Tag Archives: Reiss

Honesty Is Best

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Grant Wood; "Parson Weems' Fable"; 1939; oil on canvas; Amon Carter Museum, Fort Worth, Texas; 1970.43

Grant Wood; “Parson Weems’ Fable”; 1939; oil on canvas; Amon Carter Museum

Trulia quoted me in 6 Things Home Sellers Are Legally Required To Disclose. It opens,

When it comes to selling your home, heed your mother’s advice: Honesty is always the best policy.

Denise Supplee and her husband, Jerry, had been in their new home in Horsham, PA, for just three months when they started to notice something strange in their bathroom. “You could see mold starting to seep through the paint,” says Denise, a co-founder and director of operations of SparkRental.com. “We had a contractor come in and he told us we were lucky,” she says. “It seemed to be an issue kept to the bathroom and occurred most likely because there was no exhaust fan.” The problem: The seller had blatantly painted over existing mold without ever disclosing it to the Supplees. Although the seller made good and paid for the mold removal — a $1,500 cost — the Supplees could have taken them to court for not disclosing the problem before the sale.

It’s a question that plagues many residential sales: As a seller, what do you — and don’t you — need to tell the buyer about your home? “My rule of thumb is this: If you’re not sure if you should disclose something, you probably should,” says Sam Pawlitzki, a real estate agent with Beach Cities Real Estate in Los Angeles, CA. “Think of seller disclosures like a Carfax report.” Plus, the harm in not disclosing something can result in some serious legal and financial woes. Here’s a list of what you legally need to include in your sellers’ disclosure to keep yourself out of hot water.

1. Lead paint

One item is a must when it comes to being upfront with potential buyers: the use of lead-based paint in your home. “If the home was built before 1978, each party in a transaction needs to sign a lead paint disclosure,” says Pawlitzki. “This is a federal law and applies to every state. No matter if you think the lead paint has been removed or not, it still needs to be disclosed.” However, David Reiss, a professor at Brooklyn Law School in Brooklyn, NY, explains, “If you are not aware of a lead-based paint issue in the house, you are not required by the act to investigate whether there is any.”

Firing Your Real Estate Agent

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USA Today quoted me in How (And When) To Fire Your Real Estate Agent. It opens,

Breaking up is hard to do. Add a house and tens of thousands of dollars into the mix, and it can get downright ugly.

Unlike romantic entanglements, though, breaking up with your real estate agent as a seller if you’re not getting the service or the results promised doesn’t have to be dramatic. Here’s what you can do early on to minimize the damage — and how to handle the situation if, alas, you do come to irreconcilable differences.

When you first enlist an agent

Review your contract closely. Many real estate agents require their clients to sign an exclusive representation agreement, which is essentially an employment contract, says Brian Pendergraft, a real estate attorney in Greenbelt, Md. These contracts spell out how the client and real estate agent will each uphold their end of the deal, and they tend to be worded to protect the agent’s interests, says David Reiss, a law professor at Brooklyn Law School in Brooklyn, New York.

As a seller, you’ll want to ensure the contract covers your rights, too. This includes outlining exactly how your agent will market your home, and a plan to generate enough showings within a set timeframe so that you’ll have a legal leg to stand on for early termination, Reiss says.

Understand your options for termination from the get-go. There are a few ways to call it quits with your agent, but the win-win situation is a no-penalty termination in which neither party is penalized if the relationship ends prematurely, says Bruce Ailion, a Realtor and attorney in Atlanta. Include this detail in your contract.

If things go sour

Consider what constitutes a fireable offense. If you’re upset with your agent about sales strategy, lack of communication or poor service, those are issues that are unlikely to be resolved easily, Ailion says. Or perhaps you’re worried that your agent is in murky legal waters, such as refusing to show your home to people from certain protected groups or failing to share a property disclosure with buyers. Report these issues immediately to the agent’s broker of record, who is responsible for the real estate agents in a brokerage, Ailion says.

