Author Archives: David Reiss

Airbnb Host Tax Break

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photo by 401kcalculator.org

Newsday quoted  me in Tax Breaks You May Have Overlooked: Airbnb, Dental Bills. It reads,

It’s time for that dreaded annual date with Uncle Sam.

You worry about how much it’s going to cost you. He’s usually not one to settle for a movie and McDonald’s. Relax, maybe there might be tax breaks you’ve overlooked.

– Deduct advice

The IRS will let you deduct certain expenses incurred on your taxable investments over and above 2% of your adjusted gross income (AGI). This could be investment counsel and advice, including subscriptions to financial publications, software or online services used to manage your investments, says Kyle Ryan, executive vice president of Personal Capital Advisors in Redwood City, California.

– Cash in on the dentist

Many people overlook medical expenses because you can only deduct the amount that exceeds 10% (7.5% if you’re over 65) of AGI, but dental work, which, even if you have insurance, can have high out-of-pocket costs, may qualify for a medical deduction, says David Isaacs, a CPA with UHY Advisors in Manhattan.

– Home sweet home

Maybe you jumped on the Airbnb bandwagon and rented out your home. If you did for up to two weeks, David Reiss, a Brooklyn Law School professor, specializing in real estate has good news, “that income is tax free.”

Vacant Land in NYC

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photo by Eric Fischer

NYC Comptroller Stringer has released an Audit Report on the Development of City-Owned Vacant Lots by the New York City Department of Housing Preservation and Development. Stringer has  taken some cheap shots on Mayor DeBlasio’s housing plans before (here for instance). This report amounts to another one. The Audit Findings and Conclusion read,

Our audit found that the City owns over a thousand vacant lots that could be developed under existing urban renewal programs, but many of these lots have been allowed to languish and remain undeveloped for up to 50 years or longer.  While HPD contends that over the years it has disposed of most of the lots it has been responsible for, we found that as of September 18, 2015, HPD listed 1,131 vacant lots under its jurisdiction.  Further, we found that although HPD solicits developers to build on these properties, it has not established plans with realistic time schedules to actually transfer City-owned vacant properties to developers.

Pursuant to General Municipal Law § 502, HPD has devised urban renewal plans for areas that include its vacant properties.  However, we found that the projected schedules are often pushed to a later date and sometimes no date is specified at all, notwithstanding the fact that the law requires “a proposed time schedule for the effectuation of such plan.”  Accordingly, it appears that schedules with adequate procedures to enable the transfer of City-owned properties to developers in accordance with those schedules have not been consistently formulated.  Finally, we identified an additional 340 City-owned vacant lots under the jurisdiction of other City agencies that could be considered to be used for residential construction. (2)

Even the language of this summary reveals the Comptroller’s spin. It is laughable to say that the City has allowed vacant land “to languish and remain undeveloped  for up to 50 years or longer.” The fact is that the City took ownership of much of this land during the ’60s and ’70s because it was abandoned by the owners who did not pay their property taxes. Much of the land had absolutely no value for decades.

This has certainly changed in the last 20 years or so, so it is worth evaluating whether the City should be taking more aggressive steps to get this land developed. Certainly one would think that this Mayor would want to do just that. And indeed, the Comptroller’s report shows that the Mayor has slated over half of those parcels for development over the next few years. The City’s response to the Audit indicates that many of the remaining parcels pose development challenges for residential development.

My take (having written extensively about abandoned land in NYC, here for instance) is that Stringer is making a mountain out a molehill. Every mayor from Koch through De Blasio has attempted to develop or sell much of the vacant land owned by the City. This audit fails to demonstrate that the City has a serious problem on this count.

Docs You Need for A Mortgage

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photo by LaurMG

HSH.com quoted me in The Documents You Need To Apply for a Mortgage. It opens,

When it comes time to apply for a mortgage in 2016, you might be surprised at how much documentation you’ll need when applying for a home loan.

J.D. Crowe, president of Southeast Mortgage in Lawrenceville, Georgia, says most of the documentation should be familiar to you if you have applied for a mortgage loan in the last five years. If you’re new to the mortgage market this year, he says, this is all new.

The new Qualified Mortgage rules that took effect on January 10, 2014 make this paperwork even more important. To meet the new Qualified Mortgage rules, lenders will be even more diligent in collecting the paperwork that proves that you can afford your monthly mortgage payments.

