May 16, 2017
Manafort’s Mystery Mortgage
NBC News quoted me in Manafort Got $3.5M Mystery Mortgage, Paid No Tax. It opens,
Former Trump campaign manager Paul Manafort took out a $3.5 million mortgage through a shell company just after leaving the campaign, but the mortgage document that explains how he would pay it back was never filed — and Manafort’s company never paid $36,000 in taxes that would be due on the loan.
In addition, despite telling NBC News previously that all his real estate transactions are transparent and include his name and signature, Manafort’s name and signature do not appear on any of the loan documents that are publicly available. A Manafort spokesperson said the $3.5 million loan was repaid in December, but also said paperwork showing the repayment was not filed until he was asked about the loan by NBC News.
News of the missing documents comes as New York Attorney General Eric Schneiderman is taking a “preliminary look” at Manafort’s real estate transactions, according to a source familiar with the matter.
On August 19, 2016, Manafort left the Trump campaign amid media reports about his previous work for a pro-Russian political party in Ukraine, including allegations he received millions of dollars in payments.
That same day, Manafort created a holding company called Summerbreeze LLC. Several weeks later, a document called a UCC filed with the state of New York shows that Summerbreeze took out a $3.5 million loan on Manafort’s home in the tony beach enclave of Bridgehampton.
Manafort’s name does not appear on the UCC filing, but Summerbreeze LLC gives his Florida address as a contact, and lists his Bridgehampton home as collateral.
A review of New York state and Suffolk County records shows the loan was made by S C 3, a subsidiary of Spruce Capital, which was co-founded by Joshua Crane, who has partnered with Donald Trump on real estate deals. Spruce is also partially funded by Ukrainian-American real-estate magnate Alexander Rovt, who tried to donate $10,000 to Trump’s presidential campaign on Election Day but had all but the legal maximum of $2,700 returned.
The mortgage notice for the loan, however, was never entered into government records by the lender. A mortgage notice normally names the lender, and gives the interest rate, the frequency with which payments must be made, and the length of the mortgage.
Real estate experts contacted by NBC News called the omission “highly unusual,” though not illegal.
David Reiss, a professor at Brooklyn Law School who specializes in real estate law, said, “It would be totally ill-advised to not record the loan on the property that is being secured. … Recording the mortgage on the property protects the lender.” Without it, there’s no public record that the borrower owes money.
May 16, 2017 | Permalink | No Comments
Buying a Foreclosure or Short Sale
DailyWorth quoted me in Should I Buy a Foreclosure or Short Sale? It reads, in part,
I’m looking to buy a new home, and I’ve noticed that there are a couple of “short sale” and foreclosed homes in the area where I’m interested in living. These homes are priced substantially lower than others, and I’m wondering what the catch is. I’ve heard that short sales or foreclosures often need repairs. What else do I need to know to decide whether to invest in one of these properties?
Purchasing a home through a short sale or a foreclosure process can be a way to get a good deal on a property. But it isn’t for the faint of heart. Both processes are likely to be more complicated than purchasing a home on the open market.
First, make sure you understand the differences between these categories. Both are used when a property owner is in financial distress and can no longer afford mortgage payments.
In a short sale, the proceeds from the sale will fall short of the debt owed on the property. Such a sale can only occur if the mortgage holder (usually a bank) has agreed to accept less than the amount owed on the loan.
In a foreclosure, on the other hand, the mortgage holder has repossessed the property and is trying to recoup its losses by selling the house for the amount still owed on the loan. That amount is typically still less than the market value of the home.
Here are some of the common issues you may encounter when buying a foreclosure or short sale.
Short sales can also take months to get lender approval. “The seller’s bank can make things very difficult, making the borrower jump through many hoops — hoops that can take a long time to navigate,” warns David Reiss, a professor of law at Brooklyn Law School who writes and teaches about real estate.
