Tag Archives: Reiss

Luxury Real Estate and Transparency

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photo by tpsdave

Law360 quoted me in Atty-Client Privilege At Stake In Real Estate Bill (behind a paywall). It opens,

The push to reveal the individuals involved in anonymous real estate deals has moved from title insurers to attorneys and real estate agents, but lawyers say requiring them to reveal the names of clients they help set up limited liability companies and other vehicles could weaken attorney-client privilege.

Reps. Carolyn Maloney, D-N.Y., and Peter King, R-N.Y., plan to reintroduce legislation this week that would require states to collect the beneficial ownership information for limited liability companies and other vehicles used in real estate transactions, or to have the U.S. Department of the Treasury step in if states are unable to meet the requirement, in order to prevent criminals, corrupt government officials and terrorists from using real estate purchases to launder funds.

Doing so would close a loophole that allows attorneys to advise clients without meeting the same reporting requirements as banks and would help prevent potentially illicit funds from making their way into real estate markets, Maloney said. But it also has the potential for putting attorneys in the uncomfortable position of reporting clients to the government in cases where there may not be a criminal violation, said Marc Landis, the managing partner of Phillips Nizer LLP.

“This will certainly be an area where client confidentiality and attorney-client privilege will be weakened in ways that they have not been previously,” he said.

Lawyers in real estate transactions came under renewed attention after the transparency advocacy group Global Witness and the CBS News program “60 Minutes” released a blockbuster report Sunday night that showed several New York law firms providing information to an individual posing as an adviser to a minister from an African government who was looking to buy a Gulfstream jet, a yacht and a New York brownstone without the money being detected.

According to the report, which used hidden cameras, 12 of 13 lawyers provided assistance when asked how to set up shell companies and other vehicles to avoid attaching a name to the purchases. One of those 12 later said he wouldn’t participate in the transactions.

The Global Witness report found that the attorneys — none of whom signed the group’s investigator as a client — broke no laws in providing the advice they did. And that’s a problem that Maloney wants to address.

“This is unacceptable, criminal, scandalous, and it has to stop,” she said on a conference call with reporters.

The New York Democrat’s solution to the problem is to require states to force attorneys, real estate agents and other advisers on a transaction to include the name of the beneficial owner of an LLC or trust on forms submitted to the state. If the state will not or cannot implement such a system, the Treasury Department, through the Financial Crimes Enforcement Network, would require that disclosure.

In a similar move, FinCEN last month announced that title insurers would temporarily be required to provide the names of beneficial owners of LLCs that high-net-worth individuals use to purchase luxury real estate in Miami and Manhattan without mortgages.

Maloney’s bill, which she is introducing for a third time, will expand such reporting and make it permanent.

“We’re going after the loophole. We’re going after the real estate transactions. We’re going after the realtors and some lawyers that are setting these things up,” she said.

According to Brooklyn Law School professor David Reiss, Maloney’s bill, the Incorporation Transparency and Law Enforcement Assistance Act, has struck a good balance between giving law enforcement the power to root out illicit funds in high-end real estate and not infringing too much on attorney-client privilege.

“The attorney-client privilege is one of the oldest of the privileges recognized by courts, and in the aggregate it provides great benefits to society because it promotes open communications between clients and their lawyers. The privilege is not a shield for illegal behavior, though,” he said.

Hidden Home Costs

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Faulty Wiring

TeleMundo quoted me in 15 Hidden Home Costs When Buying a Home (the original is in Spanish: 15 gastos escondidos al comprar una casa). It reads, in part,

There are many other things to consider when buying a house, besides the fact that it looks nice. Pay attention to these details and avoid unpleasant surprises.

*     *     *

Taxes for the following year — Although you were notified about your current taxes, they could go up from one year to the next says David Reiss, Research Director of the Center for Urban Business Entrepreneurship (Brooklyn).

Bad electrical wiring –when purchasing a house many expenses may be hidden behind the walls and you will not realize it until the light switch stops working, adds Professor Reiss.

Thanks to Ana Puello for the translation.

Tough Edge for Financial Services

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Maria T. Vullo %>

Maria Vullo

 

 

 

 

 

 

 

Law360 quoted me in Cuomo’s DFS Nominee Likely To Keep Tough Edge (behind a paywall). It reads, in part,

Although New York Gov. Andrew Cuomo turned to a longtime BigLaw attorney to lead the New York State Department of Financial Services, observers say the agency is likely to continue taking the aggressive regulatory and enforcement stance that has become its calling card.

The governor tapped Paul Weiss Rifkind Wharton & Garrison LLP’s Maria T. Vullo to lead the DFS, completing a monthslong search to replace former New York Superintendent of Financial Services Benjamin M. Lawsky. In turning to Vullo, Cuomo brings on a litigator and former prosecutor with 25 years of experience in the law, including two decades of representing banks.

But given the reputation that the DFS has built up since it burst onto the scene with its $340 million sanctions violation settlement with the U.K.’s Standard Chartered PLC in 2012, advocates and observers believe that if confirmed, Vullo will continue to push for tough enforcement and big penalties against the banks, insurers and other financial firms that the DFS oversees.

