President Trump’s Two Residential Mortgages

Dan Abrams

I was interviewed in Trump’s Mortgage Fraud Hypocrisy on The Dan Abrams Show (SiriusXM POTUS 124) (behind paywall). A recording is available on YouTube (no paywall). The auto-generated (cleaned up a bit) transcript of the relevant part reads,

Dan Abrams: This effort to get rid of Lisa Cook as one of the governors at the Fed has heated up. Remember, the Supreme Court basically said Trump couldn’t do it without due process, and it seems now he’s beginning the process of quote-unquote doing the due process, telling her that they want to get rid of her. It made me remember an article that came out in December, which I think is very important in this context — it’s from ProPublica, and the headline is “Trump’s Own Mortgages Match His Description of Mortgage Fraud, Records Reveal.” It talks about how in 1993, Trump signed a mortgage for a home in Palm Beach, pledging it would be his principal residence. Seven weeks later, he got another mortgage for a seven-bedroom, marble-floored neighboring property, saying it too would be his principal residence. And in reality, ProPublica reports, Trump — then a New Yorker — does not appear to have lived in either home, let alone used them as a principal residence. That seems to me precisely the issue the administration is focusing on with regard to Lisa Cook. And if you’re interested in the article, it’s got all the documents Trump signed, with images of them.

Remember, in October federal prosecutors charged Letitia James, and a central claim in that case was that she purchased a house in Virginia pledging to her lender that it would serve as her second home, and then used it as an investment property and rented it out. [The source transcript is garbled here — something to the effect that Trump’s mortgage agreements were arguably a more significant misrepresentation, since his said the properties would be his primary residence, not merely a second home as in the James case; recommend checking the audio for the exact wording before publishing.] But Trump, when he was declaring that he was going to fire Lisa Cook, specifically noted that she had signed two primary-residence mortgages within weeks of each other — exactly as the records show he did in Florida. Here’s the quote they sent her: “You signed one document attesting that a property in Michigan would be your primary residence for the next year. Two weeks later, you signed another document for a property in Georgia stating it would be your primary residence for the next year. It is inconceivable that you were not aware of your first commitment when making the second. At a minimum, the conduct at issue exhibits the sort of gross negligence in financial transactions that calls into question your competence and trustworthiness.” The Trump administration has made similar claims regarding Adam Schiff and Eric Swalwell as well.

So when Trump administration officials are confronted about this, they do the usual, which is talk about it from a law enforcement perspective, talk about how important this is. This is Bill Pulte — remember, this guy’s the worst person in this administration, as far as I’m concerned, the most politicized. He’s the one who was acting director of National Intelligence; he couldn’t get confirmed, I don’t think, for any position, and yet they keep bouncing him around — but he’s been overseeing housing, and that’s given him access to all these mortgage records. So here is Bill Pulte, speaking in June:

“This is not political from my perspective. I’m in charge of making sure that we have a mortgage market that is safe and sound. It doesn’t matter whether you’re Republican or Democrat or a Fed governor — if you commit mortgage fraud, we’re going to refer it. And that’s what we did in the Lisa Cook case. I do believe that eventually she’ll be indicted. And let’s say the Supreme Court rules against the people who are saying there’s cause, or there’s ability, to fire her — I do expect her to eventually be indicted. That’s just my own opinion; I’d refer you to the DOJ for specifics. But if she is indicted, obviously that would give the ability to fire her for cause, even more so than we believe — I’ll just speak for myself — already exists.”

Let me bring in David Reiss. He’s a clinical professor of law at Cornell Tech and Cornell Law School, an expert in the real estate sector. Professor, thanks very much for coming on — appreciate it.

David Reiss: My pleasure.

ABRAMS: From a legal perspective, these are the kinds of cases that are almost never prosecuted — is that right?

REISS: That’s correct. There was a lot of this kind of behavior before the Great Financial Crisis in the early 2000s, but it was very rarely prosecuted.

ABRAMS: So is there a difference between what ProPublica seems to have been able to show that Donald Trump did and what Lisa Cook is accused of?

