Author Archives: David Reiss

Free or Treed?

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photo by Dazdncnfuzd333

Realtor.com quoted me in Woman Can’t Live in Her Treehouse Even Though It’s Quite Posh (Take a Look!). It opens,

Most people live in houses, but Shawnee Chasser prefers her tree. In fact, the 65-year-old has been living in her custom-made abode between the forked trunks of an oak and fig tree on her late son’s half-acre property in Biscayne Gardens, FL, for the past 24 years. Hey, if it makes her happy, who cares, right?

Well, it turns out county officials do care, since they’ve deemed the treehouse to be unsafe. They’ve told Chasser to tear the structure down, but she’s flat-out refused—sparking a flurry of commentary nationwide about a controversial topic: How much control do we really have over where and how we live, anyway?

Chasser, at least, believes she has a right to stay put in her treetop chateau—a surprisingly spacious two-story place with a double bed and kitchenette complete with a tiny oven and sink. There’s even a small couch often occupied by Coonie, her pet raccoon.

“I’m not taking anything down,” Chasser told the Miami Herald. “I’ll chain myself to that tree house.” (But what about Coonie?)

Part of a land trust run by Chasser’s daughter, the property also has a cottage and minicamper, but Chasser prefers to rent those out. She also lets people pitch tents on the land to make extra cash to supplement her organic popcorn business.

About a year ago, someone called 311 to complain that Chasser was running the property like a hippie apartment complex. That’s when county code enforcement swung by and issued her a citation for illegally renting out the land, as well as living in a treehouse.

County officials concede that if the treehouse had been built with the proper permits and safety standards, there would be no problem. But, well, it wasn’t. And in an area prone to hurricanes, Chasser is endangering her own life, as well as her guests, officials claim.

As a result, Chasser has paid $3,000 in fines and could face an additional $7,000 in liens. She says she doesn’t have the money to hire engineers to rebuild or retrofit her treehouse to get it up to code, and has filed an appeal.

Although she has plenty of sympathizers, real estate experts are split over the treehouse tumult.

“The government has broad authority to regulate our daily lives in order to protect the health and safety of the people living under it,” insists David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “The fact that someone has been able to operate under the radar does not give them a pass once the government has identified a violation of zoning and building codes.”

Fighting Financial Exploitation of Elders

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photo by Chalmers Butterfield

The Consumer Financial Protection Bureau has issued a Report and Recommendations on Fighting Elder Financial Exploitation through Community Networks. The Executive Summary opens,

The widespread prevalence of elder financial exploitation destroys the financial security of millions of older Americans annually. In response to this crisis, hundreds of communities across the United States have created collaborative networks to protect their older residents. These networks, which often bring together key community stakeholders and resources, engage in varied activities designed to prevent, detect, and respond to elder financial exploitation. (3)

The CFPB’s recommendations include,

  • Professionals working with or serving older adults should create networks in communities where they do not currently exist, especially in communities with a large number of older people.
  • Members of existing networks should seek to expand resources and capacity as needed.
  • Elder abuse networks that do not focus on financial exploitation should develop activities and the capacity to respond to elder financial exploitation by seeking to include as network members professionals with financial expertise, such as forensic accountants. Also, they should implement educational programs for older adults, caregivers, and professionals on how to prevent, detect and respond to financial exploitation.
  • Elder financial exploitation networks should seek to include law enforcement as network members and to encourage their meaningful participation in network activities, including but not limited to educational or case review efforts.
  • Because financial institutions are uniquely positioned to detect that an elder account holder has been targeted or victimized and to take action, elder financial exploitation networks should seek to include financial institutions, large and small, as network members. Similarly, financial institutions should seek to join and participate in local networks.
  • To help ensure the network’s long-term sustainability, financial exploitation networks should implement strategies to institutionalize the coordinator role as a permanent staff position.
  • Networks in areas with older Americans of diverse linguistic, ethnic and racial backgrounds should seek to engage stakeholders that serve these populations and deliver educational and case review services relevant and appropriate to these populations.
  • Networks should seek to expand coverage into rural areas by creating regional networks through which resources can be shared and by using teleconferencing and videoconferencing in lieu of travel when necessary.
  • Networks engaging in educational activities, especially those networks with limited resources, should use existing federal, state and local educational resources. (4-5)

These recommendations are all good as far as they go, but we are only beginning to understand the extent to which seniors’ financial judgment may be impaired by diminishing cognitive functioning and social isolation. I would hope that over the next decade, we can develop a more effective defense of seniors’ finances from the predators who circle and circle until they can pounce with impunity.

