Tag Archives: California

Why Doctors Buy Bigger Homes Than Lawyers

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photo by Ben Jacobson

Realtor.com quoted me in Why Doctors Buy Bigger Homes Than Lawyers (and What It Means to You). It reads, in part,

Take that, Alan Dershowitz: Although both doctors and lawyers can typically afford better-than-decent-sized homes, a new working paper from the National Bureau of Economic Research found that in states with a certain legal provision, physicians’ houses are bigger. Often much bigger.

So what’s the deal? It seems to come down to two factors: First, the skyrocketing costs of financially devastating medical malpractice suits; second, a once-obscure provision called “homestead exception” which can protect the assets of doctors in some states from being wiped out by those suits when they invest their cash in their homes.

“We have been interested in understanding how does that pervasive aspect of a physician’s career influence the decisions they make … whether it means they invest more in houses to protect themselves against liability,” Anupam Jena, an associate professor of health care policy at Harvard Medical School and a co-author of the paper, tells the Washington Post.

Here’s how homestead exception works: If creditors are hounding you for unsecured debts—as opposed to secure ones, like your mortgage—they can’t take your home as collateral, as long as you declare bankruptcy. In fact, they can’t even place a lien on the property to collect when you sell. These exemptions vary by state: Some, such as New Jersey, have no such safeguard; in California, individuals’ homes are protected up to $75,000 (which generally won’t get you past the front porch).

Yet a handful of states—Arkansas, Florida, Iowa, Kansas, Oklahoma, and Texas, as well as the District of Columbia—have unlimited homestead exemption. Doctors in those states bought homes that were 13% more expensive than the homes of doctors elsewhere. The homes of medical doctors (and dentists, who are essentially in the same medical malpractice boat) were markedly more expensive than the homes of professionals making similar salaries—even lawyers, who know a thing or two about malpractice suits. The authors drew from U.S. Census Bureau data on 3 million households about profession, household income, and home value.

So why should you care? Because homestead exemptions apply to you, too—even if the closest you come to the medical profession is annual checkups and late night reruns of “ER.”

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But don’t get the wrong idea: The homestead exemption isn’t a bulletproof way to ward off foreclosure. Remember, it applies only to unsecured debt such as credit cards—not secured debt like your mortgage.

“If you borrow money for a home, the homestead exemption typically does not apply,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. In other words, if you don’t pay your mortgage and default on your loan, your lender can foreclose and seize your home.

And we’re not saying you should run from your creditors, because eventually they’ll catch up to you. But if you are in financial straits and scared sick of losing your house, check your local homestead exemption laws first—you might be safer than you think.

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.

 

Homeowner Nation or Renter Nation?

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Andreas Praefcke

Arthur Acolin, Laurie Goodman and Susan Wachter have posted a forthcoming Cityscape article to SSRN, A Renter or Homeowner Nation? The abstract reads,

This article performs an exercise in which we identify the potential impact of key drivers of home ownership rates on home ownership outcomes by 2050. We take no position on whether these key determinants in fact will come about. Rather we perform an exercise in which we test for their impact. We demonstrate the result of shifts in three key drivers for home ownership forecasts: demographics (projected from the census), credit conditions (reflected in the fast and slow scenarios), and rents and housing cost increases (based on California). Our base case average scenario forecasts a decrease in home ownership to 57.9 percent by 2050, but alternate simulations show that it is possible for the home ownership rate to decline from current levels of around 64 percent to around 50 percent by 2050, 20 percentage points less than at its peak in 2004. Projected declines in home ownership are about equally due to demographic shifts, continuation of recent credit conditions, and potential rent and house price increases over the long term. The current and post WW II normal of two out of three households owning may also be in our future: if credit conditions improve, if (as we move to a majority-minority nation) minorities’ economic endowments move toward replicating those of majority households, and if recent rent growth relative to income stabilizes.

This article performs a very helpful exercise to help understand the importance of the homeownership rate.  This article continues some of the earlier work of the authors (here, for instance). I had thought that that earlier paper should have given give more consideration to how we should think about the socially optimal homeownership rate. Clearly, a higher rate, like the all-time high of 69% that we had right before the financial crisis, is not always better. But just as clearly, the projected low of 50% seems way too low, given long term trends. But that leaves a lot of room in between.

This article presents a model which can help us think about the socially optimal rate instead of just bemoaning a drop from the all-time high. It states that

Equilibrium in the housing market is reached when the marginal household is indifferent between owning and renting, requiring the cost of obtaining housing services through either tenure to be equal. In addition, for households, the decision to own or rent is affected by household characteristics and, importantly, expected mobility, because moving and transaction costs are higher for owners than for renters.  Borrowing constraints also affect tenure outcomes if they delay or prevent access to homeownership. (4-5)

This short article does not answer all of the questions we have about the homeownership rate, but it does answer some of them. For those of us trying to understand how federal homeownership policy should be designed, it undertakes a very useful exercise indeed.

Ending Homelessness

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"Homeless Man" by Matthew Woitunski

The Christian Science Monitor quoted me in Los Angeles to Serve as Crucible for Reform in Ending Chronic Homelessness. It reads, in part:

As the heavy winter rains sweep across southern California, Los Angeles’s homeless residents hunker down. Many – like former farmworker Andreas, who huddled in the doorway of a parking structure – are unable or unwilling to find shelter off the street.

These are the chronically homeless, a large portion of the 44,000 people in L.A. that make this city the West Coast’s homelessness capital.

