Urban Renewal’s Legacy

photo by Ziggymarley01

I was quoted in The Ledger (Florida) in Seeking Progress, City Upended Lives in Eliminating Moorehead Community. It opens,

After selecting Moorehead as the site of a new auditorium, Lakeland officials began efforts 50 years ago to inform residents, assess properties, make offers to owners and assist residents in finding new places to live.

Dividing the predominantly black neighborhood roughly in half, the city planned to acquire all of the eastern section north of Lime Street by 1971 and the remainder in 1972.

The campaign, which displaced 122 families, fit into a decades-long national phenomenon in which cities partially or completely removed minority neighborhoods for projects aimed at fostering urban renewal.

The American Housing Act of 1949, part of President Harry Truman’s “Fair Deal,” established the power of governments to seize private property for projects categorized as urban renewal. It also made federal funds available for such projects.

Though intended to replace substandard housing with better options, the Act spurred a flurry of activity that wound up displacing minorities, said David Reiss, a professor at Brooklyn Law School and academic program director of The Center for Urban Business Entrepreneurship. Cities used the program’s Title I funding to engage in what was sometimes called “Negro removal” or “slum clearance.”

Before the federal program was halted in 1974, some 2,500 urban renewal projects displaced about 1 million people nationwide, Reiss said.

“Two-thirds of those people were African-American, and if you think about African-Americans being 12 percent of the population, they were being displaced at a multiple, maybe at five times the rate of other Americans and particularly white Americans,” Reiss said. “So urban renewal really reshapes the urban fabric across the country.”

Property in minority communities tended to be cheaper to acquire, especially during the peak period of urban renewal, and Reiss said minorities also were less equipped to challenge authorities.

“It was structural racism on one level, where the majority would find it much easier to displace a black community than they would to displace a white community, although displacement wasn’t only in black communities — but as we see it’s overwhelmingly in black communities,” he said. “Because black communities were often poor, that would be another reason — being in a poor community would give you less political power to fight something like this.”

Storm-Induced Delinquencies

The Urban Institute’s Housing Finance Policy Center has released its November 2017 Housing Finance at a Glance Chartbook. The Introduction looks out how this summer’s big storms have pushed up delinquency rates:

The Mortgage Bankers Association recently released the results of its National Delinquency Survey (NDS) for Q3 2017. The non-seasonally adjusted NDS data for Q3 2017 showed a significant increase in delinquency rates across all past due categories (30-59 days, 60-89 days and 90 days and over). The increase was largest–and most noteworthy–for the 30-59 day category, spiking by 57 basis points from 2.27 percent in Q2 2017 to 2.84 percent in Q3. The D60 rate increased by a much smaller 12 basis points, from 0.74 to 0.86 percent, while the D90 rate increased the least, by 9 basis points, from 1.20 to 1.29 percent. The rise in delinquencies was broad based, affecting FHA, VA and Conventional channels with FHA D30 seeing the largest increase (4.57 to 5.92 percent).
While early payment delinquency rates were expected to increase in the wake of the storms Harvey, Irma and Maria for the affected states, the magnitude of increase in the D30 rate is quite remarkable. The reported Q3 2017 D30 rate is the highest in nearly four years. The 57 basis points increase in a single quarter was also the largest in recent history. The last time D30 rate increased by more than 50 bps in one quarter was in Q4 2000, when it rose by 61 bps. In comparison, both D60 and D90 rates, while slightly higher in Q3, are well within their recent range.
MBA’s state level NDS data confirms that storms were a major driver behind the increase. For Florida, the non-seasonally adjusted D30 rate more than doubled from 2.12 to 4.64 percent, the highest ever D30 rate recorded. The D30 rate for Puerto Rico also nearly doubled from 4.98 to 9.12 percent, while Texas D30 rate increased from 5.05 to 7.38 percent. The increase in FL and PR was larger than in TX because of the statewide impact of hurricanes Irma and Maria. In contrast Harvey’s impact was limited to Houston and surrounding areas. The increase in the D90 rate is not storm-related as not enough time has elapsed since the storms made landfall (Harvey made landfall in Houston on August 25, Irma made landfall in Florida on September 9, and Maria made landfall in Puerto Rico on September 20).
Besides storms, there are other factors that are driving the D30 rate higher. As the figure shows, there is a very strong seasonal pattern associated with 30 day delinquencies. The D30 rate typically witnesses an uptick in the second half of each calendar year after declining in the first half because of tax refunds. Another reason for the Q3 increase is that the last day of September was a Saturday, which means that payments received on this day were not processed until Monday Oct 2nd and were identified as past due (mortgage payments are due on the 1st of the month; D30 rate is based on mortgages unpaid as of 30th of the month).
There is one more thing worth pointing out. Many borrowers affected by recent storms have received forbearance plans that allow them to defer mortgage payments for a few months. Under the NDS methodology, these borrowers are considered delinquent. Many will likely resume making monthly payments once they regain their financial footing or after forbearance ends. Others unable to afford payments could get a loan modification. Therefore, although it will take several quarters before the eventual impact of storms on delinquency rates becomes clear, many borrowers who are currently 30-days delinquent might not enter D60 or D90 status.
While the Chartbook does not look at the longer term impact of climate change on mortgage markets, it is clear that policy makers need to account for it in terms of mortgage servicing, flood insurance, land use and building code regulation.