And in the end, the bank may respond with a counteroffer that doesn’t meet your budget or terms. “So you might wait for a long time only to be disappointed,” says Sep Niakan, owner of Condo Black Book, a leading condo search website in Miami and broker of HB Roswell Realty.
“While you may get a good price, you will be paying for the house with uncertainty, delay, and frustration,” Reiss says. “You’ll need to determine for yourself whether it is worth it.”
May 15, 2017 | Permalink | No Comments
May 12, 2017
AIG Suit Strengthens Government Powers
Law360 quoted me in Greenberg’s AIG Loss Strengthens Gov’t’s Crisis Powers (behind a paywall). It reads, in part,
The Federal Circuit’s decision reversing Maurice R. “Hank” Greenberg’s win in his campaign against the U.S. government over its bailout of American International Group Inc. was the latest in a string of defeats for investors challenging financial crisis bailouts, and could further strengthen the government’s hand in future crises, experts say.
The Federal Circuit on Tuesday rejected claims by Greenberg, AIG’s former chief executive, and his current company, Starr International Co. Inc., that the government engaged in an unconstitutional taking of property when it demanded and received 80 percent of the giant insurance company’s stock in exchange for an $85 billion bailout in September 2008.
Although the appellate panel overturned a lower court ruling by rejecting Greenberg’s standing to sue, it came in the wake of a series of rulings against shareholders in Fannie Mae and Freddie Mac. Those shareholders are seeking to overturn a President Barack Obama-era move to sweep profits from the bailed out mortgage giants back to the U.S. Department of the Treasury rather than into shareholder dividends, cases courts have repeatedly rejected.
Those wins mean that courts are giving the government wide latitude to respond to a financial crisis, even if some shareholders are harmed, said David Reiss, a professor at Brooklyn Law School.
“There’s now a lot of judges who have come down to effectively say, ‘The government had very broad authority to address the financial crisis, and we’re not going to second-guess that,'” he said.
Greenberg’s campaign against the Federal Reserve, the Treasury Department and other arms of the U.S. government stems from the effort to bail out AIG in 2008 after it was brought to the brink of insolvency due to the failure of credit default swaps held by its structured finance unit.
In exchange for the $85 billion loan that the Federal Reserve Bank of New York ultimately extended, AIG and its board agreed to hand over nearly 80 percent of its equity and fire its top executives.
Greenberg, who left AIG in 2005 under a cloud, and his current firm Starr International were the largest shareholders in the world’s largest insurer, and argued in a 2011 lawsuit that the government had engaged in an illegal taking of shareholder property.
Federal Claims Judge Thomas C. Wheeler agreed with at least part of Greenberg’s argument in a June 2015 decision, saying that the Fed had placed unduly tough terms on AIG in exchange for the bailout loan, with those terms exceeding the central bank’s authority under Section 13(3) of the Bank Holding Company Act.
However, Judge Wheeler did not award any damages to Greenberg and shareholders in the class action, arguing that their shares would have been worth nothing without the government’s action.
Both Greenberg and the government appealed, and the Federal Circuit on Tuesday reversed Judge Wheeler’s holding on the question of whether the government exceeded its authority by placing tough terms on the bailout.
However, the opinion did not focus on the government’s actions but on the question of standing. Greenberg and his company did not have it, so the rest of his argument was moot, the panel said.
* * *
While the Federal Circuit did not address the substance of Greenberg’s claims, the U.S. Supreme Court might.
Greenberg and Starr said Tuesday they plan to take their case to the U.S. Supreme Court. If the high court takes up the case, despite a lack of a circuit split on the issue of lawsuits over financial crisis-era bailouts, they could set the terms under which the government acts in a future financial crisis.
But even without a Supreme Court ruling in their favor, the government should feel that it is on stronger legal ground during a financial crisis with its two wins at the appellate court level, Reiss said.
“Companies who are looking to reverse government actions at the height of the financial crisis … are having a really tough row to hoe,” he said.
