Friday, December 31, 2010

Harrisburg Ordinances 13 and 14 tabled by City Council

Click here for previous descriptions and discussions of Harrisburg's proposed Ordinances 13 and 14. [These Ordinances would impose vicarious liability on landlords for the actions of their tenants, impose a residency requirement on property management and ownership and modify the inspection program.]

Last evening, the Harrisburg City Council voted 4-3 to table both proposed Ordinances after a fair amount of discussion.

Numerous investors (and others) spoke out against the proposed ordinances at the beginning of the meeting. Investor and Realtor organizations such as CARPOA, GHAR and AACP participated in the public comment section of the meeting. We listed pending litigation in Allegheny County and Columbia County relating to similar legislation as bases for the Council to withold action at this time, especially since City officials have previously stated that these measures would constitute a source of revenue for the city (which is illegal under state law).

Council members stated that they wanted to explore the issues further and rework the Ordinances. Council invited investors and others to participate in committee meetings during the new year.

It is my hope that in these committee meetings we can address some of the more basic issues keeping city properties from being improved - such as the large volume of properties that suffer from title defects due to having been sold at tax sale at some point in the past.

Wednesday, December 29, 2010

Real estate market decline to continue in 2011

Real estate sales are expected to continue to decline in 2011 throughout the United States:
Home prices are dropping in the nation's largest cities and are expected to keep falling next year, as fewer people purchase homes and millions of foreclosures come on to the market.

The AP article attributes part of the downward pressure to foreclosures:
Millions of foreclosures are forcing home prices down. Many people are holding off on making purchases because they fear the market hasn't bottomed out, analysts say.

Foreclosures likely will remain high for the next two years, said Mark Zandi, chief economist at Moody's Analytics.

Despite the downward trend, mortgage rates are on the rise:
And more people might be less inclined to buy now that mortgage rates are rising again. In the last month, rates on fixed mortgages have surged more than a half-point to near 5 percent.

Monday, December 27, 2010

Penbrook Borough litigation, citations, tax and sewer rate increases

In August, I commented on Penbrook Borough's requirement that rental property owners file copies of their own federal tax returns with the Borough office. As I stated in August:
Penbrook's employees have begun to embroil the Borough in an ever widening controversy, the outcome of which depends only on the willingness of investors and residents to appeal to the Court of Common Pleas or otherwise challenge the Borough in Court.

Since that time, one investor filed suit against the Borough as a result of this requirement and other Borough initiated litigation.

The Harrisburg Patriot-News reported yesterday on this lawsuit and some of the issues behind it. That Patriot quoted Plaintiff Michael Coleman's research showing that the Borough filed 562 citations in 2009, despite having only about 3,000 residents. As a guest on the Bob Durgin radio show this afternoon (on WHP 580) Coleman cited public records showing that all but about 80 of those citations were unsuccessful.

Coleman further stated that Penbrook's campaign of citations is motivated by the Borough's need for revenue, a claim that is supported in part by Penbrook's increase in real estate taxes and sewer rates a year ago.

Thursday, December 23, 2010

Harrisburg Ordinances 13 and 14 scheduled for December 30 vote.

I have written previously about Harrisburg Ordinances 13 and 14. These ordinances would impose vicarious liability upon landlords for the actions of tenants, would impose a residency requirement for Harrisburg real estate investment or management and would attempt to raise revenue for the City by enforcing the inspection program that has existed for fifteen years.

These ordinances were on the agenda on September 28th, but were tabled. They are scheduled for a vote on December 30th at the next City Council meeting.

Sunday, December 12, 2010

Tax assessment appeal litigation exploding throughout the United States

I predicted in January that tax assessment appeals would become more common as market values declined, especially if municipalities raised taxes or other fees.

Bloomberg now reports on a "fiscal flood that threatens to swamp local government budgets across the U.S. . . . " Bloomberg's article focuses on Michigan, but also includes data from Illinois, Nevada and New Jersey.

This trend indicates future revenue shortfalls for municipalities:
Municipal budgets “tend to lag economic conditions” by 18 months to several years, according to a National League of Cities report in October that Pagano [Unniversity of Illinois professor] co-wrote.

“The full weight of the decline in housing values has yet to hit the budgets of many cities and property tax revenues will likely decline further in 2011 and 2012,” the report said.

When the effect of today's appeals finally hits municipalities, we can expect more revenue raising measures that will create further declines in the value of real estate.

Friday, December 10, 2010

Carlisle Borough proposed rental inspection ordinance; Joint task force; SOSO

Click here for the previous post on a proposed rental inspection ordinance in Carlisle.

Yesterday evening, an organization known as "SOSO" presented its proposal for rental inspections, licensing and related costs. As I wrote earlier this week:
The measure would require municipal inspections of every unit every time a new tenant moves in or out. The proposal would create a licensing system for landlords.

The proposal would also create a point system by which private complainants could, by virtue of filing complaints with the Borough, cause landlords to accumulate enough "points" that the Borough would revoke their license. These complaints would not have to be adjudicated in order for points to accumulate. This proposal would violate due process.

The "SOSO" advocates presented a list of municipalities in Pennsylvania that have adopted similar ordinances. The list included municipalities that have lost lawsuits related to their ordinances and were forced to provide refunds to landlords. SOSO did not mention this litigation, despite including these municipalities on their list.

More importantly, the list presented to Borough Council excluded certain municipalities where litigation remains pending currently. SOSO's list made no reference to Berwick Borough, Penbrook Borough and Pittsburgh. All of these municipalities are embroiled to one degree or another in litigation. Berwick and Pittsburgh have been expensive for all parties, while Penbrook has involved numerous smaller actions over individual instances of enforcement (the expense of which is just beginning to be felt). I and others brought some of this litigation to Council's attention during the public speak-out session.

If you are a municipal official, be careful about proposals for landlord regulation. These ordinances have often resulted in litigation, with varying results and costs. Without getting into the details of every legal challenge over the years, my own opinion of the legality of these ordinances is that an ordinance can survive a legal challenge, but only if it is watered down to the point where the municipality will not receive the desired benefit (revenue). Even then, actual enforcement of the ordinance will result in a greater than anticipated burden to the municipality, to the point where enforcement will eventually (or sooner) be abandoned (or will be inconsistent), thus creating a new basis for legal challenge.

Borough Council took no action, but announced the creation of a new joint task force to examine this issue and report to the Council. The composition of the task force has yet to be determined. Proponents of the ordinance immediately attempted to exclude from the task force (under the guise of limiting the task force to Carlisle residents) those of us that had pointed out litigation in other municipalities.

There will undoubtedly be more news to follow in the coming months.

Wednesday, December 8, 2010

Carlisle Borough rental inspection ordinance proposal.

Carlisle Borough in Cumberland County may shortly consider a rental inspection ordinance containing many controversial features. A community group plans to propose such a measure tomorrow evening at the Borough Council meeting.

The measure would require municipal inspections of every unit every time a new tenant moves in or out. The proposal would create a licensing system for landlords.

The proposal would also create a point system by which private complainants could, by virtue of filing complaints with the Borough, cause landlords to accumulate enough "points" that the Borough would revoke their license. These complaints would not have to be adjudicated in order for points to accumulate. This proposal would violate due process.

The meeting takes place tomorrow at 7:00 P.M. at the Carlisle Borough offices at 53 West South Street, Carlisle, PA. The public will be afforded the opportunity to speak against this proposal.

Berwick Borough rental inspection ordinance; Berwick Area Landlord Association

The Columbia County Court of Common Pleas will shortly hear oral arguments in the case of Berwick Area Landlord Associaton v. Borough of Berwick. Berwick landlords are challenging Berwick Borough's rental inspection ordinance largely on the basis that the ordinance would impose liability on the landlords for the actions of their tenants.

Recent court cases in Pennsylvania and elsewhere have struck down local ordinances that are inconsistent with existing state law (on a variety of issues). This principle can now be applied to landlord-tenant law to prevent municipalities from changing existing state law as it relates to landlords and their tenants. (I am briefly summarizing arguments that have been made by the Berwick Landlord Association in court.)

The oral arguments will provide the last input before the Court decides a "Motion for Summary Judgment" filed by the landlords. Whoever loses in this Motion will file an appeal to the Commonwealth Court. The Commonwealth Court's decision (expected later in 2011 or 2012) will profoundly affect rental ordinances throughout Pennsylvania.

