Tag Archives: Reiss

Down Payment Help

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Shimer College

The Dallas Morning News quoted me in Asking for Help with Down Payment Can Often Be Difficult. It reads, in part,

How do you ask a question when no one wants to talk about the subject?

Often, it’s quite clumsily, without much effort at sparking an honest exchange.

*     *     *

Before asking, hopeful buyers should investigate options, said David Reiss, a real estate professor at The Brooklyn Law School.

“You would want to press your lenders to identify all first-time homebuyer programs you might be eligible for,” Reiss suggested.

The Federal Housing Administration offers loans with low down payments, and many state housing finance agencies offer low or no-down loans to eligible buyers, he noted.

In any case, said Reiss, “It would be helpful to know your options when speaking with family members about a gift.

“They might be willing to give a smaller gift for an FHA mortgage, or they might be willing to make a larger gift if they see that it would result in lower monthly payments for your,” Reiss said.

“And the mere fact you did this type of research is evidence that you are a financially responsible adult,” he concluded.

Using Homeowners Insurance

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Republic_Fire_Insurance_Company_certificate

Univision quoted me in When to Use Your Home Insurance Policy (Cuándo Usar la Póliza de Seguro del Hogar). It opens,

It is not advisable to use your homeowners insurance every time something breaks. Find out why and learn when it’s the best time to file a claim and when to avoid it.

As explained by David Reiss, Professor and Research Director at Brooklyn Law School’s Center for Urban Business Entrepreneurship, it is important to think carefully about the consequences of making a claim for a small loss.

We leave you with several issues you should consider when deciding whether to file a claim.

Is the payment worth the effort?

Generally, the homeowner will be responsible for the first part of the loss in an amount equal to the deductible of the policy. “So if the policy has a $1,000 deductible, and there was a $1,500 loss, only $500 at most would be paid by the insurance company,” said the expert.

Many claims, canceled policy!

After a homeowner files multiple claims, many insurance companies may cancel a policy.  Reiss recommends that you determine how this would work beforehand.

Thanks to Ana Puello for assistance with the translation.

A Different Approach to Homelessness

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JCS

Pacific Palisades Coast near Porto Marina

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

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

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

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

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

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

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

*      *      *

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

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

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

Last Chance to Vote for REFinBlog!

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REFinBlog has been nominated for The Expert Institute’s Best Legal Blog Competition in the Education Category.  From a field of more than 2,000 potential nominees, REFinBlog joins 250 legal blogs in this competition.

Please vote for REFinBlog by clicking on the picture above and then clicking on the VOTE button to the right.  Voting concludes tomorrow!

Reiss on the Right to Complain

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Crane in NYC

Super Lawyers quoted me in Development’s Back, Baby!  But Do Neighborhoods Rights Extend Beyond the Right to Complain? It reads, in part,

The list of what can go wrong during construction is longer than Long Island, and some of the items on it are very bad indeed. Reading Chapter 33 of the New York City Construction Code, “Safeguards during Construction or Demolition,” is like Googling skin diseases: You encounter possibilities that, in your previous blissful ignorance, you’d never worried about.

*     *     *

So how can citizens stand up for their rights?

“City residents do not have tons of rights regarding construction,” says Brooklyn Law School professor David Reiss, who focuses on real estate finance and community development. But, he adds, “They do have some. Technically, many of them are not rights. Rather, citizens have a right to complain.”

According to Reiss, the Department of Buildings is the agency to call about excessive debris, problems with fences, safety netting, scaffolding or cranes; or work being done without a permit. (The DOB’s phone number is New York’s general information and non-emergency kvetching number: 311.)

To complain about after-hours construction-before 7 a.m. or after 6 p.m. Monday to Friday, or anytime on Saturday or Sunday, unless the contractor has a permit stating otherwise-Reiss recommends contacting the DOB or the Department of Environmental Protection. The latter’s number is also 311.

“It never hurts to start by talking with the contractor and/or owner directly, “ says Reiss, who also recommends talking to your community board and city councilmember. As with most things, there’s strength in numbers. “The more people that complain, the more likely it is to get on the radar of officials,” he says.

He also recommends collecting all the evidence you can, whether to show officials or, if worse comes to worst, to use in court. “Create a paper trail. Pictures, of course, are worth a thousand words, particularly if they are time- and date-stamped and you annotate them as appropriate.”

The New Mortgage Disclosure Rules

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President Barack Obama meets with Rep. Barney Frank, (D-Mass), Sen. Dick Durbin, (D-Ill), and Sen. Chris Dodd, (D-Conn) by White House (Pete Souza)

TheStreet.com quoted me in New Mortgage Rule Requires Disclosure Documents to Help Consumers Compare Costs. It reads, in part,

A new set of shorter and simpler mortgage documents will be disclosed to consumers before they close on a loan, making the costs more transparent and helping home buyers compare offers from multiple lenders easier.

