The who’s who of Milwaukee rental housing were in attendance at Joe Peter’s funeral.  So many that one person commented that if a bomb hit the church nobody in Milwaukee would have to pay rent again.  A lot of folks I had not seen in years.  It’s sad that the only time we see these people anymore are funerals for friends.

One such person was Mike, a former board member of the Apartment Association.  He asked if I remembered having lunch with him a number of years ago.  I admitted I didn’t and kiddingly asked if I had skipped out on my portion of the bill. He assured me I hadn’t and that he just wanted to thank me for the sage advice I had given him that helped him succeed when others failed.  I had him remind me of what I shared with him that he felt was so valuable.  Once he told me, I felt it still rings so true that I would share it again.

At that lunch back in probably 2005 or 2006, the height of the silliness we were seeing in real estate pricing, Mike wanted to know how to acquire more units.  I cautioned him that his focus was wrong.

It’s not about how many units you own.  It’s about being sustainably profitable.

Unit fever is a disease that has wiped many owners in both good and bad economies. So don’t aim to have 50,100, 200, a thousand units.  Rather do the math and aim to only own profitable units and create scalable infrastructure before getting big.

Wells Fargo v. Sandra A. Ford is a NJ case that started as a pro se defense to a foreclosure. It ends with Wells Fargo getting spanked by the NJ court of Appeals in what will be a published decision..  At appeal the defendant was represented by Legal Services of NJ, which is similar to Legal Action of WI.

My great interest in foreclose defense cases is twofold.

First I see some of these cases holding the potential of unraveling the entire real estate market by creating hundreds of thousands of “free” homes across the nation. I fear this will cause a second and more dramatic drop in housing prices as once the mortgages are wiped people can sell for practically nothing and make a profit.

I wish to throw this question out for discussion:

What is the most important thing you know?

We all come from different backgrounds and have had different experiences.  Individually we know what we know, but no more.

Collectively we could be pretty smart and achieve more.  That is part of the power of a discussion list like the list I moderate ApartmentAssoc or the ones I participate on such as MadisonApartmentOwners, LandlordAssociationOrg or the hundreds of other groups on Yahoo Groups or Google Groups.  You ask a question and get an answer.

But what about the question that you do not even know you should ask?  So go ahead add what you think is the most important thing you have learned about landlording to the comment section.

[Note I am importing replies from the above Yahoo Groups into this comment section for all to read]

A couple property owners approached me stating they have received notice from the Milwaukee Department of Neighborhood Services (DNS) that they must obtain new occupancy certificates on properties they purchased a couple of years ago.  In both cases the properties had been in foreclosure.

Also the properties were vacant at some point after the lis pendis (a kind of pre-foreclosure notice filed with the register of deeds) was filed. In one case the property was vacant for slightly more than six months, the other owner was unsure how long it was vacant.

The owners said inspectors were requiring upgrades to current code such a replacing all two prong outlets and pull chain room lights; changes to plumbing and other upgrades.

The owners independently stated they planning on walking away from the properties and mortgages because they could not afford to complying and they are being hit with large fines/fees.

This seems to a recently issue as I have not heard of this prior.   The owners said they were not made aware of the requirement at the time of purchase. One said he knows three other owners in similar situations.

I asked around to see if others have heard of this.  One member stated his employee had a similar, but slightly less intrusive experience on a home he bought  at sheriff’s sale for use as his personal residence.

I vaguely recall an ordinance that passed a year or two ago, which may have given DNS this authority.

If this is as described, and I have no reason to doubt these owners, my crystal ball shows Milwaukee becoming the next Detroit of real estate where the median home value is under seven thousand dollars.

So I went to the top and asked Art Dahlberg, the Commissioner of the Department of Neighborhood Services to comment.  His response is below (with embedded links to the city code were added to help you follow along):

Dear Mr. Ballering:

Thank you for your email. Without having actual addresses I cannot discuss what happened in those specific instances. That said I will speak to the general issue that you have raised.

Generally speaking when a property is purchased that is not intended to be owner occupied the new property owner is required to file a property recording with DNS. Additionally 1&2 family properties in specific reinvestment areas and those that are non-owner occupied are to request a code compliance certificate. As you know the certificate necessitates a exterior inspection to verify compliance with the property maintainence provisions (chapter 275) of the Milwaukee Code of Ordinances,(MCO). Provided that the property has not been required to receive a new occupancy permit, this is the extent of the enforcement scheme. As you know chapter 275 is a property maintenace code not a requirement to upgrade to current construction standards.

There are situations in which the MCO requires existing buildings to receive new occupancy permits. Some examples that apply to the situations you describe are when the building has been placarded and declared unfit or unsafe for occupancy and those buildings that have been vacant for more than 6 months. Please refer to MCO 200-42-2c for this legal requirement. The purpose for this requirement is a recognition that when a property has not been maintained to the point that the building is been deemed unsafe, then the issue is no longer a question of maintenance but rather upgrades are necessary to return the property to a safe condition. The property is then measured against current construction standards. Likewise the same process applies for buildings that have been vacant for 6 months. The logic there is that many buildings get significantly degraded when left vacant for an extended period of time. As a result ordinary maintenance will not ensure the building is safe and fit for occupancy.

During the occupancy process the inspectors do require the building to meet code requirements to the extent practicable. DNS staff require all needed alterations to comply with current construction codes. In addition they evaluate the building and its systems from a safety perspective. Unsafe, unsanitary or unfit conditions require repairs and or replacements to meet todays code. All other elements are permitted to remain as is. This means that DNS must take into consideration the nature of the original construction and order repairs and alterations that are consistent with those conditions.

A prime example is a unsafe stair. Provided that the stair is being used as it was originally built, the stair would need to be repaired/replaced in kind with like materials to make it safe. For example the treads and risers would need to be consistent in dimension and not represent a tripping hazard. The stair would not necessarily be required to meet current tread and riser requirements if it would require reframing of the floor opening so that the stair run would fit into the building. Other examples would be requiring ungrounded electrical systems to be properly bonded and grounded but not require all operating 2 prong outlets to be replaced with 3 prong outlets.

As you can see this sets an upgrade requirement directly related to alterations/repairs needed to be done because of the condition of the portions of the property.

I would always encourage all purchasers to do due diligence verification of the property. That would include determining outstanding orders. This information can be determined by requesting a “title” search from DNS. If that search shows that the property was declared unfit and placarded, then their offer should take into consideration the cost of correcting the violations and code upgrades if the the building was declared unfit. I would also encourage the purchaser to contact DNS if they need clarification on what is required by the existing orders prior to the purchase of the building.

I hope this email clarifies the code requirements related to the concerns raised in your email. Our goal is not prevent the purchasing of foreclosed property, rather it is to ensure that the housing is made safe through code compliance.

If you have further questions feel free to contact me at 286-2543.

Sincerely,

Art Dahlberg

What should a buyer of foreclosed MIlwaukee properties do to quantify their exposure?

Bottom line: If you are going to buy foreclosed properties within the City of Milwaukee you need to verify is it was placarded or has been vacant for more than six months. If so adjust the price accordingly.