Sunday, December 16, 2012

Tax increase in Carlisle for 2013

WHTM reports that Carlisle has approved a tax increase for 2013:

Carlisle Borough Council has narrowly approved its 2013 budget Thursday night and it includes a 7 percent tax increase.

It's a new fire tax that's expected to bring in $300,000 to the borough. That money can only be used for emergency services.

Also Thursday, council members said they'll begin working on the 2014 budget in January because early projections show a $200,000-$300,000 deficit.
Given the projected budget deficit for 2014, will we see another tax increase next year?

Thursday, December 13, 2012

Tax abatement in Newville; Local Economic Revitalization Tax Assistance Act

According to the Carlisle Sentinel, Newville Borough is considering a tax abatement program under Pennsylvania's Local Economic Revitalization Tax Assistance Act that would provide tax relief to property owners for improving their properties:
The act allows municipalities, school districts and counties to offer tax incentives for revitalization projects to attract land developers to an area.

If enacted, property owners would not pay taxes on changes to their home’s assessment for up to $40,000 of improvements over a period of three years.
The Act requires each taxing authority of a "deteriorated area" to designate, by local ordinance, the area eligible for tax abatement.  In Newville's case, Big Spring School District also has to approve the program. 

Similar programs are under consideration in Crawford County and Greencastle, Franklin County.

Tuesday, December 11, 2012

Over half a million family farms at risk from 2013 estate tax increase

Earlier I wrote about higher estate taxes threatening family farms beginning in 2013.  Today, the Washington Examiner reported that 526,421 family farms are at risk from these higher taxes:
New legislation that jumps the death tax to 55 percent of estates exceeding $1 million threatens 526,421 family farms, or about 25 percent of all farms in America, according to a Senate analysis.

The Examiner article does not address the effect that such a tax increase will have on real estate prices, but the consequences will be far reaching and long lasting.

Monday, December 10, 2012

Chinese buyers purchasing increasing share of U.S. residential real estate

Foreign buyers now purchase an ever larger share of U.S. residential real estate, with Chinese buyers accounting for a growing portion of that share:

According to the National Association of Realtors, non-American buyers accounted for $82 billion in home sales last year. More than $7 billion of that is by the Chinese, who are now the second largest foreign home purchasers after Canadians. They're buying high-end, multimillion-dollar homes from California to New York and paying cash.

Sunday, December 9, 2012

Public housing melee in Columbus, Ohio

The collapse of the housing market has led to increased demand for public housing.  Will recent incidents like this one in Ohio ( become more common as more people compete for limited government housing?

Columbus Police sprayed Mace on several people in a crowd that had gathered to sign up for a list to get subsidized housing at a northwest Columbus apartment complex.

Police said the crowd started to gather Friday night for the Saturday morning event at The Heritage apartment complex on Gatewood Road near Sunbury Road in northeast Columbus.
Authorities said that its highest number, the crowd reached 2,000 people. . . . . . According to police, a melee broke out when the manager of the complex started to set up for the event just before 7 a.m. Saturday morning.

Friday, November 30, 2012

Unusual trends in residential real estate

While these stories are not local, future trends in real estate have to start somewhere.

From Detroit (via Yahoo) comes the story of old cargo shipping containers being used to make multi-family condos:
 The first U.S. multi-family condo built of used shipping containers is slated to break ground in Detroit early next year.

Strong, durable and portable, shipping containers stack easily and link together like Legos. About 25 million of these 20-by-40 feet multicolored boxes move through U.S. container ports a year, hauling children's toys, flat-screen TVs, computers, car parts, sneakers and sweaters.

But so much travel takes its toll, and eventually the containers wear out and are retired. That's when architects and designers, especially those with a "green" bent, step in to turn these cast-off boxes into student housing in Amsterdam, artists' studios, emergency shelters, health clinics, office buildings.
In San Francisco (from CBS 5), supervisors have approved building code revisions that will allow the construction of apartment units as small as 220 square feet.

Tuesday, November 27, 2012

Mortgage interest deduction at risk in budget negotiations.

Nothing has been decided yet, but the New York Times reports that the mortgage interest deduction may be subject to negotiation in the upcoming budget talks in Washington. 

Any limitation on the mortgage interest deduction would place further downward pressure on the real estate market, resulting in increased difficulty selling underwater homes and further losses for lending institutions.
Update - the idea of limiting or eliminating the mortgage interest deduction appears to be a bargaining chip or ploy to help the administration get what it really wants - higher income tax rates. 

Monday, November 26, 2012

Progress against bed bugs; ivermectin

All property investors are aware of the danger that bed bugs pose to properties and residents. Bed bugs have spread throughout the United States - especially in the aftermath of federal bans on certain pesticides.