This case is docketed at 2008 - CV - 1873 in Columbia County.

A victory in this case would not invalidate all of the rental inspection ordinances across Pennsylvania, but it would limit many of those ordinances. Many municipalities now consider similar ordinances without knowing that these ordinances (such as Berwick's) are often tied up in court. A victory in this case would cause other municipalities to consider future legislation more thoroughly rather than simply copy the ordinances from Berwick (and others) verbatim.

Thursday, December 2, 2010

Philadelphia City Council must recognize Sunshine Law; HAPCO

Two weeks ago, Pennsylvania's Supreme Court struck down Philadelphia City Council's ban on public comments at council meetings. The ruling results from a 2007 lawsuit filed by PROA affiliate HAPCO. The ruling is based on and enforces Pennsylvania's Sunshine Law.

Sunday, November 28, 2010

Luxury apartments vs. homeownership; suburban highrise development.

From CNBC comes the story of consumers from the high end of the real estate market that choose to rent instead of own because they fear losing their investment if they own their own homes. While the story focuses mostly on New York City, this trend has nationwide implications:
Demand for luxury rental units has increased as wealthier individuals who can afford to buy are deciding not to, according to brokers and real estate analysts in affluent areas of the country such as New York City, Chicago and San Francisco.

“More affluent Americans are opting to rent as oppose to buy,” says Jack McCabe, an independent real estate analyst and CEO of McCabe Research and Consulting in Deerfield Beach, Fla. “Within the last year, so many people have seen their family and friends get burned in real estate. They don’t see it as being a risk free investment as they used to.”

And they're paying top dollar to rent.

A year ago, I wrote of the nationwide trend toward high rise development in the suburbs and away from the cities. A move toward luxury rentals and away from ownership could accelerate this trend. This trend could also be increased if urban financial troubles continue to destabilize urban real estate markets.

Friday, November 19, 2010

City of York to raise real estate taxes.

Fox 43 News in York reports that the Mayor of York has proposed an increase in city property taxes in the amount of 11.9% for 2011. The measure must be voted on by York City Council by the end of 2010.

Increases in costs (any costs) tend to have an inverse effect on the value of properties - especially investment properties. These increased taxes, if approved should be taken into consideration in any assessment appeals for York city properties starting in 2011.

Sunday, November 14, 2010

New lawsuit filed against Penbrook Borough;

I have written previously about actions of Penbrook Borough in Dauphin County against investors, including charges for filing false tax returns against those who had filed no returns at all. On November 3rd, one such investor filed a lawsuit against the Borough in the Dauphin County Court of Common Pleas. The suit, filed by a pro se Plaintiff, identifies several acts of the Borough and its manager that have created liability.

The suit is docketed at 2010 CV 14365 CV and is available for public review.

More such suits are possible.

Monday, October 18, 2010

Cotton price surge matches other commodities; Inflation and its consequences for real estate

I have written earlier about rising prices in such commodities as wheat, fuel and gold. Now cotton has joined the list of commodities with surging prices:
The cotton surge is part of a broad-based commodities rally since the beginning of the year, underpinned by fears over a weakening dollar, healthy demand from emerging markets and various weather-related supply disruptions. Along with cotton, prices of so-called soft commodities such as sugar, orange juice and coffee all have soared, adding to concerns that consumers might soon be paying higher prices for daily necessities.

Surging cotton prices should have the same effect on agricultural real estate as surging wheat prices (although not directly in Pennsylvania).

As commodities surge, the dollar declines.

It is better for investors to consider the effect of an overall commodity surge now before the effect on real estate prices becomes apparent. Rampant inflation, if and when it arrives, will affect all real estate prices regardless of interest rates.

Saturday, October 9, 2010

Gasoline price movement and real estate prices

I have written previously about gasoline prices - particularly how movement in gasoline prices can foretell a broader inflationary climate.

Locally, the price at the pump has increased roughly 20 cents per gallon in the past week. This is a major increase that bears implications for the economy as a whole, particularly real estate prices.

On the other hand, crude oil prices may have begun a pullback globally.

We do not really know which way oil related prices may go, but whichever way it is, real estate prices should go with them.

Tuesday, September 28, 2010

Harrisburg Ordinance 13-2010

Harrisburg Ordinance 13 is up for amendment tonight before the vote on final passage. The City Council agenda does not say what the amendments will be.

Click here for details on the Ordinance.


8:25 PM

Harrisburg City Council did not vote on Ordinances 13 or 14 this evening. Council did not discuss the Ordinances or the reasons for the delay.

Prior to the announcement of the delay, I spoke in opposition to the ordinances on behalf of CARPOA and AACP. I spoke briefly of lawsuits filed in other jurisdictions resulting from public comments from city officials. City officials in Pittsburgh had stated publicly that inspection ordinances and rental licensure would serve to raise revenue for the city. Such a revenue raising purpose is illegal and those statements resulted in legal action against Pittsburgh. I pointed out similar statements made by Harrisburg officials in support of Ordinances 13 and 14 in recent weeks. (Click here for a fuller discussion of those statements.)

There was no response to my comments.

In addition to prior statements stressing the need to raise revenue from Ordinances 13 and 14, it is significant that tonight's council meeting was devoted almost exclusively to the City's financial problems. Council's final act tonight was to adopt Resolution 72-2010, which reads as follows:
A Resolution authorizing the engagement of professionals to study the advisability of authorizing the filing of a petition under either the Municipalities Financial Recovery Act (Act 47) or Chapter 9 of the bankruptcy code.

Saturday, September 25, 2010

Apartment Association of Central Pennsylvania; Best of Living Awards (BOLA); Senator David Argall

On September 23rd 2010, Senator David Argall (R-29) spoke at the annual Best of Living Awards (BOLA) of the Apartment Association of Central Pennsylvania (AACP). Aside from speaking briefly about Senate Bill 900 (the blight bill), Argall made a recommendation to property investors looking to deal with increasing municipal regulation such as inspection ordinances. Investors should get to know their municipal officials before any such municipality proposes legislation that will impact investors.

By becoming a constant presence in municipal affairs, investors can head off damaging legislation and avoid needless disputes.

Senator Argall is currently running for Congress in Pennsylvania's 17th Congressional District.

Friday, September 24, 2010

Harrisburg Ordinances ## 13 and 14

I have written earlier about Harrisburg Ordinances ## 13 and 14 and the City's illegal attempts to profit from investment property licensure and inspection as well as new residency requirements for owning investment properties within the City.

These ordinances are currently scheduled for a vote by Harrisburg City Council on Tuesday, September 28, 2010 at 6:00 PM at the King Center downtown. Public comment will be allowed and may alter the outcome.

Monday, September 13, 2010

Harrisburg to raise revenue through inspection ordinance.

Harrisburg City council members press on in their attempts to pass Ordinances 13 and 14.

On September 7, 2010, Council member Brad Koplinski and codes officer David Patton spoke at the Boys and Girls club on Berryhill avenue in support of the ordinances. They estimate that the City will raise roughly $200,000.00 per year from enforcement of these ordinances and the resulting inspection fees.

Koplinski and Patton admitted that the prior inspection ordinance was not enforced.

On September 1, Councilman Koplinski stated that the ordinances would raise "upwards of $100,000" for the City.

Meanwhile, Pennsylvania's Governor has pledged 4.3 million dollars to help the City meet payroll and other obligations.

Tuesday, September 7, 2010

Franklin County Landlords Association

A new landlord's group has begun operation in Franklin and Fulton Counties this year. The Franklin County Landlords Association meets monthly and provides all of the benefits of PROA affiliation.

Monday, September 6, 2010

Harrisburg rental inspection ordinance revisions; residency requirement; Ordinances ## 13 and 14 of 2010.

The City of Harrisburg is proposing to revise its rental inspection ordinance. This is the same ordinance that was passed in 1996. The proposed revision is the same ordinance that denounced the quality of rental properties within the City, despite 15 years of City inspections.

The new revisions will impose residency requirements on investors or require investors to hire resident property managers.

City officials will hear public comment on September 7, 2010 at 6:00 P.M. at the Harrisburg Boys & Girls Club, 1227 Berryhill Street.

