Central Pennsylvania Real Estate

NAR reports that housing sales overcounted since 2007.

2011-12-18T20:14:00.004-05:00

A disturbing item from CNBC and the NAR indicates that housing sales have been overcounted for the past four years:

Data on sales of previously owned U.S. homes from 2007 through October this year will be revised down next week because of double counting, indicating a much weaker housing market than previously thought.

The National Association of Realtors said a benchmarking exercise had revealed that some properties were listed more than once, and in some instances, new home sales were also captured.

This information has implications for our understanding of inflation data over the past few years. It would appear that the collapse of the housing bubble was more severe than we originally believed, despite massive federal government spending to prop up the market.

Marcellus shale drilling vs. mortgage company restrictions

2011-10-23T12:04:00.004-04:00

As natural gas drilling becomes more common in Pennsylvania and elsewhere, lenders are becoming more reluctant to make loans and accept mortgages on properties on which natural gas drilling takes place. Lenders have placed restrictions on natural gas drilling as a condition of approving loans. Lenders do this out of fear of liability for environmental damage or that environmental damage will reduce the value of the mortgaged property.

These new lending policies have taken borrowers and real estate sellers by surprise, according to last week's New York Times:

As natural gas drilling has spread across the country, energy industry representatives have sat down at kitchen tables in states like Texas, Pennsylvania and New York to offer homeowners leases that give companies the right to drill on their land.

. . . .

But bankers and real estate executives, especially in New York, are starting to pay closer attention to the fine print and are raising provocative questions, such as: What happens if they lend money for a piece of land that ends up storing the equivalent of an Olympic-size swimming pool filled with toxic wastewater from drilling?

Some lenders have placed outright prohibitions on drilling on mortgaged properties, while others require the owners to obtain permission from the lender. Other lenders will not approve loans if natural gas drilling already takes place on the property.

The Marcellus Shale development has tremendous potential to increase property values, benefit Pennsylvania's economy and blunt the effect of skyrocketing fuel prices. But property owners especially must be aware that signing a natural gas drilling lease might limit a buyer's ability to obtain a mortgage to purchase the property in the future. The income and resulting increased value from the gas lease should be weighed against potential borrowing problems of future buyers and the resulting decrease in price resulting from a restricted pool of buyers.

Homeownership decline in 2010

2011-10-20T09:59:00.003-04:00

The AP and the Census Bureau report that homeownership saw continued nationwide declines in 2010:

The American dream of homeownership has felt its biggest drop since the Great Depression, according to new 2010 census figures released Thursday.

The analysis by the Census Bureau found the homeownership rate fell to 65.1 percent last year. While that level remains the second highest decennial rate, analysts say the U.S. may never return to its mid-decade housing boom peak in which nearly 70 percent of occupied households were owned by their residents.

Inflation surges in September

2011-10-20T09:51:00.002-04:00

From CNBC comes bad news on the inflation front:

U.S. producer prices rose more than expected in September to record their largest increase in five months as gasoline prices surged, a government report showed on Tuesday.

Harrisburg passes Ordinances 13 and 14; Rental inspection program

2011-10-12T11:18:00.007-04:00

Harrisburg City Council voted unanimously last night to adopt Bills 13 and 14. These bills have been pending in various forms for almost 4 years. They impose new registration requirements on landlords as well as vicarious liability on the landlord and property manager for the actions of tenants. Bill 13 also imposes a residency requirement (plus 50 miles) for owning investment property in the City.

Bill 13 expands the inspection period from three years to five years. The passage of Bill 14 shifts the city's emphasis from inspection upon purchases of residential properties to regular inspections purely of investment properties. Regular inspections have been required by law in Harrisburg since 1996. Proponents of Bills 13 and 14 have argued that the inspection program was not previously enforced because City manpower focused on inspection of residential purchases. City officials have previously stated that this program will increase revenue for the City.

These bills passed on the same night that the City voted to proceed with a bankruptcy filing and voted to increase parking fees.

---------------------------------
update - Breitbart confirms today that Harrisburg has filed its bankruptcy petition.

Metal theft; North Beaver Township bridge

2011-10-06T19:11:00.002-04:00

I have written previously about metal theft and the implications of rising metal prices and metal theft for inflation and the real estate market. In today's inflationary environment, Metal thieves are constantly finding different metal things to steal in ever greater quantities. An item in today's Ellwood City Ledger in Western PA proves that point:

As the value of scrap metal — including copper and steel — increases, thieves have been becoming more daring and less respectful of institutions such as churches and schools.

But one group of thieves might have set the standard last week by stealing a 50-foot-long bridge. State police said the bridge was stolen between Sept. 27 and Wednesday in North Beaver Township. The theft was discovered shortly after 9 a.m. Wednesday.

Despite recent commodity price declines, metal theft continues and will remain an indicator of strong inflation until government spending is brought under control.

Chinese slowdown may provide relief for fuel prices.

2011-09-30T20:55:00.002-04:00

A news report last week from CNBC contained an interesting item with implications for the economy, both locally and nationally:

Copper, hit by concerns of a Chinese slowdown, tumbled 7 percent to a 1-year low.

