May 24

I was invited by TMJ4 to talk about the end of the WI eviction moratorium on Friday. I cannot find a link to the show, but here are my notes and a picture from when my granddaughter happened to catch the broadcast when she was watching tv. It must have been one of her homeschooling assignments. ūüėČ

My notes for the interview. Unfortunately I was not able to make all my comments.

How are you working with tenants?

Most important is communication. Tenants need to talk to their landlords. The sooner the better.

Our company has posted a list of resources for tenants on our website at:
ApartmentsMIlwaukee.com/r/  

Despite dire predictions by attorneys for Legal Action, we do not anticipate a large increase in overall evictions.

What may be surprising to some, rental owners do not like evictions. It is in both parties best interest for a resolution.  Successful landlords need successful tenants. Every eviction is costly to landlords in terms of lost rent and often damages.  Evictions are costly to tenants as it impacts their future housing and is disruptive to their lives.

If tenants have resources to pay rent, then there will be no eviction crises when the moratorium is lifted.  Governor Evers just announced $25M Wisconsin Rental Assistance Program will go a long ways to providing those resources and preventing many evictions.  

Most owners did not charge late fees for April, well before the prohibition against late fees was issued.  

We are seeing greater than 85% of tenants have paid their rent in full for April and May and generally timely.

As would be expected, some tenant took advantage of the moratorium and did not pay rent when they had an ability to do so.  Many people are in better financial position today than they were three months ago due to the enhanced federal unemployment and stimulus money.  

Our company and many other landlords are working with Mediate Milwaukee to attempt to resolve some of these issues without filing for eviction.

Are you worried about how the rest of the year looks?

Absolutely. Landlords need to collect their rents in order to survive. If landlords do not survive, tenants and municipalities suffer.

The real fear is, unless something dramatically changes, that August and September will be far worse due to the expiration of the enhanced federal unemployment, the stimulus money being spent, and those employers who received the SBA Payroll Protection Program grants will no longer be required to keep those employees.

Any substantial disruption in rent collections will cause an impact on not only the property owners, but also on future rental housing costs.

Milwaukee and other communities have recently furloughed employees due to COVID‚Äôs impact on their budget.  This comes well before we will see the impact of COVID on payment of property taxes, sewer and water and reductions in collections of other city fees.    

We can look at  2008 and see how that impacted Milwaukee‚Äôs housing for years after. The City ended up foreclosing on hundreds of properties, with many having been vandalized to the point they were razed.  Milwaukee continues to have a huge number of tax foreclosures today, even in what was one of the best economies in history. It will only get worse now due to COVID.  This is not only a burden to the cities but also reduces future housing choices for tenants.

Picture of one of Sherrena (from Desmond‚Äôs EVICTED) properties on 10th & Center that was foreclosed upon shortly after the 2008 crises.  It burned in April 2018 and was finally razed in November 2019. (Photo by Heiner Giese)

There are predictions that the COVID housing impact will be far worse than the Great Recession. The 2008 bubble was predictable and the build up to it was over a couple of years.  Many people in the housing industry realized the prices of real estate at the time was unsustainable and those people were not harmed. 

COVID brought the economy to a sudden and unpredictable stop.  No one was prepared, and many businesses will not return.  

What resources are available to landlords?

Not many.

Landlords with very specific mortgages may forgo payments, but interest may still occur.  Mortgages are only a fraction of the operating costs.  Nearly an equal amount is paid to the municipalities in taxes, sewer, water, and other fees.  Maintenance is a large portion of the owners’ expenditures as is insurance and other operating costs.

Here is an infograph from the National Apartment Association:

May 24

The NY Mag has an excellent, sorry depressing, article about “Dr. Doom” Nouriel Roubini prediction of an extended depression.