 

Alternative Living Arrangements

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Realtor.com quoted me in Can You Live in a Storage Unit or Van? How Legal These ‘Homes’ Really Are. It opens,

Yes, we know: Finding affordable housing can be tough. Tougher than tough. And that has led people to push the boundaries of what “home” is—living in vans, boxes, and a slew of other stopgap solutions. Call them creative, call them desperate. But can you call them legal?

Well, that all depends on the specifics. Check out this list of alternative living arrangements people have tried to see what leg you can stand on if the cops show up at your door.

Can you live in a storage unit?

At face value, it would seem like this one could work, especially for the types of storage units that are more freestanding as opposed to those housed in multifloor buildings. And, more than a few homeless people have tried it. But, owing to ordinances and a lack of amenities, this one is considered a straight no-go.

“Most of the time, building codes are there for your protection, and storage units aren’t built for human habitation: There won’t be two means of egress, plumbing, or electricity, and ventilation may be an issue,” says attorney Robert Pellegrini, whose law firm, PK Boston, assists its clients with residential zoning and permitting. There’s also no kitchen, bathroom, or windows.

Bottom line: It’s illegal and possibly dangerous.

Can you live in a van?

A house on wheels? Yes, living in your car or van has become a bit of a thing in pricey-but-young areas like Silicon Valley. But doing so requires some fancy maneuvering.

“There are certainly modifications that you’d want to make to a typical van. But if you don’t run up against vagrancy regulations, there are plenty of Wal-Mart parking lots around for you to call home,” says Pellegrini. “I’d suggest a safe deposit box and better-than-average auto security, but this is definitely doable—just ask all the baby boomers driving around the country in their RVs.”

The trick is to find venues that don’t consider van living illegal.

“Many jurisdictions do not allow people to sleep in public, and this has sometimes been interpreted to include sleeping in a vehicle,” says David Reiss, academic program director for Brooklyn Law School’s Center for Urban Business Entrepreneurship.

For example, in Beaverton, OR, you can’t park a vehicular residence in a commercial lot overnight, but in Boise, ID, you can as long as you have permission from the owner.

To check the status of where you are, do an internet search for “public sleeping + [your current location]” and see what comes up, or look at this report from the National Law Center on Homelessness and Poverty (there is a list of places where it’s OK to sleep in public starting on Page 165).

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Can you live in a box?

Could you build a wooden box in the living room of a friend’s apartment—like in the recent case of an illustrator in San Francisco, CA, who did just that? It became a national story when the city’s chief housing inspector got wind of the box abode and put up a fuss.

“In the San Francisco case, it doesn’t seem that this artist’s box violated local laws,” says Reiss. “Safety investigators are going to be less interested in how people choose to live within their own legal apartments than in how landlords might choose to split up an apartment to jam more and more people in it.”

In other words, if you put one more roommate in your apartment in a wooden box, OK. But if you were to put 10 of those boxes in an apartment and try to rent them out? Well, safety investigators might balk.

Still, it’s not completely unlikely someone might try that.

“Now, more than ever, people are looking for ways to offset the skyrocketing costs of living,” says Pellegrini. “I predict that people’s resourcefulness and practicality will stretch the definition of ‘home’ in order to make ends meet.”

Mortgages for Borderline Borrowers

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photo by Olli Henze

BiggerPockets.com quoted me in 7 Mortgage Qualification Tips for Borderline Borrowers. It opens,

It’s super easy to qualify for a mortgage when you have an 800 credit score, a six-figure salary, no debt, and 20% to put down. But that isn’t everyone’s story.

It’s far more difficult to be approved with a 620 credit score, a low five-figure salary, some outstanding debt, a car loan, and 3% for the down payment. You can still qualify, but it’s a LOT more difficult. And you’re not going to be getting the lowest rate around.

I asked some experts for their mortgage qualifying tips for borrowers who run the highest risk of being turned down. Here’s what they had to say:

7 Mortgage Qualification Tips for Borderline Borrowers

Go FHA

“Applicants with a low credit scores should be sure to look for lenders who offer FHA-insured mortgages. The FHA will insure mortgages with lower credit scores than most others will accept. Borrowers with small savings should look for lenders with low-down-payment requirements. Again, an FHA-insured lender may be the right match, but Fannie Mae and Freddie Mac also have programs with low down payment requirements, so applicants should ask their lenders about those as well,” says David Reiss, a Law Professor at Brooklyn Law School who also writes at REFinBlog.com.