Put it in writing. If your agreement is in writing, you have to get out of it in writing even if there’s no specific expiration date, Pendergraft says. Write a letter or email to your agent requesting to part ways. If you get no response, hire an attorney to write a demand letter for you, Pendergraft says. This shows you mean business — at a fraction of the cost to take the issue to court.

Signs You Are In A Bubble

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Trulia.com quoted me in Signs Your Local Real Estate Market Is A Bubble. It reads, in part,

If you were burned in 2008, the last time the housing bubble burst, you’re probably (and understandably!) gun-shy about jumping into the housing market again — especially if you think your local area could be experiencing another bubble. If you buy during a bubble, overpaying for your home, you might be forced to sell for less than the property is worth — either that or stay put longer than you’d like until you build up enough equity to sell. So if you’re thinking of buying, it’s important to have a sense of the signs that point to a real estate bubble. Here are five of them.

1. Shaky loans are common

As we learned from the 2008 recession, subprime lending (lending to anyone with a pulse) is not sound practice. And we have made changes. “Credit remains relatively tight,” says Jonathan Miller, CRE, CRP, and president of Miller Samuel Inc., a New York, NY, real estate appraisal company.

Yet the U.S. government still backs loans that some might consider risky, particularly ones that require only a 3.5% down payment, which the Federal Housing Administration (FHA) offers. Before you get too alarmed, keep in mind that the FHA has been helping people become homeowners since 1934. The underwriting standards are higher with FHA loans than with some of the subprime low-down-payment products offered in the early 2000s, explains David Reiss, professor of law at Brooklyn Law School in Brooklyn, NY.

2. There’s lots of leverage

When you take out a mortgage, you’re leveraging your money — the smaller the down payment you make, the more you have leveraged the deal by using the lender’s money to make the purchase. “A bubble means lots of leverage,” says Miller. “And this [current] cycle has been remarkably devoid of leverage.” Miller cites New York City as an example. “About 45% of the transactions are cash. And for the price points below half a million dollars, the average person puts about 35% down.”

3. Home prices are rising faster than salaries

When housing prices are rising and your salary isn’t, you’re left with two options: continue to rent, or buy a house you can barely afford. If you think your market is in a bubble, you might want to wait to buy, especially if you’re really stretching to make ends meet.

“I would review the mean income levels and employment levels compared to real estate prices for signs of discord,” says Michael Kelczewski, a Pennsylvania and Delaware real estate agent. “Indicators of a local real estate bubble are asset values exceeding the local market’s capacity to absorb prices.” Reiss says that when home prices rise faster than salaries, “It could be the sign of froth in the market.”

Miller agrees that a “rapid run-up in prices that don’t match wage growth leads to discussions about bubbles.” But he says that as long as credit conditions from bank lenders are tight, you won’t have runaway price inflation. In New York, prices aren’t rising like they were, but they aren’t falling either. Miller says they’ve leveled off and are “stuck on a high plateau.”

So what do you do when affordability isn’t improving in pricey markets like New York, NY, San Francisco, CA, Los Angeles, CA, or any other high-cost urban market? Buy in the burbs. Miller notes that for New York, the market is booming in the outlying suburbs.

 *     *     *

When there are no signs

Of course, you might think your market is (or isn’t) in a bubble, but you could be wrong. “The problem with bubbles is that we don’t know them when we see them,” says Reiss. He explains that San Francisco, CA, for example, a hugely unaffordable city for most people, isn’t in a bubble just because prices are high. “Bubbles do not refer to rapid price appreciation. They refer to unsustainable rapid price appreciation. [The market] is unsustainable because fundamentals do not support the appreciation.”

The bottom line is, it’s difficult to know whether it’s really a bubble. “If homeowners buy a house that works for their family and that they can afford over the long haul, they will have made a decision that benefits them every day, even if real estate prices drop significantly,” says Reiss. But heed his warning: “If homeowners instead buy a house that is a financial stretch in the belief that it will appreciate down the road and fund their retirement, there is a good chance that they have set down a road to ruin.”