The drop in copper prices is significant, as it may signal relief to property owners around the country that have faced relentless pressure from metal thieves.

More importantly, the reference to a "Chinese slowdown" may provide relief to the U.S. economy as a whole. If the Chinese economy worsens, China may purchase fewer resources from around the world. Chinese purchasing has provided the impetus for much of the oil price increases over the past several years. If Chinese oil purchasing declines, we may see fuel prices decline, with positive effects for the U.S. economy and the real estate market. [Actual gasoline price declines may be minimal, as runaway spending by the U.S. government might more than offset the effects of lower Chinese demand.]

August inflation report

2011-09-15T10:38:00.005-04:00

Inflation rose throughout the U.S. in August. The AP report included rent plus items recently excluded from the CPI, including food and fuel.

Click here for a discussion of the effect of continued inflation on real estate sales and prices. Regardless of the effect on real estate prices, it is not subject to reasonable dispute that continued inflation will contribute to metal theft - not only from private housing and commercial structures, but also from public facilities and utility infrastructure.

Carlisle Rental Housing Task Force recommendations; Rental inspection ordinance shot down.

2011-08-04T09:45:00.005-04:00

Last month, I wrote about the Carlisle Rental Housing Task Force and its efforts to advise Carlisle Borough Council regarding a potential rental inspection ordinance.

Yesterday evening, the task force finalized its recommendations. Those recommendations did not include a rental inspection ordinance:

But the audience was only interested in one of the 19 bullet points put forward: "rental units need to be inspected (interior and exterior) on a regular basis."

The task force's two-hour meeting at Borough Hall concluded with a vote on the most controversial aspect of the group's work. But both sides had said all they had to say at previous meetings and there was no discussion on the issue, which failed by a 5-5 vote.

The audience was heavily populated by landlords and spontaneous applause broke out after the inspection motion failed.
Carlisle Sentinel

The Task Force recommendations did include a number of items that have failed in other jurisdictions or are illegal, including mandatory lease amendments (such matters are governed solely by state law), mandatory registration (which requirements are usually ignored by a substantial percentage of landlords) and a residency requirement. The recommendations also include a voluntary inspection program.

These recommendations will not be considered by Carlisle Borough Council until at least September.

Metal thefts in schools.

2011-07-30T00:44:00.001-04:00

Metal theft has increased to the point of threatening this fall's opening of schools in parts of California:

The above films shows that metal theft has become more brazen, the thieves are more knowledgable and are branching into new areas.

In other metal theft news this week, thieves have stolen -

highway guard rails.

bronze flower vases attached to cemetary headstones.

iron sewer grates.

HVAC parts from a center for cancer stricken children.

As the dollar continues to lose value, any unsecured piece of metal becomes the equivalent of real money in ever widening sectors of the economy. This is a nationwide trend that real estate investors cannot ignore. The ascendency of metal value affects not only the physical safety of buildings, but (most importantly) the fluctuating value of real estate.

Palmyra tables rental registration ordinance.

2011-07-29T09:22:00.003-04:00

On Monday (July 25th), Palmyra Borough tabled a proposed rental registration ordinance:

Council President Keith Costello made the motion to table advertising the ordinance, saying he had learned about a study of such laws by the Pennsylvania State Association of Boroughs.

"We've had a lot of good input from landlords regarding the regulation," he said. "We haven't had any input from tenants. It would be interesting to see what other boroughs are doing in this area, and if there are some good ideas out there that are applicable to our borough we should use them."
H/T Lebanon Daily News

Hazleton Inspection Ordinance tabled; Ordinance 2011-13; Hazleton Area Landlords Association

2011-07-23T22:33:00.001-04:00

On Wednesday, July 20, 2011, the Hazleton City Council considered a rental inspection ordinance. The ordinance would have required city inspections of every rental property in the City. The Ordinance was tabled by a unanimous vote of Council after numerous landlords, including the Hazleton Area Landlords Association, brought various facts to the attention of council.

A fair amount of discussion focused on the legal principle that the City could not use a measure like this as an income generator. I believe that Council lost much of their enthusiasm for this proposal when it became apparent that the fees imposed on landlords could not be used to close budget gaps or fund other projects.

Equally disturbing to Council was the news that prior ordinances had not worked. City employees reported to Council during the meeting that the 2006 rental registration ordinance had not been successful in obtaining addresses and registrations from every landlord with property in the city. Hundreds of property owners remain out of compliance with that measure. Council has not found the answer to the question of how the City would be able to conduct inspections of every unit when it could not ensure compliance with a simple registration ordinance.

More information was reported in the Hazleton Standard Speaker.

The following clip is from WYLN.

Metal thefts cause death, power outage and related hardship.

2011-07-20T08:56:00.001-04:00

Metal theft continues unabated in recent days and weeks:

Thieves have stolen $45,000.00 worth of railroad rails in Cambria County.

Thieves have stolen 18 markers made of copper, brass and bronze from the graves of war heroes in a veterans cemetary in Massachusetts.

A man died stealing copper from a Duke Energy substation in South Carolina, causing 3,000 people to lose power.