Mortgage lenders are required to start giving loan applicants the new disclosure documents starting on October 3, a new government requirement imposed by the Dodd-Frank Act.

“The disclosures will be easier and shorter so that consumers understand the mortgage they are getting because it will be simpler to compare offers,” said Holden Lewis, a mortgage analyst for Bankrate.com, the Palm Beach Gardens, Fla.-based financial content company.

*     *     *

Drawbacks of New Documents

Of course, it’s not all positive. You can now expect your closing to take longer than before while lenders and title companies adjust to the new procedures. Consumers should definitely lock in their interest rates “a little longer to be safe in case there are delays,” he said. The process might stretch to three days, so lock in your mortgage rates for 45 days instead of the traditional 30 days and “err on side of caution,” Lewis said.

 Major changes to the terms in a mortgage can push back the closing and this can present a serious problem if the current interest rate lock is “on the verge of expiring and interest rates are rising,” said David Reiss, a law professor at Brooklyn Law School. In a worst case scenario, a lender could withdraw an offer because the consumer cannot afford higher monthly payments due to an increase in interest rates.

Homebuyers can mitigate this issue by negotiating the terms of their interest rates cautiously and discussing them with their lender or real estate broker who can help determine “whether there is enough of a cushion to take into account all of the things that can delay a closing,” he said. “Borrowers should know that a rate lock without a sufficient cushion of time offers a false sense of security.”

Closing on a house might take longer, so consumers should make sure their timing meshes with the apartment or house they are renting or if they are selling their current home. This is more critical right now because of the transition to the new documents.

“Through the end of the year, homebuyers may want to build in a cushion as to when they have to close on the purchase,” Reiss said. “This could offer some protection if the mortgage application process takes longer than expected because of TRID-related issues.”

If tax reasons are prompting homeowners to close on a sale by a certain date, then it is even more vital to focus on documents a buyer, lender or tittle company might require during the process.

“As with many things, staying on top of everyone at each stage such as the contract negotiation, mortgage application and closing is the best bet for avoiding surprises and bad results,” he said.

Valuing Rental Property

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cincy Project

Money quoted me in Here’s How Much You Should Pay for a Rental Property. It opens,

Q: I want to invest in a rental property. Is there a formula I can use to determine the value of a building based on the rent it takes in?

A: One useful calculation to use is the capitalization (or “cap”) rate, which is the ratio of net rental income to the purchase price of the property, says Brooklyn Law School professor David Reiss.

Start with your gross rental income, which is simply the total of one year’s worth of rents for all of the units combined. Subtract 5% or so to account for occasional vacancies throughout the year. It’s safest to use existing rents, but you can conservatively increase the amounts if you are planning to improve the units and raise rents.

Then add up the yearly operating expenses — property taxes, insurance, utilities, plus at least 5% of gross income for a maintenance/repair fund — and subtract that from the annual income. To get your cap rate, divide that number (the net operating income) by the purchase rate.

Run the Numbers

Let’s say you’re buying a five-family house and anticipate gross annual income of $100,000. If you calculate your total annual operating expenses at $30,000, you end up with $70,000 in net operating income. For a property that cost, let’s say, $1 million, that equates to a 7% cap rate.

But is 7% a worthwhile return on your investment for the work and risk of being a property owner and a landlord?

“That depends on the building,” says Reiss. “For a brand new, fully rented, high-quality building in a prime neighborhood, a reliable, low-risk 4% to 10% return might be reasonable.

“But if you’re talking about a rundown building, in an borderline neighborhood, with a several vacant units that you’re planning to fill after you undertake major improvements, you might reasonably hold out for a 20% cap rate,” he explains, because you’ll have renovation costs on the expense side, perhaps a higher vacancy rate while you fix it up — and you’re taking a bigger risk with your money.

Using a Mortgage

Also, the cap rate assumes a cash purchase. When you take a mortgage to buy an investment property, lenders will likely demand a down payment of 25% or more, says Reiss.

So in that case, he suggests also calculating your return on upfront costs.

In our example, if you invest $300,000 in upfront costs (down payment plus other initial expenses like closing costs and renovations) and expect to earn $20,000 a year (after $50,000 annual mortgage payments), that’s just under a 7% annual return on your money.

Again, you need to consider the relative risk of the particular investment property to determine whether that payback rate is high enough. Look at several properties to get a better feel for how the risks and rewards compare.