Friday, September 3, 2010

Mortgage fraud indictments in Pittsburgh; S & P Mortgage

For those who might be tempted to inflate their income or asset numbers in order to obtain a residential mortgage, the following story is a reminder of how bad an idea it is to engage in such deception:
James C. Platts, a one-time Pine home developer currently living at a federal halfway house after a 30-month prison term for tax evasion, and Deean Haggerty, a former broker with S&P Mortgage of Warrendale, were accused of arranging fraudulent mortgages for unqualified buyers.

Apparently an attorney was involved also, but was not named in the indictment.

The fraudulent activity involved several individual lies:
The charges match a pattern described three years ago when Mr. Platts and his associates were first mentioned in the Post-Gazette. He would locate properties in or close to mortgage default, arrange a buyer who often earned little or sometimes no money, then, using Mr. Haggerty's office, submitted inflated or occasionally fictitious income statements. In several instances, he deposited money into a prospective homebuyer's bank account, as he did in the West View home sale to produce the illusion the person had savings. In some instances, according to the indictment, he would generate fraudulent documents showing the purchaser had been paying rent for several years. He is accused of doing just that in the case of 101 Governor Drive, one of the three properties named in the indictment.

The indictment involved only three properties, thus proving that no fraudulent scheme is too small to result in charges. No one is immune, including the attorneys who conduct settlements for such schemes.

Monday, August 30, 2010

Penbrook Borough litigation against investors; tax returns; municipal charges and fines.

In recent months, Penbrook Borough (Dauphin County) has demanded that real estate investors submit copies of their federal tax returns to the Borough. Those that have refused to comply have been charged criminally with filing false tax returns - even those who have failed to file any returns at all.

This summer, the Borough dropped charges against one investor that has been so charged (for fear of a civil rights lawsuit).

Penbrook has also charged investors as individuals (related to registration requirements) even though they own real estate in the name of an LLC, thus disregarding the corporate entity.

Additional lawsuits and enforcement actions remain pending against other investors (and homeowners) over minor matters.

Penbrook's employees have begun to embroil the Borough in an ever widening controversy, the outcome of which depends only on the willingness of investors and residents to appeal to the Court of Common Pleas or otherwise challenge the Borough in Court.

Friday, August 27, 2010

Highspire enacts rental inspection ordinance;

Last week, on August 17th, Highspire Borough enacted its rental inspection ordinance, requiring investors to pay for inspections of their properties once every three years and pay $75.00 per inspection per unit.

I and a representative of GHAR attended the meeting and raised many of the concerns that I have featured on this blog.

In particular, I pointed out that section 1 of the ordinance contained factual findings regarding the condition of rental properties in the Borough. I asked that the public be told the factual basis for these findings prior to any vote. I argued that the basis for any factual finding should be provided to Council before the Council actually votes. There was no answer to this inquiry.

I pointed out also the potential for reducing real estate values as a result of increased costs imposed by this ordinance.

I reminded the Council of the failure of Harrisburg's inspection ordinance over the past 15 years. In the only response of the evening (aside from the unanimous vote in favor of the ordinance), councilwoman Dorothy Matesevac stated that Highspire was not Harrisburg. As John Wayne pointed out in Rio Bravo, "I'm gonna remember you said that."

The very differences between urban and suburban areas are what require municipalities to document any factual findings regarding the condition of rental properties before adopting an ordinance of this sort. Stay tuned for further developments.

Tuesday, August 17, 2010

Harrisburg rental property inspection program; Harrisburg Bill # 13 of 2010

In the mid-1990's, Harrisburg City adopted its first rental inspection ordinance. The ordinance required owners of rental units to have those units inspected every three years and to pay a regular inspection fee. In the 15 years since that ordinance was adopted, the overall condition of rental properties in Harrisburg has not improved.

Early in 2010, Bill # 13 was introduced in City Council, which bill would create permits for rental owners and establish a residency requirement. (The Bill has not yet passed.) While I will explore this Bill in more detail in the future, the following language from the 2010 Bill is significant:
A growing concern exists in the City regarding the general lack of maintenance, upkeep and resultant decline in the physical condition of residential rental units. The City has experienced a greater incidence and severity of violations of City Codes at residential rental properties, as compared to owner-occupied properties. . . .
Section 8-511.2(a)

If the language of the new proposed Ordinance is to be believed, the original ordinance has not worked. Despite 15 years of inspections, the City considers the stock of rental properties in Harrisburg to be of declining quality.

previous - Reading's failed inspection ordinance.

Monday, August 16, 2010

Highspire Borough rental inspection ordinance 582; Real estate values threatened.

As I wrote earlier, Highspire Borough has scheduled a vote on a rental inspection ordinance that will require the payment of annual fees to the Borough and the inspection of each rental unit every three years.

As of 2000, roughly 44% of the properties in Highspire were rental units. If the Borough enacts this ordinance, they will decrease the value of 44% of the real estate in the Borough. Real estate, especially investment real estate, derives its value from the net income it produces. As costs increase, value decreases. It is fair to say that if those 44% of properties targetted by the ordinance decrease in value, the other 56% will not exactly increase.

Ordinances such as Highspire's became widespread across Pennsylvania during the past decade and a half because municipal officials bought into the myth that real estate values "always go up" no matter how much that real estate is hampered by municipal interference and regulations. We are slowly finding out how much of a mistake those officials have made as real estate values stagnate while inspection ordinances fail to achieve their stated purpose.

previous - The failure of Reading's inspection ordinance.
update - Harrisburg's failed inspection program.

Saturday, August 14, 2010

Reading Pa "Wall of Shame"; Mayor McMahon; an ineffective solution to the problem of "blight."

The City of Reading has announced a new program to fight "blight" and force property owners to clean up their properties:
Reading (RED-ing') Mayor Tom McMahon on Monday [August 2] announced a new online "Wall of Shame" featuring blighted properties.

McMahon says the property owners' names will be posted along with pictures and addresses. He says he's serving notice to property owners who fail to take action on eyesore properties.

The Wall of Shame is featured here - (otherwise known as "Mayor McMahon's Wall of Shame.")

This "Wall" brings to mind several points.

The second item on the above list helps to explain the first and third items. No matter how many ordinances the City enacts or how many fees the City imposes, the City cannot legislate "blight" out of existence. Once a property has been sold at a tax sale, it becomes nearly impossible to obtain financing without litigation or a payoff to the prior owner. These properties often end up being owned by the City when no buyers can be found at subsequent tax sales.

Sunday, August 8, 2010

Highspire Borough proposes rental inspection ordinance; Ordinance 582

The Borough of Highspire in Dauphin County is poised to enact a rental inspection ordinance (Ordinance 582 of 2010).

It appears that under the ordinance investors would be billed "Tri-annually" for "the total program costs." (Section 9. A.).

Owners could hire their own inspectors from a list of qualified inspectors maintained by the Borough. The cost of these inspectors would be in addition to the amounts billed by the Borough. Otherwise, the investors would have to use Borough inspectors.

This Ordinance is set for a vote on August 17, 2010.

update - Ordinance 582 and real estate values.

Thursday, August 5, 2010

Food prices and farm prices to be aggravated by Russian wheat embargo

I wrote yesterday about the Russian drought and its effect not only on wheat prices worldwide, but on real estate prices and farming activity in the United States. Decreased wheat production anywhere in the world (especially in Russia) will result in higher wheat prices and will tend to increase the value of farmland.

Today, the Russian government banned the export of wheat through the end of the year. This ban will affect global wheat prices, with the resulting ripple effect on food prices and farm prices in the United States (and elsewhere):
In Chicago, September wheat shot up to 7.83 dollars a bushel from 7.26 dollars while the December contract jumped to 8.09 dollars from 7.55 dollars.

Dmitry Rylko, director of the Institute for Agricultural Market Studies, described Putin's decision as one that would be "extraordinarily painful for market participants," Interfax reported.

Real estate investors have not typically been concerned with wheat prices. For those who are interested in an old fictional dramatization of wheat price speculation and the impact of global events on the individual speculators and our own economy, check out Satan's Bushel from the 1920's.

Except for the information technology, the commodity markets work the same way today as they did when the book was written.