The fire chief in South Carolina referred to the discovery - near the thief's body - of "items that would be used in the metal theft industry, cutters and that type thing."

It is disquieting that metal theft is now referred to as an "industry."

Carlisle proposed rental property inspection; Carlisle Rental Housing Task Force meeting.

2011-07-19T13:57:00.002-04:00

In Carlisle on July 18, 2011, the Carlisle Task Force on Rental Housing convened a panel discussion on proposed rental housing legislation. The Task Force invited panelists to address questions related to the operation of rental inspection ordinances in various parts of Pennsylvania. The panel consisted of myself (speaking on behalf of landlords), a representative of PAR and representatives of numerous municipalities, including Lancaster, West Chester, Bellefonte, Gettysburg, Shippensburg and Chambersburg.

The general purpose of the meeting seemed to be for the municipal representatives to explain how well their inspection ordinances worked for those municipalities. Despite their conclusions, they provided very few specifics regarding why an inspection ordinance is needed to address particular problems. The representative from Bellefonte stated that 95% of problems with rental properties related to the exterior of the buildings, thus indicating that 95% of problems can be observed and addressed without an inspection ordinance. Similar conclusions can be drawn from their conclusions and comments regarding police activity at rental units.

Lancaster's representative acknowledged that Lancaster's inspection program is partially funded by grants from the federal government.

The West Chester representative acknowledged the prior litigation whereby the Chester County Court forced the borough to refund more than one million dollars in inspection fees to the landlords several years ago.

The Task Force is set to vote on its recommendations at its August meeting.

Federal and state governments attempt to treat symptoms of inflation

2011-07-14T06:59:00.004-04:00

Various states and the federal government are considering measures to make it more difficult to sell stolen copper. These measures are being considered in response to the upsurge in stolen copper and other metals in recent years:

When thieves ransacked eight air conditioners in an apartment complex in the city of Mobile, Alabama, the culprits made off with $800 worth of scrap metal and left residents with $38,000 worth of damages. "We've had copper robberies since forever," said Officer Christopher Levy of the Mobile Police Department, "but we've seen a spike so far this summer." Record copper prices have caused a surge in U.S. copper thefts, plaguing law enforcement and local governments and prompting states to pass new laws. "Since the beginning of the 2004 spike in copper prices, copper theft and copper prices have been directly linked," a 2010 U.S. Department of Energy study on copper wire thefts said.

These laws will not address the real problem, as metal prices will continue to rise as long as the currency is being devalued. The Reuters article attempts to explain the rise with reference to increased Chinese usage, but that explanation tells only part of the story. Copper is not the only metal that is being stolen in larger amounts. Other commodities have seen rising prices for several years, including fuel, gold and silver. The new laws will only treat the symptoms. If the government truly wants to stop the brazen metal thefts that now plague homes and businesses, the government must stop reckless deficit spending.

In related news, California scrap metal thieves have stolen the irrigation system from a vineyard, threatening the entire grape crop.

For other examples of rampant metal theft in recent months, click here.

Mortgage applications decline for fourth week in a row in July.

2011-07-13T20:44:00.004-04:00

Nasdaq.com reports that mortgage applications declined last week for the fourth straight week despite lower interest rates:

The Mortgage Bankers Association's seasonally adjusted index of mortgage application activity fell 5.1 percent in the week ended July 8, nearly identical to the 5.2 percent drop recorded the week before.

Refinancing, which makes up more than 65 percent of mortgage activity, slipped 6.2 percent. The MBA's measure of new home purchase applications edged down 2.6 percent.

This decline is not necessarily uniform throughout the entire country.

Copper thefts in Lower Merion Township, Montgomery County; downspouts, gutters

2011-07-12T19:35:00.003-04:00

Click here for previous posts on increasing thefts of copper (and other metals) and how they reflect rising inflation. Previously, metal theft has focused on utility wires, catalytic converters, air conditioners, transformers, railroad tracks, etc. Abandoned or rehab real estate has often been targeted for copper theft in recent years.

From CBSPhilly.com comes the story of copper thefts targetting gutters and downspouts in occupied homes in Montgomery County:

A rash of copper thefts in Montgomery county has residents on alert

They may not seem like your typical targets, but thieves in Montgomery County are looking for copper. Gutters and downspouts made of the precious metal are being stolen from people’s homes along the Main Line.

Lower Merion Township Police have reported a significant increase in the thefts of copper down spouts and gutters being taken from homes throughout the area.

Pennsylvania HB 1696; Moratorium on county wide reassessments.

2011-07-07T22:50:00.005-04:00

At the end of June, the Pennsylvania legislature enacted HB 1696, which imposes a moratorium on county wide reassessments in 4th class counties.

The full text of the bill appears here.

The Almanac covers the effects of this law on Washington County's reassessment plans.

The list of Pennsylvania's fourth class counties is as follows: Beaver, Butler, Cambria, Cumberland, Fayette, Schuylkill, Washington. The effect of this bill on Cumberland County is expected to be minimal, as Cumberland engaged in reassessment in 2010.

CCAP contains a breakdown of all Pennsylvania counties by class.