Newsweek carries the story of a new drug (ivermectin) and a new approach that may help fight bed bug infestation:
The investigators ingested a medication called ivermectin, approved decades ago to treat various parasites and worms, and then exposed themselves to a swarm of bedbugs. They knew of course that the bugs, like any frisky vampire, could not resist the offer of warm human flesh; after all, bedbugs live on our blood. Right on cue, the insects hurried to the arm, bit down, had a nice blood meal—and dropped dead. The medication in the research volunteer’s bloodstream, though too weak to affect the human, was more than strong enough to kill the ambushed bedbugs.

This drug may present limited direct usefulness to landlords or hotel owners, as it is unlikely that tenants or guests could be required to take such medication. But any use by the general population could slow the spread of these bugs and thus help investors avoid infestation in the first place. 

Sunday, November 25, 2012

Lower Allen Township property tax increase

Property owners in Lower Allen Township (Cumberland County) face a 20% property tax increase in 2013.  Pennlive has more details. Lower Allen Township commissioners will vote on the budget containing this increase in December.

Friday, November 23, 2012

Estate tax increase - effect on farmland

Federal estate tax rates are set to increase drastically at the beginning of 2013, unless the federal government acts before the first of the new year.  The effect of this increase will be to force certain large farms to be sold upon the death of their current owners.  Fox News explains further with some examples of the impact of this increase in estate taxes:

Two decades ago, Kester paid the IRS $2 million when he inherited a 22,000-acre cattle ranch from his grandfather. Come January, the tax burden on his children will be more than $13 million.

For supporters of a high estate tax, which is imposed on somebody's estate after death, Kester is the kind of person they rarely mention. He doesn't own a mansion. He's not the CEO of a multi-national. But because of his line of work, he owns a lot of property that would be subject to a lot of tax.
The consequences will be varied and long lasting.  More real estate will be slated for proposed subdivisions. More residential lots will be available for sale, resulting in downward pressure on real estate prices.  Farmland will be less plentiful, resulting in upward pressure on food prices. 

Thursday, November 22, 2012

Harrisburg nuisance ordinance

On Tuesday, November 13, 2012, Harrisburg City Council passed Ordinance 12-2012.  This ordinance allows the city to revoke a landlord's license if a tenant commits two acts considered to be a "nuisance" by the City codes officer.  The ordinance allows the City to force landlords to evict tenants under certain circumstances. 

Below is the coverage from ABC27 WHTM. 

This ordinance goes further than courts have allowed in previous cases in holding landlords responsible for the conduct of their tenants.

This ordinance comes a little more than a year after Harrisburg passed ordinances modifying the city's rental inspection program.  Conditions in the City continue to deteriorate as the City doubles down on its attempts to address the issues with more restrictive and expensive ordinances.

Friday, October 5, 2012

3.8% medicare surtax on investment properties

The Wall Street Journal tries to sort out the question of what particular transactions the new medicare surtax will apply to. 
In general, someone with a day job who collects rents on the side must include that income (net of expenses) in investment income, potentially subjecting it to the surtax, while someone whose sole occupation involves owning and operating real estate typically would not be subject to the tax. In either case, any profits from a sale could get hit with the surtax.

If you're planning to sell rental real estate or other investment property, run, don't walk, to a trusted tax expert.
Read the entire article.  It will not provide definitive answers, but it does identify the issues.

Thursday, October 4, 2012

Hazleton passes inspection ordinance

On October 3rd, 2012, Hazleton passed ordinance 2012-25 for the purpose of inspecting rental properties and collecting inspection fees. 

The Hazleton Standard Speaker discussed the Ordinance and the council session at which the measure passed.

Click here for details on an earlier version of this Ordinance that was tabled.

Sunday, September 23, 2012

200 + coal fired electric generators face shutdown by 2017.

Click here for a previous article about rising utility costs resulting from decreased coal production.  Electric distributors (including those in Pennsylvania) have already signed contracts to pay massive cost increases for electric capacity beginning in 2015.  These increases will be passed on to consumers.

For those who would like more bad news, the Daily Caller reports the following:

Within the next three to five years, more than 200 coal-fired electric generating units will be shut down across 25 states due to EPA regulations and factors including cheap natural gas, according to a new report by the American Coalition for Clean Coal Electricity (ACCCE).
Pennsylvania is one of the states facing shutdowns. 

Homeowners and investors must consider the potentially massive utility increases.  Investors in particular must factor these costs into potential purchases as well as decisions regarding rental rates and income qualifications for tenants.

My own prediction is that properties serving fixed income residents will face the most hardships from these increases - unless there are corresponding government subsidies for fixed income tenants to cover the costs of rising utility prices.  In that event, owners of middle class properties (and their tenants) will be the hardest hit. 

Saturday, September 22, 2012

Green Urban Initiative; Urban garden demolished in Harrisburg

Click here for previous posts on urban farming and here for a past story on urban farming on multiple lots in Harrisburg City. 