Wednesday, August 4, 2010

Wheat prices and agricultural land prices

The July rise in wheat prices was the fastest in 51 years, raising fears of surging food prices and rising prices for farmland, according to an item at The surge resulted partially from drought in Russia but has and will be worsened by government spending, according to hedge fund manager Jim Rogers:
Shortages in agriculture are likely to add to problems created by governments who printed money to spend their way out of the financial crisis, according to Rogers.

"It's all happening at a time when governments are printing more money… it's a very dangerous situation," he said.

"When you print money, it's got to go in a place where it can protect itself, and that's real assets," he added.

Among other consequences, the rise in wheat prices should place a premium on farmland:
"Anybody who's got potentially good agriculture land and good weather" is likely to emerge a winner out of this situation because prices of nearly all agricultural commodities are set for steep rises, Rogers said.

This news is consistent with reports of increased farming activity in places like Massachusetts and the growing trend toward urban farming across the country.

Rising commodity prices shall constitute only one factor affecting the price of real estate.

Update here.

Wednesday, July 21, 2010

Urban farming spreading in Pittsburgh; Green Up Pittsburgh; Pepsi Refresh Project; Andrew McCutchen

The nationwide trend toward urban consolidation and urban farming has intersected with Major League Baseball amd Pepsi.

Earlier this month I commented on the urban farming trend that is beginning to take hold in major cities across the country, especially Pittsburgh. The previous article listed numerous urban farms taking root in Pittsburgh.

A new initiative by the City seeks to take advantage of a grant competition sponsored by Pepsi for the purpose of creating another urban farm in the Homewood section:

The competition is sponsored by Pepsi, which is offering 15 Major League Baseball teams the opportunity to receive a $200,000 grant as part of the Pepsi Refresh Project, designed to help improve communities.

The proposed initiative will fund the education, tools and support to cultivate an urban garden, which would be used to grow fruits and vegetables that would be donated to various nonprofit organizations to feed the hungry, including the youths participating in various programs at the Homewood-Brushton YMCA.

The idea was supported at a press conference yesterday featuring Mayor Ravenstahl and Pittsburgh Pirate center fielder Andrew McCutchen. The competition is clearly not intended to be an isolated event:

The urban garden idea is an extension of the Green Up Pittsburgh program that was introduced in 2007 to combat the increasing problem of overgrown vacant and abandoned lots in city neighborhoods.

While there is no guarantee that Pittsburgh will win the competition and be the recipient of Pepsi's grant money, 15 different cities are competing and the urban farming concept will advance a little further in one of those cities.

The competition is to be decided by online vote. The Post-Gazette article contains information on how to vote.

The other cities competing for the Pepsi grant have proposed ideas unrelated to urban farming.

Here is Andrew McCutchen's promotional video.

The video and the press conference did not make clear how big the garden/farm would be, but at a cost of $200,000, it had better be a very big garden.

Wednesday, July 14, 2010

July Flooding in Central Pennsylvania; Real Estate Property Disclosure

Recent rains have brought minor flooding to parts of Pennsylvania from Bedford to various points to the east.

Property damage is minor and lives have not been in danger. But this flooding still should be disclosed if you are selling a property that suffered from any flooding.

Sales are very slow now, but new homeowners are this week seeing their first heavy rains in the properties that they just purchased this Spring as the tax credit incentive expired. Some of those new homeowners are undoubtedly pulling their Sellers' Disclosure form out of their packets and reviewing the part that should have disclosed flooding. Some of them might even be calling their Realtors (or lawyers) to inquire about the possibility of pursuing their sellers for not disclosing that the property floods during heavy rain.

If you are selling property now, keep this scenario in the back of your head as you fill out the disclosure. The more you disclose, the less justification the buyer will have for suing you later on.

If you are a buyer, look closely at your prospective properties today (or at some point when the heavy rain is falling). Sales are slow and sellers are desperate. Sellers will lie and conceal in order to move a property and get out from under a mortgage that they can no longer afford.

Tuesday, July 13, 2010

Blockbuster in Central Pennsylvania; Commercial tenants in bankruptcy

From Yahoo finance comes the story of numerous companies that might not exist in one year. Blockbuster stands out among the list because of its real estate usage:
Blockbuster may still be around as a company that has movie kiosks and a small mail and Internet-delivered content business. But its brick and-mortar business is dead.

I have no idea whether this prediction is true, but commercial landlords can take action to protect themselves (not merely from Blockbuster but from any commercial tenant that might disappear or declare bankruptcy).

There remain numerous Blockbuster locations in Central Pennsylvania. Some have closed over the past few years, including one in Hampden Township and one in Silver Spring Township. Numerous other commercial tenants have abandoned their properties or declared bankruptcy since the real estate bubble began its collapse.

The most important concept for a commercial landlord to remember in a tenant bankrtuptcy is to keep on top of the time limitations set by the bankruptcy code. The bankruptcy code requires the tenant either to make arrangments for full payment of all past due arrearages or to abandon the property within a set time limit. But these provisions do not enforce themselves. The landlord must file motions with the bankruptcy court to ensure that the tenant either pays or leaves. Otherwise, the tenant might remain in the property indefinitely without paying rent.

Future posts here will explain those time limitations and provide guidance.

Monday, July 12, 2010

Dauphin County Housing Authority; Section 8 vouchers; 2,000 new applications.

The Dauphin County Housing Authority began accepting applications for vouchers today for the first time since 2006. The Authority expects about 2,000 applicants for "Section 8" rental vouchers through July 23rd.

The Section 8 program provides rent subsidies and vouchers for tenant-applicants, who in turn spend the vouchers on qualified private landlords.

That the Authority has not accepted applications since 2006 reflects a shortage of qualified and interested landlords willing to take part in the Section 8 program and subject themselves to HUD regulations.

Thursday, July 8, 2010

Urban farming in Pittsburgh; Grow Pittsburgh; Urban farming as a motivator for urban relocation/consolidation.

From today's Pittsburgh Post-Gazette comes a story that might predict the future of urban planning across the country:
The urban farm -- a novel, even whimsical, idea a few years ago in Pittsburgh -- is now a movement so fully fledged that a neighborhood without one seems almost an anomaly.

The movement has gone beyond mere small backyard gardens:
Grow Pittsburgh's sites include the Larimer Farm and Gardens, a quarter acre at Larimer Avenue and Mayflower Street; Lawrenceville Gardens at Allegheny Cemetery, about 150 square feet; and a garden the size of four city lots on Lincoln Avenue in Lemington called Higher Ground Community Garden.

The above list is in addition to a 3/4 acre lot in Braddock and others throughout Pittsburgh. What makes this trend significant is the nationwide nature of the movement and the near-utopian vision of its proponents (as I noted in March):
Near downtown, fruit trees and vegetable farms would replace neighborhoods that are an eerie landscape of empty buildings and vacant lots. Suburban commuters heading into the city center might pass through what looks like the countryside to get there. Surviving neighborhoods in the birthplace of the auto industry would become pockets in expanses of green.
(citing the Washington Times discussing Detroit)

The Post-Gazette article cites examples in other major cities.

The urban farming movement is rapidly taking shape as the motivator behind the urban relocation/consolidation movement nationwide. If urban farming takes root in conjunction with municipal efforts to destroy rundown neighborhoods and relocate (and consolidate) residents, the movement will be one of many factors at the center of legal battles over eminent domain, title and environmental issues. Food crops will not be the only things growing out of the ground in urban areas.

Tuesday, July 6, 2010

Record low mortgage rates and sales; National Association of Realtors data.

Mortgage rates are at an all time low, but there are few borrowers even at these low rates. This report supports prior data from the National Association of Realtors that reveals a record drop in sales contracts in May.

These conditions will prevail until prices are allowed to fall (or another (even larger) massive round of inflationary stimulus spending takes place, destabilizing our currency much worse than we have already seen).

Previous - glut of available real estate for sale.

Monday, July 5, 2010

June real estate listings and collapsing real estate sales

Real estate listings in Central Pennsylvania are at an all-time high.

I do not subscribe to, but Realtor Ann Wright has provided to me figures for the end of June from that multi-list service. According, as of June 30, 2010 (the numbers change slightly from day-to-day), there were 5,489 listings in Central Pennsylvania. (This includes, York, Cumberland, Dauphin, Lebanon, Perry, Lancaster and parts of Adams and Juniata counties). This number is higher than at any point since such statistics were compiled.