The moratorium shall last until November 2012 or until further reform is enacted - whichever occurs later.

Metal and copper thefts get more brazen in Pennsylvania and elsewhere; Cranberry Township; SEPTA car thefts;

2011-06-22T10:48:00.002-04:00

I have written previously about rising metal theft as an indicator of continued inflation and its impact on real estate prices.

Recent news reports indicate that metal theft not only continues unabated in Pennsylvania and elsewhere, but that it has become more brazen and is being done at great risk to the thieves:

In Cranberry Township (near Pittsburgh) thousands of residents remain without power because thieves (at great physical risk) stole "all the copper groundwire" at a substation on Route 19.

SEPTA riders in Chester, Montgomery and Delaware Counties have been victimized by thefts of catalytic converters while their cars were parked in SEPTA lots during the day.

Thieves near San Francisco knocked down 300 utility poles in order to steal copper wire and also stole an entire transformer - at great risk to themselves.

In Sacramento, thieves have stolen a large number of brass components of fire suppression systems from commercial businesses.

Pipe thieves near Detroit have caused possibly four house explosions by stealing the natural gas pipes from residential dwellings.

Numerous churches near Miami have lost the use of their air conditioning when copper thieves stole copper tubing and wiring from a/c units.

In early June, thieves caused a CSX train to de-rail in Massachusetts by stealing steel rails from the railroad line.

These cases are not simply an indication of rising crime due to the economic downturn. Metal theft is a specific type of crime that exists solely because inflation has pushed commodity prices higher. Metal theft goes hand-in-hand with an increase in legitimate scrap dealers, companies that offer to buy your gold on late night infomercials, rising gasoline and food prices and other commodity based activity.

Remember, commodity prices affect the economy as a whole. The real estate crash of 2006-2008 was accompanied by a major commodity price increase.

The market for commodities is robust, as the smart money flees the dollar (or defies physical and legal danger) in favor of hard assets. The desperation with which thieves now target metal provides specific evidence that inflation is out of control. All real estate investment decisions must accept this reality.

Federal foreclosure assistance; Emergency Homeowner's Loan Program (EHLP); Pennsylvania participation

2011-06-20T22:44:00.006-04:00

From Nasdaq.com comes details of a new $ 1 billion federal program to bail out homeowners facing foreclosure. The bailout takes the form of interest free loans.

This program will have the effect of delaying the price correction that we have needed to reignite sales volume since the market crash of 2006-2008.

The program is available in 27 states, but does not include Pennsylvania. Residents of Pennsylvania may apply for PA administered assistance that draws funds from the federal program.

There are more details at The Boston Globe, including the information that in some cases, the loans might not have to be repaid at all.

Metal theft points to direction of inflation and economy

2011-05-30T09:54:00.001-04:00

As inflation picks up, the value of scrap metal rises. These price increases affect real estate in two ways:

Increasing commodity prices can help predict the general direction of prices of all goods, inclusing real estate; and

Increasing scrap metal values place real estate at risk for theft and vandalism.

In particular, metal theft demonstrates the declining value of the dollar and the lengths to which thieves will go to obtain something with real value. Metal theft has been rising in recent years, and in particular in recent weeks. Consider the following news items:

This year, thieves have stolen at least 50 city trash cans (iron) from the streets of Pittsburgh, with each can now having a scrap value of between $ 1,500 and $ 2,000.

In Washington D.C., thieves are posing as road crews to steal underground copper wire, causing parts of the city (including traffic signals) to go dark.

In Chicago, scrap metal thieves are suspected of stealing a handicapped child's wheelchair.

In Sacramento, thieves were arrested dismantling railroad tracks in broad daylight for the purpose of stealing the metal.

The problem is nationwide and is no longer limited just to copper or just to abandoned houses or houses undergoing rehabilitation. Iron is considerably less valuable than copper, yet thieves are targetting that metal also.

Glut of foreclosed homes may deepen real estate downturn.

2011-05-23T15:41:00.001-04:00

A recent article in the New York Times estimates that lenders own more than 872,000 foreclosed homes at this time:

All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.

For each home a lender sells, they foreclose on many more:

In Atlanta, lenders are repossessing eight homes for each distressed home they sell, according to March data from RealtyTrac. In Minneapolis, they are bringing in at least six foreclosed homes for each they sell, and in once-hot markets like Chicago and Miami, the ratio still hovers close to two to one.

Before the housing implosion, the inflow and outflow figures were typically one-to-one.

The problem is apparently widespread and will contribute to continuing stagnation for several more years.

Cumberland Valley School District school tax increase

2011-05-22T14:01:00.004-04:00

On May 20th Cumberland Valley School District in Cumberland County approved a tentative budget with a 2.9% school tax increase. This tax increase follows a county-wide reassessment last year and a 9.5% school tax increase by the nearby Camp Hill School District in 2010.

Cumberland Valley officials did not comment as to whether this tax increase bears any connection to the statewide lawmaker 2001 pension increase that has been projected to cause large school tax increases throughout Pennsylvania in 2012.