From Fox43 comes the story of Green Urban Initiative, an urban farming organization that leases and operates multiple lots in Harrisburg.  On Wednesday, the City demolished one of GUI's lots at 6th and Curtin streets due to allegations that the property had fallen into disrepair and was being used to hide contraband, an allegation that GUI disputes. 

Additional details have been reported on Pennlive.  GUI's website can be found here.

What is most significant about this story goes beyond the demolition of this one garden.  We are not talking about your average backyard vegetable garden with only a handful of various plants. Gardens of this type often encompass entire vacant lots - or even multiple contiguous lots.

GUI operates "multiple gardens throughout the City," according to the Fox-43 story.  GUI apparently leases vacant lots from the City for this purpose.  This practice provides further indication that gardening provides a more profitable use of certain vacant urban lots than traditional residential or commercial uses. That gardening is more profitable reflects not only increased prices in food and farm products, but also many obstacles to land development and investment, such as increased lending restrictions, real estate taxes, municipal regulations and fees, title defects due to prior tax sales and urban crime.  The demolished lot in this case was located in a high crime area. All of those obstacles, while preventing building, repair or other development, would not interfere with gardening on land leased from the City.

In some cities outside of Pennsylvania, the possibility of increased urban farming has played a key factor in municipal plans for urban consolidation and population relocation

Wednesday, July 25, 2012

Global economic slowdown to continue?; Nouriel Roubini

CNBC reported earlier this month on the predictions of Nouriel Roubini for a worsening economic slowdown worldwide. The factors contributing to this slowdown include a slowing Chinese economy (resulting in slower commodity purchases worldwide). 

Last week, he told CNBC that there is “virtually zero chance” that pump-priming by central banks will succeed, suggesting that policymakers should instead let the economic bust work itself through the system.

This prediction if true, would indicate that real estate prices would continue to stagnate both locally and nationwide.

Monday, July 23, 2012

Blair County faces shortage of real estate in business parks.

The Altoona Mirror reports that there exists a shortage of available real estate in Blair County's 8 business parks.  This shortage has caused the County to lose potential businesses. 

Wednesday, July 11, 2012

IRS employee attempts to initimidate her landlord

If  you are a landlord, be careful about renting your unit to an employee of the IRS.  From the Philadelphia Inquirer comes the story of a tenant who used her position as an IRS employee to attempt to intimidate her landlord for the purpose of committing identity theft:
Using IRS letterhead, Flowers allegedly threatened her landlord with an audit unless she faxed copies her driver's license and Social Security card to a machine at the IRS which Flowers could access.

The attempt was thwarted by the Treasury Department, but there is a lesson in this story somewhere. It pays for landlords to know where their tenants work (not only for the traditional credit check purposes) and to retain that knowledge in case they receive threatening letters from those same agencies. 

This story also provides additional reasons for the landlords to obey all tax laws.  Had this landlord failed to report income from the property at issue, the tenant might have had a more dangerous basis on which to threaten the landlord and would not have needed to hijack IRS' letterhead. 

Thursday, July 5, 2012

Stink bugs in 38 states

According to this item in the Washington Examiner, "stink bugs" have reached 38 states, prompting the federal government to devote additional funds to research a solution.  Observers in Central Pennsylvania have noted stink bugs for several years.

Farmland is most immediately impacted.  Stink bugs have  "ruined apple, peach and grape harvests up and down the East Coast" and have caused "losses of nearly $40 million a year" to Mid-Atlantic apple growers.  Loss of such revenue will affect prices of farmland.

Thursday, June 21, 2012

Pittsburgh Urban Chicken Coop Tour

I have written previously about "urban farming" (especially in Pittsburgh) - the trend in many large cities to encourage farming of abandoned or empty lots and even to incorporate such plans into the larger goal of urban consolidation.

In Pittsburgh last week, hundreds attended the "Pittsburgh second annual chicken coop tours."
This story is more significant than it might appear. The City of Pittsburgh and local residents have made a concerted effort for several years to devote more space to urban farming. This trend may grow as more properties become abandoned due to tighter lending restrictions on investors, title defects resulting from tax sales, municipal regulations and fees, and the collapsing real estate bubble in general. We may see a time when the most profitable use of certain urban space will be agricultural.

The following video is from the 2011 Pittsburgh Urban Chicken Coop Tour (courtesy of Transition Pittsburgh).

Monday, June 18, 2012

Rent or Buy?

The Wall Street Journal included a column on Saturday about a dilemma facing many potential homebuyers in recent years - a dilemma made worse by the collapse of the real estate bubble - whether to rent or to buy:
The worst part of the house hunt, however, isn't the real-estate agents repeating, "Now is a great time to buy!" Nor is it the multiple offers anything half-decent seems to attract. It's the arguing between Alejandro and me whenever we broach the topic of whether it is technically smarter to rent a house or to buy one.

"Renting is just throwing your money away each month!" Alejandro declares.

"Only a moron buys in a place where it's cheaper to rent! How can you not see something so obvious?" I answer, charmingly.