May 12, 2017 | Permalink | No Comments
May 11, 2017
The Lowdown on Blockchain & Real Estate
There is a lot of hype out there about the impact that blockchain technology will have on the real estate industry. There is no doubt that blockchain will be revolutionary over the long term, but its impact in the short term is much more limited. Spencer Compton and Diane Schottenstein have written an article for Law360 (unfortunately, behind a paywall), How Blockchain Can Be Applied To Real Estate Law, that provides a nice overview of where blockchain stands today in the real estate industry. It opens,
Real estate transactions are steeped in traditions that have hardly changed over hundreds of years. Today, as computer-based property recording systems are prevalent in our cities but roll out at a snail’s pace in rural areas (often hindered by strained municipal budgets), and e-signatures are little used (due to legitimate fears of fraud), arguably the real estate closing process has lagged in its use of computer aided technology. Yet other aspects of real estate ownership have been transformed by the internet: smart home technology to remotely control heating and lighting and monitor security; Airbnb which increases the value of real estate ownership and disrupts the hotel industry; and the real estate brokerage community’s design/photographic/communication technology to list and virtually show properties. Now add to our brave new world blockchain, a cloud-based decentralized ledger system that could offer speed, economy and improved security for real estate transactions. Will the real estate transaction industry avoid or embrace it?
What is blockchain?
Blockchain is best-known as the technology behind bitcoin, however bitcoin is not blockchain. Bitcoin is an implementation of blockchain technology. Blockchain is a data structure that allows for a digital ledger of transactions to be shared among a distributed network of computers. It uses cryptography to allow each participant on the network to manipulate the ledger in a secure way without the need for a central authority such as a bank or trade association. Using algorithms, the system can verify if a transaction will be approved and added to the blockchain and once it is on the blockchain it is extremely difficult to change or remove that transaction. A blockchain can be an open system or a system restricted to permissive users. There can be private blockchains (for ownership records or business transactions, for instance) and public blockchains (for public municipal data, real estate records etc.). Funds can be transferred by wires automatically authorized by the blockchain or via bitcoin or other virtual currency. Transparent, secure, frictionless payment is touted as one of blockchain’s many benefits.
The article goes on to answer the following questions:
- How does a blockchain differ from a record kept by a financing institution or a government agency?
- How is a blockchain transaction more secure than any other transaction?
- How widely is blockchain used?
- How blockchain is being used to record real property instruments?
- How might blockchain affect the role of title insurance companies?
If the impact of blockchain on the real estate industry has mystified you, this primer will give you an overview of where things stand today and maybe tomorrow too.
May 11, 2017 | Permalink | No Comments
May 10, 2017
Who Qualifies as a First-Time Homebuyer?
NewHomeSource quoted me in Who Qualifies as a First-Time Homebuyer? It opens,
As you consider purchasing a home, you may have come across down payment assistance programs that aim to assist first-time homebuyers.
“How can I qualify?” you might have asked yourself.
It turns out, you don’t always have to be a first-time homebuyer to qualify, even though it might say otherwise in the name.
“Freddie Mac defines ‘first-time homebuyers’ for its Home Possible program as someone who had ‘no ownership interest (sole or joint) in a residential property during the three-year period preceding the date of the purchase of the mortgage premises,’” says David Reiss, professor of law and research director for the Center for Urban Business Entrepreneurship at the Brooklyn Law School.
Freddie Mac, a government-sponsored home loan mortgage corporation, says that its Home Possible mortgages offer low down payments for low- to moderate-income homebuyers or buyers in high-cost or underserved communities.
Another federal mortgage association, Fannie Mae, also offers down payment assistance programs for first-time homebuyers.
“The Fannie Mae standard 97% LTV Options let first-time homebuyers put down 3 percent,” says Reiss. “The program defines a first-time homebuyer as someone who ‘had no ownership interest (sole or joint) in a residential property during the three-year period preceding the date of purchase of the security property.’”