Of those 5,489 listings, reports that only 1,001 are currently the subject of a pending sales agreement.

This large volume of listings places great downward pressure on prices. This information is consistent with recent reports of collapsing sales nationwide and in the northeast region.

Thanks to Ann Wright at Re/Max for her assistance. Anyone with related information or personal experiences are invited to e-mail me.

Ann Wright

Monday, June 28, 2010

"Downfall;" Hitler explains the real estate collapse

By now, everyone has a "Downfall" movie parody relating to the issue of the moment. (I even saw a "Downfall" parody about the vuvuzelas that have annoyed so many soccer viewers recently.)

So I would be remiss if I did not include a copy of a "Downfall" parody that explains the real estate collapse.

Friday, June 25, 2010

Harrisburg incinerator; Stickney sewage plant analogy.

To those in Central Pennsylvania that are familiar with the Harrisburg incinerator boondoggle, this story from Illinois should sound familiar:
Local officials acknowledge that a giant sewage-cooking machine in west suburban Stickney is a waste of money, but they have decided to move ahead anyway with a project that could cost Chicago and Cook County taxpayers $217 million.

Once billed as an innovative way to turn the region's sewage sludge into fertilizer, the project is a decade behind schedule.

The Harrisburg incinerator took even longer to complete, has worked only intermittently, and has saddled the city with hundreds of millions of dollars in debt that sits at the heart of the city's financial woes. Public debt related to the Harrisburg incinerator has fueled recent discussions about raising city real estate taxes.

Thursday, June 24, 2010

Tax sale challenge based on improper notice; Northumberland County Tax Claim Bureau

I wrote previously about properties that have been sold at tax sales and how those prior tax sales constitute title defects, requiring investors/owners to expend attorney fees to clear the title:
Once a property has been sold at a tax sale, that property suffers from a title defect. The former owner can file suit to recover his old property at any time, claiming that he did not receive proper service of process of the then pending tax sale. Service of process is a constitutional issue that can not be eliminated by city ordinance or other local measure.

Once a tax sale takes place, the only way to eliminate with certainty the resulting title defect is to file a quiet title action against the former owner (or have the former owner sign a deed in favor of the buyer). These curative actions are expensive and uncertain. It is impossible to determine how much such an action will cost because it is unknown whether the former owner will fight or whether the buyer can even find the former owner.

For this reason many former tax sale properties sit with title defects unresolved. With unresolved title defects, such a property usually can not be sold or financed. Without financing, the property cannot be fixed or renovated. The properties continue to deteriorate, contributing to blight within the city.

An example of how such a prior tax sale can create problems for the current owner was recently provided in the case of Steinbacher v. Northumberland County Tax Claim Bureau (decided by the Commonwealth Court in May 2010) (510 C.D. 2009). (I will not bore you with all of the legal details.) The appeals court decided that a prior owner could challenge a tax sale if the tax claim bureau had searched only a "single directory" to find the prior owner before selling the property at a tax sale. The court held that a single directory search was insufficient.

This ruling is not exactly groundbreaking. Tax sales are overturned often for notice-related issues. This case is simply a recent example. Former owners have many arguments to use as they try to show a court that they did not receive proper notice of a tax sale. (This decision applies statewide and is not limited to Northumberland County.)

Who should be interested in decisions like this?
  1. Any investor that is tempted to buy properties at a tax sale and who wants to know what legal challenges he might face;
  2. Any city government that is tempted to impose greater fees, costs and duties on non-owner occupied properties, without realizing that title defects like this one tend to make it impossible to finance repairs, regardless of how strong the city building code or inspection ordinance might be.

Wednesday, June 23, 2010

Tax credit bubble pops; May housing sales collapse

AP today reports record weakness in the housing market:
Sales of new homes collapsed in May, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer receive government tax credits.

The tax credit caused a temporary bubble in housing prices, during which buyers paid too much for real estate. Recent buyers must now ask themselves if the tax savings outweighed the amount of their overpayment in price.

The price drops were broken down by region. AP reported a 33% drop in the Northeast from April's levels.

Click here for my thoughts on the real estate tax credit in October 2009.

Friday, June 11, 2010

Deflation and gasoline prices.

This article indicates that the U.S. money supply has declined rapidly in recent months, despite runaway government spending.

How this could happen would be the subject of a full length textbook. Suffice it to say that the money supply is composed of many elements, including bank loans. When credit is tight, the money supply gets smaller, regardless of government spending.

A major indicator of the direction of inflation is the price of gasoline. The price of gasoline fell during and immediately before Memorial Day weekend. The price has not moved back up since then. It is unusual for gasoline prices to fall before and during a summer holiday. It is unusual for any prices to fall during a period of runaway government spending.

It is possible that the credit bubble that begin its collapse around 2007 is still collapsing - that the government stimulus bill (and related spending) is merely delaying the collapse. If that is true, the deflation we are experiencing is, ultimately, a good thing. The economy will not turn around until prices get to where they are going, even though the ride down will be painful.

If this scenario is allowed to play out, it would mean lower prices for real estate (accompanied by pain, foreclosures, bankruptcy, etc.), but, ultimately, an increase in sales at the new lower price levels.

Tuesday, June 1, 2010

Harrisburg; statistics on abandoned and condemned buildings

I wrote earlier about Harrisburg's use of the National Guard to board up abandoned houses in the City.

The same news story that discussed the National Guard operation also revealed interesting information about the state of housing in Harrisburg.

Harrisburg apparently contains the following:

  • 1,500 abandoned buildings
  • 835 of which have been condemned by the City
  • 324 of those buildings are scheduled to be torn down

(The National Guard boarded up 15 homes last week).

I know from prior discussions that the City owns roughly 500 properties that could not be sold at various prior tax sales. These buildings now suffer from title defects that hinder any potential sale. I do not know whether any of the abandoned and condemned buildings are included in the 500 city-owned properties.

The destruction of large numbers of abandoned buildings sounds like a small scale version of what is happening in Detroit. No plans have been announced to convert large areas of Harrisburg to agriculture.

Friday, May 28, 2010

Harrisburg uses National Guard to board up houses; Clean and Seal; South 15th Street

The following story from WHP tv-21 attracted some attention this week in Central Pennsylvania:
The 400 block of Harrisburg's S. 15th Street looks like a war zone. And that was before the five-ton truck pulled up onto the curb Tuesday, and several uniformed Pennsylvania National Guardsmen got out.

The City and the National Guard are engaged in a:
. . . joint effort to board up abandoned buildings to prevent children and drug dealers from getting inside. The Guard runs a Counter Drug Program that features a "Clean and Seal" team. That is who will be hard at work on the streets of Harrisburg in the coming days.

First Sergeant Sean Whelan told CBS 21 News that his people will be in the city through Friday, boarding up at least 15 vacant structures.

This program does not address the more fundamental problems that have prevented the real estate in question from achieving its maximam potential, such as title defects resulting from prior tax sales. We will explore those issues in future posts.

Monday, May 17, 2010

Detroit's consolidation moves forward - large areas to be demolished - urban planners watch and wait.

I have written previously on the City of Detroit's plan to downsize by abandoning large portions of the city and consolidating into a smaller area, with hopes to convert the abandoned real estate to agricultural uses.

Detroit has taken another step in this process by announcing plans to demolish 3,000 homes this summer (as part of a larger goal to demolish 10,000 homes in the mayor's first term). That the consolitation is proceeding with such major steps should interest urban observers everywhere, including those in Pennsylvania's cities. Detroit differs from Pennsylvania only by degree.

Friday, May 14, 2010

Philadelphia property tax increase.

The Philadelphia City Council has approved a 9.9% hike in property taxes, together with increases in trash fees. This will have the usual dampening effect on real estate values in the City. As costs increase (especially taxes), net operating income declines and sale prices decline. On the bright side, with comparable sales numbers declining, those owners who manage to hang on to their properties will have a better chance at challenging their tax assessments.

The tax hike awaits final approval next week. reports that the tax hike is supposed to be "temporary" - lasting only two years. But do not count on this tax increase going away, regardless of how they characterize it now.

