Roger Levy's Blog

Legislation to Help Homeowners Could Spell Wider Financial Trouble

Roger Levy (Townhouse Real Estate, Inc.) — Tue, 30 Oct 2007 10:02:44 -0700

On October 23, 2007, the New York Times reported that Representative Barney Frank (D-MA) has introduced new legislation in Congress that could drastically increase borrowers' ability to challenge mortgages in foreclosure. The proposed law would give borrowers new defenses against any lender that failed to verify, prior to closing, that the borrower had a reasonable ability to repay the loan based on documented income, credit history and debt levels. Moreover, Borrowers would have a claim not only against the originating lender, but also against downstream, secondary-market investors.

The latter aspect of the legislation appears intended to account for the fact that whereas the mortgage market once was a purely local affair, it is now a global financial industry with institutional-sized ramifications. This week's news about Merrill Lynch is a perfect example of how global the mortgage market has become. The world's largest brokerage firm has significant negative exposure to losses arising out of sub-prime mortgage-backed securities. The firm's directors and shareholders, looking for a fall guy, have forced CEO Stanley O'Neal to resign.

I see people every day that got suckered into loans they could never afford. Despite my tendency to harp on the idea of taking personal responsibility for the consequences of your own greed, I am not necessarily opposed to new regulation of the retail mortgage market. There are, after all, real abuses, and there are (at least some) real victims.

I'm not sure it makes sense, however, to give mortgage-fraud victim the ability to go after secondary-market investors for relief.

There is a concept in real estate law known as the bona fide purchaser for value. The concept is mirrored in the law of commerce, as codified in the Uniform Commercial Code, which is the law in every state in this country (albeit with very minor local variations). The concept is simple, and is best illustrated by example.

Suppose you defraud a fellow out of his house. Let's say he's in financial trouble and offer to be his straw buyer, getting a bailout loan in your name. Suppose the house is worth $800,000 and he owed $400,000. Now you, being the accomplished scam artist that you are, you get a bailout loan of $600,000. You pay off your victim's loan, pocket the remaining $200,000, take the deed, and promise the guy you'll sell him back his house next week.

You don't sell him back his house, though. You sell it to me, instead. Now, I don't know the original owner, I don't know you, and I don't know the background. I'm just a guy moving to New York from Minnesota who needs a house, and I buy it from you for $800,000. I get my own mortgage and drop down my down payment. After we close, I've got title to a house that I paid $800,000 for. You pay off your $600,000 loan and keep the balance of my $800 grand.

When I evict the original owner, who has long since been unwittingly reduced to a mere tenant, he'll tell his story, and I'll say that it's not my problem. I'm a bona fide purchaser for value. I paid a real and fair price for the house with no knowledge of any prior monkey business. He's on the street, and I'm sitting in front of his old fireplace sipping brandy on a winter evening. End of story.

The now homeless former owner can sue you - if he can find you - but that's about all. The reason it has to work this way is that the law has to prioritize the rights of two people who are innocent - me and the chump. The Law, as a matter of public policy, makes the choice in my favor.

That's not just a hypothetical example, by the way. It's an actual example from my current files.

The same rule applies to negotiable instruments and other forms of commercial paper. If the chump writes you a check and you endorse it over to me, I can collect on that check if I gave you something of reasonable value in exchange, and I was not part of your tainted transaction.

This process of cutting off borrowers' (or payors') defenses is an essential and well-established aspect of commercial and financial practice. The alternative would be chaos in the banking and business worlds.

All that could change if Congress starts carving out exceptions to the rule that a bona fide purchaser or assignee of a negotiable or transferable instrument takes the asset free of the defenses that may apply against the assignor or transferor. This could be a very slippery slope indeed.

I anticipate that financial institutions whose interests could be affected - and that's pretty much every financial entity you could think of - will use their gentle influence to modify the proposed legislation before it gets written into the statute books. I'll be watching.

Real estate brokers to blame for sub-prime mess?