 *     *     *

However, because Vullo comes from a BigLaw background with extensive experience representing financial firms, some have raised concerns that the agency will become less aggressive in enforcing New York state’s financial regulations.But observers who spoke to Law360 said her noncorporate experience gives a clearer picture of how she might run the DFS.

Vullo has been an advocate for women in the legal profession and represented women who sued for damages after being raped during the war in Bosnia between 1992 and 1995, helping secure a $745 million verdict in that case.

And in her work for Cuomo during his tenure as New York’s attorney general, Vullo oversaw a staff of around 200 that worked in the office’s investor protection, antitrust, real estate finance, consumer fraud and Internet bureaus.

In that position, she took action against Ezra Merkin and Ivy Asset Management for their roles in defrauding investors in Bernard L. Madoff’s $65 billion Ponzi scheme, as well as launching an investigation and action against Ernst & Young for investor losses in Lehman Brothers Holdings Inc.’s 2008 bankruptcy.

Those past experiences should allay any fears that Wall Street’s critics might have, said David Reiss, a professor at Brooklyn Law School.

“I thought that Governor Cuomo would seek an aggressive replacement for Lawsky,” Reiss said. “Vullo fits the bill.”

To that point, financial reform and other advocates said in interviews that they knew little about her, but were encouraged by what they did know.

“What we’re hoping is that the reputation that the department has established will continue through the new leadership,” said Andy Morrison of the New Economy Project, a New York-based advocacy group.

Indeed, Cuomo has an interest in maintaining an aggressive DFS.

The billions of dollars in fines it collected from banks have gone to fund state infrastructure projects, including the construction of a new Tappan Zee Bridge across the Hudson River north of New York City.

And that get-tough approach has also been a way to attract voters.

“My sense is he benefits from the halo effects of an aggressive DFS,” Reiss said.

Dollar Homes

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Packmatt

Realtor.com quoted me in Buy a House for a Buck? The Real Story Behind $1 Listings. The story reads, in part,

Hidden deep within the bowels of real estate listings are a few head-scratchers that would no doubt catch any bargain hunter’s eye. They’re homes for sale for the grand total of one crisp American dollar. So what’s the deal? Are they for real?

I decided to find out by actually clicking, and calling, and learning the stories behind these tempting facades. And it turns out, $1 listings can mean many things. Here’s what this lowball price is actually all about.

*     *     *

Possibility No. 3: It truly is for sale for $1, but…

The next four places for $1 that I check out are all rundown properties in Detroit. They range in description from “fire damage sold as is” (translation: a charred pile of lumber—pic below) to “bungalow with three bedrooms, one bathroom, basement and much more” (translation: “more” means plywood for windows and doors).

Still, some houses sit on decent lot sizes of 3,000+ square feet in neighborhoods that seem habitable at first glance. The listing agent won’t return my call, but I track down an agent willing to show me the various rundown homes. Though back taxes or liens on the property may jack up the price, I ask whether the house will really sell for $1. “Sure,” he says. “This is Detroit.”

Now that I’ve found a true $1 listing, should I hand over a George Washington for one of these fixer-uppers?

“When a house is being sold for a dollar, it means that the local real estate market has cratered,” says David Reiss, professor of law at Brooklyn Law School who focuses on real estate issues and community development. “Land has no value. Or even worse, it has negative value and buyers of $1 homes will end up getting snookered. Owning land comes with various mandatory expenses like real property taxes. It’s possible the true value is even lower than a dollar. In that case, you will see a lot of $1 houses staying on the market, as hard as that is to believe.”

Reiss further explains how the Motor City’s market cratered so deeply: “Real estate’s value typically comes down to location. If jobs have disappeared, if residents have disappeared, if services have disappeared—then value disappears.”

Beyond having zero worth, a $1 home is likely a gaping money pit. When the New York Times ran a piece on the subject in 2007, it found that “the houses often require hundreds of thousands of dollars in renovations.”

Though my search for $1 properties was a bust in the end, there once were $1 homes worth buying. “Think of New York City,” says Reiss. “Homes that were abandoned in the 1970s are now selling for seven figures.”

Bottom line? One-dollar listings may be a risky gamble, but, hey, you never know.

 

Hefner’s Life “Estate”

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Plan of Playboy Mansion Pool and Grotto 2 by Ron Dirsmith

Fox News quoted me in Playboy Mansion for Sale — With One Tenant for Life. It reads, in part,

We called it: In October, we revealed that the Playboy mansion — home to Hugh Hefner and the site of epic parties back in the day — is in need of major renovations. Now, if a new report from TMZ is to be believed, it looks like Hef is finally ready to throw in the towel: Within a month, the crumbling 6-acre estate will be up for sale.