New Giant and Weis Markets in Hampden Township

2011-05-21T14:11:00.001-04:00

The Harrisburg Patriot-News reported last week that Giant plans to open a new 90,000 square foot supermarket in Hampden Township, Cumberland County, while Weis Markets plans to open a 63,000 square foot supermarket nearby. Both supermarkets are planned for Valley Road (near Wertzville Road) - roughly in the northern portion of the developed part of the Township.

If both stores are completed, the number of supermarkets within the Township will double. Hampden is the most populous municipality in Cumberland County.

These plans reflect continued growth in Hampden Township and continued population saturation/expansion in a northern and western direction from the Susquehanna River through Cumberland County. These stores would be part of a trend of development through and near a long strech of Wertzville Road in northern Hampden Township (and northern Silver Spring and other Townships) over the past decade, including office parks, gas stations, retail centers and a school.

Real estate prices, gasoline prices and stranded motorists.

2011-05-14T23:01:00.000-04:00

From Pittsburgh came a report last month on one way in which rising gasoline prices have already begun to affect consumer behavior:

With gas prices pushing $4 a gallon, a lot of people are trying to stretch their dollar at the gas pump, but some of them are trying to stretch it a little too far.

Since the beginning of March, AAA has seen an 18 percent increase in the number of roadside calls for people running out of gas.

I have speculated previously on the relation between gasoline (and other commodity) prices and real estate sales. With this report, it becomes apparant that consumer behavior is already starting to change. While it may appear to be a small matter that more consumers are being left stranded on the roads, this trend is an indicator of larger behavioral trends, including major purchases such as real estate.

Even though commodity prices have stabilised (and even dropped slightly) over the past two weeks, it is highly likely that the recent commodity price run-up will trigger another round of real estate price decline and/or sales stagnation.

Harrisburg to announce new blight policies

2011-05-10T14:28:00.001-04:00

Mayor Thompson of Harrisburg is set to announce new policies aimed at blighted properties within two weeks. This announcement apparently results from a large empty building on North 18th Street in Allison Hill:

[Code Officer] Patton said his department has cited the building owner nine times, but the problem remains. According to Thompson, in two weeks she will announce new, stricter policies against city blight.

It is not yet known what those new policies will be.

Quote of the day - short sales and foreclosures

2011-04-26T17:38:00.003-04:00

“These days, there are no traditional sales. They’re all short sales or bank-owned.”

Zar Zanganeh - Las Vegas real estate broker - Bloomberg.com - April 26, 2011 (speaking of Las Vegas real estate market).

Maronda Homes, Inc. files bankruptcy petition; Title issues of which to be aware.

2011-04-24T14:15:00.011-04:00

Last week, the Pittsburgh area's third largest builder filed for bankruptcy protection.

Maronda Homes Inc., the region's third-largest home builder, filed for bankruptcy protection from creditors yesterday amid a national and local housing market that continues to stagnate.
H/T Pittsburgh Tribune Review

The builder assures buyers that settlements will continue as scheduled:

For Maronda customers, homes will be built, and closings will be held on time "with no issues whatsoever," according to attorney Joseph F. McDonough, representing Maronda.

U.S. Bankruptcy Judge Judith Fitzgerald approved an order that closings continue, he said.

It may be true that closings will continue as scheduled, but title agents will face additional issues as a result of the bankruptcy filing and whatever legal/debt issues forced Maronda into bankruptcy.
Title agents should do the following in addition to their regular duties handling the closings:

scrutinize all bankruptcy orders to make certain that sales are authorized and liens are removed.

devote additional diligence to the judgment index in the county in which the real estate exists.

make certain that all subcontractors and materialmen have been paid prior to closing. The period for filing mechanics liens was expanded in 2007 to six months following the performance of the work. Even if the subcontractors have filed no lien prior to settlement, any lien they file up to six months after settlement could take priority over the new deed and the new mortgage.

be certain that all real estate taxes have been paid - especially for the current year - instead of relying only on the records of tax claim bureau.

Buyers should be careful to hire a real estate attorney for settlements instead of letting the mortgage broker or realtor choose a non-attorney title company to conduct settlement. Non-attorney settlement companies may not be aware of the above issues, especially the mechanics lien issues.

These concerns should be addressed always, but in the current real estate market these issues are more likely to create a problem.

Maronda conducts development in five states, including western Pennsylvania.

HB 377 passes both house of Pennsylvania legislature; Sprinkler requirement repealed.

2011-04-21T10:19:00.003-04:00

House Bill 377 has now passed both houses of the Pennsylvania legislature. Click here for items on the history of this legislation.

The sprinkler requirement for new single family home construction is now repealed.

Amendments to the repeal bill also would make it more difficult for the legislature to adopt large scale revisions to the Uniform Construction Code in the future without careful consideration.

Middletown Borough considering a voluntary rental inspection program.

2011-03-18T13:51:00.004-04:00

The Middletown Borough Council President wants to initiate a voluntary rental inspection program for investors:

Middletown Borough Council President Diana McGlone wants to establish a voluntary apartment inspection program.