Roger Levy (Townhouse Real Estate, Inc.) — Wed, 24 Oct 2007 09:56:58 -0700

A recent article on Co-Star's web site argues that the real estate brokerage community is partially to blame for the current sub-prime loan debacle. Realtors, the theory goes, pushed unqualified buyers to buy homes they could not afford. These brokers and agents, who knew, or should have known, that their prospects were unqualified, referred those prospects to mortgage brokers, with the understanding that the mortgage brokers would sell the unwitting prospects on loans they could not afford.

I don't buy it. At least not entirely. Sure, there are unethical real estate brokers out there, just like there are unethical doctors and pilots. If real estate brokers are guilty of anything wrong, I submit that their (our) crime is putting stars in sellers' eyes. I have known lots of brokers who were great at convincing sellers that their homes were worth excessive amounts.

Some say that's just part of the broker's obligation to represent the seller's interest. I say that it's not always in a seller's interest to get the last dollar out of the buyer. Of course we try to maximize the seller's gain, but we also have to balance the asking price against factors such as market reality, time on market, and probability of closing. Sometimes a seller is better served by presenting a lower offer from a buyer who is more likely to close, and who can do so more quickly and with fewer problems.

In any event, whatever happened to caveat emptor? Are we so deeply in a welfare/nanny-state, glory-to-the-victim mentality that we are willing to completely relieve buyers of all responsibility for their own decisions? The one thing I have not yet heard from any talking head is that maybe- just maybe - sometimes it is a buyer's own wishful thinking that gets him or her into financial trouble.

If you earn $40,000 a year, you ought to think twice about buying four multiple dwellings, needing work, in a burned-out neighborhood, with variable-rate loans, and without a lawyer. I am not making this up.

I'm not saying that all buyers who get in trouble should have known better and tough on them. Every day I see several who genuinely were victims of mortgage fraud, or fraud by their sellers. I have seen, and continue to see, situations that reek of conspiracy among sellers, builders, appraisers and others. A big part of my practice right now is to actively work with the victims of mortgage and real estate scams to help them out of their situations.

In short, are real estate brokers partially to blame for the sub-prime troubles? Certainly, in part. Their part is pretty small, however, compared to all the other players.

Real estate brokers to blame for sub-prime mess?

Roger Levy (Townhouse Real Estate, Inc.) — Wed, 24 Oct 2007 09:53:37 -0700

In short, are real estate brokers partially to blame for the sub-prime troubles? Certainly, in part. Their part is pretty small, however, compared to all the other players.

The Sky is Finally Falling

Roger Levy (Townhouse Real Estate, Inc.) — Tue, 25 Sep 2007 16:25:55 -0700

Crain's New York Business has reported that the prices of single-family homes in the New York metropolitan area fell 4% in the year endng July 2007.

All I can say is, I hope that two, three and four-family houses follow suit, and soon. The same goes for condos and co-ops. Sellers throughout the city have long had unrealistically high expectations for the value of their property.

Nowhere has this been more evident than in Brooklyn. Recently some fool paid $1.2 million for a small, crappy two-story house behind a highway in my own neighborhood. I went to see that house over the summer. I remember how the listing agent at the open house could possibly keep a straight face while reciting the asking price.

Sellers living in economic fantasy worlds don't do themselves, or their brokers, any favors by not listening to the market. The residential market is well due for a correction, and the retreat of single-family prices might be start of that correction.

It's inevitable, really. All markets have corrections. All markets are driven by the emotions of the crowd. Euphoria and greed eventually give way to fear and desperation.

Meanwhile, there is at least one positive effect of the ridiculous and unsustainable rise in home prices. It makes for a booming practice for those of us (hint) who have the skill to negotiate and bring about short sales for homeowners whose logic and prudence were overwhelmed by the noise emanating from unscrupulous brokers and lenders.

Regards,

Roger Levy

A Call to Action

Roger Levy (Townhouse Real Estate, Inc.) — Tue, 17 Jul 2007 12:48:50 -0700

A Call to Action

Here's a real gem from our fearless leaders in Albany: Assembly bill number A20754, introduced in January, would make rent regulation apply to three-family dwellings and up. As of now, rent stabilization does not kick in unless you have a six-family or bigger building.

The bill has not come to a vote yet, so there is still time to contact your state-house representatives and advise them of how ill-conceived this bill is.