In September 2006, Nouriel Roubini told the International Monetary Fund what it didn‚Äôt want to hear. Standing before an audience of economists at the organization‚Äôs headquarters, the New York University professor¬†warnedthat the U.S. housing market would soon collapse ‚ÄĒ and, quite possibly, bring the global financial system down with it. Real-estate values had been propped up by unsustainably shady lending practices, Roubini explained. Once those prices came back to earth, millions of underwater homeowners would default on their mortgages, trillions of dollars worth of mortgage-backed securities would unravel, and hedge funds, investment banks, and lenders like Fannie Mae and Freddie Mac could sink into insolvency.

His predictions for 2020 are far more dire

A decade later, ‚ÄúDr. Doom‚ÄĚ is a bear once again. While many investors bet on a ‚ÄúV-shaped recovery,‚ÄĚ Roubini is staking his reputation on an L-shaped depression. The economist (and host of a biweekly economic news broadcastdoes expect things to get better before they get worse: He foresees a slow, lackluster (i.e., ‚ÄúU-shaped‚ÄĚ) economic rebound in the pandemic‚Äôs immediate aftermath. But he insists that this recovery will quickly collapse beneath the weight of the global economy‚Äôs accumulated debts.

Go read the article

Feb 20

An amazing story of the lead up to the housing bubble

http://www.workingre.com/interview-appraiser-who-brought-down-countrywide/

Among the many firms and individuals who acted irresponsibly, and maybe criminally, perhaps none did so with such flair and recklessness as Countrywide Financial.  Before its rescue-sale to Bank of America (BOA), Countrywide was the largest mortgage lender in the United States.

Dec 29

The Milwaukee Journal reports that Representative Evan Goyke has introduced a series of bills to address foreclosures.  The 5 bills as described by the authors are:

  1. Realtor Incentive Bill (LRB-3010) – This bill seeks to create an incentive for realtors to sell properties that have a foreclosure judgment and a sale value of less than $50,000. It is our hope that this incentive will attract realtors to invest more time and energy in the foreclosed home markets and neighborhoods. The bill would remove income tax reporting requirements for the commission income made by a realtor working as the agent for either the buyer or seller of the property.
  2. Demolition Bond Bill (LRB-2431) РThis bill is designed to ensure that municipalities do not bear the financial burden of demolition of a property when the lender initiates a foreclosure action. The bill would require, as a matter of civil procedure at the time of filing a foreclosure action, that the plaintiff in the matter post a demolition bond of $15,000.  The bond will be held by the clerk of courts for the county in which the foreclosure action is filed.  In the event that the property is neglected, deteriorates, and becomes a blighted property in need of demolition, the $15,000 demolition bond will be applied for the cost of demolition.  In the event that the property is no longer owned by the plaintiff in the foreclosure action, the demolition bond shall be returned to the plaintiff.  Similarly, in the event that the foreclosure action is dismissed, the demolition bond shall be returned to the plaintiff.
  3. Security Lighting Bill (LRB-2774) РUnder current law, mortgagees may file a foreclosure action against a borrower when the borrower meets certain criteria regarding non-payment.  The plaintiff mortgagee in the lawsuit must pay a filing fee with the appropriate county clerk of courts to initiate the lawsuit.  In general, these fees are used to pay the operational costs of the court. Under this bill, the filing fee for each foreclosure action is increased by $50.00 with the additional filing fee being routed by the county clerk of courts to the designated department for installation of lighting on existing abandoned homes.  The lighting that shall be used shall generate and regenerate its own power through solar energy (as by definition, the existing foreclosed homes do not have electricity running to them). The lighting will help deter theft and vandalism to abandoned properties.
  4. HOME GR/OWN Bill (LRB-2368) РEarlier this year, the City of Milwaukee was a finalist in Former Mayor Bloomberg’s Philanthropies’ Mayors Challenge, which was a competition created to inspire American cities to generate innovative ideas that solve major challenges and improve city life. Milwaukee became one of the top finalists based on the City’s innovative idea to transform foreclosed properties into community assets that improve public health and spark economic opportunity. Unfortunately, Milwaukee was not chosen as one of the recipients of the reward, but we feel this should not deter Wisconsin from pursuing the goals of the challenge.
  5.  Property Stabilization Bill (LRB-3431) РCurrent law does not allow municipalities or lending institutions the authority to enter into a property that is subject to a foreclosure action.  When the property is abandoned, this may lead to deterioration of the property, which greatly decreases the property’s resale value and places additional burdens on local property tax payers. This bill seeks to extend authority to a municipality or lending institution to enter the foreclosed property and address any possible problems within the property, such as winterizing the plumbing. This bill also seeks to extend civil immunity to agents of either the municipality or lending institution engaged in the rehabilitation or repair of the property, so far as the agent is acting in his or her official capacity in carrying out actions allowable under this bill.