REISS: I don’t think so. I think it’s the same, or in some ways an even worse set of facts. There’s the statement by the broker who said these were going to be rentals from the beginning. This is exactly the kind of behavior that Pulte says is unacceptable — the kind he’s identified with opponents of the Trump administration.

ABRAMS: So could she use that — meaning, let’s assume for a moment that she is indicted — is that really just something for the court of public opinion, or is that something she could potentially introduce as a defense?

REISS: That’s an interesting question. On a straight legal answer, I’d say selective enforcement — arguing that I’m being prosecuted but somebody else isn’t — is a very high standard to meet, especially for a political case like we’re seeing with Cook and some of the others. But I do think judges have been choosing not to give a [presumption of regularity] to the Trump DOJ, so judges may use their discretion to look at this with some sense that it’s just a political hit job.

ABRAMS: Right — because the Trump allegations, the Trump information, is outside the statute of limitations. So there’s no way that could be prosecuted. Correct?

REISS: That is correct. Even if it violated the law, it’s past the statute of limitations. There’s no way to bring it back.

ABRAMS: Right. Now, in response to questions, a White House spokesperson told ProPublica: “President Trump’s two mortgages you’re referencing are from the same lender. There was no defraud[ing]. It is illogical to believe that the same lender would agree to defraud itself.” [As transcribed — worth checking this quote against the ProPublica article’s exact wording before publishing.] What do you make of that?

REISS: Well, it’s interesting, because that’s not the standard that applies. It’s a federal standard — a section of federal law, 1014. It’s really about whether, at the time you signed it, you knew it was false. It’s not a fraud standard — it doesn’t have all the elements of fraud, such as materiality. So that’s a bit of a misdirection, suggesting that the lender knew about this or went along with it. That’s not the standard for the criminal law here.

ABRAMS: Putting aside the criminal law for a minute — does what they’re saying make sense? I’m trying to figure out what their point even is. “President Trump’s two mortgages you’re referencing are from the same lender … it’s illogical to believe that the same lender would agree to defraud itself.” It seems to be suggesting the lender wouldn’t have done it a second time — but if there was fraud in the first case, maybe they just didn’t realize it. I don’t know — this isn’t my area of expertise, but as I think about it, maybe they didn’t realize, when they made the first mortgage, that the information was false, and so they just used the same information for the second one.

REISS: Interpreting the statement from the administration in the best possible light, they’re saying perhaps he intended the first property as his primary residence, and that was true at the time — and the lender knew about the first one and knew about the second one. If you think about the statute requiring knowledge of falsehood at the time of signing, you can construct a story where that’s the case. That would be the argument they’d make at trial, if this weren’t past the statute of limitations and if Pulte had referred it to DOJ and DOJ chose to pursue it.

ABRAMS: It is amazing to me — and again, I don’t know if you’re going to want to answer this, you don’t have to — but it feels like the double standard the president often applies to others versus himself is astonishing. This is such an apples-to-apples comparison. We often say, well, it’s not really apples to apples — but this really is apples to apples, isn’t it?

REISS: It is. I’m going to say a few things in response to that. One: this is genuine hypocrisy, but unless it enrages his base — unless they say, “yes, our leader is applying two standards, and that’s unfair, and we want to punish him for that and not vote for him or for his slate” — it doesn’t really matter. Second — and this doesn’t excuse his behavior in the slightest, or Pulte’s behavior in the slightest — hypocrisy is a real bipartisan issue. You have Spitzer prosecuting johns, you have Hastert and Gingrich bringing the impeachment against President Clinton. There’s a lot of hypocrisy by politicians, and this, I think, is just part of something massive—

ABRAMS: I guess what makes this different to me is that with these cases, you can make the argument that none of them should be brought, or you can make the argument that they’re really important to be brought. I don’t think Eliot Spitzer — who suffered, who lost his job, there were real consequences for him — was out there in public saying, “these johns, they’re a real problem.” And that’s what Trump is doing. He’s going out there criticizing Lisa Cook as if she’s a criminal. I think that’s what makes this different.