Her idea, which is in its infancy, is to encourage landlords to have their properties inspected and, in return, those that pass would be placed on a star list of rentals on the borough’s website. Listed properties would be more attractive to renters, said McGlone, who is one of a few council members who owns rental properties in the borough.

While a voluntary program would eliminate most of the legal problems associated with the inspection programs of other municipalities, such a program would create new legal challenges while probably leading to a mandatory program in the future. I am not sure that the Borough wants to be in the business of recommending particular properties to the general public as the "star list" proposal seems to imply.

Higher District Justice jurisdictional limit in Pennsylvania

2011-03-12T20:05:00.003-05:00

As of January 2011, Magisterial District Justices in Pennsylvania can hear cases involving claims as high as $12,000.00. The old limit was $8,000.00, where it had remained since roughly the mid-1990's.

Pennsylvania HB 377; residential sprinkler requirement.

2011-03-07T17:09:00.003-05:00

House Bill 377 today passed the Pennsylvania House of Representatives by a vote of 154-39. The bill now moves on to the Pennsylvania Senate.

Click here for the history of this bill.

Flood watches for Central Pennsylvania; implications for Seller disclosures.

2011-03-06T10:34:00.003-05:00

The National Weather Service has issued flood watches this weekend for numerous counties in Central Pennsylvania (and beyond).

There are specific disclosure requirements for properties that endure flooding in any amount.

Click here for advice for buyers and sellers of flood prone properties and here for additional information regarding the seller's disclosure.

House Bill 377 passes Labor and Industry Committee;

2011-03-05T21:48:00.006-05:00

Click here for information on Pennsylvania House Bill 377. This bill seeks the repeal of Pennsylvania's newly enacted sprinkler requirement for new home construction. HB 377 was reported out of the House Labor and Industry Committee last week and is expected to be voted on by the full House early this coming week.

The full text of HB 377 can be found here.

update - PAR has issued a "call to action" in support of Bill 377.

Pennsylvania residential sprinkler requirement; House Bill 377

2011-02-24T11:30:00.007-05:00

Since January 1, 2011, all new houses built in Pennsylvania have been required to contain sprinkler systems. This requirement adds thousands of dollars to the cost of construction. The sprinkler requirement also creates potentially higher insurance costs for homeowners, as sprinklers that activate accidentally can create tremendous water damage within a home.

Pending now before the Pennsylvania House of Representatives is House Bill 377. HB 377 would repeal the sprinkler requirement for new homes and would provide consumers with a choice at the time of the construction contract.

HB 377 is currently before the House Labor and Industry Committee and is expected to be reported out of committee shortly. A vote on the bill might occur in the full house as early as next week.
---------------------------------------------
click here for an update.

Fuel prices and real estate prices.

2011-02-22T11:37:00.000-05:00

The major economic focus in the news recently has been the rise in oil and gasoline prices:

Benchmark crude for March delivery was up $6.35 a barrel, or 7.4 percent, at $92.55 a barrel in electronic trading on the New York Mercantile Exchange.

"The Middle East will remain the market's focus today with moves in the oil price probably the best single indicator of the market's assessment of the wider implications of events there," said Adrian Foster, an analyst at Rabobank International.

Rising crude prices are a particular worry for investors as they reinforce fears of inflation and raw materials costs. They also stoke worries of a big drop in global demand levels, as experienced in previous oil price shocks in 1973-4, 1979 and 2008.

If you want to know how the fuel prices will affect real estate, look at historical information from the previous "oil price shocks" identified above. The real estate market may react in a similar fashion to those prior periods.

Even though Central Pennsylvania has historically been more stable than other parts of the country, the effects of the ongoing real estate downturn appear to be spreading:

Communities once believed to be immune to the housing crash are now seeing devastation in their cities. Seattle, Minneapolis and Atlanta are among these cities according to The New York Times.

Click here for earlier speculation as to the direction of real estate prices.

Luzerne County Housing Authority; Bedbugs

2011-02-01T17:44:00.000-05:00

The Wilkes-Barre Times Leader reported last month on a bedbug problem experienced by the Luzerne County Housing Authority:

Fagula said the authority nipped a slight bedbug problem in the bud. Exterminators eradicated the bloodsucking pests from three facilities and employees educated tenants on how to avoid future infestations.

“We tried to be a little proactive. Our maintenance superintendent Joe Grady found on the Internet a device you can place in the unit that attracts the bedbugs, something our guys can go around and check every week,” Fagula said, adding that the units cost about $1 each and the authority bought about 240.

“These are placed underneath the bed and, if there are bedbugs in there, they’ll be attracted to this device and get trapped in there and we can know right off the bat. So far, we’ve had good luck and good success. Three weeks ago, we put them in every unit in Lee Park and in every unit in Plymouth, and the results have come back and we haven’t found any bedbugs, so that’s a good sign,” Fagula said.

The bedbug products referenced by the maintenance supervisor are featured here.

Penbrook litigation featured on ABC27 WHTM

2011-01-29T19:05:00.005-05:00

Yesterday, ABC27 News in Harrisburg broadcast interviews with local business owners about the Penbrook situation.

Click here for previous posts about Penbrook, including posts about Penbrook charging business owners criminally with filing false tax returns - even when the Borough has not seen the owner's return at all.