J.D. Crowe, President of Southeast Mortgage of Georgia agrees. “Those with less-than-ideal credit scores sometimes have home loan options through the Federal Housing Administration. The FHA works with approved lenders to help applicants who have lower credit scores and small down payments, and can offer as much as 96.5% financing.”

You can find the other six tips here.

 

The Capital/Labor Split

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photo by Sue Gardner

Thomas Piketty

To commemorate Labor Day, a quote from Thomas Piketty’s Capital in the 21st Century:

On August 16, 2012, the South African police intervened in a labor conflict between workers at the Marikana platinum mine near Johannesburg and the mine’s owners: the stockholders of Lonmin, Inc., based in London. Police fired on the strikers with live ammunition. Thirty-four miners were killed. As often in such strikes, the conflict primarily concerned wages: the miners had asked for a doubling of their wage from 500 to 1,000 euros a month. After the tragic loss of life, the company finally proposed a monthly raise of 75 euros.

This episode reminds us, if we needed reminding, that the question of what share of output should go to wages and what share to profits— in other words, how should the income from production be divided between labor and capital?— has always been at the heart of distributional conflict. In traditional societies, the basis of social inequality and most common cause of rebellion was the conflict of interest between landlord and peasant, between those who owned land and those who cultivated it with their labor, those who received land rents and those who paid them. The Industrial Revolution exacerbated the conflict between capital and labor, perhaps because production became more capital intensive than in the past (making use of machinery and exploiting natural resources more than ever before) and perhaps, too, because hopes for a more equitable distribution of income and a more democratic social order were dashed. I will come back to this point.

The Marikana tragedy calls to mind earlier instances of violence. At Haymarket Square in Chicago on May 1, 1886, and then at Fourmies, in northern France, on May 1, 1891, police fired on workers striking for higher wages. Does this kind of violent clash between labor and capital belong to the past, or will it be an integral part of twenty- first- century history? (39, footnotes omitted)

Low, Low, Low Mortgage Rates

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photo by Martin Abegglen

TheStreet.com quoted me in Top 5 Lowest 15-Year Mortgage Rates. It opens,

U.S. mortgage rates have continued to decline in the aftermath of the Brexit vote, low Treasury rates and the stagnant economy, giving potential homeowners an opportunity to save money because of the dip.

The current market conditions give homeowners in the U.S. an opportunity to take advantage of the continuation of low mortgage rates since the Federal Reserve has not increased interest rates.

But, how do you snag the absolute lowest rates?

How to Get a Low Rate

Low mortgage rates can play a large factor in homeowners’ ability to save tens of thousands of dollars in interest. Even a 1% difference in the mortgage rate can save a homeowner $40,000 over 30 years for a mortgage valued at $200,000. Having a top notch credit score plays a critical factor in determining what interest rate lenders will offer consumers, but other issues such as the amount of your down payment also impact it.

A high credit score is the key to ensuring that borrowers receive a low mortgage rate. Here’s a quick rundown of what the numbers mean – a score of anything below 620 ranks as poor, 620 to 699 is fair, 700 to 749 is good and anything over 750 is excellent. Think carefully before canceling a credit card with a long, positive history, but decrease your debt. One of the biggest factors which impact your credit score is your credit utilization rate.

Many potential homeowners focus only on the interest rate or the monthly payment. The APR or annual percentage rate gives you a better idea of the true cost of borrowing money, which includes all the fees and points for the loan.

The origination fee or points is charged by a lender to process a loan. This fee shows up on your good faith estimate (GFE) as one item called the origination charge. However, the origination fee can be made up of a few different fees such as: processing fees, underwriting fees and an origination charge.

Homeowners who are able to afford a 20% down payment do not have to pay private mortgage insurance (PMI), which costs another 0.5% to 1.0% and can tack on more money each month. Having at least 20% in equity shows lenders that there is a lower chance of the individual defaulting on the loan.

Choosing Between 15-year and 30-year Mortgages

Obtaining a 15-year fixed rate mortgage instead of a traditional 30-year mortgage means homeowners can save thousands of dollars in interest. One drawback of a 15-year mortgage is that consumers will be locked into higher monthly compared to a traditional 30-year mortgage or a 5-year or 7-year adjustable rate mortgage, “which could put the squeeze on homeowners when times are tight,” said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization.

