January 9, 2017
What Is a Promissory Note?
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.
January 9, 2017 | Permalink | No Comments
Monday’s Adjudication Roundup
- 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.
January 9, 2017 | Permalink | No Comments
January 6, 2017
Carson’s Call of Duty
Dr. Ben Carson
The Hill published my most recent column, Ben Carson’s Call of Duty as America’s Housing Chief:
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.
Carson acknowledges the history of structural racism in American housing markets. He notes that segregation was caused in part by the federal government’s reliance on “redlining,” which refers to the Federal Housing Administration’s mid-20th century practice of drawing a red line around minority communities on underwriting maps and then refusing to insure mortgages within those borders.
He also acknowledges that racially restrictive covenants played a significant role in maintaining segregation. Racially restrictive covenants were legally enforceable agreements among property owners to keep homes from being sold to members of various minority groups. African Americans were the group most often targeted by them.
These covenants were very common in the mid-20th century, until the Supreme Court ruled that they were not legally enforceable. Shockingly, the Federal Housing Administration continued to encourage their use, even after the Supreme Court’s ruling.
Carson also acknowledged that “the Fair Housing Act and other laws have greatly reduced explicit discrimination in housing” but that “significant disparities in housing availability and quality persist.”
All in all, Carson’s take on the history of American housing policy is consistent with the consensus view across the left and the right: the federal government promoted segregationist housing policies for a large part of the 20th century.
Where he veers sharply from the Obama administration is in crafting a solution. The Obama administration promulgated a rule pursuant to the Fair Housing Act that would require localities to affirmatively promote fair housing if they chose to take funds from HUD.
While Carson states that the Obama rule is based on a “tortured reading of Fair Housing law,” the statutory authority for it is pretty clear. The Fair Housing Act states that HUD is to administer housing programs “in a manner affirmatively to further the policies” of the law.
Carson has characterized the Obama administration rule as a “socialist experiment.” I think his characterization is just plain wrong, particularly because the federal government often ties the provision of federal funds to various policy goals.
Think, for instance, of how federal highway dollars were tied to lowering state speed limits to 55 miles an hour. Such linkages are hardly socialist experiments. They merely demonstrate the power of the purse, a long-time tool of the federal government. Even if Carson cannot be convinced of this, the debate over how to address this legacy of discrimination does not end there.
After all, Carson’s opinion identified a serious problem: segregation resulting from longstanding policies of the federal government. He then stated that he does not agree with the Obama administration’s approach to solving the problem. He concluded by stating, “There are reasonable ways to use housing policy to enhance the opportunities available to lower-income citizens.” But he failed to identify a single policy to address the problems caused by those longstanding and discriminatory federal policies.
If confirmed, Carson must outline how the U.S. Department of Housing and Urban Development can address the legacy of structural racism in American housing markets. The text of the Fair Housing Act makes it clear that HUD must administer its housing programs in a manner that would affirmatively further the policies of the law.
The problem Carson faces is clear. The duty imposed upon him by the law is clear. What remains unclear is how he will fulfill that duty. He has both a legal and moral obligation to set forth his vision, if he is bent on rejecting that of President Obama.
January 6, 2017 | Permalink | No Comments
Friday’s Government Reports Roundup
- 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..
January 6, 2017 | Permalink | No Comments
January 5, 2017
Millennials and Luxury Housing
The Phoenix Business Journal quoted me in Avilla Homes Finds Millennial Niche in Luxury Rental Market (behind a paywall). It opens,
January 5, 2017 | Permalink | No Comments
Thursday’s Advocacy & Think Tank Roundup
- 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
January 5, 2017 | Permalink | No Comments
January 4, 2017
Fair Lending Fade-out
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.”
January 4, 2017 | Permalink | No Comments
