The Milwaukee Journal quotes Alderman Mike Murphy who believes our housing market has hit bottom:

“I do think we’ve hit the bottom,” said Ald. Michael Murphy, chairman of the Common Council’s Finance & Personnel Committee. Murphy, Mayor Tom Barrett and Assessment Commissioner Mary Reavey all said they were hopeful that property values would start to slowly rise again over the next few years.

It would be wonderful if that in fact was correct, however there are many indicators that the bottom may still be a ways off.  The Feds are considering forced reductions of mortgages to appraised value.  This will allow owners to sell for less than today and remain financially  unscathed.  Previously if you owed $150k on your home you would fight like heck to get at least $150k, otherwise you would have to pay out of your pocket to sell.  If this becomes policy it will allow owners to sell for much less than they owe today, creating a general downward pressure on all home prices.

Then there is the phenomena of  people who can pay their mortgages, but are simply walking away.  It used to be dishonorable not to pay your debts.  Now it has the cute name of “Strategic Defaults.”  This along with short sales undermine our entire economic system as well as real estate values.  There just isn’t the social pressure to pay what you agreed to anymore.

Finally there is a large shadow market of homes and other real estate that are foreclosed but not on the resale market.  As these enter the market it will further drive down prices. If you want to see the shadow market in action write down the addresses of the obviously foreclosed buildings and homes that do not have broker signs in front of them, look up the ownership on the city site, then look for the property on MLS.  Many will be lender owned, but not actively marketed.

The Milwaukee Journal article reports the Assessor claims the decline in values over last year to be a meager 2.4%  One reader of the Journal article makes a very valid comment:

“Ask any realtor, appraiser, banker, buyer or seller of a home over the past 24 months how much values have dropped, 2.4% is a joke they need to remove the decimal point the acutal number is closer to 24%.”

I concur with this person that the real values of properties, at least in the neighborhoods we own in are dramatically less than the assessed values.  Milwaukee has typically overvalued the lower value neighborhoods in what I believe is a regressive tax scheme to lower the taxes of the more affluent white neighborhoods at the expense of these who can least afford higher housing costs.  The city assessor justifies this by excluding many comps as invalid, while being quite happy to use those homes purchased by first time buyers using down payment grants etc. that hid the true value of the purchase.  Today many of those homes are in foreclosure.

So while Milwaukee officials are hopeful that the end of the decline is nigh, and I too wish this was true as I happen to have a large financial interest in this subject, it probably isn’t so.  Many well studied economist and others believe that the Milwaukee area home prices will return to 2007 values in the fourth quarter of 2017 These same experts found that we are currently 15% off the mark today, not the 2.4% the Assessor has given.  They also predict the slide won’t stop until fourth quarter 2011.

But the city has strong motivation to artificially keep assessed values inflated:  That of course is to maintain artificially high property taxes while at the same time being able to claim that have only raised the mil (amount per thousand dollars of assessed value) by a small percentage.

So while many, including the city officials and  me, “hope” for a housing price recovery soon, hope is not a workable strategy. Please post your comments and challenge my views.  We all have a lot riding on making he best guess here.

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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.

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What is the size of Residential apartment industry in Southeast of Wisconsin?

It is pretty big. I haven’t gone through the work to assemble this data recently, but here is some older data. Assembling fresh data should be less today due to the amount of information you can find on the internet these days.

Ten years ago there were 25,000 rental owners in the City of Milwaukee and 31,000 if you included owner occupied duplexes and fours. Many own one or perhaps two properties. One business member has identified a list of 19,200 owners in the four county area of significant size to warrant direct mail marketing.

Statewide in 2001 there was an estimated 238,000 owners of rental/ investment/income producing real estate in WI. This came from a report by the state’s Department of Administration.

2000 Census shows 822,000 rental units in WI and 136,000 rental units in the city of Milwaukee. We don’t have too much longer to wait to see the 2010 data.


Back in that same time period half the folks elected to the state legislature owned income producing properties. But you could not tell it by their voting records. ;-(

We outnumber teachers statewide and nationally by four to one.

32% of Wisconsinites live in rented housing, more in urban areas. For example 61% of the residents of 53204 are tenants, 26% are owner occupants and 12% are vacant housing. (recent data - Click on housing tab)

Some older, but interesting national data can be found on the Census Property Owners and Managers Survey

For example 86% of rental housing is owned by individuals. In a two year period there were three quarter of a million evictions started in single family units and more than eleven million in multis. For the Census purpose it appears eviction started means something like a five day notice was served.