The Housing Market Under Trump

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TheStreet.com quoted me in Interest Rates Likely to Rise Under Trump, Could Affect Confidence of Homebuyers. It opens,

Interest rates should increase gradually during the next four years under a Donald Trump administration, which could dampen growth in the housing industry, economists and housing experts predict.

The 10-year Treasury rose over the 2% threshold on Wednesday for the first time in several months, driving mortgage rates higher with the 30-year conventional rate rising to 3.73% according to Bankrate.com. Mortgage pricing is tied to the 10-year Treasury.

Housing demand will remain flat with a rise in interest rates as many first-time homebuyers will be saddled with more debt, said Peter Nigro, a finance professor at Bryant University in Smithfield, R.I.

“With first-time homebuyers more in debt due to student loans, I don’t expect much growth in home purchasing,” he said.

Interest rates will also be affected by the size of the fiscal stimulus since additional infrastructure spending and associated debt “could push interest rates up through the issuance of more government debt,” Nigro said.

Even if interest rates spike in the next year, banks will not benefit, because there is a lack of demand, said Peter Borish, chief strategist with Quad Group, a New York-based financial firm. The economy is slowing down, and consumers have already borrowed money at very “cheap” interest rates, he said.

The policies set forth by a Trump administration will lead to contractionary results and will not spur additional growth in the housing market.

“I prefer to listen to the markets,” Borish said. “This will put downward pressure on the prices in the market. Everyone complained about Dodd-Frank, but why is JPMorgan Chase’s stock at all time highs?”

An interest rate increase could still occur in December, said Jonathan Smoke, chief economist for Realtor.com, a Santa Clara, Calif.-based real estate company. With nearly five weeks before the December Federal Open Market Committee (FOMC) meeting, the market can contemplate the potential outcomes.

“While the market is now indicating a reduced probability of a short-term rate hike at that meeting, the Fed has repeatedly indicated that they would be data-driven in their decision,” he said in a written statement. “If the markets calm down and November employment data look solid on December 2, a rate hike could still happen. The market moves yesterday are already indicating that financial markets are pondering that the Trump effect could be positive for the economy.

“The Fed is likely to start increasing the federal funds rate at a “much faster pace starting next year,” said K.C. Sanjay, chief economist for Axiometrics, a Dallas-based apartment market and student housing research firm. “This will cause single-family mortgage rates to increase slightly, however they will remain well below the long-term average.”

Since Trump has remained mum on many topics, including housing, predicting a short-term outlook is challenging. One key factor is the future of Fannie Mae and Freddie Mac, who are the main players in the mortgage market, because they own or guarantee over $4 trillion in mortgages, remain in conservatorship and “play a critical role in keeping mortgage rates down through the now explicit subsidy or government backing which allows them to raise funds more cheaply,” Nigro said.

It is unlikely any changes will occur with them, because “Trump has not articulated a plan to deal with them and coming up with a plan to deal with these giants is unlikely,” he said.

Trump could attempt to take on government sponsored enterprises such as Fannie Mae and Freddie Mac, said Ralph McLaughlin, chief economist for Trulia, a San Francisco-based real estate website.

“If he does, it’s going to be a hairy endeavor for him, because he’ll need bipartisan support to do so,” he said.

Since he has alluded to ending government conservatorship and allowing government sponsored enterprises to “recapitalize by allowing retention of their own profits instead of passing them on to the Treasury,” the result is that banks could have their liquidity and lending activity increase, which could help boost demand for homes, McLaughlin said.

“We caution President-elect Trump that he would also need to simultaneously help address housing supply, which has been at a low point over the past few years,” he said. “The difficulty for him is that most of the impediments to new housing supply rest and the state and local levels, not the federal.”

