveals that California’s housing affordability challenges remain daunting and continue to worsen. According to the report, housing production was more than 100,000 new homes short of demand over the last decade, and one-third of the state’s renters spent more than half of their income on housing costs.
  • The United States will add 13.6 million households between 2015 and 2025 and another 11.5 million households between 2025 and 2035, according to Updated Household Projections, 2015-2035: Methodology and Results, a new Joint Center working paper. This growth represents an increase from the past decade that is in line with historic rates of growth seen in the 1990s, but still well below the levels experienced in the 1970s

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January 5, 2017 | Permalink | No Comments

January 4, 2017

Fair Lending Fade-out

By David Reiss

open-book-fade

Bloomberg BNA quoted me in In 2017, Look for Pullback on Fair Lending Enforcement (behind a paywall). It opens,

Expect a pullback in fair lending enforcement in 2017, and especially less focus on disparate impact discrimination as the Trump administration takes office.

That’s the assessment of banking attorneys and others weighing the role of the Consumer Financial Protection Bureau, the Department of Housing and Urban Development, and the Justice Department in the uncertain year ahead.

Although a recent court ruling raises questions about CFPB Director Richard Cordray’s tenure, several said they expect the CFPB to be less assertive no matter who heads the agency.

Meanwhile, new leadership at the Justice Department and HUD means that disparate impact claims—allegations of discriminatory effect, without regard to subjective intent—will get less attention than in recent years.

David Reiss, professor of law at Brooklyn Law School in Brooklyn, N.Y., summed up the assessment of several interviewed by Bloomberg BNA on the picture ahead for 2017.

“I would guess that disparate impact won’t be a priority for the Trump administration,” Reiss said.

New Leadership Ahead

In November, Trump said he’ll nominate Sen. Jeff Sessions (R-Ala.) as attorney general. The president-elect also Dec. 5 named Ben Carson, the former director of pediatric neurosurgery at Johns Hopkins, as his candidate to lead HUD.

Alan S. Kaplinsky, a partner in Philadelphia who leads the consumer financial services practice at Ballard Spahr, said he doesn’t expect Sessions “to be a strong advocate for pushing the legal envelope on fair lending issues.”

And Carson might not use what some have called an “enforcement by litigation” approach to housing policy, according to Joseph Pigg, the American Bankers Association’s senior vice president for mortgage finance.

“Returning to a more normal enforcement regime should be a positive for borrowers and lenders alike,” Pigg told Bloomberg BNA. HUD spokesman Brian Sullivan declined to comment on the fair-lending outlook at HUD.

A Well-Known Unknown

Carson, a well-known physician and education reform advocate, took on an even higher profile by entering the 2016 White House race. But on lending, housing and other matters likely to come before him should he take the helm at HUD, Carson’s record is sparse.

One exception is a July 23, 2015, opinion piece in the Washington Times, where Carson criticized HUD’s Affirmatively Furthering Fair Housing rule. Although HUD has a distinct regulation that governs disparate impact claims under the Fair Housing Act, the AFFH rule has a different focus. The regulation, drawn from language in the Fair Housing Act itself, lays out a new process that HUD says “promotes housing choice and fosters inclusive communities free from housing discrimination.”

Carson criticized the AFFH rule, saying it would inject too much government decision-making into local housing policy. The rule, issued in the wake of the U.S. Supreme Court’s ruling in a major 2015 case on disparate impact claims under the Fair Housing Act, might actually frustrate efforts to develop new housing, he said.

Reiss predicted that Carson will either try to get rid of the AFFH rule, or decide not to enforce it. But he also said Carson’s stance on the regulation probably is somewhat nuanced.

“He’s acknowledged the history of redlining, restrictive covenants, and other problems,” Reiss told Bloomberg BNA. “He doesn’t seem to be denying a history of structural racism in the housing market. He seems to be saying the Affirmatively Furthering Fair Housing rule goes too far.”

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January 4, 2017 | Permalink | No Comments