Tuesday, May 4, 2010

Commercial real estate mortgage backed securities; Yields fall and prices rise despite decline in commercial real estate values.

Richard Daughty summarizes the problems plaguing commercial real estate right now:
. . . . [W]e are still left with the problem of the sheer tonnage of what I do not know about commercial property, except that after being overpriced for years, commercial property is said to be in a tailspin, which I assume is because people aren't buying things with that legendary American "abandon and stupidity to excess" because they finally, after bingeing for years on accumulating debt, continual government deficit-spending and the Federal Reserve creating more and more money to finance the whole deal, now owe So Freaking Much (SFM) that they can't make ends meet, and are in no mood to spend more borrowed money, meaning that businesses are closing up shop for lack of customers, leaving the commercial property owner left with bittersweet memories, a few bad checks and more vacancies.
May 1, 2010 - "Trickle of Nonsense"

Daughty's latest column expresses concern that investors are buying securities backed by commercial mortgages to such an increased extent that yields have fallen. The mortgages can be only as safe an investment as the underlying commercial real estate.

Wednesday, April 28, 2010

Harrisburg, PA bankruptcy discussions.

It is not news that Harrisburg City is considering bankruptcy as well as tax increases to deal with the city's fiscal crisis. Real estate values in the city (and beyond) will depend on how the city chooses among its options.

Click here for previous posts on Harrisburg tax increases and bankruptcy considerations.

Thursday, April 22, 2010

Strategic Defaults; Mortgage Foreclosures; Arnold Ahlert

I have written previously about "strategic defaults." This column from Arnold Ahlert summarizes the issue:
Welcome to the brave new world where clever vocabulary confers absolution on rotten behavior. "We weren't in any financial distress, but the value of the house had declined so precipitously that continuing to stay in this house and paying this inflated mortgage made no sense," said Chris Schreur of California, who contacted a company called You Walk Away, which helped him literally walk away from a freely-signed contractual obligation. "My degree is economics, so I understand that you don't keep putting money into a losing proposition just because you already put money in," he added.

Apparently they don't teach ethics along with economics, which might explain a lot about the current state of the country. Mr Schreur continues: "Objectively the hardest part was the hit to the credit rating. Defaulting on a debt is the hardest thing to accept."

Keep in mind also that Pennsylvania law allows a bank to pursue the former homeowner for a "deficiency judgment." This fact should affect any decision that one might make in this regard.

Tuesday, April 20, 2010

New records for foreclosures in 2010.

Foreclosures set records across the U.S. in the first quarter of 2010:
A record number of U.S. homes were lost to foreclosure in the first three months of this year, a sign banks are starting to wade through the backlog of troubled home loans at a faster pace, according to a new report.
RealtyTrac Inc. said Thursday that the number of U.S. homes taken over by banks jumped 35 percent in the first quarter from a year ago.

This record comes after foreclosures had set a new record in 2009, both for the year and for the first six months.

Click here for foreclosure predictions from September 2009 and commentary on the effect of foreclosures on the market in general and real estate fraud in particular.

Monday, April 19, 2010

Rising interest rates; The end of an era.

The New York Times last week predicted "a sustained period of rising interest rates." The projections at issue are for a long period of rising rates, not merely a short term fluctuation:

The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing.

“Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.”

The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.

emphasis added

Everyone who has borrowed money in the past thirty (30) years has done so in the climate of falling rates. No one who is fifty years old or less has personally experienced borrowing in a climate of high rates. Attached is a commercial from January 1983 that might remind us of the way things used to be and are soon becoming again. [The film relates to car loans instead of real estate, but the concept is the same.] The ad assumes that the audience would be excited about car loan rates of 11.9%. In 1983, they were right, and they may be right again soon, even though current car loan rates are less than half that amount for 5 year loans and even less for shorter loans.

[H/T for video conversion]

Friday, April 9, 2010

Landlord-Tenant Security Deposit claims and disputes; 68 P.S. 250.512; Tenant surrender of leased premises.

I have previously written about landlords that find themselves on the receiving end of litigation because they fail to return the tenant's security deposit (or provide a list of damages) within thirty days of the tenant leaving the property.

The statute provides that a landlord must return the deposit or provide the damage list within thirty days of the "termination of a lease or upon surrender and acceptance of the leasehold premises, whichever first occurs . . . " or the landlord is responsible for double the deposit. 68 P.S. 250.512(a) and (c).

Landlords often say that the tenant did not return the keys and they are not sure when the tenant actually left (thus beginning the thirty (30) day countdown). Don't let your dispute turn on when the tenant actually surrendered the premises. In most court disputes as to when the tenant actually left, the tenant will win. Tenants will lie about when they left and the courts will often believe them. Send the letter as soon as you think the tenant might have left. Don't wait for the thirtieth day. Don't get hung up on whether you received "official" notice or the keys. Courts don't get hung up on those issues. Neither should you.

Friday, March 26, 2010

Landlord-Tenant security deposit disputes; 68 P.S. 250.512; Thirty day time limit;

I previously summarized the factors that cause landlords to get into needless trouble in security deposit disputes. One such factor is deception by the tenant. The basic rule is that a landlord must either (1) provide a written list of damages or (2) return the security deposit to the tenant within thirty (30) days of the tenant leaving the property.

Landlords sometimes get tripped up when tenants tell the landlord to take forty-five (45) days (instead of the statutory thirty (30)). Tenants do this when they know that there is substantial property damage and that the landlord will not voluntarily return the deposit.

Just because the tenant tells the landlord that 45 days is acceptable does not mean that the courts will find it acceptable also. Tenants often know the law better than landlords. Tenants will try to trick the landlord into waiting beyond the required thirty day period so that the tenant can force the return of the security deposit and avoid having to pay for the property damage. Courts will be unsympathetic to the landlord even when the landlord's delay results from the tenant's unsolicited inducement to take more time.

Remember, it does not matter what the tenant says. Provide your written list of damages within thirty (30) days no matter what.

Thursday, March 25, 2010

February real estate sales decline; National Association of Realtors; increasing inventory of unsold homes.

The National Association of Realtors has published the latest real estate sales data:
Sales of existing homes fell for a third straight month in February, pushing sales down to the lowest level since last July. There is concern the fragile housing rebound is faltering, making it harder for the overall economy to recover.

The slowdown itself is creating more downward pressure on prices:
Last month, the inventory of unsold homes jumped by 312,000 to 3.59 million, an unusually large increase that pushed the supply of unsold homes to 8.6 months.

Lawrence Yun, chief economist for the Realtors, called that increase "discomforting" and said if it climbs above 10 months supply it could put significant downward pressure on prices.

Previous - 2009 predictions for housing prices.
Competing factors affecting real estate prices.

Friday, March 19, 2010

68 P.S. 250.512; Security deposit disputes in Pennsylvania; Thirty day letter; contractor estimates.

Previously I have written that landlords often fall into traps by failing to return security deposits or provide a list of damages within 30 days of the tenant's departure from the rental property.

I have also pointed out the consequences to the landlord from failing to provide the list of damages in a timely manner.

Landlords often say that it took too long to get an estimate of the damages from their contractor. While that may be true, waiting for the actual estimate before sending the "30 day letter" is a bad idea. Many courts will enforce the penalties against the landlord even when the landlord is legitimately trying to get accurate information to provide in the letter.

It is unnecessary for a landlord to lose a security deposit dispute for this reason. If the landlord does not yet have an actual estimate, he can simply list the damaged items in the house in a letter to the tenant. The landlord can inform the tenant that the security deposit will not be returned because the damage exceeds the deposit (provided that is true). The landlord need not provide an exact dollar amount for the actual repair bill. (The landlord will need estimates (and perhaps live testimony) by the time of any hearing, but the rules of evidence do not apply to writing the 30 day letter.) The statute provides such a short response time, it is better to simply write whatever information is available without waiting for further detail.

Wednesday, March 17, 2010

Harrisburg Flood Plains

Harrisburg City has posted a map of the 100 year and 500 year flood plains.

Harrisburg appears to have escaped this year's flood season (and will probably not face another 100 year flood for many years), but this information is worth knowing for real estate investors. The existence of these plains helps determine insurance requirements and rates.