All this begs the questions:

1. Why are not more of these owners members of the AASEW?
2. Why do we allow ourselves be treated so poorly?

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EPA Renovator Rules (lead paint)

• How to comply in a cost effective and efficient manner
• How do you avoid career ending mistakes given the nature of the work we perform, the amount of urgent response repairs and the educational level of the workforce typical to our industry.
• See: http://renovatorrules.com/

Landlord licensing

Yes, this is being shopped around City hall today

• Costs
• Targeting, political attacks.

Eviction court challenges

• Constant changes to slow the process and increase costs.
• The unintended consequence may be an increase in illegal “self help” tactics

Utility rate increases

• Despite WE Energies outperforming expectations, rates are set to go up again by 4.9%
• Water rate increases (due to too much conservation per the JS article)

Runaway government expenses applied to property owners

• Property taxes
• Property assessment schemes that shift tax burdens from the outlying homeowners to lower income neighborhoods.
• Water bills and so called user fees for items that should be taxes.
• Fees, fees and more fees
• Improper use of reinspection fees and repeat “litter” fees

Tenant issues

DNS (building) inspections

Efforts to restrict access to CCAP /  creation of a protected housing class for criminals

Plummeting property values

• many owners are  ”underwater”

Litigation and fear of litigation

• This is compounded by increasing insurance exempted coverage.

Fragmentation of our industry

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http://www.jsonline.com/watchdog/watchdogreports/50548282.html

“Rodney Lass figured his days as a homeowner were over when he was hit with a foreclosure judgment more than a year ago.
He stopped rehabbing his two-story Bay View home and moved on. [snip]

The foreclosure, however, failed to go through after the California-based lender decided it didn’t want the gutted house. Lass said he found out for certain that he still owned it from the Journal Sentinel.”

Tim’s comments

In response to this posting on the ApartmentAssoc@YahooGroups.com list, one reader asked:

Why is this bad? Money collected from out of state banks makes our  taxes go down!!

My response was in the long term, it’s very bad for us.

When a few lenders start dumping houses for a few thousand dollars to limit their DNS exposure that makes your house in the same neighborhood worth… I don’t know… around a few thousand dollars? Ultimately property taxes will have to go down in those areas.

When the market starts to come back national lenders will remember the pain they suffered here and simply won’t write in our market. Why would they? They are not obligated to write in Milwaukee.

This will cause Milwaukee and other communities that took aggressive action against lenders to lag the rest of the nation in recovery.

And by the way, the only way our taxes can go down is if our governments’ spending goes down.

~~Tim Ballering

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PLEASE NOTE

In Small Claims Eviction cases, you may only sign complaints and appear in court on behalf of a property owner if you are one of the following:

· The property owner (if the property is not owned by a corporation/limited liability corporation)

· A full time employee of the property owner
· An attorney

Employees of management companies or other outside service providers may not sign complaints or appear on behalf of property owners.

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Take today’s Journal article on snow removal as a timely, but far from unique example.

“A city ordinance requires snow and ice to be removed or prevented from posing a hazard on sidewalks within 24 hours after snow has stopped falling. If the city is forced to provide the service, property owners – not their renters – are charged $93 for a 60-foot lot and a $25 administration fee for the first occurrence. That administration fee grows to $50 for each subsequent occurrence”

Any tenant reading this article thinks ‘And here that no good son of a sewer rat I rent from put in the lease that I had to shovel.  Even the Journal says it’s his job, not mine.  No way I’m going out there in the cold and do his job!.’

Now had the Journal Company wished to write a balanced article that attempted to solve a problem it would have included the fact rental property owners can require tenants of one and two family buildings to shovel their own walks.  The article should have gone on to say ‘If your rental agreement requires you to clear the walks and you don’t the owner can do the work and charge you or can pass along any city charges and fines.’

You say ‘Perhaps this is just a single misinformed reporter.’  That would be great as it would be easy to solve with a quick call to the Journal’s editorial management.  But unfortunately this goes far deeper.  It seems every article written ignores tenants’ responisbilities.  A fire breaks out and the are quick to point out there were no working smoke detectors.  The article fails to mention that there were a full set of detectors, all with their batteries removed.

Part of the problem is city departments such as Neighborhood Services have their own “ Public Information Officers ”, a fancy term for press secretaries, to spin the news for the benefit of their budgets and political views.  It is to their advantage to maintain public perception that rental property owners prey on the poor, helpless tenant.  (How can the city afford departmental PR people when they can’t even afford enough cops and firefighters is a whole other subject)

Another part of the problem is it is far more difficult for the city to try to make 357,558 (Census data)  rental occupants responsible for their actions than it is to blame the 5,419 (City database)  folks who own four or more rental units.  So the city takes what they consider the expedient path.  However we all know the expediency is often the quick path to long term negative results.