I love the fact that the bill summary states "Fiscal implications: none". As long as the money is not coming out of the politicians' own pockets, it doesn't count. Does anyone think this bill, if it were to become law, would have no fiscal implications for the thousands of small-building landlords who maintain the majority of New York's rental housing stock?

Here's the link to more information: http://assembly.state.ny.us/leg/?bn=A02754

This is not the only assault on small and mid-sized landlords. A recent news item from the Real Deal is circulating the internet. It is of potentially major importance and warrants repetition here. (http://www.therealdeal.net/breaking_news/2007/07/12/1184253781.php)

Governor Spitzer sponsored and introduced a bill in the New York State Legislature that would make it harder to get apartments out of rent regulation. Right now, if an apartment's lawful rent is $2,000 or more, the apartment can be taken out of rent stabilization. This is the so-called "luxury de-control" provision - although $2,000 does not get you much luxury in this town.

Spitzer's bill would raise the de-control threshold to $2,800, and that threshold would rise year-by-year in step with the regional consumer price index.

The bill passed the Democrat-controlled Assembly on June 13th, and is now in the hands of the State Senate. Most observers believe the bill will die there, but it may end up passing. Big real estate interests don't really care one way or another because their condo developments and new luxury rental buildings won't be affected - they are not subject to rent stabilization to begin with.

The people who will be affected are the city's innumerable small landlords - the ones who own the small to mid-sized apartment buildings throughout the boroughs. I'm betting that most of them don't even know about this.

Follow this link to see how your assemblyman voted: http://assembly.state.ny.us/leg/?bn=A08594. I urge all small-property owners to immediately and loudly let their state senators know exactly how they feel about this bill.

What the Big Boys Are Doing Now

Roger Levy (Townhouse Real Estate, Inc.) — Thu, 28 Jun 2007 14:08:18 -0700

What the big players are doing now

For several months now I have been advising real estate clients not to pin their hopes on flipping, condo conversion or other buy-and-sell methods of profiting from a hoped-for capital gain. I have been suggesting, instead, that investors consider acquiring properties that can generate positive rental-based cash flow at a rate competitive with other investment vehicles. If such a rental property then experiences an increase in value sufficient to warrant taking a profit on the capital gain, then that's just gravy on top of the steak.

There is no shortage of properties available in which to invest for cash-flow and income - if you're willing to look outside of New York City or other major urban centers. Properties that are available at very attractive capitalization rates, within about a 100-mile radius of my office come to my attention almost every day. They come in multi-family residential, commercial and strip-mall flavors.

Now it looks like the biggest fish in the real estate pond are coming to the same conclusion, according to news reported by CoStar.

A new headline on their web site reads, "Time Running Out On Quick-Buck Turnaround Deals? Experts Foresee Market Shift Away from Cap Rate Compression In Favor of Owner-Operators".

What does this mean? It means big players have, in the past, made a lot of money by buying and quickly flipping office buildings, shopping centers and other large real estate assets.

But now those same players see a change in the investment climate. They see debt markets tightening. They see fewer buyers willing to pay ever higher per-square-foot prices. They see more and more reasons to favor long-term buy-hold-and-manage strategies over fast flips.

The Co-Star reporter quoted Chris Wood, senior vice president and managing director of UGL Equis: "The window of opportunity to make acquisitions, turn them around and make any kind of meaningful profit is closing." According to Wood, we are seeing the beginning of a move "back to long-term, operating-oriented owners, as opposed to the more financially driven category where people buy buildings and already have in their minds a near-term exit strategy as an arbitrage play."

Observers are betting that large-cap owners are going to hold onto their buildings from now on. Valuation of assets will be driven by holding them, rather than selling them. This is especially true of assets that may have been bought at a hefty premium.

A recent example of this happened in Chicago, where Tishman-Speyer paid a handsome sum for a class-A office property. Another potential buyer who lost out thinks Tishman won because they came up with very aggressive terms, a big deposit and moved fast, without much due diligence.