REISS: I agree. It’s more extreme, but it’s really part and parcel of his approach to politics, which is attack, attack, attack, and deny, deny, deny, if anything comes close to touching your behavior or your team’s behavior. And it’s not just Trump — there are members of the administration who have similar mortgage issues, and allegedly Letitia James, Cook, and Schiff have that issue too. It’s part and parcel of behavior on the left and on the right, but he’s only going after Democrats. And that’s obviously true.

ABRAMS: Yep — and again, [the source transcript is garbled here: “only going after Democrats is sort of part and parcel of this administration going after Democrats for doing exactly what he did to me, is a step further” — recommend checking against the audio for the exact wording before publishing]. David Reiss, thank you so much for coming on the program. Really appreciate it.

The Real Deal: NYC’s Rent Stabilization Crisis

Jonathan Mines of the Mines Group; David Reiss, former RGB chair; Rafael Cestero of Community Preservation Corporation (Getty, LinkedIn, Mines Group)/Graphic by The Real Deal

The Real Deal quoted me in NY’s Rent Stabilization Crisis. It reads, in part,

The goal for rent-stabilized housing, as panelists from the landlord and tenant sides agreed at a sold-out New York City Bar Association event last week, should be a return to balance and predictability.

In that perfect world, owners get enough revenue to sustain their buildings and earn modest returns, tenants pay their rent, and those who cannot afford it are subsidized by the government, not by the landlord.

Reality check: This scenario is not readily achievable. It might even be impossible.

The consensus among the expert panelists was that the politics that governs rent regulation in New York will continue to result in overcorrections as legislative power swings from one side to the other.

“There is no way that a political process is going to create a good outcome for tenants and buildings over the long run,” said Rafael Cestero, CEO of the Community Preservation Corporation.

Cestero said 36 percent of the huge portfolio of rent-stabilized loans that CPC services have a debt service coverage ratio below 1.0, which means the buildings securing those mortgages lose money every month.

When owners had the upper hand in Albany, “they kept asking for more and more,” he said. “The dynamic has now completely flipped. Tenants have the power in Albany, and continuing to ask for more and more and more is just going to perpetuate the cycle of where we are today.”

And where is that?

“I do think,” said former Rent Guidelines Board chair David Reiss, “we’re in the midst of a slow-moving train wreck.”

The FHFA’s @Pulte Acts on X Alone

Adam Fagen Attribution-NonCommercial-ShareAlike 2.0 Generic

Business Insider quoted me in Mortgage Regulator Bill Pulte Has Posted at Least 13 Agency Orders on His Personal X Account (behind a paywall). The story reads, in part,

Until he became the head of the Federal Housing Finance Agency and a warrior in President Trump’s fight with the Federal Reserve, Bill Pulte was mostly known for posting on X. Under the handle @pulte, the businessman frequently sent groceries and gas money to people in need.

In his governmental role, which he assumed in March, Pulte has continued to use X as a megaphone. Over the last six months, he has posted at least 13 official orders on his personal account — and they don’t appear to be posted publicly anywhere else.

The practice is unusual for the head of an agency that regulates Fannie Mae and Freddie Mac, the two housing-finance companies under federal conservatorship central to the $21 trillion residential mortgage market.

*    *     *

“This is very abnormal,” said David Reiss, a law professor at Cornell University who focuses on housing policy and real-estate finance. “I don’t know what a court would do if someone sued based on an order that he only posted on X.” He added by email that impacted parties might argue that carrying out official acts by an X post doesn’t comply with the Administrative Procedure Act.

The FHFA did not respond to questions about Pulte’s posts. Pulte didn’t respond to a request for comment.

Trump’s Real Estate Valuations: They Mean Just What He Chooses

illustration by Sir John Tenniel

‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’ ‘The question is,’ said Humpty Dumpty, ‘which is to be master — that’s all.’