Similarly, the U.S Department of Housing and Urban Development defines a first-time homebuyer as an individual who has had no ownership in a principal residence three years prior to the closing date of the property.
Not a first-time homebuyer under these definitions? There’s hope for you still.
“Given the overwhelming dominance that the FHA, Fannie and Freddie have on the mortgage market, homebuyers who have sat out of the housing market for a while may find that they qualify for first-time homebuyer programs even if they have owned a home before,” adds Reiss.
Additionally, there are also assistance programs available for “displaced homemakers.” A displaced homemaker generally meets the following qualifications:
- Provided unpaid services to family members in the home, such as a stay-at-home parent,
- Were given financial assistance from another family member, but are no longer supported by that income and
- Are unemployed/underemployed with difficulty gaining employment or upgraded pay.
“A displaced homemaker or single parent will also be considered a first-time homebuyer if he or she had no ownership interest in a principal residence (other than a joint ownership interest with a spouse) during the preceding three-year time period,” Reiss says.
May 10, 2017 | Permalink | No Comments
May 9, 2017
Mortgages for Grads
Realtor.com quoted me in College Grads Can Get Home Grants—but There’s a Catch. It opens,
Recent college graduates hoping to buy a home have one more reason to toss their caps in the air these days: Programs offering home grants to new grads are popping up across the country, offering thousands of dollars in assistance that could put homeownership within reach. Talk about a nice graduation gift!
In New York, for instance, Gov. Andrew Cuomo recently announced a $5 million pilot program, “Graduate to Homeownership,” providing assistance to first-time buyers who’ve graduated from an accredited college or university with an associate’s, bachelor’s, master’s, or doctorate degree within the past two years. That aid can take the form of low-interest-rate mortgages, or up to $15,000 in down payment assistance.
The catch? You’ll have to live upstate—in Jamestown, Geneva, Elmira, Oswego, Oneonta, Plattsburgh, Glens Falls, or Middletown—eight areas that many just-sprung college students tend to flee as soon as they have their diploma in hand.
“Upstate colleges and universities have world-class programs that produce highly skilled graduates—who then leave for opportunities elsewhere,” Cuomo admitted in a statement. “This program will incentivize recent graduates to put down roots.”
The trade-off for college grads
New York is not the only state offering this type of assistance to college grads, many of whom are saddled with significant student loan debt. According to analysis by Credible.com, nearly half of states offer some form of housing assistance to student loan borrowers, with a handful focusing on recent grads.
For instance, Rhode Island’s Ocean State Grad Grant program offers up to $7,000 in down payment assistance to those who’ve earned a degree in the past three years. Ohio’s Grants for Grads program offers down payment assistance or reduced-rate mortgages to those who have graduated in the past four years.
Still, what’s noteworthy about programs like New York’s is that you can’t just buy a home anywhere. Rather, you have to plunk yourself down in semi-ghost towns. That’s hardly ideal for someone who’s trying to kick-start a career.
So as tempting as this home-buying “help” might appear at first glance, you have to wonder: Is it enough to offset what these students give up? Some experts say it’s a risky bet.
“The New York program aims to retain highly educated people in economically depressed regions and revitalizing struggling downtowns in those regions,” says David Reiss, research director for the Center for Urban Business Entrepreneurship at Brooklyn Law School. “It can certainly help people who are dealing with high student debt burdens. But programs like this have to deal with a fundamental issue: Do these communities have enough jobs for recent college graduates? Time will tell.”
Find a job first, then a home
Experts say students should think carefully before they pounce on this “gift” and make sure they can be happy in one of the designated locations—and gainfully employed.
“No question, they should have a job lined up first [before buying a house],” says Reiss. After all, “a good deal on a house or a mortgage is not a good deal if we don’t have a job to go along with it.”
May 9, 2017 | Permalink | No Comments