While the columnist lives in Los Angeles, the same considerations apply throughout the country.

CNN Money posted an article last year summarizing the calculations for making such a decision.

Sunday, June 17, 2012

Foreclosures on the rise.

Reuters reports that foreclosures were up in May 2012.  This increase results from settlement of litigation over foreclosure practices and also may tend to hold down real estate prices:
By moving houses out of the so-called "shadow inventory" and onto the market, the increase in foreclosures could be a drag on the fragile U.S. housing recovery. The S&P/Case-Shiller index of home prices in 20 metropolitan areas inched up February and March, in monthly terms.

Increased foreclosures might only alleviate the glut of defaulting properties.  There remain many defaulting properties on which the banks have delayed foreclosure.

Friday, June 15, 2012

Core Settlement Services; Jami Braafhart; updated Court stipulation

Click here for the previous post on the Core/Chelsea/Braafhart title insurance scandal

The hearing set for June 14th was postponed and the Court's previous Order (June 1, 2012) has been allowed to continue in effect with certain modifications. On June 13, 2012, the parties entered into a Stipulation placing limitations on the Defendants' ability to write checks on two accounts (Defendants' other accounts remain completely frozen by the Court's June 1 Order).  The title company [Stewart] that brought this action against Core and Jami Braafhart will now have certain veto power over Core's and Ms. Braafhart's daily spending.  The Stipulation provides the following rules for check approval:
The procedures to process and clear checks drawn on those two accounts shall be as follows. When a check drawn on either account is presented for payment before honoring or dishonoring that check Mid Penn Bank shall first email or fax a copy of the check to Plaintiff's [Stewart Guaranty Title Company] representative  . . . . .
After reviewing the copy of the check [Stewart] in [its] sole discretion shall promptly determine whether a check shall be honored or dishonored. [Stewart] shall then promptly notify Mid Penn Bank in writing (if Mid Penn Bank shall require the notice to be in writing) that a particular check shall be dishonored or honored.  If [Stewart] determines that a check shall be honored Mid Penn Bank shall honor and pay the check so long as there are sufficient funds in the account to cover the amount of the check If [Stewart] determines that a check shall be dishonored Mid Penn Bank shall dishonor and refuse to pay the check . . . .

Braafhart shall be permitted to write checks drawn on the Mid Penn Personal Account to fund personal expenses (e.g. mortgage payments cell phone bills utilities automobile payments food purchases house repairs and maintenance etc.) Any check drawn on that account in excess of $ 3,000.00 shall require Plaintiff's prior written approval.
The Court docket number is 12-3471.  The full Stipulation is available at that docket number.  All Orders and pleadings are available online.   The  Stipulation does not say whether there is a procedure in place to alert, in advance, vendors or individuals that do business with these Defendants that certain checks might later be disapproved by Stewart.   Investigation and litigation remain ongoing. 

Thursday, June 14, 2012

Gasoline prices spiking again?

Click here for previous analysis of how inflation may affect the housing market.

Click here for an explanation of how one can monitor fuel (and other commodity) prices to get an indication of the direction of inflation and the health of the economy.

On May 7th, 2012, I wrote (quoting CNBC) that fuel prices were in "free fall." Since that post, gasoline prices have fallen roughly 75 cents a gallon in Central Pennsylvania. But today gasoline prices appear to be spiking again, with a 12 or 13 cent a gallon jump appearing at certain stations overnight.  If the "free fall" has stopped, and if prices return to $4.00 (or more) per gallon, the effect on the economy and the real estate market will be even more devastating than the impact we have seen thus far.

Wednesday, June 13, 2012

Title Insurance kickback litigation; Fidelity National Title Insurance

As we have seen in the past week with the Core/Chelsea/Braafhart scandal, title insurance fraud is common enough to justify examining the causes and sources of difficulties in title transactions. One example occurs with "kickbacks."  It has long been illegal for title insurance companies to provide "kickbacks" in exchange for business referrals. Despite this prohibition, this practice occurs regularly.

A new class action lawsuit in California makes "kickback" allegations against Fidelity National Title Insurance and six other major title insurance underwriters. The lawsuit alleges that real estate agents received payments from title insurance companies for selecting those insurance companies to close particular transactions. The real estate agents performed no additional work for those referrals.

Such referral fees are prohibited by the Real Estate Settlement Procedures Act (RESPA) in federally backed transactions. This lawsuit follows a $4.5 million settlement between HUD and Fidelity last year resulting from the same allegations.