Why would a normally conservative institutional investor like Tishman act like that? Because there is a lot of pent-up institutional demand for Chicago office buildings, which are enjoying rent growth, positive absorption and falling vacancy rates. Most observers believe Tishman was willing to pay a premium for a property they believe they can manage with an eye to increasing leasing cash flows and operating efficiencies.

What does all this have to do with the average real estate investor? Plenty!

I believe in applying lessons from one area to others - especially where money and human behavior are concerned. For example, I like to take concepts from the stock market and apply them to real estate. One stock-market tactic that consistently makes money is to watch what the big institutional investors do, and then do what they do. This works because when mutual funds, pension funds and other large investors make trades, volume can spike up, and volume drives prices.

Besides, the people running those mutual and pension funds are a pretty smart bunch, and it never hurts to watch what smart people do and then do the same.

I think the same idea applies in real estate. If you watch what the big boys are doing, you can get a very clear sense of where the dollars are going. You and I may not be able to offer a big down payment on a class-A office tower, but we can look for and invest in cash-flow positive rental properties. These exist in all shapes and sizes, from one to four-family townhouses to commercial taxpayers and small strip malls.

You just have to open yourself to the idea that the time to buy and flip or buy and convert might have passed, and that now is the time to buy, manage, hold and lease.

Co-Op Boards, Disabled Buyers and Discrimination

Roger Levy (Townhouse Real Estate, Inc.) — Wed, 20 Jun 2007 11:46:19 -0700

Co-op boards, like everyone else, are required to obey all the various anti-discrimination laws on the Federal, State and local books. A recent case in Manhattan Supreme Court is a good example of what can happen when boards aren't careful. (An article on the case appeared in today's New York Law Journal.)

The plaintiff in the case was a physician who was forced to retire from his cardiology practice in 2003 due to the onset of colon cancer. He was planning to move from South Carolina to New York City to be close to the hospital where he was being treated.

The buyer signed a contract to buy a co-op studio on the Upper East Side that was two blocks from Memorial Sloan-Kettering Hospital. All appeared to be going normally until the day of the closing in June 2004. The buyer asked the building's managing agent if he could install a washer and dryer. There was a building rule in effect that those appliances would have violated. The buyer explained to the agent that he needed the washer and dryer because the colon cancer had rendered him incontinent and he had to frequently wash his bed linens and underwear.

The buyer said he was made aware of the no-washing-machine rule at his interview - it was among a list of rules read to him by the three interviewing board members. However, he stated, it would have been "personally embarrassing" to reveal the problems his disease was causing "to three strangers" at the interview.

The board postponed the closing, and then canceled it outright. The doctor sued, seeking to compel the co-op board to allow the closing. He also sought an award of money damages.

The board argued in court that it had a neutral, non-discriminatory reason for calling off the closing: the buyer had not been truthful when he told the board at his interview he would comply with all the co-op's rules, among which are the prohibition against washers and dryers. He had an obligation, they maintained, to disclose the conflict between his need for a washer/dryer and the co-op's rule that none were allowed in the building.

The judge rejected the argument, noting that the Federal Fair Housing Act, as well as city and state Human Rights laws, all bar any inquiry into whether a prospective buyer has a disability. "If the Coop Board may not inquire about a disability, it should not be permitted to penalize a prospective purchaser for failing to volunteer information about that disability as that would defeat the purpose and policy of the law," wrote the judge.

The judge concluded that the co-op board discriminated on the basis of disability when it revoked its approval for the sale after the buyer revealed that he needed the washer and dryer because of his illness. The buyer was under no obligation to disclose information relating to his cancer when he appeared for his board interview.

The judge ordered the board to proceed with the closing, and also ordered a hearing to determine the amount of money damages. The co-op corporation could end up being liable for the buyer's cost of staying in New York over the three-year period since the aborted closing while he got treatment here. He is also seeking reimbursement of his travel expenses and legal fees, which he might also be able to recover from the defendant. The final loss to the co-operative could amount to several hundred thousand dollars.

Although the court's decision did not specifically say so, it looks like the buyer not only will finally get the apartment, but he's going to get his washing machine too, as a reasonable accommodation to his disability.

Who is worse: contractors or the government?