Something must be done to address this problem. But remember we are at this point because the government at many levels encouraged the purchase of homes by buyers who were ill prepared for homeownership and without the financial resources to weather the smallest of storms. These policies drove sales prices to unsustainable levels. We now pay the price.

At this point many of the vacant foreclosures need to be bulldozed as they have been gutted by thieves looking for a few dollars in copper to buy their next fix.

Rep. Goyke’s proposals, while good for starting a conversation, for the most part are unwise.

I doubt the IRS is on board with the non reporting of commissions.

The demolition bond has the potential of causing far greater problems than it cures. Already today banks are refusing to take possession of foreclosed properties. Many owners believe they were foreclosed upon and moved out only to find the city hunting them down for fines and fees because the banks never took possession. One such case, Bank of New York v. Carson, recently was heard by the Court of Appeals.

We;ve already seen cases where the lender has sued on the note, but as civil cases rather than foreclosures, leaving the title in the buyer’s name along with the liens for mortgages and the court judgments. Mr Goyke’s proposed bond will cause more incentive for banks to do this, creating a larger amount of Zombie housing, i.e. housing that can never be sold due to the liens and title problems.

I do however like the proposal to install solar powered security lights, if they are vandal proof.

Dec 03

Four  years ago I wrote of a scary trend I saw emerging, Zombie Housing.  These are homes that lenders begin foreclosures on but never take title.  This leads to homes that cannot be sold due to the liens upon them.  While these houses sit vacant they are vandalized beyond repair.  Yet the owners, who think they are the former owners,  remain on the hook for city fines, taxes, demolitions and liability for injuries.

No one paid much attention to this.  However this past week  the Wisconsin Court of Appeals issued a recommended for publication decision in Bank of New York v. Carson to address foreclosed, abandoned properties and force their sale upon expiration of a five week redemption period.

¶16 In sum, because the trial court had the authority pursuant to WIS. STAT. § 846.102 to amend the judgment to find the property at 1422 West Concordia Avenue abandoned, and because the trial court had the authority to order a sale of the property upon the expiration of the statutorily designated redemption period, we conclude that the trial court erred as a matter of law in deciding that it did not have this authority

In the short term this ruling will put a lot of properties on the market, most of which have now been stripped of all value and will ultimately face the bulldozer.

A current question is “Are banks required under current law to take title if no one bids at auction?” If the answer is yes I will assume a lot of banks will do the reasonable thing from their perspective and not foreclose on mortgages if the property is abandoned and of little value. Instead they may sue for a money judgement on the note. ¬†I’ve seen cases where banks have done this on near Northside rental properties. The banks can also simply do nothing and abandon their interest or issue satisfactions on nonperforming loans on abandoned properties and wash their hands of any legal responsibilities.

If the banks respond in this manner it will make the problem much worse and it is unlikely current legislation can hold the bank to the financial responsibilities of those properties if they do not foreclose.

Reuters had an interesting article on Zombie Housing that was referenced by the Court of Appeals.

So the foreclosure crisis is far from over in areas where property values are low and city regulation of lenders in possession are tough.