Bedbugs and attorneys - a word of caution.

2011-01-18T08:40:00.003-05:00

If you are an attorney seeking to make a big payday representing tenants in bedbug litigation, here is a word of caution from a recent New York Times article. Don't let your clients come to your office:

Even Steven Smollens, a housing lawyer who has helped many tenants with bedbugs, has his guard up. Those clients are barred from his office. “I meet outside,” he said. “There’s a Starbucks across the street.”

Once your office becomes infested with bedbugs, your business will suffer. Other clients will not want to come to your office:

In recent weeks, bedbugs snuggled into the seats at AMC’s movie theater in Times Square, crept around a Victoria’s Secret store on Lexington Avenue and the offices of Elle Magazine and hitchhiked into the Brooklyn district attorney’s office.

“There were attorneys that didn’t want to come to our building,” said an assistant district attorney who would identify herself only as Caroline A. “I don’t blame them; I wouldn’t want to go somewhere where there is known to be bedbugs.”

The consequences from bedbug litigation are only beginning, but I imagine that if an attorney (or his clients) brings bedbugs into his office building, the landlord would be justified in evicting that attorney. Check your own leases before you put your practice at risk.

Penbrook Borough updates

2011-01-17T07:01:00.000-05:00

There is a new website dedicated solely to the battles involving Penbrook Borough and the Borough's fights against property owners and investors. Click here to view this site.

Check out my posts involving Penbrook here (or click the "label" at the bottom of this post).

Pennsylvania bedbug legislation; Senator Farnese; DDT

2011-01-16T13:18:00.002-05:00

Bedbugs have become a more common problem in recent years, as these insects have spread mainly among hotels in urban areas throughout the Northeast.

They resist traditional insect treatments. The known insecticides that kill bedbugs were banned years ago by the federal government.

In 2010, Senator Farnese (D - Phila.) introduced legislation that would have imposed tremendous costs upon landlords in an effort to combat bedbugs. In particular the bill would have required landlords to provide for inspection every time a new tenant leased a unit or every time a lease was renewed. This bill expired with the end of the legislative session in 2010, but Senator Farnese expects to reintroduce it under a new bill number soon. He is now seeking co-sponsors.

On Tuesday, January 11, 2011, representatives of PROA met with Senator Farnese' staff in Harrisburg. We stressed the prohibitive costs that this bill would create for landlords and we presented various alternatives, including expedited eviction for tenants known to have caused a bedbug problem in the unit.

We also discussed the availability of pesticides. According to the New York Times:

Bedbugs, once nearly eradicated, have spread across New York City, in part because of the decline in the use of DDT.

While it was the federal government that banned certain pesticides (thus precluding a real solution by state legislators), state legislators can help address the problem. Senator Farnese's staff indicated that the Senator will conduct hearings in this matter. We asked that the Senator's committee seek testimony on pesticide bans and pesticide solutions. A growing public awareness of the pesticide aspect of this story could influence the federal government.

Meanwhile, real estate owners should contact their federal congressmen in an effort to push for repeal of DDT bans.

Housing market entering depression status nationwide

2011-01-12T09:54:00.006-05:00

CNBC reported yesterday that the housing market nationwide is now officially in a "depression":

Home values have fallen 26 percent since their peak in June 2006, worse than the 25.9-percent decline seen during the Depression years between 1928 and 1933, Zillow reported.

November marked the 53rd consecutive month (4 ½ years) that home values have fallen.

What’s worse, it’s not over yet: Home values are expected to continue to slide as inventories pile up, and likely won't recover until the job market improves.

Zillow includes the following graph:

Zillow housing graph

Each year in gray shows a decline. The uptick following 2008 is merely a decline in the rate of decrease, not an actual increase in values or prices.

While most commentators think that the housing market will improve only when employment numbers improve, the real cure for this depression would be for the government to allow prices to fall. At some point, prices would finally reach the point where they should be - where real estate is affordable to consumers without the need for a credit bubble to spur buying. The government only delays this process by propping up prices with stimulus money, targeted tax credits, etc.

Harrisburg Ordinances 13 and 14 tabled by City Council

2010-12-31T10:51:00.004-05:00

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.

Real estate market decline to continue in 2011

2010-12-29T20:37:00.003-05:00

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.
H/T AP

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.

Penbrook Borough litigation, citations, tax and sewer rate increases

2010-12-27T19:44:00.006-05:00

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.

Harrisburg Ordinances 13 and 14 scheduled for December 30 vote.

2010-12-23T21:50:00.000-05:00

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.

Tax assessment appeal litigation exploding throughout the United States

2010-12-12T19:47:00.003-05:00

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.

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

2010-12-10T10:49:00.000-05:00

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.

Carlisle Borough rental inspection ordinance proposal.

2010-12-08T11:00:00.001-05:00

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

2010-12-08T10:42:00.001-05:00

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.

Philadelphia City Council must recognize Sunshine Law; HAPCO

2010-12-02T23:10:00.005-05:00

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.

Luxury apartments vs. homeownership; suburban highrise development.