David Reiss, professor of law at Brooklyn Law School in Brooklyn, N.Y., says that while the documentation requirements under the new Qualified Mortgage rules might come as a shock to those who haven’t applied for a mortgage since 2008, they are common-sense requirements for the most part.

“These are really common-sense rules,” Reiss says. “The new rules say that mortgage lenders are no longer allowed to throw out the common-sense standards of lending money during boom times, when they might be tempted to overlook long-term financial goals for quick profits. If the rules help that happen, they’ll be a good thing.”

Challenging Wrongful Foreclosures

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photo by Oparvez

The California Supreme Court issued an opinion a few days ago that has been getting a lot of attention, Yvanova v. New Century Mortgage Corp., S218973 (Feb. 18, 2016). The opinion opens by noting that

The collapse in 2008 of the housing bubble and its accompanying system of home loan securitization led, among other consequences, to a great national wave of loan defaults and foreclosures. One key legal issue arising out of the collapse was whether and how defaulting homeowners could challenge the validity of the chain of assignments involved in securitization of their loans. (1)

The Court concludes that

a home loan borrower has standing to claim a nonjudicial foreclosure was wrongful because an assignment by which the foreclosing party purportedly took a beneficial interest in the deed of trust was not merely voidable but void, depriving the foreclosing party of any legitimate authority to order a trustee’s sale. (30)

First, let us be clear what it is NOT saying: “We do not hold or suggest that a borrower may attempt to preempt a threatened nonjudicial foreclosure by a suit questioning the foreclosing party’s right to proceed.” (2) This is an important distinction between challenging a nonjudicial foreclosure and having standing to bring a wrongful foreclosure tort action.

And let us be clear as to what it is saying: if a homeowner argues that that an assignment of a deed of trust is void, that can provide the basis for a wrongful foreclosure action because it “is no mere ‘procedural nicety,’ from a contractual point of view, to insist that only those with authority to foreclose on a borrower be permitted to do so.” (22) Quoting Adam Levitin, the Court finds that

“Such a view fundamentally misunderstands the mortgage contract. The mortgage contract is not simply an agreement that the home may be sold upon a default on the loan. Instead, it is an agreement that if the homeowner defaults on the loan, the mortgagee may sell the property pursuant to the requisite legal procedure.” (23, italics changed)

Sounds like common sense to me.

 

The Future of the Sharing Economy

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photo by Dennis Yang

I was interviewed on PBS’ Nightly Business Report (produced by CNBC) about the near-term future of the sharing economy in the wake of the horrible shootings in Kalamazoo, allegedly by an Uber driver while he was working for the service. You can find the interview here (my segment appears right after the 22nd minute). A transcript of the interview follows:

SUE HERERA: So, will the tragic Uber shooting spree over the weekend change the way that people feel about the sharing economy?

Let’s turn to David Reiss for his thoughts. He’s professor of law at Brooklyn’s Law School Center for Urban Business Entrepreneurs.

Nice to have you here, David. Welcome back.

DAVID REISS, BROOKLYN LAW SCHOOL PROF. OF LAW: Thank you.

HERERA: I guess that is the question. Do you think it will change the way people feel about the sharing economy, this case in particular?

REISS: I think we have to look at the short term and long term. In the short term, we’ll see people will think twice about it. But in the long term, and as I think people think about their experience with sharing economy services and seeing how frequently terrible and tragic incidents like this occur, I think we’re going to see a return to probably some growth in that area as people put this into perspective.

BILL GRIFFETH: Are you surprised as our reporter Kate Rogers pointing out here that in their conference call just now, they seem to be digging in their heels on not changing their background check policies here. Why not, as I said, do that if only for PR reasons just to reassure the public? I mean, this is a PR problem for them right now, isn’t it?

REISS: It is. And I think they’re probably in crisis response mode. They’re probably not wanting to make big promises about big changes to acknowledge that their business model is intrinsically flawed and they will probably want to make changes on their own time.

HERERA: There have been more calls for more regulation of the sharing economy, specifically by those who are impacted in a negative way by the sharing economy. We have to put that out there. But do you think it opens the door a little bit wider for regulation?

REISS: I certainly do. I think there’s been this attitude of it’s better to ask forgiveness than to ask permission and an incident like this and all of its tragic consequences raise the argument that maybe that’s not the right way to go, that getting it right the first time is better than kind of seeing how it unfolds.

GRIFFETH: Growing pains in the sharing economy or is this a real dent? What do you think?