Jun 17

Two articles caught my attention today.  The first from the Calculated Risk blog:

As more inventory comes on the market, buyer urgency will wane and price increases will slow and even decline seasonally in many areas this winter. IMO this will be another step towards a more normal housing market.

The second from the Wall Street Journal:

Although rates are rising, fears that this will derail the housing recovery are overblown. There is still plenty of demand for the¬†housing market’s limited offerings before the word “bubble” should enter the discussion

 

 

 

Mar 28

Our properties are in Milwaukee and I am scared.

The proposal to¬†eliminate¬†residency requirements for¬†municipal¬†employees¬†will pass and will further weaken the demand for housing in Milwaukee. ¬†The result will be more abandonment of homes in older, lower value¬†neighborhoods as owners in the outer band of Milwaukee make concession to sell or rent homes vacated by the exodus of city employees. ¬†You¬†read the city can’t afford to bulldoze the stuff that needs to be torn down today. ¬†Where will this leave us? Will we be the one city in the nation New Orleans and Detroit can look down at as a failure?

Another aspect is much of your income do you spend within a few miles of your home.  I buy most of my groceries a mile from home.  I shop at the Walmart that is a mile and half from home and the Target that is a mile in the other direction.  As people move out there will be less sales in those stores and they will require less employees resulting in more of my tenants going from barely making it to failing.  City workers in general make an above mean wages so this will be a dramatic impact.

You live in the suburbs or your properties are there so you think this will be a good thing.  But in reality you should be as concerned as me.  Suburban school districts will have to expand their schools to accommodate the influx of former Milwaukee residents.  That will adversely impact your taxes.  The only alternative will be to  diminish the quality of the suburban  schools as they become more crowded and understaffed.  All the while they will be shuttering MPS schools

School teachers that wish to remain teaching in Milwaukee should be the largest group opposing this as the first group to leave will be city employees with children who are not satisfied with MPS. This will reduce job opportunities at MPS.  Carmen and I lived in Milwaukee for a while, but ruled Milwaukee out when we bought a new house due to problems her daughter and son had at MPS.  We moved to Greenfield.  Schools are good and safe. But I am so close I can walk to Milwaukee in ten minutes.  We have a very responsive police department.  Our water and sewer rates are much lower than the city  that provides the service ironically.

City workers in general will see layoffs, reduced opportunities  and lower employment as people leave.  They will now have to fight for jobs with those who already live outside of the city, but would not take employment in the city as they did not want to or cannot for economic reasons move to Milwaukee. So although they are the ones pushing for this they too will be paying a price.

You are saying: ¬†“Sure Tim, I agree and would love to contact my Senator and Representative but I’m too busy unplugging toilets and fixing broken windows to keep up with politics”¬†¬†Well. fear not. ¬†You can find who your state legislators are at:¬†¬†http://legis.wisconsin.gov/Pages/waml.aspx

Mar 09

The Journal is reporting:

Over the next three years, Barrett said raze orders in the city are expected to grow to 1,600 homes, with a cost of $24 million. ¬†“We have a very severe problem right now,” Barrett said.

No kidding we have a “severe problem ” ¬†This a problem that continues to grow rather than moderating. ¬†The number of¬†abandoned¬†and foreclosed houses was bad nine months ago and with fresh snow on¬†the¬†ground you can see even a greater number of unoccupied properties than ever before. At least here on the Southside of Milwaukee these numbers are far worse than what is being reported by the city.

How much of the $24 million of anticipated razing costs could be avoided by making it more favorable to rehab properties and restore them to the tax rolls?

Perhaps the city would do better by working with, instead of against people willing to invest their own money, time and effort into putting foreclosures back in service. ¬†I’m not even suggesting a hand up, just not the current beat down attitude. Not only would there be less spent on bulldozing, but more of the tax base would remain plus the positive economic impact for the community due to spending by owners to maintain and operate this housing.