Roger Levy (Townhouse Real Estate, Inc.) — Mon, 18 Jun 2007 19:28:34 -0700

A friend of mine, Monica Villard, associate broker at NauCorp Properties, Inc. in Brooklyn, forwarded me a copy of an article that appeared in Sunday's Daily News. The article is The Neighborhood Killers: Homeowners Rip Overdevelopment and Lack of City Help. The link to the full article is http://www.nydailynews.com/news/2007/06/17/2007-06-17_the_neighborhood_killers_print.html.

The premise of the article is that a great deal of residential development is being undertaken by unscrupulous developers using incompetent contractors. These contractors - and presumably the architects who provide the plans they work from - have free hand to cut corners as they wish, thanks to the Building Department's self-certification procedure. These contractors and developers get away with flouting building and zoning codes because they know the city will rely on their word that they are in compliance. The risk of an actual inspection is low, and the penalties manageable if they happen to be caught.

The Building Department, in response to complaints of such abuses, says "We take our enforcement responsibilities seriously, and will be announcing new enforcement initiatives in the near future."

I'm not holding my breath.

I'm not sure what a good solution would be. The standard answer in this town is to throw more public money and bureaucrats at the problem. Yeah, that always helps.

Has anyone reading this blog actually walked into the building department lately? A model of fairness, efficiency and rational application of comprehensible rules it is most assuredly not.

I don't blame the inspectors in the field. I've had buildings inspected, and the front-line DOB troops try their best. They know the codes, and they do the job that's expected of them. The problems must lie somewhere above them in the heirarchy.

According to the Daily News, the City council is considering a bill to ban three-time building-safety violators from obtaining construction permits for five years. I like that idea.

The council is also considering requiring licenses for general contractors. Penalties for unlicensed contractors would include seizure of equipment and vehicles, stiff fines and possible jail time. This sounds like an extension of city regulations already applicable to home-improvement contractors. Frankly, any ham sandwich can get a contractor's license in the city. I got one, and I can barely swing a hammer.

Mastery of English is not required from what I could observe of the array of applicants. It certainly gives me great confidence knowing that English-language literacy is not required for professions wherein the interpretation of complex English-language codes is required. That makes as much sense as anything government does. Extend the same regulatory regime to contractors generally? All that will do, in my humble opinion, is let politicians fool voters into thinking something beneficial was done.

Another measure being kicked around the council would require notification of the NYPD of all stop-work orders - presumably by the buildings department -and empower the police to arrest violators on misdemeanor charges.

That might have an effect if the criminal courts weren't so heavily overburdened already. The city would have to hire a new army of judges and prosecutors. The good news for those of us in real estate is that the city would have to rent more space for courtrooms.

Other measures are being considered in Albany. I would rather see state-wide regulation of construction trades. As bad as things are in Albany, they are better than in City Hall. I say eliminate city departures from standard building codes. Eliminate all local regulation of contractors in favor of state-wide licensing and regulation. It works for doctors, lawyers and real estate brokers. Why not for plumbers and electricians too?

I'm sure everyone reading this will agree with me 100%, so there probably won't be any comments at all. :-) Have a great week.

Sometimes the Landlord Wins

Roger Levy (Townhouse Real Estate, Inc.) — Wed, 16 May 2007 09:43:55 -0700

Housing Court in New York City (a part of the NYC Civil Court) has a reputation of not being a very sympathetic place for landlords. It's safe to say that if you are a landlord in that arena, and you have not followed the myriad rules and regulations concerning substance and procedure with perfect precision, your case can be, and often will be, dismissed, without regard to justice or equity.

I've been in Housing Court both as an attorney and as a litigant - both as a landlord and as and a tenant, and I've seen my share of unfair outcomes. I have seen instances where the perfect compliance required of landlords has not been applied to tenants. Some judges see tenants as the poor, down-trodden oppressed masses with no economic power trying to fight the mighty, wealthy ruling-class landlords, without seeing the serial non-payer and abuser of property that a struggling owner has put his or her whole life into.

It's refreshing, therefore, to see Housing Court cases decided in favor of landlords who do play by the rules. I caught one of these recently out of Brooklyn's Civil Court. The case, 1274 51 Realty LLC v. Gross, was a holdover proceeding against occupants of the owner's premises. The occupants were, technically, licensees, rather than tenants under a lease.