2010-11-28T11:13:00.003-05:00

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.

City of York to raise real estate taxes.

2010-11-19T17:23:00.000-05:00

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.

New lawsuit filed against Penbrook Borough;

2010-11-14T15:46:00.003-05:00

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.

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

2010-10-18T17:13:00.003-04:00

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.

Gasoline price movement and real estate prices

2010-10-09T13:18:00.003-04:00

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.

Harrisburg Ordinance 13-2010

2010-09-28T15:37:00.004-04:00

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.

------------------------------------------
Update

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.

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

2010-09-25T21:14:00.001-04:00

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.

Harrisburg Ordinances ## 13 and 14

2010-09-24T23:10:00.002-04:00

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.

Harrisburg to raise revenue through inspection ordinance.

2010-09-13T22:03:00.002-04:00

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.

Franklin County Landlords Association

2010-09-07T07:03:00.001-04:00

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.

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

2010-09-06T16:58:00.003-04:00

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.

Mortgage fraud indictments in Pittsburgh; S & P Mortgage

2010-09-03T21:30:00.000-04:00

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.

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

2010-08-30T07:06:00.003-04:00

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.

Highspire enacts rental inspection ordinance;

2010-08-27T16:30:00.000-04:00

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.

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

2010-08-17T15:14:00.003-04:00

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.

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

2010-08-16T23:38:00.002-04:00

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.

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

2010-08-14T23:55:00.000-04:00

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.
H/T AP

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

This "Wall" brings to mind several points.

Reading enacted its own rental inspection ordinance a number of years ago. Obviously, the ordinance has not rid the city of "blight."
Many of the properties pictured on the website probably have a tax sale or two in their title history, thus making it impossible for the owner to undertake expensive repairs without first obtaining clear title through litigation.
The local PROA chapter has identified many "blighted" properties as being owned by the City itself (much like Harrisburg). It will be interesting to see if the "Wall" ever pictures any of those properties.

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.

Highspire Borough proposes rental inspection ordinance; Ordinance 582

2010-08-08T00:18:00.006-04:00

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.

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

2010-08-05T20:30:00.000-04:00

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.
H/T AFP

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.

Wheat prices and agricultural land prices

2010-08-04T10:25:00.001-04:00

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 CNBC.com. 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.

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

2010-07-21T14:53:00.004-04:00

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.
------------------------------
update

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.

July Flooding in Central Pennsylvania; Real Estate Property Disclosure

2010-07-14T10:02:00.001-04:00

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.

Blockbuster in Central Pennsylvania; Commercial tenants in bankruptcy

2010-07-13T06:14:00.003-04:00

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.

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

2010-07-12T21:32:00.000-04:00

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.

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

2010-07-08T16:41:00.004-04:00

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.

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

2010-07-06T17:39:00.000-04:00

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.

June real estate listings and collapsing real estate sales

2010-07-05T05:44:00.001-04:00

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

I do not subscribe to MLS.com, but Realtor Ann Wright has provided to me figures for the end of June from that multi-list service. According MLS.com, 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, MLS.com 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

"Downfall;" Hitler explains the real estate collapse

2010-06-28T06:04:00.002-04:00

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.

Harrisburg incinerator; Stickney sewage plant analogy.

2010-06-25T06:33:00.001-04:00

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.

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

2010-06-24T16:55:00.000-04:00

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?

Any investor that is tempted to buy properties at a tax sale and who wants to know what legal challenges he might face;
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.

Tax credit bubble pops; May housing sales collapse

2010-06-23T16:15:00.003-04:00

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.

Deflation and gasoline prices.

2010-06-11T16:25:00.001-04:00

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.

Harrisburg; statistics on abandoned and condemned buildings

2010-06-01T06:46:00.000-04:00

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.

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

2010-05-28T17:14:00.004-04:00

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.

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

2010-05-17T21:11:00.005-04:00

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.

Philadelphia property tax increase.

2010-05-14T09:54:00.004-04:00

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.

NBCPhiladelphia.com 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.

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

2010-05-04T13:55:00.005-04:00

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.

Harrisburg, PA bankruptcy discussions.

2010-04-28T07:16:00.000-04:00

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.

Strategic Defaults; Mortgage Foreclosures; Arnold Ahlert

2010-04-22T11:50:00.003-04:00

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.

New records for foreclosures in 2010.

2010-04-20T14:53:00.004-04:00

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.

Rising interest rates; The end of an era.

2010-04-19T07:23:00.001-04:00

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 Need4Video.com for video conversion]

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

2010-04-09T07:50:00.000-04:00

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.

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

2010-03-26T07:53:00.000-04:00

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.

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

2010-03-25T17:04:00.000-04:00

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.

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

2010-03-19T23:22:00.000-04:00

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.

Harrisburg Flood Plains

2010-03-17T23:36:00.002-04:00

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.

Youngstown film points out real estate issues affecting Harrisburg properties.

2010-03-15T07:12:00.000-04:00

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.

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

2010-03-12T18:05:00.001-05:00

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.

Pennsylvania wage attachment for landlords

2010-03-11T17:08:00.003-05:00

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.