Tuesday, June 12, 2012

Real estate tax incentives and a potential new skyscraper in Pittsburgh

The City of Pittsburgh has provided tax breaks for real estate development in recent years, but that program is now in jeopardy because City Council has delayed the extension of those tax incentives. In response, residents and the Mayor have publicly attributed much of Pittsburgh's recent development to this abatement program:
Delilah and Randy Rains gave up their Mt. Lebanon home to move downtown to a once vacant but now rehabilitated condo along Penn Avenue in the Cultural District — with a special 10-year reduction in property taxes.
“The basic attraction for us down here was to live in the Cultural District and to be downtown, but the incentive or the benefits of having the tax abatement just made the decision that much easier,” said Randy Rains.
The Otto Milk Building in the Strip, now 60 condo units, is another example of why [Mayor] Ravenstahl hopes council will extend these tax breaks.
“They’ve been critically important. The tax abatement program, for example, has allowed 13 developments to happen,” added [Mayor] Ravenstahl.
Maybe other municipalities should learn the relation between tax reductions and economic activity.

In related news, Oxford Development will make a major announcement on Thursday. Observers have speculated that the announcement will involve a new skyscraper in downtown Pittsburgh, according to KDKA TV. Another possibility is that an existing large building will be renovated.

Sunday, June 10, 2012

Escrow fraud; Title insurance fraud; Demotech, Inc.

In light of the ongoing scandal involving Core Settlement Services, Chelsea Settlement Services and Jami Braafhart, it might be useful to review the fundamentals of title insurance and escrow fraud. Follow this link to an online book from Demotech, Inc. entitled Escrow Theft: Today's Challenge in Title Insurance. This book contains reference to the laws of Pennsylvania and other states. This book might be worth reviewing for those who have trouble following the Core/Chelsea scandal or who have questions about their own transactions. Here is an excerpt:
Parties to a real estate transaction often entrust title agents or other settlement professionals with the transaction. Problems can arise when these professionals violate that trust and breach their duties to hold the purchase money and deed to property in a fi duciary capacity and disburse the funds appropriately. Most alarmingly, this violation of trust comes in the form of escrow theft, which occurs when an agent embezzles or misappropriates funds held in a fiduciary capacity.

Wednesday, June 6, 2012

Core Settlement Services; Chelsea Settlement Services; Jami Braafhart; Preliminary Injunction issued by Court; Stewart Title Guaranty Company;

A lawsuit is proceeding in Cumberland County that reveals the seamier side of the real estate business and the risks to innocent purchasers from settlements. 

On June 1, 2012, the Cumberland County Court of Common Pleas issued a "Temporary Restraining Order and Special Injunction" against Core Settlement Services, Chelsea Settlement Services and Jami Braafhart.  The lawsuit and Order are docketed at 12-3471.  A hearing is scheduled for June 14, 2012.  In the meantime, the Defendants are prohibited from engaging in real estate transactions or selling assets.

Core/Chelsea are settlement companies that issue title insurance and disburse funds in connection with real estate purchases and refinances. The companies are owned/managed by Jami Braafhart.  The companies serve(d) as title agents for Stewart Title Guaranty Company.  The Defendants were required to collect the proceeds from real estate settlements, pay the sellers and pay the liens, taxes and old mortgages and insure title to the properties in each transaction.  These are the typical duties and functions of any title agency/settlement company.

Stewart has filed suit against all Defendants, alleging essentially that for a period of several years, they have failed to pay liens and mortgages from properties for which they conducted settlement. Stewart's lawsuit accuses the Defendants of keeping the settlement proceeds instead of paying liens and mortgages.  The lawsuit claims that the agencies' escrow accounts have a negative balance in excess of one million dollars and have had a negative balance for some time.  Stewart discovered this conduct in May 2012.

Escrow accounts are not supposed to have negative balances at all, as the accounts do not belong to the title agents, but exist solely to collect the sale proceeds and then pay the sellers, the old mortgages and liens, taxes, etc. 

Paragraph 25 of Stewart's Complaint alleges that the Defendants' account balances have been negative since 2007.  Paragraph 31 alleges that the shortage in the accounts exceeded 1.1 million dollars as of May 29, 2012.  To the extent that these allegations are true, Stewart (as the underwriter) is ultimately responsible to pay off unsatisfied mortgages and other liens on numerous real estate transactions - even though Stewart committed no wrongdoing.

This matter is of concern to more than Stewart Title Guaranty Company and the Defendants. The Defendant companies operated at very high volume for a number of years. There are possibly numerous transactions and properties that now suffer from defective title because liens may not have been paid off. Indeed, paragraph 20 of the Complaint alleges that some customers have complained that prior mortgages have not been paid off. Those customers can seek redress through Stewart Title, but the story does not end there. 

Customers that obtained title policies through Core/Chelsea/Braafhart will someday seek refinance through other agencies.  It has been the policy of many title companies in recent years to search the title only so far back as the last mortgage, instead of searching the previous 60 years (as the practice used to be).  The theory for this shortcut is that if a mortgage was placed on the property five years ago (for example), there must have been a title search at that time and the new title company can rely on the fact that someone did their job 5 years earlier and corrected any liens.  But now that whole practice becomes suspect - especially in light of the large volume that Core/Chelsea handled.  If Core/Chelsea failed to pay old liens (as they were required to do), other title companies should not rely on the fact that a settlement occurred in which Core/Chelsea was involved. Once a new title company insures title (defective or not) with a new purchaser, the old title company is off the hook, as the old title company did not insure that new purchaser.