The owner served a "notice to quit", and subsequently a petition. (The former document is a pre-lawsuit notice; the latter is the formal court complaint.) The occupants asked for dismissal of the case on the grounds that the notice to quit did not inform them that the landlord would begin eviction proceedings if they failed to timely vacate the premises and it did not specify a deadline on which their lawful occupancy would terminate.

The court rejected both arguments, noting that no statute required the landlord to include such information in its notice to quit. The notice to quit clearly informed the occupants that their license was revoked, described the premises sought to be recovered and clearly identified the landlord as the entity entitled to possession.

Since the landlord did exactly what the statute required of it, the court allowed summary judgment in the landlord's favor.

The moral of the story is that if you're a property owner in New York City and you follow all the rules, you have a fighting chance against tenants and others who would have judges unilaterally expand tenants' rights vis-à-vis owners beyond what the pro-tenant statutes already allow.

A market divergence

Roger Levy (Townhouse Real Estate, Inc.) — Mon, 30 Apr 2007 17:46:21 -0700

Citing an appraisal firm's new study, an article in Crain's reports that Brooklyn residential real estate was pretty robust in the first quarter of the year.

The average sales price for Brooklyn homes is said to have increased 9% to $757,000 during the first three months of the year. This is based on sales date covering single-family homes, multi-family homes and condominiums.

Single-family prices rose even more: 13% to $688,000 from a year ago. It gets better (or worse, depending on your side): four-family homes rose 18% to $1.16 million, and the average condo price rose 26% to $551,000.

Despite the increase in price, the number of home actually being sold has declined. Officials said the disparity points to the unwillingness on the part of sellers to drop prices, and the patience of buyers, willing to wait for better deals.

"Home prices can be expected to come back down to earth somewhat with transactions up moderately," said Sam Heskel, executive vice president of HMS Appraisals, which conducted the survey.

Average prices rose in Williamsburg, Bay Ridge, Park Slope, Crown Heights and Boerum Hill, while prices dropped in Greenpoint, Carroll Gardens, Clinton Hill, Brooklyn Heights and Sheepshead Bay. The study on which the Crain's article was based did not include data for Bedford-Stuyvesant, Bushwick or Brownsville. The reason given for this omission is that these areas have a large number of properties encumbered by subprime loans; this would skew the overall results, say the appraisers.

I have two observations on this report. Firstly, it's hard to draw definitive conclusions based on data that ignores such a large part of the Brooklyn market. Bedford-Stuyvesant is active in a huge way, and Bushwick is coming up on the radar in a very serious way. People are starting to float the concept of Bushwick as the next Williamsburg: a haven for the hip and avant-garde who have been priced out of Williamsburg, and, ages ago, priced out of Soho.

My other observation is based on my experience trading stocks. In trading stocks, currencies or commodities, when evaluating a price trend, you want to see price and volume moving in concert. If prices are moving up and volume is trending up too, you generally have a solid and reliable up-trend. Similarly, when prices are moving south and trading volume is going the same way, it's a safe bet that the down-trend is something you can take to the bank - if you're shorting the market, at least.

On the other hand, a stock with its price rising while its volume of trading is declining, is often a stock nearing the top of its current run. When you see that kind of divergence between price and volume, it's time to look closely for other signals. It's time to be prepared to exit the market.

Of course real estate markets don't work exactly the way stock and commodity markets work. Real estate markets are far less liquid, and tend to have a higher level of inefficiency built in, in part due to the relative lack of real-time information.

Nevertheless, I'm going to start looking for those other signals a lot more closely.

Have a great week.

Roger Levy

Score One For Developers

Roger Levy (Townhouse Real Estate, Inc.) — Thu, 26 Apr 2007 13:06:35 -0700

A New York City Council law that placed restrictions on building owners who want to remove properties from subsidized housing programs is illegal and unenforceable, a Manhattan judge has ruled.