Renters and Natural Disasters

Bill Huntington

Avvo quoted me in What Do Renters Need To Know in A Natural Disaster? It opens,

From hurricanes in the East to wildfires in the West, the past few months have seen an on-going slew of natural disasters in the United States. Fires and floods don’t care whether a property is inhabited by owners or renters. However, most states have laws that  address how landlords and tenants deal with a rental property in the aftermath of a natural disaster.

Renters’ recourse in a natural disaster? Leases and local laws.

Check the lease first

The first source of authority on the obligations of landlords and tenants is found in the lease agreement, which should spell out the terms of what happens in case of a natural disaster. But not all leases clearly address this situation. According to Michael Simkin, managing partner of Simkin & Associates in Los Angeles, in cases where the lease is “burdensome or unfair,” local or state laws will govern what happens.

Landlord and tenant responsibilities vary by state

Every state has different laws regarding landlord and tenant obligations after a natural disaster strikes. Here are examples of answers to common tenant questions from some of the states recovering from recent natural disasters.

Can a lease be terminated if a natural disaster makes a rental property unusable?

California: If a rental property is destroyed in a natural disaster, the lease is automatically cancelled. The landlord must refund the rent for that rental period on a prorated basis.

“Many times, the city can come in and condemn the property and effectively force out tenants in unsafe situations. It is also the landlord’s responsibility to terminate a lease when they have knowledge that their rental property is unusable or unsafe,” notes Monrae English, a partner at Wild, Carter & Tipton in Fresno.

Florida: If the premises are “damaged or destroyed,” the tenant may terminate the rental agreement with written notice and move out immediately.

Louisiana: According to the Louisiana attorney general, if a natural disaster damages a property to the point that it is completely unusable, the lease is terminated automatically.

New York: If a rental becomes unfit for occupancy due to a natural disaster, the tenant may quit the premises and is no longer liable to pay rent. Any rent paid in advance should be returned on a prorated basis, according to David Reiss, law professor at Brooklyn Law School.

Texas: Either the tenant or the landlord can terminate the lease with written notice. Once the lease is canceled, tenants’ obligation to pay rent ceases and they’re entitled to a prorated refund of any rent paid during the time the home was not usable.

If the lease is terminated due to a natural disaster, does the renter get the security deposit back?

CaliforniaThe landlord must return the security deposit within three weeks of the tenant vacating, with any deductions accounted for in writing. The landlord is not allowed to deduct disaster damage.

LouisianaThe landlord is required to return security deposits within one month, as long as the tenant fulfilled the lease obligations and left a forwarding address, according to Brent Cueria, an attorney with Cueria Law Firm, LLC in New Orleans. The landlord cannot deduct for natural disaster damage.

New YorkThe security deposit must be returned to the tenant, according to Reiss.

Texas: The security deposit must be refunded.

Manafort’s Mystery Mortgage

photo by Kevin Dooley

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.