Other title companies need to be concerned, as Core/Chelsea's high volume has created a potential nightmare scenario in which thousands of purchasers/owners unknowingly spread Core/Chelsea's problems to new title companies.  Title companies should decide whether to stick with the recent policy of searching only back to the last mortgage or resuming the old policy of searching the previous sixty years. 

The insurance commission may want to rethink the rate schedule, in which properties that have been insured within the last two or three years are eligible for deeper discounts.  Due to situations such as Core/Chelsea's as well as the general real estate collapse of the past four years (with the resulting increase in short sales, foreclosures, tax sales, unpaid contractors, etc.) properties that have been sold or financed in the past two or three years involve greater risk than those that have seen no transactions for 10 or more years.

Property owners should be cautious also, especially those that used Core or Chelsea for their transaction.  Even though a buyer is covered by the title insurance policy, there still exists a certain amount of aggravation and stress in dealing with an unpaid lien.  Those who merely refinanced (instead of purchasing) through Core/Chelsea are at greater risk. In that scenario, only the mortgage company was insured and only the mortgage company can make a claim through the policy.  As long as the owner is current on the mortgage, the mortgage company suffers no loss, even if an old mortgage remains unpaid or unsatisfied. 

The bottom line is that buyers should not be comfortable with just any settlement company that a mortgage broker or Realtor sends them to for settlement on their purchase or refinance.  Core and Chelsea were favorites for referrals among many Realtors and mortgage brokers.  Those same Realtors and brokers will now begin sending unsuspecting buyers to other settlement companies, about whom the buyers know or understand little.

If you are a buyer or property owner, use your own attorney for settlement. 

Update - here is a link to the Patriot News article from June 7, 2012.

Tuesday, June 5, 2012

EPA MACT rule; S.J. Res 37; Increased electric utility costs throughout the Northeast by 2015

Electric utility rates are set to increase tremendously over the next three years in Pennsylvania and throughout the northeast, according to PJM Interconnection:

Last week [mid-May 2012] PJM Interconnection, the company that operates the electric grid for 13 states (Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia) held its 2015 capacity auction. These are the first real, market prices that take Obama’s most recent anti-coal regulations into account, and they prove that he is keeping his 2008 campaign promise to make electricity prices “necessarily skyrocket.”
The market-clearing price for new 2015 capacity – almost all natural gas – was $136 per megawatt. That’s eight times higher than the price for 2012, which was just $16 per megawatt. In the mid-Atlantic area covering New Jersey, Delaware, Pennsylvania, and DC the new price is $167 per megawatt. . . .
Why the massive price increases? Andy Ott from PJM stated the obvious: “Capacity prices were higher than last year's because of retirements of existing coal-fired generation resulting largely from environmental regulations which go into effect in 2015.” . . .

These are not computer models or projections or estimates. These are the actual prices that electric distributors have agreed to pay for new capacity. The costs will be passed on to consumers at the retail level.
emphasis added

Just as importantly, these increases will make it much more expensive to own and operate real estate. Landlords should factor these costs into any long-term leases, unless the tenant is solely responsible for all utility costs. Even so, landlords should anticipate the effect such an increase will have on their tenants' ability to stay in business or on the ability of residential tenants to afford the rent. Purchasers should factor these increased costs into the cash flow projections for prospective properties.

These increased costs will place downward pressure on real estate prices and rents.  These increased costs should also provide an additional factor in support of owners' tax assessment appeals.

The U.S. Senate is currently considering S.J. Res 37, which would disapprove many of EPA's recent regulatory requirements that have created these costs. Specifically, Resolution 37 would strike down EPA's Maximum Achievable Control Technology (MACT) rule that has or will force the shutdown of so many coal fired generation plants throughout the northeastern United States.

Monday, June 4, 2012

Foreclosure relief money diverted by states

In February, 5 large banks (with the intervention of the Obama administration) negotiated a $25 billion settlement with the states requiring the banks to provide foreclosure relief to distressed homeowners. But the New York Times reported last month that at least 15 states are diverting the money for their general budget. Pennsylvania is not among those states listed by the Times as among the 15, but the Times' list was incomplete. This is another example of the government's solutions to the financial crisis missing the mark and failing to address the real issues.

Of course, in those states where the money actually reaches distressed homeowners, the money is merely reinflating the bubble and preventing prices from reaching the point where they should be in order for houses to be marketable again.

Sunday, June 3, 2012

Philadelphia LGBT housing project receives 19 million dollars in public financing; dmhFund; Pennrose Properties

Catching up on April's news, we see the CBS Philadelphia affiliate and with the story of a publicly financed housing project for the benefit of elderly LGBT seniors.