In a decision to be published next week, a state Supreme Court judge has invalidated New York City's Tenant Empowerment Act (NYC Administrative Code §26-801, also known as Local Law 79). The law gave tenants of state and federally subsidized housing the right of first refusal if a building's owner decided to withdraw from the subsidy programs and put its property up for sale. The law also would force an outside purchaser to allow tenants to remain in the building for six months, or until their leases expired, whichever was longer, under the same terms given to tenants prior to a sale.

Local Law 79, passed in 2005, has always been controversial. It was vetoed by Mayor Bloomberg, but the City Council voted the law into effect over the mayor's veto. The Council intended to exercise power over Mitchell-Lama developments. The Mitchell-Lama program gave low-interest government mortgages and tax abatements to developers who agreed to charge affordable rents. Owners of Mitchell-Lama buildings could withdraw from the program after 20 years, and the city had only a limited authority to impose further restrictions on such withdrawals.

The Real Estate Board of New York brought suit against the City, claiming that Local Law 79 violates the due-process rights of property owners in the Mitchell-Lama program. The complaint alleged that the law, in effect, violated the state's eminent-domain procedure law and constituted an unconstitutional taking of private property.

In a decision dated April 11th and released on Tuesday, Manhattan Supreme Court Justice Marilyn Shafer granted REBNY summary judgment. Judge Shafer issued a permanent injunction against the City, effectively killing all enforcement of Local Law 79.

The judge said she reached her conclusion "reluctantly," since "homeless families in city shelters are at a record high, and the gap between average income and rent continues to grow." In voicing her reservations, Shafer cited a March 8, 2007 NY Times article, "Homeless Families in City Shelters Hit Record High, Despite the Mayor's Efforts."

Justice Shafer found Local Law 79's granting of a right of first refusal to tenants was pre-empted by the State's Mitchell-Lama law. She also held that post-sale restrictions on rent were in conflict with the Urstadt Law, which bars municipalities from enacting local laws or ordinances to regulate rents for housing that is not currently regulated or is removed from regulation by operation of law.

The judge also found that Local Law 79, to the extent that it applied to federal housing programs, was pre-empted by federal housing law.

To her credit, Judge Shafer put aside her apparently strong political opinions on the city's housing market and the relationships among development trends, rent levels and homelessness. While she devoted much of the 19-page opinion to her review of housing economics, in the end she came to a proper legal conclusion based on solid reasoning and clear facts.

Never enough time

Roger Levy (Townhouse Real Estate, Inc.) — Mon, 23 Apr 2007 23:23:34 -0700

I've been surprised that my thoughts generate so many comments. Pretty darn cool. I've been meaning to post some replies, but the weekend weather was so nice, I went flying instead. You get a different perspective on real estate from a couple of thousand feet up.

Flying out of White Plains is interesting and stressful. There's me, in a 4-seat, 4-cylinder propeller job, surrounded by business jets and the occasional regional airliner. That means ground delays after engine startup prior to departure, and arrival delays on the way back in.

There are no successful flights without a thorough and detailed flight plan. And yet, there are almost no flights that don't involve some deviation or modification of your plan. You know something will change; you just don't know what, until it happens, so you create mini-plans along the way. You ask where you'd land if the engine quit 30 minutes into the flight. You ask how your navigation is affected by winds aloft that don't match the forecast you got on the ground.

As much as planning is required to execute and complete the flight's mission, flexibility without emotional attachment to your pre-determined outcome is just as important.

Kind of like real estate investing.

Regards,

Roger Levy

Telephone tax refund

Roger Levy (Townhouse Real Estate, Inc.) — Tue, 17 Apr 2007 08:57:21 -0700

My friends at the IRS just sent over details on claiming the "telephone tax" refund. It's a minor amount of money, but we're all entitled to it. Since I believe in the principle of allowing the government access to as little money as possible, I'm passing along the information for the benefit of all who may be similarly inclined.

STILL TIME TO REQUEST "TELEPHONE TAX" REFUND

This is a one-time refund of previously collected federal telephone excise taxes that is owed to anyone who paid a phone bill in the last several years. If you paid long-distance excise taxes on landline, cell phone, Voice over Internet Protocol (VoIP), or bundled service that was billed for the period from 28 February 2003 to 1 August 2006 you are eligible for this refund. (Bundled service is local and long-distance service provided under a plan that does not separately list the charge for local service.)