Historic Preservation and Affordable Housing

photo by Ebyabe

Lior Strahilevitz has posted Historic Preservation and Its Even Less Authentic Alternative to SSRN. The abstract reads,

Historic preservation regulations are costly, contentious, and – as best we can tell – tend to promote residential segregation. Preservation as practiced in the United States also tells historical tales in a way that is inevitably selective, often more attuned to contemporary needs than historical objectivity, and likely to signal current residents and visitors about whose stories aren’t worth commemorating. Yet historical preservation, even to its critics, can further desirable goals. This essay examines traditional historic preservation strategies while also considering two potential alternatives, neither of which has received much attention.

The first alternative to traditional historic preservation – fake history – is employed on a large scale in the fastest growing residential community in the United States. The essay provides a case study of the use of fake history and theming in The Villages, Florida, revealing both the strategy’s potential for generating low-cost cultural resonance and its pitfalls. The possible connections between The Villages’ omnipresent theming and its disturbingly homogenous demographics are explored. The essay suggests that The Villages’ alternative to historic preservation might be replicated elsewhere and speculates about the demographic results of efforts to create more inclusive fake historical narratives.

A second, and novel, alternative to traditional historic preservation would select sites for historic preservation restrictions at random within a given community. Many of the problems associated with the way historic preservation regulations are implemented in the United States stem from the arbitrary and occasionally ugly battles over what to preserve and what to erase. Historic preservation becomes a battlefield for cultural warfare. Compared with this alternative, the case for randomly preserving in each city a few blocks that date from each particular era, while letting market forces dictate what gets preserved or destroyed elsewhere, may be surprisingly strong.

While I do not like either of these novel alternatives, we would certainly benefit from fresh thinking about what we are trying to achieve with historic preservation. Historic preservation remains too much of a niche area of regulation dominated by the few who feel most strongly about it. It has slowly but surely increased its reach in cities like New York. But it has not been accompanied by much serious thinking by broader constituencies about the costs and benefits of each incremental step.

There are obvious trade-offs with landmarking that don’t just affect landowners and developers. By restricting new construction, landmarking tends to restrict the supply of new housing units. This might be okay, but we should certainly think through those costs before just letting preservation districts cover more and more of a city. I am not particularly interested in communities based on fake history, but others are welcome to them. For me though, I am concerned that our most important cities might end up like Paris — stunning historic playgrounds for the wealthy, encircled by high-rise ghettos for the poor.

Free or Treed?

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.”

Climate Change and Residential Real Estate

By U.S. Air Force photo/Staff Sgt. James L. Harper Jr.

Freddie Mac posted an Economic & Housing Research Insight, Life’s A Beach, that addresses the impact of climate change on residential real estate. It discusses the limitations of our potential responses:

Even with significant and coordinated global action like that outlined at the Paris climate conference, some of the projected impacts of climate change appear to be unavoidable. Governments and private organizations are working on plans to mitigate impacts where possible and to adapt to changes that are inevitable. Many are taking notes from the experience of the Netherlands, which has prospered for centuries despite lying below sea level.

However, the dikes and sea walls used by the Dutch may not solve the problems of South Florida. Florida sits on a substrate of porous limestone that holds Florida’s supply of fresh water. As the sea level rises, it infiltrates the limestone underground and contaminates the freshwater supply. A sea wall might stop storm water surges on the surface, but it can’t prevent the underground incursion of salt water.

While technical solutions may stave off some of the worst effects of climate change, rising sea levels and spreading flood plains nonetheless appear likely to destroy billions of dollars in property and to displace millions of people. The economic losses and social disruption may happen gradually, but they are likely to be greater in total than those experienced in the housing crisis and Great Recession. That recent experience illustrated the difficulty of allocating losses between homeowners, lenders, servicers, insurers, investors, and taxpayers in general. The delays in resolving these differences at times exacerbated the losses. Similar challenges will face the nation in dealing with the impact of climate change. (5-6)

The report also highlights a bunch of concrete problems that homeowners and taxpayers will need to confront as climate change wreaks greater havoc:

  • Will the federal government continue to subsidize flood insurance?
  • Will property values in flood zones drop over time?
  • Will climate change increase social dislocation as the landscape of coastal areas is permanently altered by rising sea levels?

The federal government has dropped the ball in taking a leadership role in this area and many states have done so as well. It will likely take a tragedy (likely to be a preventable one) to get them to focus on this in any meaningful way.