In spite of the 29-room (six-bedroom) Beverly Hills mansion’s decrepit condition, its owner, Playboy Enterprises, hopes to sell it for north of $200 million. Plus, the buyer will have to grapple with another huge catch: According to TMZ, the buyer will have to grant 89-year-old Hef a “life estate,” which means he can continue living there until death parts him from his beloved bachelor pad.

Ummm … who the heck wants to buy a home with someone living in it? Strange as it may seem, “life estate” arrangements are as old as the hills.

“Life estates go way back to the earliest roots of the common law, and they are great for providing for someone to live in his or her own home until death,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “Effectively, a life estate grants the [original owner] many of the indicia [characteristics] of full ownership for the rest of his life. Upon death, complete ownership of the property can pass to another. A common example would be where a husband bequeaths a life estate in the home to his wife, with the remainder to his children upon her death.”

But Hefner’s deal differs in one key way: He’s not bequeathing his home to family members or even a deserving Playboy bunny, but to an as-yet unknown third party who’ll be forking over millions to move in once Hef passes on.

 “This seems like a version of a reverse mortgage, because it frees up equity in the home during the owner’s lifetime without interfering too much with his use and enjoyment of the property,” Reiss continues.

But this privilege will likely drag down the asking price, a lot. While the listing price may be $200 million, most experts say that $80 million to $90 million is more realistic.

“The life estate would likely significantly reduce the fair market of the property, because the purchaser must defer taking possession as well as other aspects of ownership — renovating it, for example — until the death of the life tenant,” Reiss says. “Moreover, the purchaser must deal with the uncertainty of the life estate: Will it end in a year or in 10 years?”

And aside from these uncertainties, there’s the question of liability. Without adequate legal protection, the owner could be responsible for any damage to the property or its inhabitants. Granted, Hef is 89 and probably passes his days playing chess, but if Playboy bunnies continue to hop in and out, anything could happen.

“What if there’s a fire and the place burns down? What if Hefner falls down and breaks his hip?” asks Wendy Flynn, a Realtor in College Station, TX. “After all, it is known as a party house.”

All in all, if you’re salivating for a piece of Playboy history, make sure to man up your legal team to protect you from all that could go wrong before you’re able to take possession. And even though the mansion is a decent candidate for a tear-down, “don’t start spending money on plans for the property,” Reiss adds.

Even though Hef is already past the average U.S. male’s life expectancy of 84.3, “a lot can happen before possession of the property is actually conveyed.”

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.

     *     *     *

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.”

Jumping the Affordable Housing Shark

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"Henry Winkler Happy Days 1976" by ABC Television

The Fonz

Realtor.com quoted me in Could Fonzie Solve America’s Housing Shortage? It opens,

Call me old-fashioned, but in my heart of hearts, Fonzie from the 1970s TV show “Happy Days” is still the epitome of cool. That leather jacket. The shades. Those thumbs!

He may also be the solution to America’s housing shortage.

As you may recall, Fonzie lived above the Cunninghams’ garage—offbeat living quarters that are making a big comeback today thanks to BIMBY, short for “builder in my back yard.” BIMBYs carve out small, bootleg homes on their property by renovating work sheds, upgrading floors over garages, or raising new structures from scratch.

BIMBYs typically create these dwellings for aging parents (thus their not-so-sexy nickname “granny flats”), or to rent out to college students who can’t afford traditional apartments. Their renaissance is due to plain old necessity: Housing is just too damn expensive. A BIMBY home, though modest, is a deal for both tenants and cash-strapped homeowners. It’s a win-win scenario for Cunninghams and Fonzies alike!

That’s why Logan Jenkins, a journalist for the San Diego Tribune, recently suggested the BIMBY resurgence could fill a desperate need for affordable housing in areas where the cost of living on new homes and rentals has spiraled way out of control.

“If 10% of the homeowners in San Diego County added 450 square feet of separate living space to their properties, the affordable housing crisis would be largely over,” Jenkins argued.

And far from dragging down the neighborhood with riffraff, such housing “enables a neighborhood to maintain diversity that otherwise would be lost in a hot housing market,” according to Larry Ford, a geographer and author of “The Spaces Between Buildings.” After all, wasn’t Fonzie the life of the party?

This may explain why certain cities are embracing BIMBYs with open arms. Portland has changed its local laws to forgive their developer fees. Santa Cruz offers pre-approved architectural plans, loans, and fee waivers to what it calls “accessory dwelling units,” or ADUs, spurring a fourfold increase in applications. And other local governments are following suit.

“ADUs could make a big impact in curing housing issues in many locations,” says John Lavey with Community Builders, a nonprofit that has studied the trend, “especially in desirable locations such as Bozeman, Montana, where I’m located, where housing and rent costs exceed national averages. And for millennials seeking walkability and neighborhood authenticity, these ADUs are in high demand.” 

But not all communities are automatically lining up to accept these BIMBY newcomers.

“Zoning limitations on accessory units were adopted by lots of local planning boards that were consciously rejecting them for their communities,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. To change the regulations, BIMBY advocates would need to go head to head against the NIMBY (“not in my back yard”) crowd, who argue that an influx of Fonzies could drive down property values.