The Pennsylvania Housing Finance Agency (PHFA) voted on Thursday, April 12 to provide a reservation of Low Income Housing Tax Credits --an official "green light" that now will generate up to $11 million dollars for the LGBT-friendly affordable senior housing facility co-developed by the dmhFund and Pennrose Properties. This new public-private housing initiative, conceived in the heart of Philadelphia's downtown lesbian, gay, bisexual and transgender neighborhoods, is considered among the first such elder housing facilities of its kind in the U.S.

This critical stream of funding will allow the $19 million project to move forward and break ground as early as September 30th. The co-developers had already raised $6 million from the Commonwealth's capital development program and $2 million from the City's Office of Housing and Community Development.

"For years, developing a unique facility in the heart of Philadelphia's gayborhood where our most vulnerable LGBT elders could live out their golden years was our pie-in-the-sky idea," dmhFund President Mark Segal said. "But today, we can say for certain, that pie-in-the-sky idea will become a reality."

The Marketwatch article goes on to say that the project will not exclude those who are not LGBT. (If it were exclusive to LGBT, I do not know how such a policy would be enforced.) It is legal to create housing exclusively for seniors under certain circumstances.

Saturday, June 2, 2012

Elizabeth Warren - real estate flipper

The Boston Herald reports that Massachusetts Democrat Senate candidate Elizabeth Warren has reaped large profits from the purchase and sale of foreclosed homes in Oklahoma, despite attacking such practices in her campaign. The newspaper lists a number of transactions where Warren either purchased foreclosed homes and sold them quickly for large gains or lent money for others to purchase and eventually sell those homes.

Aside from Warren's hypocrisy and the political implications from this story, there are lessons regarding house flipping that the newspaper did not pick up and that apply to Pennsylvania as well as other regions where these practices take place. The bottom line is that the profits were not necessarily as high as the raw numbers reported in the Herald.

  • Most likely these homes required repair and renovation (as do most foreclosed properties) - unless Warren unloaded homes with hidden defects on unsuspecting buyers.
  • Real estate taxes accumulated during the period of Warren's ownership, all of which cut into her profits. Utility and financing costs also accumulated - unless Warren found tenants to rent the properties while she waited to sell them.
  • Unresolved title issues may have forced Warren to incur expenses so that she could convey clear title - unless she unloaded homes with clouded title on unsuspecting buyers.
All of these points would make for good followup questions to determine the true nature of Warren's investments, although it is virtually certain that this followup will not take place.

Also, the Herald article referred to Warren "giving" mortgages to her family members so that they could buy and flip houses. In fact, Warren lent the money.  Those who lend money do not give mortgages - they receive mortgages.  The borrowers give the mortgages to the lenders.  Most newspaper writers do not understand this point. 

The final lesson is that a politician that takes part in real estate investment is not necessarily a friend to other such investors. Investors should not count on Warren acting in a way that supports investment if she reaches the U.S. Senate. 

Thursday, May 31, 2012

Student loan bubble to impact Pennsylvania real estate?

We like to think that it would be useful to learn that a bubble exists before it actually bursts.  But is such knowledge really useful to us?  Would we change our investments or other behavior if we learned of a bursting bubble in advance?  While we were warned many times of the real estate bubble from 2005 to 2007, such warnings were largely ignored. Now, we are being warned of a student loan bubble from various sources, including law professor/author Glenn Reynolds:
I’ve been writing for years about a bubble in higher education: too much demand, causing sky-high prices — all because of cheap government money, much like the housing bubble. Now those warnings have become conventional wisdom — so conventional that they’ve reached The New York Times and even 60 Minutes.

Business Insider has attempted to narrow the focus of this bubble to about 18 states, including Pennsylvania. Business Insider's article also focuses on the financial harm that may befall the schools that have contributed to this bubble.

When this bubble bursts, it will affect the general real estate market by restricting liquidity and causing lending requirements to tighten further. Bankruptcies and foreclosures will tend to increase also. While the coming crisis will not directly affect those who are neither indebted for student loans nor employed in higher education, the additional downward pressure on the real estate market will affect all of us.

Sunday, May 27, 2012

DNA sampling for dogs at apartment complexes.

The Rosedale Estates apartment complex in Minneapolis has begun a new program for cracking down on tenants that do not clean up after their dogs. From now on, the complex will collect DNA samples from every dog that lives in the complex. These samples will be held by a private laboratory that will compare the samples to dog feces left on the premises. The complex began this program in response to a growing problem that left the outdoors virtually unwalkable. The Minneapolis CBS affiliate has more details.

This program would be legal in Pennsylvania, as landlords may go so far as to exclude dog owners entirely. Landlords may charge dog owners for the initial sampling. Landlords may charge violators for the cost of the comparison testing once a violator is identified. Landlords should be careful to enforce such a program uniformly, as a situation with as high a volume as that at the Rosedale complex would tempt selective enforcement.