REISS: I think it’s growing pains. I think the sharing economy has been growing so rapidly with so many innovations. But I think it’s here to stay. I think people are voting with their feet in terms of using the services and government is trying to figure out how to adapt and how to regulate and what’s the appropriate level of regulation.

HERERA: Does it change, though, their liability? Do they have to change some of their policies, all of their policies because there’s a liability issue? And the weekend’s horrible events really point that out.

REISS: I think businesses react to lawsuits and to large judgments, and if courts and juries find that this behavior was negligent or reckless, they will get a clear message and they will change to adapt. I think that regulators are going to look carefully at them. So, I think a lot of this is in flux and I’m sure there’s going to be changes. I don’t know what they will be.

GRIFFETH: Have you used Uber and will you think twice, if not?

REISS: I’ve used Lyft, and I would continue to do.

HERERA: All right. On that note, David, good to see you again. Thanks for joining us.

David Reiss with Brooklyn Law School’s Center for Urban Business Entrepreneurs.

Consumer-Friendly Financial Innovation

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lightbulbsThe Consumer Financial Protection Bureau issued a Final Policy Statement on No-Action Letters. According to the press release, the policy is intended to facilitate consumer access to financial products and services that promise substantial benefit to consumers.” More specifically, according to the Final Policy Statement itself,

Under the Policy, Bureau staff would, in its discretion, issue no-action letters (NALs) to specific applicants in instances involving innovative financial products or services that promise substantial consumer benefit where there is substantial uncertainty whether or how specific provisions of statutes implemented or regulations issued by the Bureau would be applied (for example if, because of intervening technological developments, the application of statutes and regulations to a new product is novel and complicated). The Policy is also designed to enhance compliance with applicable federal consumer financial laws. A NAL would advise the recipient that, subject to its stated limitations, the staff has no present intention to recommend initiation of an enforcement or supervisory action against the requester with respect to a specified matter. NALs would be subject to modification or revocation at any time at the discretion of the staff, and may be conditioned on particular undertakings by the applicant with respect to product or service usage and data-sharing with the Bureau. Issued NALs generally would be publicly disclosed. NALs would be nonbinding on the Bureau, and would not bind courts or other actors who might challenge a NAL recipient’s product or service, such as other regulators or parties in litigation. The Bureau believes that there may be significant opportunities to facilitate innovation and access, and otherwise substantially enhance consumer benefits, through the Policy. (1-2)

Colleagues and I had commented on this policy when it was first proposed, arguing that it should incorporate metrics to ensure that it is achieving its stated goals. It does not seem that the CFPB agreed with our comments. So, while I think the final policy is a step in the right direction, I am not sure if we can really measure how good of a step it is.

Borrowing Constraints and The Homeownership Rate

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photo by Victor

Arthur Acolin, Jess Bricker, Paul Calem and Susan Wachter have posted a short paper on Borrowing Constraints and Homeownership to SSRN. The abstract reads,

This paper identifies the impact of borrowing constraints on home ownership in the U.S. in the aftermath of the 2008 financial crisis. The existence of credit rationing in the U.S. mortgage market means that some households for whom it would be optimal to choose to be homeowners may not be able to do so. Borrowers with certain wealth, income and credit characteristics are unable to obtain a loan even if they are willing to pay a higher cost of credit (Linneman and Wachter 1989). The Stiglitz and Weiss (1981) canonical model sets up the rationale for this credit rationing. Using data from the 2001, 2004-2007 and 2010-2013 Surveys of Consumer Finance (SCF), this paper measures the impact of changes in the income, wealth and credit constraints on the probability of home ownership. Credit supply eased and then became considerably more restricted in the wake of the Great Recession. The loosening of borrowing constraints was accompanied by an increase in home ownership from the late 1990s until the start of the housing crisis. In this paper we estimate the role the tightening of credit has had on the probability of individual households to become homeowners and the decline in the aggregate home ownership rate following the crisis. The home ownership rate in 2010-2013 is predicted to be 5.2 percentage points lower than it would be if the constraints were at the 2004-2007 level and 2.3 percentage points lower than if the constraints were set at the 2001 level.

This paper builds on some of the other work of the authors (see here for instance) on the homeownership rate. The paper makes a valuable contribution by estimating the impact of credit rationing on the homeownership rate. To the extent we can identify an optimal amount of credit supply, it should help us to determine a target homeownership rate to guide policymakers.