When viewed in a very narrow shortsighted fashion, yeah pushing the responsibilities of the tenant onto the property owner appears to be at least cost effective.  However in the long-term the City has furthered the decline of the neighborhoods by building on the misperception that tenants bear no responsibility for their actions or the actions of their kids. That tenants have no responsibility to keep their yards and homes clean. No responsibility to protect their lives and the lives of their children by leaving the batteries in the smoke detectors.

City officials argue that owners have civil recourse.  If this was a viable idea the city would not be so adverse to holding occupants accountable.  But, we know and they know you can’t even collect unpaid rent from most tenants do to income that is exempt from garnishment.

Fines, err… I mean fees… are a big part of the City’s shell game on property taxes.  The process of appealing fees is frustrating at best.  First you must pay a $25 fee to get the right to appeal, then you have to take a morning off work only to face a process that lacks many elements of due process such as proper discovery, the ability to compel witnesses, the deciders of fact draw a paycheck from the very entity that you are appealing from. I’m sure there are more flaws that I can’t remember offhand.

A couple of years ago I had an appeal I thought would be a walk in the park.  The city sent us a fee for an alleged snow removal.  Our employees had shoveled the walks, taking before and after pictures.  The day before the city alleges to have cleared the walks our siding crew was two days into residing the property.  They too had start and finish pictures each day.  In the background of these pictures were clear sidewalks.  We had computer generated receipts from the company that we purchased the siding that bore both the address of the property and the date two days prior to the city’s alleged shoveling. We even had weather data showing no snow fell from the day our crews cleared the walks until a two weeks after the date alleged.  We paid our twenty five bucks and expected to win.  The city guy had some picture, but none of them showed the siding job that was well underway on the date they claim to have cleared the walk. The city’s pictures could not have been taken on the day the city claimed.  Yet the board who ruled in the city’s favor – surprise, surprise.  This gets to the essence of last weeks discussion on why is it a problem when an inspector misrepresents himself to be a fireman, a police officer or an assessor to gain access to your property.

Ultimately these fines/fees are breaking many property owners who are on the financial edge, leaving even more properties abandoned. The city acknowledges that foreclosed homes are a problem for the entire community.

“Vacant properties burn at a higher rate (than those that are occupied),” Collins said. “They are looted at a high rate, and they are more frequently the sites of illegal activities. One vacant house can blight an entire block.”- DNS Commissioner Collins quoted in the 1/20/08 Journal www.jsonline.com/story/index.aspx?id=709341

But the city’s fees not only force some owners on the edge to fail, they also prevent the quick resolution after the foreclosure. The same article quoted foreclosure attorney James Mulligan as saying “We were $1,500 apart on a sale,” Mulligan said. “If the city had forgiven $1,500 in code violations, they would have collected the taxes, and one home would be occupied rather than boarded up.”

So what can you do?

First make sure your rental agreements address the issue of tenant caused city fees.  A few years ago we changed our agreements and nonstandards to make it very clear that tenants will pay for their infractions that the city charges us for.

It is kind of funny to hear a usually nice polite tenant swearing like a drunk sailor after they  receive  a $100 “fee” for the city for putting their old mattress at the alley, dutifully calling for a special pick up, being told by the city that it will be picked up as part of the regular pick up and they should bother calling any more – just put the items next to the trash.

Very recently we changed the form letter we give our tenants when their actions cause a city fee.  Now the notice includes the phone numbers and addresses for the inspector, the inspector’s supervisor, the tenant’s Alderman and the Mayor.    Tenants are constituent every bit as much as owner occupants, even though many pols seem to overlook this fact.  Elected officials should hear of abuses directly from all those who are affected. I am interested in seeing how this works.

Another thing you should do is get a digital camera, even the one in your cell phone will do, and document the heck out of everything. Then set up a system so you can retrieve them.  Despite an appeal process that doesn’t provide much relief to rental owners, document, document document. Someday it will come in handy for some purpose.  You can get a decent Kodak digital at Best Buy or Office Depot for under a hundred bucks including a memory card and case.

Finally owners have to band together to put an end this nonsense.  If you are not a member of the Apartment Association, join.  If you are a member, become active.  If you are active – thank you and please let the board know what support you need.

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