Even on Trump’s campaign website, there is “next to nothing” about his ideas on housing, said David Reiss, a law professor at the Brooklyn Law School in New York. The platform of the Republican Party and Vice President-elect Mike Pence could mean that the federal government will have a smaller footprint in the mortgage market.

“There will be a reduction in the federal government’s guaranty of mortgages, and this will likely increase the interest rates charged on mortgages, but will reduce the likelihood of taxpayer bailouts,” he said. “Fannie and Freddie will likely have fewer ties to the federal government and the FHA is likely to be limited to the lower end of the mortgage market.”

Miami Vice?

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by Roberlan Borges

REFinBlog has been nominated for the second year in a row for The Expert Institute’s Best Legal Blog Competition in the Education Category.  Please vote here if you like what you read.

The BNA Banking Report quoted me in BofA, Wells Fargo Try to Squelch High-Risk City Bias Suits (behind a paywall). It opens,

Bank of America and Wells Fargo are hoping an Election-Day U.S. Supreme Court argument will help them sidestep allegations of biased lending practices and the massive liability that could follow (Bank of Am. Corp. v. Miami, U.S., No. 15-cv-01111, argument scheduled 11/8/16).

At issue is a 2015 federal appeals court ruling that reinstated a Fair Housing Act lawsuit by the city of Miami. The suit said Bank of America and Wells Fargo made discriminatory home loans that spurred widespread foreclosures while driving tax revenues down and city expenditures skyward.

The U.S. Supreme Court is set to hear arguments Nov. 8, with a focus on two questions – whether Miami has the right to assert such claims, and whether it can establish the critical “causal link” by tracing its problems to actions by the banks.

The case is high on the “must-watch” list of banks and consumer advocates. The court’s decision will affect a series of separate lawsuits against Bank of America and Wells Fargo by other cities that are now on hold and awaiting a decision in this case, as well as lawsuits against JPMorgan, Citigroup, and HSBC.

“There are suits all over the country raising these issues,” said Karen McDonald Henning, associate professor at the University of Detroit Mercy School of Law. “The potential exposure to banks could be enormous.”

The case also could clarify how the law is applied to address societal wrongs, Henning added in an assessment echoed by Mehrsa Baradaran, associate professor of law at the University of Georgia School of Law in Athens, Ga.

“This could really give the Fair Housing Act some teeth to do away with problems it was meant to remedy,” she said.

Fair Housing Act

According to Miami, Bank of America and Wells Fargo violated the Fair Housing Act in two ways. The city said the banks intentionally discriminated against minority borrowers by targeting them for loans with burdensome terms.

Miami also said the banks’ practices had a disparate impact on minority borrowers that resulted in a disproportionate number of foreclosures and exploitive loans in minority neighborhoods.

Bank of America did not immediately respond to a request for comment ahead of the argument. Wells Fargo spokesman Tom Goyda declined to comment.

Both banks have consistently defended their lending practices, citing efforts to boost community development and trying in some cases to take what Wells Fargo has called “a collaborative approach” when it comes to disputes.

But both banks say the lawsuits are off-base as a matter of law. In its petition to the U.S. Supreme Court in June, Bank of America said the plaintiffs are making demands “based on a multi-step theory of causation that would have made Rube Goldberg proud.”

Risk Goes Local

Even so, if Miami’s suit is allowed to go forward, it could expose global financial institutions to liability from local governments across the nation, said Professor David Reiss of Brooklyn Law School in New York.

That’s new, he said. Although the federal government and state attorneys general have reached multi-billion settlements with banks in the wake of the financial crisis, local governments haven’t had much of a role in those battles, Reiss told Bloomberg BNA.

But if Miami’s suit goes ahead, mortgage lenders could face significant litigation costs and monetary judgments under new theories of liability. “These new theories are independent of the theories relied upon by the federal government and the states and could therefore expand the overall liability of financial institutions from the same underlying set of facts,” Reiss said.