Most individuals will request this refund when they file their 2006 Federal tax return, which is due this year on April 17th. If you get an extension to file your tax return, the extension will also apply to your request for the telephone tax refund. You can still request this unique refund even if you have already filed your 2006 return; just file an amended return using Form 1040X.

The refund is also available for many individuals who are not required to file a 2006 tax return. Such individuals can use Form 1040EZ-T to request the refund. This form doesn't have to be filed by the April 17th deadline, but should be submitted as soon as possible.

You have two options for requesting this refund. You can request the actual amount of federal excise tax you paid based upon your telephone bills for this period. Alternatively you can request a standard refund amount that ranges from $30-$60 based upon the number of exemptions you claim on your tax return.

More information is available at http://www.irs.gov/newsroom/article/0,,id=164032,00.html

Have a great day, folks.

Liars, Damn Liars and Reporters

Roger Levy (Townhouse Real Estate, Inc.) — Mon, 16 Apr 2007 10:31:54 -0700

Mark Twain once said "There are lies, damn lies and statistics". Modifying his thought slightly, I would say: there are liars, damn liars, and reporters.

I say this because what I see from my position, circling the real estate landscape at low altitude, is a bit different from what's being reported from the high altitude of the news media's supposedly superior position.

We've been hearing much about the housing crisis, the housing bubble, and the collapse of the sub-prime mortgage market. Some of the concerns are real, to be sure, but most of the coverage is way over the top.

Take the sub-prime mortgage market. Is it such a big deal that two or three lenders in this market are in trouble? Let's look at the big picture. According to information from the Mortgage Bankers Association, sub-prime mortgages constitute about 14% of the total home mortgage market. Of that 14%, about 13% are delinquent. These delinquencies therefore constitute about 1.8% of the total market. That does not sound to me like a major financial disaster.

An editorial on April 12^th in the New York Sun correctly points out that twice in recent times, the sub-prime delinquency rate has been higher, but no major disaster befell the housing market. In 1998-99 and again in 2001-02, the delinquency was greater than it is now, and some sub-prime lenders left the market or went out of business altogether. Nevertheless, in both time periods, the overall housing market remained robust, both nationally and here in New York.

The big difference between now and then is that in previous years, home prices were escalating at double-digit annual rates. I am not seeing that presently. Residential resale prices are increasing much more slowly. In some segments prices appear to be leveling off. I am not seeing the price of residential real estate declining anywhere in the New York metropolitan area. To the extent that people are able to make their mortgage payments, then, the value of their equity seems secure.

If the economy is on the verge of recession, as the reporters insist, I don't believe it will be a recession led by a decline in housing or related sectors of the economy.

Protect your privacy - at least a little

Roger Levy (Townhouse Real Estate, Inc.) — Fri, 13 Apr 2007 21:59:08 -0700

Privacy is a precious aspect of our lives. If people know nothing else about the law, they tend to know at least that they have some sort of right to privacy. That right has all manner of limits and boundaries, in virtue of our decision to live in a reasonably civilized and ordered society. Some limitations on privacy are the price we pay for living in the post-9/11 world.

Some assaults on our privacy are commcercial in origin, and those, at least, we can exret some control over. The Do Not Call list is an example. Other inroads on our privacy come through our computers. Several ad agencies put tracking cookies on our computers to monitor the sites we visit, the products we buy online, and other personal information. All this happens without our consent or knowledge.

All this is supposed to "enhance" our browsing "experience" by delivering ads to our screens that are specific to our individual interests or quirks. Right. I don't know about you, but I don't want some advertising weenie to know where I'm going online.

We have the ability to opt out of such marketing, but how many people know how to do this?

I was reading PC World magaxine recently (the March issue) and there was an article on this topic. It included a link to an advertising industry site where we can determine, at least in part, who is spying on us, and where we can just say no to more of the same. I suggest you have a look for yourself. Here's the link:

http://www.networkadvertising.org/consumer/opt_out.asp

Have a great weekend.

_Roger Levy_