 

The Daily Beast quoted me in Trump’s Bank Fraud Defense ‘Defies the Laws of Physics.’ It reads, in part,

Donald Trump’s colossal trial for faking property values starts next Monday, and one mind-boggling issue has emerged as his weakest defense yet: the idea that his past lies on financial statements were justified because prices eventually went up anyway.

    *     *     *

“What he is saying is completely inconsistent with how real estate professionals talk about valuations,” said David Reiss, a Brooklyn Law School professor who specializes in real estate finance.

“When you talk about valuations at a given time, you’re talking about what its value is at that time. It becomes more valuable in the future, but that’s its value at the time,” Reiss said.

That means Trump’s 2014 financial statement should have, naturally, captured the value of any given building or land at that time.

To better understand why Trump’s excuse is bonkers requires a quick review of the three basic methods to assess value employed by professional property appraisers.

One is the income approach: What income a particular property is currently generating? That doesn’t account for the future, Reiss said.

Another is the cost approach: How much does it cost to replace the property? That doesn’t consider the future either, Reiss made clear.

The third is the sales comparison approach: What are similar parcels and comparable properties selling for? This could include future expectation of development, Reiss explained. After all, sale prices are determined by supply and demand—and a fundamental concept in economics dictates that demand can be affected by consumer expectations of future price changes.

As usual, Trump’s logic seems to careen off the rails and focus solely on his property’s future value. But Trump simply can’t do that because he wants to.

“That’s not how the legal system works or how the real estate industry works… if everybody could say that, nobody could be accused of a lie. We would all do whatever the heck we want,” Reiss said.

Reiss likened Trump redefining time-bound questions on financial forms to the way Humpty Dumpty makes up words in Lewis Carroll’s sequel to Alice’s Adventures in Wonderland. The law professor read a passage in which Alice took issue with the Eggman’s improper use of the word “glory.”

Humpty Dumpty smiled contemptuously. “Of course you don’t—till I tell you. I meant ‘there’s a nice knock-down argument for you!’”

“But ‘glory’ doesn’t mean ‘a nice knock-down argument,’” Alice objected.

“When I use a word,” Humpty Dumpty said in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”

Blockchain Coming To Your Block

https://pixabay.com/vectors/isometric-buildings-smartphone-5244846/

Joseph Bizub, Justin Peralta and I wrote the lead story for latest issue of N.Y. Real Property Law Journal, Blockchain Coming to a Block Near You: How FinTech is Changing Real Estate Investing. You can find it on page 5: bit.ly/BlockchainStory. It argues,

Until recently, real estate with a small footprint – one-to-four-family homes as well as small retail, office, and industrial buildings – were generally within the purview of small investors who invested locally. Today, because of technological advances, these owner-occupants and investors face competition from an emerging class of decentralized finance (DeFi) investors. Fintech companies are presenting DeFi investors with new approaches to the challenges that real estate investing traditionally poses: illiquidity, high capital requirements, lack of diversification, and opaque markets. This article focuses on how fintech companies are meeting those challenges and suggests that while much of their vaunted innovation is simply old wine in new bottles, there is good reason to think that they will be driving a lot of investment in small real estate transactions in the future, in no small part because people like shiny new bottles.

You can also find the draft on SSRN and BePress.

How Fintech Is Changing Real Estate Investing

Joseph Bizub, Justin Peralta and I have posted a short article, Blockchain Coming to a Block Near You: How Fintech Is Changing Real Estate Investing (also available on SSRN here). It opens,

Until recently, real estate with a small footprint – one-to-four-family homes as well as small retail, office, and industrial buildings – were generally within the purview of small investors who invested locally. Today, because of technological advances, these owner-occupants and investors face competition from an emerging class of decentralized finance (DeFi) investors. Fintech companies are presenting DeFi investors with new approaches to the challenges that real estate investing traditionally poses: illiquidity, high capital requirements, lack of diversification, and opaque markets. This article focuses on how fintech companies are meeting those challenges and suggests that while much of their vaunted innovation is simply old wine in new bottles, there is good reason to think that they will be driving a lot of investment in small real estate transactions in the future, in no small part because people like shiny new bottles.