I believe that this policy could be enforced even against guide dog owners so long as it is enforced uniformly and so long as it does not appear that the policy exists for the purpose of excluding the visually impaired. Such a policy would invite litigation, so this policy should be restricted for the most severe cases, such as the situation at Rosedale in Minnesota.

Monday, May 7, 2012

Fuel prices in "free fall."

CNBC reported Friday that oil prices were in "free fall." (Observers will note that gasoline prices at the pump are falling also.) While the article cited many factors, the main reason for the decline is the economy:
But the big driver is the concern that the U.S. economy is not strong enough to withstand a weak European economy and slower growth in China. The disappointing April jobs report Friday, showing just 115,000 nonfarm payrolls were added, was the latest catalyst for a second day of heavy selling.
The federal government has printed (or "quantitatively eased" or whatever they are calling it now) trillions of dollars in the last several years. Fuel prices have more than doubled since January 2009. The printing press has not stopped, yet prices are now falling. For the price of a basic commodity to fall while the printing press runs amok is an extraordinary circumstance. At a certain point, even a runaway printing press cannot make people spend money. We should remember this lesson when we consider the effect of lower mortgage rates or new federal subsidies on the real estate market.

Sunday, May 6, 2012

"Equity Stripping" scams on the decline

Real estate scams are apparently on the decline as the real estate bubble continues its collapse:

“Equity stripping is largely a thing of the past because there’s no equity to strip,” said [DOJ official] Perez.

“Equity stripping” is a scam where con-artists persuade confused or ill-prepared people to sign home-loan contracts that transfer the property rights. Victims — often old or ill-educated — are left without their homes, but with much new debt.

Instead of equity stripping, the con artists are moving to new areas, Perez said.
H/T Daily Caller
The collapse of the bubble has created a situation where, at least as far as real estate is concerned, there is nothing left to steal.

Saturday, May 5, 2012

Housing prices at ten year low and unlikely to recover for a generation

Recent news on the national housing market has been uniformly negative. A recent Yahoo news article reported January housing prices hitting a ten year low.                                                                                                                                                        
                                                                                                                                                                A more recent Reuters article predicts no recovery for a generation:
The Housing market is likely to remain weak and may take a generation or more to rebound, Yale economics professor Robert Shiller told Reuters Insider on Tuesday.
Shiller, the co-creator of the Standard & Poor's/Case-Shiller home price index, said a weak labor market, high gas prices and a general sense of unease among consumers was outweighing low mortgage rates and would likely keep a lid on prices for the foreseeable future.                                                                                    
"I worry that we might not see a really major turnaround in our lifetimes," Shiller said. . . . . . He said suburban areas in particular might endure further price declines as high gas prices increase demand for "walkable cities."
While regions like Central Pennsylvania have seen more price stability, the long term stagnation throughout the economy shall have residual effects in this region.

Thursday, March 1, 2012

Rent control to be argued before the Supreme Court?

While rent control laws do not affect Central Pennsylvania at this time, investors should take note of a New York case that may shortly be considered by the U.S. Supreme Court. An article by Professor Richard Epstein from earlier this year identifies a pending challenge to rent control in which the Supreme Court has invited responses from New York City and the tenants directly affected:
Supreme Court Justice Antonin Scalia exposed the deeply antidemocratic nature of rent control in Pennell v. City of San Jose (1988). If the government thinks some high social end is served by allowing tenants to sit on someone else's property in perpetuity, then it should use public funds, after democratic deliberation, to buy or lease the premises for market value which it can then lease out to particular tenants. The correct way to handle this issue, he wrote, is by "the distribution to such persons of funds raised from the public at large through taxes," and not to use "the occasion of rent regulation to establish a welfare program privately funded by" landlords.

Mr. Harmon's grievance should resonate on social as well as personal grounds. Rent control and rent stabilization are inimical to the long-term health of New York City. Ordinary tenants paying market rents contribute their fair share to the public treasury. By contrast, rent-controlled tenants on lifetime leases who have a specially privileged legal status are a constant drain on the community, discouraging investment in residential rental real estate by posing a persistent if inchoate threat of subjecting future properties to rent control.
Hoover Daily Report, 1-4-2012

Sunday, February 19, 2012

Renting vs. buying

Reuters provides an interesting discussion of the benefits of renting vs. buying one's residence. The article makes a strong case that renting is a better long term strategy. We may have to face the unpleasant reality that the bursting of the real estate bubble has permanently changed the way Americans think about real estate and home ownership.

Saturday, February 18, 2012

Record gasoline prices

Associated Press reports that gasoline prices "have never been higher this time of the year." Even though rising gasoline prices are obvious to everyone who cares to notice, this news is particularly disturbing to those who are counting on a recovery in the real estate market. Do not expect a recovery in real estate while the economy is crippled by record gasoline prices (unless you are thinking about an increasing number of tenants due to continually rising foreclosures).