Monday, March 15, 2010

Youngstown film points out real estate issues affecting Harrisburg properties.

I found the following nine minute film on Youtube. It was filmed in Youngstown (a short commute from Pennsylvania's western border) this winter. The narrator's comments should sound familiar to Harrisburg investors, as the film touches on many issues that we deal with here. I noted a few points while watching this:

  • Out-of-town investors usually pay too much for properties. New York real estate is far more expensive than real estate in Harrisburg or other smaller cities. Being unfamiliar with Harrisburg, a New York investor will have little basis to compare prices when he is confronted with a seemingly "good deal" at a price far below what the market would bring in a larger city. Experience with the local market is the important factor - not necessarily "touching" or "seeing" the property as the narrator stated.

  • I am guessing here, but I would bet that the second property in this film is so cheap because there is some title defect preventing its sale at market prices. The property has probably been through a tax sale at least once (the narrator made reference to a company that buys tax liens). Without spending the money necessary to resolve this title defect, the owner cannot get a loan to make needed repairs. Properties that come with a sale price of "$1,000" usually also come with another price - unknown attorney fees necessary to clean up title defects.

  • Appraisals often mean nothing. The narrator mentioned an $82,000.00 appraisal for the house that was listed at $1,000.00. I haven't seen the appraisal, but I imagine that any such document relied on completely irrelevant comps and/or failed to account for the title defects.

When we see these issues out of the context of our own neighborhoods and properties, we can look at them with a more objective eye.

Friday, March 12, 2010

Security deposit disputes and forwarding addresses under Pennsylvania Landlord-Tenant law; Landlord and Tenant Act of 1951; 68 P.S. 250.512(e).

In a previous post, I pointed out that many landlords fall into a trap by failing to send a letter itemizing damages within thirty days of a tenant vacating the premises.

Many landlords fail to send the "thirty day letter" because the tenant does not provide a forwarding address. The statute does require the tenant to provide a forwarding address in writing and relieves the landlord of all liability in the absence of such a written forwarding address. 68 P.S. 250.512(e).

Regardless of the above statute, the tenant will lie about having provided a forwarding address and may even backdate a letter for use in court. Courts often believe a tenant when there is a dispute over whether or when a letter was sent.

Most importantly, this issue is so easy to avoid. If the landlord does not have a forwarding address, the landlord should mail the thirty day letter to the rental unit in question via certified mail. If the former tenant fails to sign for the mailing, the landlord will have proof, in the form of the returned mail with the "refused" stamp from the post office, that the tenant left no forwarding address and resisted the landlord's attempts to comply with the statute. While this action goes beyond the requirements of the statute, it would preclude a tenant from succeeding on a falsified claim of having provided a forwarding address.

Thursday, March 11, 2010

Pennsylvania wage attachment for landlords

Over the past 15 years, Pennsylvania has gradually developed procedures to allow a landlord to attach the wages of a tenant that has failed to pay rent or has damaged the property. These procedures are not generally known, but they can be effective on occassion.

I will provide more detail in future posts, but the basic points to remember are as follows:
  • Know where your tenant works, including the name of the company and the address;
  • Do not ask the District Justice who is holding your eviction hearing, "How do I attach the tenant's wages?" They do not give legal advice and the wage attachment process is not part of the District Justice's duties.

If you remember these points, you should be able to receive payment through wage attachment in many cases.

Wednesday, March 10, 2010

Detroit consolidation update.

Last week's story of the City of Detroit being "downsized" has been updated in The Washington Times:

Operating on a scale never before attempted in this country, the city would demolish houses in some of the most desolate sections of Detroit and move residents into stronger neighborhoods. Roughly a quarter of the 139-square-mile city could go from urban to semi-rural.

Near downtown, fruit trees and vegetable farms would replace neighborhoods that are an eerie landscape of empty buildings and vacant lots. Suburban commuters heading into the city center might pass through what looks like the countryside to get there. Surviving neighborhoods in the birthplace of the auto industry would become pockets in expanses of green.

This ongoing story is worth watching by everyone in the Eastern United States for the following reasons:
  • Detroit's deterioration has advanced beyond that of other cities (including Pennsylvania cities) only by a matter of degree.
  • City planners are going to make a serious attempt to implement this plan, but the result will not be picturesque farms where once stood blight.
  • At some point this decade, Detroit will be mired in lawsuits related to eminent domain and the validity of disputed title claims (as well as protests, demonstrations and civil unrest resulting from forced relocations).
  • It is likely that clouded title resulting from a history of tax sales has created uncertainty as to the true ownership of so much Detroit real estate (sound familiar?) and worsened the blight that this proposal is attempting to remedy.

Wherever blight and depopulation exists on a large scale, forced relocation, consolidation (and resulting litigation) will become an option for city planners.

Tuesday, March 9, 2010

Flood potential for Juniata, Conemaugh and Youghiogheny river basins; nondisclosure issues

Last month I commented on the potential for spring flooding following the heavy snow experienced by Pennsylvanians this winter, especially in Western Pennsylvania. I presented this issue in the context of the real estate issues that arise as a result of flooding, especially disclosure issues.

While it appears that the worst case scenario will not happen, NOAA has now forecast a potential hazard for later in the week near smaller waterways in Western and Central Pennsylvania:

This news will most likely affect the average person, if at all, only in purchasing low-lying real estate near those rivers (and the creeks that feed them). Any flood damage will likely be limited to standing water closer than normal to structures (or possibly basement seepage).

Such damage will probably no longer be visible in a week or so, but the disclosure of such an event will be important for any future transactions. If you think you might purchase affected property at any time in the future, visit these areas this weekend and note the general water levels. Ask specifically about this event when the time comes to purchase any such property. Compare the answers with your own observations from this coming weekend.

Juniata River and tributaries (from Wikimedia)

Update - 3-14-10 Click here for the story of the actual minor flood events in Cumberland, Perry and Franklin Counties.

Thursday, March 4, 2010

Pennsylvania Landlord-Tenant security deposit disputes; forwarding address; damage estimates; Pennsylvania Landlord-Tenant Act.

For landlords, the question of what to do with a departing tenant's security deposit might seem minor, but can create unnecessary headaches and expenses.

If you have reason to keep ANY of the deposit, make sure you provide a list of damages to the tenant as soon as he moves out (or as soon as you THINK he might have moved out). Be as cautious as you can. Even though the Pennsylvania Landlord-Tenant Act gives you thirty days and requires the tenant to provide a forwarding address, play it safe and send your letter without waiting. Do not use the following excuses:
  • The tenant did not provide a forwarding address.
  • It took longer than 30 days to get an estimate of the damage.
  • The tenant said that the landlord could wait longer than 30 days.
  • The tenant did not give me a key.
  • I thought that the tenant was gone, but he did not provide "official" notice.
  • The constable said I did not have to send a letter.

In future posts, I will debunk each of these reasons. Remember that courts often are sympathetic to a tenant even though the tenant is lying. Courts often disregard statutory time limitations where such limitations harm a tenant, but will strictly enforce such time limits against a landlord.

It is easy to win a security deposit dispute if you follow a few simple guidelines. Treat every security deposit dispute as if a court will eventually resolve all doubt in favor of the tenant, and you should avoid serious expense and inconvenience.

Update - click here for more detail on dealing with the lack of a forwarding address and 68 P.S. 250.512(e).
Update - click here for more detail on dealing with delays in assembling contractor estimates.
Update - click here for more detail on situations where the tenant agrees to give the landlord more than thirty (30) days.

Wednesday, March 3, 2010

Record low for home sales in January

From the AP last week:
Sales of new homes plunged to a record low in January, underscoring the formidable challenges facing the housing industry as it tries to recover from the worst slump in decades.

The data was not specific to any states, but the Northeast posted the worst numbers of all regions.

This information is made worse when considered with recent news that 25% of all homes are valued below the mortgage balance.

Tuesday, March 2, 2010

Downsizing in Detroit

From the Detroit News comes the story of the Detroit Mayor's plan to relocate residents within the city so as to consolidate the areas in which city services are needed:
Mayor Dave Bing said Wednesday he "absolutely" intends to relocate residents from desolate neighborhoods and is bracing for inevitable legal challenges when he unveils his downsizing plan.