How To Buy A Foreclosed Home

photo by Taber Andrew Bain

US News & World Report quoted me in  How to Buy a Foreclosed Home. It opens,

As home prices soar in many cities, buyers might look to foreclosures as an affordable option for landing their dream home. Typically, a foreclosure occurs when a homeowner no longer can make the mortgage payments and the lender seizes the property. The lender then requires the former owner to vacate the property before offering it for sale, usually at a discounted price. In some cases, the home is auctioned off to the highest bidder.

Foreclosures offer home shoppers the potential to score a great deal, says Elizabeth Mendenhall, a Realtor in Columbia, Missouri, who is president of the National Association of Realtors.

“Sometimes people think a foreclosure only happens to the lower end of the market, but you can definitely find foreclosures at any price range,” she says.

But while buying a foreclosure can save you a lot of cash, it does come with risks. If you pursue a foreclosure, it helps to have a “stomach of steel,” says David Reiss, law professor and academic programs director of the Center for Urban Business Entrepreneurship at Brooklyn Law School.
“There’s going to be a lot more ups and downs” than in a typical homebuying process, says Reiss, whose work focuses on real estate finance and community development.

Why Buy a Foreclosure?

In recent years, foreclosure sales have been trending downward, according to national property data curating company Attom Data Solutions. That is largely because a strengthening U.S. economy has reduced the number of borrowers who lose their homes as a result of failing to pay the mortgage. In 2017, distressed home sales – including foreclosures and short sales – made up 14 percent of all U.S. single family home and condo sales, according to Attom Data Solutions. That number was down from 15.5 percent in 2016 and a recent high of 38.6 percent in 2011.

Still, some buyers look to foreclosures to get the best possible deal. Homes may be for sale in various states of foreclosure. For example, pre-foreclosure is a period when the owner has fallen behind on payments, but the lender has not actually taken the home from the owner. Homes sold at this point often go through the short sale process, where the lender agrees to accept an amount of money from the buyer that is less than what the current owner owes on the mortgage.

Properties that are already in foreclosure are sold at an online or offline auction, or by a real estate agent. The biggest lure of buying a foreclosure is the potential savings you get compared with buying a similar nondistressed property.

“It can be like a 15 percent discount on your neighboring houses,” Reiss says. “So, it can be significant.”

But Mendenhall says how much you will save depends on the local real estate market and the stage of foreclosure of the property.

The Risks of Buying a Foreclosure

Purchasing a foreclosure involves several substantial risks, so buyers must enter the process with their eyes wide open. In many cases, if you buy a foreclosure at auction, you must purchase the property sight unseen. Reiss says this is the biggest potential danger of buying a foreclosure.

“The big, scary thing is that with a number of foreclosures, you can’t actually inspect the property before you actually bid,” he says. “That’s in part why the prices are below the market.”

Even if you can get a professional inspection on a foreclosure, you typically have to buy the house “as is.” Once you purchase the home, any problems that pop up are yours – as is the responsibility for finding and paying for a remedy. Such problems are more likely in a foreclosure than in a nondistressed property. For example, in some cases, a frustrated family might strip the home of valuable elements before vacating the house.

“Or they kind of just beat it up because they were angry about having to go through the foreclosure,” Reiss says.

The mere fact that the home is vacant also can lead to problems. Reiss says a home is like a plant – if you don’t tend to it regularly, it can wither and die. “If you happen to leave it alone on its own for too long, water leaks in, pipes can burst, rodents can get in, just the elements can do damage,” he says.

Mendenhall adds that people who lose their homes to foreclosure typically have major financial troubles. That can trigger other troubles for the new owner. “If the previous owner was in financial distress, there’s a chance that there’s more maintenance and work maybe that they haven’t completed,” she says.

Reducing the Dangers of Buying a Foreclosure

There are a few things you can do to mitigate the risks associated with buying a foreclosure. For starters, see if you can get a professional inspection of the property. Although buyers often cannot inspect a foreclosure property, that is not always the case. So, be sure to ask a real estate agent or the seller about hiring a home inspector.