Are Month-to-Month Rentals Good Deals?

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Zillow.com quoted me in Are Month-to-Month Rentals Good for Landlords? It opens,

Your tenant’s lease is up, and they ask about switching to a month-to-month arrangement. Assuming they’re a good tenant — they pay rent on time, keep the place clean, don’t host loud parties — you might be tempted to accommodate the request. But before you do, be sure to understand the relevant landlord-tenant laws.

The Appeal Of Month-To-Month Renting

From the tenant’’ perspective, the benefit of month-to-month renting — also known as tenancy at will — is its flexibility compared to a standard long-term lease. Whether they’re pursuing out-of-town job opportunities, considering relocation to a different neighborhood or just thinking about moving up to a more spacious abode, the elasticity of month-to-month renting is appealing to a potentially footloose tenant.

From your point of view as a landlord, the appeal centers on cash flow and convenience — of not having the property stand vacant while you hassle with finding a new renter. In addition, a month-to-month rental can give you some added flexibility, too.

The Terms Of The Original Lease Generally Remain In Effect

There is no overarching federal law regarding tenancy at will; the rules are typically state-specific. Or, as Matthew Kreitzer an attorney with Booth and McCarthy in Winchester, Virginia, notes, “Tenancy-at-will is largely a creature of local law.” If and when there is no formal written agreement in place, local case law usually comes into play to fill the gap, he explains.

Michael Vraa, managing attorney at HOME Line, a tenant hotline based in Minnesota, says that in his state, as well as many others, the terms of the initial rental agreement carry forward into the month-to-month rental period.

Assuming rent is paid on a monthly basis, “unless the lease has some provision that describes what would happen if a new lease is not agreed to, the law would default to the notion that the agreement becomes month to month,” says Vraa. “If the lease ends July 31 and the tenant pays the next month’s rent (August), and the landlord accepts it, the agreement probably shifts to a month-to-month agreement.”

Tom Simeone, attorney at Simeone and Miller in Washington, D.C., adds that even a verbal contract or agreement to carry forth on a month-to-month basis is legally enforceable in most states. “If the parties previously had a written lease that expired, those terms will remain in effect in the tenancy at will. If not, the court will enforce what it finds to be the parties’ intentions and fill in any contract terms with what it deems to be reasonable,” Simeone says.

As Vraa noted, landlords sometimes include provisions in the original lease describing what can or will happen if a new lease is not agreed to at the end of the set term. Some management companies, for example, include a statement in the original lease saying the landlord or management company can or will raise the rent if a new lease is not signed. This may be by a certain dollar amount, such as “increased by $50 per month,” or by a specified percentage rate, as in “up to 5 percent per month.”

Rules About Tenant Privacy And Intent To Vacate Still Apply

Vraa and Simeone say that, generally, the rules regarding a tenant’s right to privacy are the same under tenancy at will as under a lease. Thus the amount of notice you have to give a tenant before entering their premises remains the same — typically 24 hours, as dictated by law in many states.

In regard to the notice required for intent to vacate, Simeone says this, too, is determined by the original lease. “If not,” he adds, “a court will likely require the lease to be month to month, especially if rent is paid on a monthly basis, which is typical. If so, thirty days’ notice is required to terminate — by either [the] landlord or tenant.”

However, Vraa says, in a month-to-month rental term, neither the landlord nor tenant are required to provide a specific reason for discontinuing the contract. That means you can give the tenant a notice to vacate the property, regardless of whether you plan to sell the property, rent to someone else, or simply do not wish to continue leasing to that specific tenant. But David Reiss, professor at Brooklyn Law School, notes, “The big risk, for both parties, is that the other party wants to terminate [the tenancy] at a time that is inconvenient for the other party. In that case, the parties can agree to a longer term (a year-to-year lease or one for a specific term of years).”