In his strongest statements about shrinking the city since taking office, Bing told WJR-760 AM the city is using internal and external data to decide "winners and losers." The city plans to save some neighborhoods and encourage residents to move from others, he said.

"If we don't do it, you know this whole city is going to go down. I'm hopeful people will understand that," Bing said. "If we can incentivize some of those folks that are in those desolate areas, they can get a better situation."

"If they stay where they are I absolutely cannot give them all the services they require."

There are large abandoned areas of Detroit in which empty buildings sit. Detroit's population has been cut in half since 1950. I have heard discussions of this type before in which Detroit community activists recommend that large abandoned areas be returned to agricultural purposes.

I have heard of no other city where such a plan is being attempted, but Detroit may not be the last city to try to shrink itself.

There are large areas in Harrisburg occupied only by vacant lots or abandoned buildings. Such areas will grow if the city eventually adopts a recommendation to double property taxes.

If Detroit's plan works, it may be the first successful, peaceable effort to shrink a large city in history. The plan may become a model for other major cities.

One aspect that the article does not address is the title defects resulting from tax sales. If Detroit is anything like Harrisburg, there are many properties that have been sold at tax sales, thus creating a title defect on those properties. Those properties will remain unusable even after a consolidation unless arrangements are made (either through litigation or payment) with the owners that lost the properties at tax sales. The City will have to deal with not only the current occupants, but any owner whose interest was supposedly extinguished through prior tax sales. This problem might also hamper Detroit's relocation efforts, as properties to which Detroit attempts to relocate residents might also be encumbered with tax sale related title defects.

Tax sale title defects will continue to hinder municipal efforts to consolidate or otherwise revitalize blighted areas of cities.

Monday, March 1, 2010

25% of all mortgage holders under water. reports that nearly one-fourth of all Americans with a mortgage owe more on the mortgage than the property is worth.

Most of these "under water" properties are concentrated in California, Florida, Nevada, Arizona, Michigan and Georgia.

This problem will be resolved only when these properties are foreclosed upon or the mortgages are released through short sales. Either way, lenders will face serious losses.

Any government attempt to delay or hinder foreclosures will only delay the resolution.

Friday, February 26, 2010

Foreclosure delays; HAMP (Home Affordable Modification Program) review;

From comes the story that the Obama administration is considering a ban on mortgage foreclosures pending review by the federal government's Home Affordable Modification Program. Such a plan would create lengthy delays in the foreclosure process (even before the bank could get to the point of encountering the normal delays resulting from bankruptcy, the usual sheriff sale process, PHFA, etc.).

The Treasury Department was quick to point out that nothing has been finalized, but even the beginning of discussion of such a program will have a negative impact on lending. Borrowers and investors have already complained that lending standards have tightened tremendously over the past few years. Serious discussion of any plan that would delay and increase the cost of foreclosure will make lenders more skittish about lending in the first place.

Thursday, February 25, 2010

Flood potential - March 2010; Pittsburgh; real estate implications; St. Patrick's Day Flood

No discussion of real estate would be complete without a warning about the potential for flooding at the end of a winter that has already brought near record snowfall. The Pittsburgh Post-Gazette warns of the potential for March flooding near Pittsburgh if predicted additional snowstorms arrive. Such an outcome, while far from certain, would have implications continuing far longer than the immediate damage and danger. Local economies, disclosures, misrepresentations, insurance coverage, income streams, appraisals and numerous other aspects would be forever altered by such a cataclysmic event.

If you are buying real estate in the next few weeks, pay particular attention to whether the property is in a flood plain. If you are uncertain about the possibility of flooding, buy flood insurance if you can. Most importantly, make sure the seller disclosure is as clearly and fully completed as possible. Sellers tend to be vague if there is something to hide (especially in the current fraud-prone market conditions). Pay particular attention to all explanations under section 16 (b) of the PAR disclosure form.

Buyers should ask their settlement attorneys now what options they will have if their newly purchased basements take on water during the March/April thaw. Sellers should know that the more they disclose now (before settlement), the fewer remedies the buyers will have in court later on.

According to the Post-Gazette, the worst flood to hit Pittsburgh in the last 100 years occurred in March 1936 ("The St. Patrick's Day flood"). Attached is newsreel footage from the same flood in Johnstown.

In Harrisburg, the most recent winter-related severe flooding happened in January 1996, when ice flows on the Susquehanna River destroyed the Walnut Street bridge.
Update - 3-14-10 - Click here to find out how the flood situation turned out in Central Pennsylvania.

Wednesday, February 24, 2010

Real estate title defects in Pennsylvania; Buying property subject to title defects.

I wrote earlier about buyers that purchase real estate with title defects because a settlement company cut corners. Some settlement companies, instead of fixing title defects resulting from tax sales, simply delay settlement for a year:

Keep in mind that the "one year period" has no legal significance. Title defects resulting from a tax sale do not go away after one year. If a buyer purchases a property under these conditions, the buyer will have difficulty selling the property, regardless of the fact that he used a corner-cutting settlement company to do an end run around the title defects.

The same reasoning applies to other title defects, like unpaid judgments, tax liens or unsatisfied mortgages. If you somehow buy a property with such a defect, even if you have purchased title insurance from a corner-cutting settlement company, you will suffer consequences when you try to sell the property.

  • Your buyer will refuse to complete the purchase until the defect is cured.
  • The settlement company through which you purchased the property may be out of business due to an excess of claims because of similar problems.
  • The settlement company through which you purchased the property might have excluded this defect from coverage without you realizing it.

Even if your settlement company covers your defect, you may find yourself in the middle of litigation or negotiation instead of collecting proceeds from a clean and simple settlement.

The point is, when you buy property, make sure any defects are addressed either by obtaining the proper releases from the parties holding the liens or by obtaining an "indemnification" from a nationally based title insurance company. Solve these problems before you complete settlement on your purchase.

I will write more about "indemnification" at a later date.

Tuesday, February 23, 2010

Harrisburg, PA; Chapter 9 as an alternative to tax increases.

Twice this month, the potential for a bankruptcy filing by the City of Harrisburg has been mentioned in national publications - at the beginning of the month and, last Thursday - The Wall Street Journal.

It is by no means clear that a bankruptcy filing is imminent, but similar talk in municipalities across the country recently has caused investors to rethink the safety of municipal bonds as an investment. See the WSJ article for further discussion of this point.

The effect on the local real estate market is uncertain, but my own opinion is that a bankruptcy filing would place less downward pressure on real estate values than the tax increase recommendations made public last month.

Monday, February 22, 2010

Housing Authority of Washington County, Maryland; Rent-to-own

From WHAG-TV in Hagerstown, MD comes the story of the Housing Authority of Washington County (MD) selling single family homes to low income residents on a rent-to-own basis.

The Housing Authority intends to purchase single family homes on the market in the Hagerstown area and resell them to qualified applicants through the program under terms stated here.

[Hagerstown is less than 10 miles from the Pennsylvania border.]

Friday, February 19, 2010

Tax sales; title defects; the arbitrary one-year period.

Click here for a previous post relating to title defects resulting from tax sales:
Once a property has been sold at a tax sale, that property suffers from a title defect. The former owner can file suit to recover his old property at any time, claiming that he did not receive proper service of process of the then pending tax sale. . . . Once a tax sale takes place, the only way to eliminate with certainty the resulting title defect is to file a quiet title action against the former owner (or have the former owner sign a deed in favor of the buyer). These curative actions are expensive and uncertain. It is impossible to determine how much such an action will cost because it is unknown whether the former owner will fight or whether the buyer can even find the former owner.

Occasionally I hear about settlement companies that tell buyers that such a property will be insurable "after one year." Details are sketchy because I have heard of this only second hand, but it appears as if some settlement companies have established an arbitrary one year period after which they will purport to insure a former tax sale property - regardless of whether the title defects have been resolved.

Keep in mind that the "one year period" has no legal significance. Title defects resulting from a tax sale do not go away after one year. If a buyer purchases a property under these conditions, the buyer will have difficulty selling the property, regardless of the fact that he used a corner-cutting settlement company to do an end run around the title defects.

Check here for future posts on the consequences of buying a property with title defects (with or without the blessing of a settlement company).

Update - click here to see some of the consequences of buying property with title defects.