Many households would not benefit from a 15-year mortgage because it “does more to limit their financial flexibility than to enhance it,” said Greg McBride, chief financial analyst of Bankrate, a North Palm Beach, Fla.-based financial content company.

“Locking into higher monthly payments makes the household budget tighter and for what?,” he said “So you can pay down a low, fixed rate loan? On an after tax, after-inflation basis you’re essentially borrowing for free.”

McBride suggests that this strategy does not bode well for homeowners, especially if they are not paying down their higher interest rate debts and maximizing their tax-advantaged retirement savings options such as IRAs and 401(k)s.

“Even then, you might be better off investing your money elsewhere than tying up more of your wealth in the most illiquid asset you have – your home,” he said. “Just 28% of American households have a sufficient emergency savings cushion, so why the hurry to pay off a low, fixed rate, tax deductible debt. Money in the bank will pay the bills, home equity will not.”

The current economic situation has pushed down rates with 15-year mortgages becoming “relatively more attractive” than even 5-year adjustable rate mortgages (ARMs) over the last year, said David Reiss, a law professor at the Brooklyn Law School in New York. Last week Freddie Mac announced the average 15-year mortgage rate was 2.74% and the average for the 5-year ARM was 2.75%.

“These rates are virtually the same,” he said. “A year ago, the 15-year was relatively more expensive than the 5-year by about 0.16%. If you can swing the higher principal payments for the 15-year mortgage you will be getting about as good an interest rate as you could hope for.”

Millennial Homeowners Following ‘Rents

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TheStreet.com quoted me in Potential Homeowners Follow in Footsteps of Parents. It opens,

Consumers tend to follow the strategies of their parents when they are faced with whether they should stick with renting or buying their first home.

Potential homeowners, including both Gen X-ers and Millennials, are influenced by the decisions made by their parents. As homeownership rates in the U.S. have fallen to a 51-year low, one reason Gen Y-ers tend to skip homeownership is due to the choice made by their parents while others are faced with mounting student loans and higher costs to purchase a house.

Consumers are nearly three times as likely to purchase a house if their parents were homeowners compared to parents who rented, said Felipe Chacon, a housing data analyst at Trulia, a San Francisco-based real estate website, which analyzed over four decades of data from the University of Michigan in Ann Arbor.

 “What the analysis in the report suggests is that people who grew up in rented homes are less likely to own their own home, even after you exclude those who have gotten financial help from their folks or their spouse’s folks,” he said.
As Millennials are heading toward their 30s, the impact of their childhood is taking effect as ones which grew up in homes the parents owned were 2.8 times more likely to seek the same goal, the researchers found. The trend of home ownership has declined among Millennials and part of the reason could be that people who are 19 to 34 years are less likely to have been raised in homes where their parents owned the homes compared to Gen X-ers or those who are 35 to 45 years old.
“It could simply be an issue of values, where those from owned homes make homeownership a more urgent priority and strive to reach it sooner simply because it is familiar and comfortable to them,” Chacon said.
Consumers are probably more likely to buy a house if their extended family can explain how the process works and what criteria should be prioritized from improving their credit score to saving for a down payment.
“It probably helps to have parents and relatives around who can help you navigate the system as a first time homebuyer,” he said. “Since Millennials, especially younger ones seem to be slightly less likely to be raised in owned homes, there could be a long term cooling effect on the ownership rate among this group.”
The attitude of Americans owning their homes and pursuing the traditional “American Dream” has remained pretty steady over the past five years. In fact, more Millennials are eager to purchase a home and 80% expressed this sentiment in 2015 compared to 71% in 2010, according to a Trulia survey. The overall population mirrors this belief with 75 % who agree in 2015 from 72% in 2010.
One of the hurdles to homeownership is accruing enough money for the down payment. Millennials who grew up with parents who owned a home received more help financially with 11.4% who were given money compared with 2.6% of those who grew up in mostly rented homes.
“The American homeownership rate carries a lot of political and social significance with it and for many, it is seen as a marker of the health of American society,” said David Reiss, a law professor at Brooklyn Law School in New York. “The significant dip in the homeownership rate that has occurred since the financial crisis has shaken the confidence of many that the nation’s households are on solid footing.”