“Even though it may extend the process, if you can have a qualified inspector come in, you can know a little bit more about what you’re getting into,” Mendenhall says.

If you can’t inspect the property, Reiss recommends researching its history. Look at publicly available records to find out when the property was last sold and how long the current owner had possession. Also, check whether building permits were drawn and what type of work was done. “Maybe you’ll see some good news, like a boiler was replaced two years ago,” Reiss says. “Or maybe you’ll see some scary news, like there’s all these permits and you don’t know if the work was completed.”

Also, visit the house and perform a “curbside inspection” of your own, Reiss says. “Even if you can’t go inside the house, you want to look at the property,” he says. “If you can peek in the windows, you probably want to peek in the windows.”

Knock on the doors of nearby neighbors. Tell them you want to bid on the property but need to learn all that you can about the previous owners, including how long they lived in the home and whether they took care of it. And ask if there have been any signs of squatters or recent break-ins.

“Try to get all that information,” Reiss says. “Neighbors are probably going to have a good sense of a lot of that, and I think that kind of informal due diligence can be helpful.”

Working with a real estate agent experienced in selling distressed property may help you avoid some of the potential pitfalls of buying foreclosures, Mendenhall says. Some agents have earned the National Association of Realtors’ Short Sales and Foreclosure Resource Certification, or SFR. Such Realtors can help guide you through processes unique to purchasing distressed properties, Mendenhall says.

How to Find a Foreclosure

You can find foreclosures by searching the listings at bank websites, including those of giants such as Wells Fargo and Bank of America. The government-sponsored companies Fannie Mae and Freddie Mac also have listings on their websites.

The federal government’s Department of Housing and Urban Development owns and sells foreclosed homes. You can find listings on the website.

Private companies such as RealtyTrac offer foreclosure listings online, typically for a fee. Finally, you can contact a real estate agent who will find foreclosures for you. These agents may help you find foreclosures before others snatch them up.

Is a Foreclosure Right for You?

Before you pursue a foreclosure, Reiss encourages you to ask yourself whether you are in a good position to take on the risk – and, hopefully, to reap the reward – of buying a foreclosure. It is possible to use conventional financing, or even a loan from the Federal Housing Administration or Department of Veterans Affairs, to buy a foreclosure. However, people with deeper pockets are often better candidates for buying a foreclosure.

Because the process can be highly competitive, buyers with access to large amounts of cash can swoop in and land the best deals. “You can get financing, but you need to get it quickly,” Reiss says. “I think a lot of people who go into purchasing foreclosure(s) want to have the cash to just kind of act.”

Sellers of distressed properties love cash-only buyers, because the home can be sold without a lender requiring either a home appraisal or a home inspection. “So, the more cash you have on hand, the more likely you’re playing in those sandboxes,” Reiss says.

In addition, buyers of foreclosures often need to spend money to bring a property up to code or to make it competitive with other homes in the neighborhood. “Have a big cushion in case the building is in much worse condition than you expected,” Reiss says.

He cites the example of someone who buys a foreclosure, only to discover that the piping has been stripped out of the basement and will cost $10,000 to repair and replace. “You need to know that you can handle that one way or the other,” Reiss says.

People with solid home maintenance and repair skills also are good candidates for buying a foreclosure. “I think if you’re a handy person, you might be able to address a lot of the issues yourself,” Reiss says. He describes such buyers as anyone who has “a can-do attitude and is looking to trade sweat equity for home equity.”

Reiss and Mendenhall agree that flexibility is crucial to successfully shopping for and purchasing a foreclosure. Mendenhall notes that a foreclosure sale can take a long time to complete. “It can be a long process, or a frustrating one,” she says. “It can depend upon where they are in the foreclosure process. It can take a much longer time to go from contract to close.”

For that reason, a foreclosure might not make sense for buyers who need to move into a property quickly, she says. Also, think hard about how you really feel about buying a house that needs extensive renovation work that might take a long time to complete.

“It can be hard for some people to live in a property and do repairs at the same time,” Mendenhall says.