Reiss also stresses that although most state laws regarding tenancy at will derive from common law, “each jurisdiction may have variations from these common law principles that result from court decisions or statute. For instance, the meaning of one month’s notice to terminate a month-to-month lease can have small, but legally significant variations among jurisdictions.”

REFinBlog has been nominated for the second year in a row for The Expert Institute’s Best Legal Blog Competition in the Education Category.  Please vote here if you like what you read.

Clintons’ October Permitting Surprise

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Realtor.com quoted me in Final October Surprise: Clintons Make Untimely Mistake Renovating Their New Home. It opens,

This is proving to be the year that redefines the notion of the presidential campaigns’ “October Surprise.” First Donald Trump‘s hot mic/hot mess “Access Hollywood” tape surfaced, followed by the ugly after affects. Then with just over a week to go before Election Day, Hillary Clinton‘s email woes returned, this time on Anthony Weiner‘s computer. Talk about lousy timing! Now, on the final day of October, one last surprise is rearing its head. Remember when the Clintons bought the home next door to their own in Chappaqua, NY, a few months back? Well, it turns out they renovated it without permits.

Breaking news alert!

According to public records, government officials received a complaint in early October about excavation happening at the Clintons’ new home. When an inspector arrived, he saw that a number of unpermitted upgrades were taking place, including a kitchen remodel and the installation of a new HVAC system.

Conspiracy theorists take note: Once the Clintons learned of this oversight, they took steps to fix it. And to be fair, the inspector on the case, William Maskiell, concedes that architects or contractors typically file for permits rather than the homeowners themselves. Still, he points out, “If you own the house, you’re responsible on everything that goes on with that house.”

In other words, the buck stops with the Clintons.

Granted, this blooper might seem small compared with the much larger problems on Hillary Clinton’s plate right now. Still, it can serve as an important lesson to all homeowners—many of whom might be tempted to sneakily sidestep those annoying permits before they start renovating. Honestly, are those little pieces of paperwork all that important?

It turns out they really are.

“I can’t believe a contractor working on a multimillion-dollar home wouldn’t pull permits,” says Mark Clements, a contractor at MyFixItUpLife.com. “It’s very much the contractor’s responsibility to gain those permits, and nearly unthinkably stupid not to.”

Here’s why: “On the surface, permits are inconvenient, but their value vastly outweighs what it takes to obtain them,” Clements explains. “They ensure everything from zoning variances to proper building practices are followed. And they make sure there is another set of expert eyes on the work being done, checking for everything from proper structure to code-approved electric to fire stops are safely installed.”

Once that’s done, a final inspection and certificate of occupancy, or “C of O,” is issued. The home may be reappraised—which could raise property taxes—”but it will also mean that when you list it for sale with three bathrooms, you can do so legally,” Clements adds.

A Stronger America, One Permit At A Time

So what’s the worst that could happen if you don’t bother with permits before you embark on a home improvement project? For one, if you’re caught, you could face fines.

“In some jurisdictions the penalties can be heavy, but it’s the stop-work order than can really hurt,” says David Reiss, a professor of Law at Brooklyn Law School and editor of REFinBlog.com. “Not only does it delay the completion of the work, but it may lead to additional costs from the contractor and subcontractors working on the project. And to top it off, it may interfere with the homeowners’ plans to leave their current home and move into their new one. The cascade effect among the affected parties can be painful.”

And even if you’ve already completed your renovation off the radar, you aren’t in the clear. If you decide to sell your home one day, unpermitted renovations can discourage buyers from biting—if they’re discovered.

“When buying a home, you always want to pay attention to any signs that there was unpermitted work done on the house,” says Reiss. “Is the certificate of occupancy for a one-family home, but there is a mother-in-law unit in the back? Are all of the houses on the block one story but your house is two stories? In such cases, you definitely want to dig a little deeper so you are not left holding the bag.”

REFinBlog has been nominated for the second year in a row for The Expert Institute’s Best Legal Blog Competition in the Education Category.  Please vote here if you like what you read.