Nationwide, the chronically homeless represent roughly 20 percent of the nation’s homeless population at any given moment. And, both in California and across the country, they form the core target of an intensified effort by activists and politicians determined to get at the roots of intransigent homelessness.

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The US is not going to conquer chronic homelessness until it addresses the structural issues that hand homelessness down from one generation to another, says Brooklyn law professor David Reiss, who specializes in housing issues.

The absence of a safety net for those who fall out of employment is the beginning of the cycle, particularly for at-risk populations such as foster-care children who age out of the system and single mothers with young children. Job scarcity is also a factor. Big cities with the highest cost of living, like Los Angeles and New York, usually present the most possibilities for those in search of work.

“Very low-income people often prefer to stay in such cities, even if they are at risk of homelessness, because it is the best of a set of bad options,” he points out.

The basic costs of maintaining a home are driving more people onto the street, says Professor Reiss – a growing problem tied to the issue of income inequality.

A recent study by the Harvard Joint Center for Housing Studies finds that this trend is increasing and, says Reiss, “we should expect more and more households to have trouble paying rent in the coming years.”

Monday’s Adjudication Roundup

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A Different Approach to Homelessness

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JCS

Pacific Palisades Coast near Porto Marina

The Christian Science Monitor quoted me in In One California Community, a Different Approach to Homelessness. It reads, in part,

On a sunny morning in the beachfront community of Pacific Palisades, Steven “Boston” Michaud perches confidently on a large dock tie just above the sand. He waves vaguely at the hills above the Pacific Coast Highway, indicating where he sleeps. “It’s up there, but you’ll never see me,” he says, pointing to his own shadow on the ground, “because I’m a shadow and I don’t bother anyone.”

Mr. Michaud is one of about 170 homeless people in Pacific Palisades, an affluent waterfront neighborhood in Los Angeles. Pacific beaches have long been a magnet for the homeless from around the world.

Overall, California experienced the second-largest increase in the number of homeless people (1,786 individuals) among the 50 states this past year, according to the US Department of Housing and Urban Development. As their ranks have swelled, some homeless people have edged out of the shadows and have taken up in tidier areas in the Golden State. That, in turn, has attracted the attention of residents – especially when crimes have occurred.

Even Michaud isn’t as invisible as he says he is. A local supermarket took out a restraining order against him.

 By and large, California has been dealing with these issues from a legal standpoint. In general, cities in the state have more anti-homeless laws than cities in other states, with an average of almost nine such laws in each of 58 Golden State cities, according to a report by the Policy Advocacy Clinic at the University of California’s Berkeley School of Law.

But some communities in the state think that too much emphasis has been put on law enforcement to deal with homelessness – and not enough on other approaches that account for the needs of homeless people and try to address the root causes of the problem. These places are thus coming up with a new generation of creative ways to deal with the persistent problem of homelessness. Pacific Palisades, which is trying out a private, philanthropic approach, is one of these communities.

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Private philanthropy in support of community needs is not new, says Mr. Berg of the National Alliance to End Homelessness. But what is new and less common in dealing with homelessness, he says, “is the organized approach to philanthropy at the local level.”

While she applauds the ambition of the effort, Maria Foscarinis, executive director of the National Law Center on Homelessness & Poverty, has concerns about the implications of a privatization approach. “The government’s role is to provide for public needs in critical times,” she says, adding, “This just serves as yet another example of the government stepping away from that role.”

Beyond that, there is the question of who can afford to duplicate the Palisades approach. Raising enough money to hire social services staff is beyond the reach of many communities, says Brooklyn Law School professor David Reiss, who specializes in housing policies. “So it is unlikely that Pacific Palisades is going to start a big trend, but a well-intentioned program could be effective locally, like many other community-based initiatives.”

SF’s Airbnboom

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Brian Johnson & Dane Kantner

The Christian Science Monitor quoted me in San Francisco Votes Down Airbnb Limits: Can Competing Interests Be Balanced? It reads, in part,

A defeated ballot measure in San Francisco, which would have imposed further restrictions on users of Airbnb and similar websites, is a sign of how the issue of short-term housing rentals is vexing city governments in the United States and beyond.

From Fort Lauderdale, Fla., to Los Angeles, lawmakers and residents alike are struggling to balance the power of technological change with the many critics of the home-sharing industry: homeowners who complain about deterioration in the quality of life in residential neighborhoods, hotels that fret about lost revenues, and activists who say that short-term housing is stripping the marketplace of affordable long-term units.

Yet even some of the trend’s most ardent critics suggest that more restrictions are not necessarily the answer. Better enforcement of current laws would go a long way toward balancing the conflicting interests, they say.

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On the other coast, just as many cities are struggling. New York City is still up in the air about how to handle the sharing economy, says Brooklyn Law School professor David Reiss, who has followed Airbnb’s evolution.

This week, Airbnb promised to provide detailed data to the New York City Council, he notes. “The company is doing this in part to fend off [legislation] that would severely limit their reach in NYC,” he says via e-mail. One piece of proposed legislation increases penalties for violations of existing laws, and another mandates that the city track illegal apartment conversions, according to Professor Reiss.

Still, the sharing economy is with us for the long term as consumers continue to vote with their wallets, he says. “The bottom line is that we are in a period of transition. And while it is unlikely that we will return to the pre-sharing economy, it is also unlikely that we will have a sharing economy that is driven just by market actors, without government regulation,” he adds.