Between taxes and the sewer and water bills the city gets  at least $5-6 million per year from 1600 functional properties. In the three year period Barrett defines this is a potential of $18 million in city revenue if the buildings were returned to occupancy. Add this to the $24 million to bulldoze and you are north of 40 million dollars.

Can every property that is deemed to be worthy of razing able to be salvaged, of course not.  But many that are in the pipeline today can be.  Every day that a property sits unattended is a day closer to the wrecking ball being the only option for that property.  There are many properties sitting vacant today that are worthy of repair, but will not be so six months or a year from now.

Additionally every time someone like you or I take on the challenge of putting properties back in service the local economy sees a benefit through the wages and materials we pay to get the job done. ¬†All but one of my employees live in the city. ¬†While the money you spend at the Home Depot doesn’t stay in Milwaukee, ¬†the person who is employed by the Home Depot lives in the area and spend their wages here.

A downside for us, but an upside for the community is a greater amount of housing stock available holds rents down.  A more competative market also forces owners to do more to properties to get and keep them rented.

Once the property is back in service ongoing maintenance similarly impacts the local economy in a positive manner. It is estimated that repairs and improvements to rental properties represent $90 -120 million a year¬†in the city of Milwaukee alone. ¬† (These numbers are derived from our company’s experiences, the experiences of other long term owners that I’ve discussed this with and data from the Census Bureau’s¬†Property Owners and Managers Survey. ¬†Our data and that of many other owners indicate a slightly higher number than the Census)

Our company has the capacity and had the will to do 10-12 such projects a year without any government monies.  Heck if the environment was more favorable I could see us doing two properties a month.  We have not made an offer in MIlwaukee since November due the unfavorable policies adopted by the city. See my prior post on buying foreclosures in Milwaukee.  I talk to a lot of other owners with similar capacities that say the same thing.

Milwaukee acts like they are the only girl at the dance Рas though real estate investors need to accept their petty obstructions and poor treatment because they are the only game in town.  But there are many other places to invest that treat owners much better.  One of our members is doing a big rehab in Beloit.  When I asked his project manager how it was going with the city he said they were unbelievably nice and truly seem they want to see the project succeed.  We are actively looking at the South Florida market today.

A few notes:

These 1,600 properties must be city owned or near to being city owned. ¬†If they were bank owned the city could and would force the banks to demo the properties on the bank’s dime. ¬†A growing trend is banks that ¬†simply walked away from the mortgage rather than be subjected to the bad side of city regulations and fees. In another instance I spoke to an owner who the bank sued- he thought he lost the properties to foreclosure only to find out later that it was a money judgment only suit. ¬†This adds to the zombie housing effect. ¬†And you though only borrowers walked away. ¬†ūüėČ

Our police chief is in the news speaking about the link between foreclosed and abandoned housing and crime.  I am certain he is correct on this.  But the Milwaukee Police do not do what they should in cases of property vandalism. See my prior post on property vandalism and the lack of police response.  This vandalism accelerate the rate of properties that are no longer viable for rehab.

Dec 01

In addition to possibly increasing the middle income tax burden, some of the proposed changes may cause real estate values to fall up to 15%.

The effect will most likely hit neighborhoods with the highest rates of owner occupancy the hardest.

This is similar to how Milwaukee short changed owner occupants when they shifted various costs from property taxes to the water bill. By that move a few hundred dollars that were deductible as property taxes simply became a nondeductible out of pocket expense.

Read the LA Times’ view on removing tax deductions for homeowners.

 

 

 

Sep 19

For the past two weeks I was in Brooklyn NY helping my wife with a big seminar she was putting on for her business, the Event Decorating Academy.   My involvement on tour dates is mostly lifting heavy things,  running to the Home Depot and various vendors for materials and keeping the computers running.

Carmen leaving FLL for NYC

Carmen as she leaves Ft Lauderdale airport for NYC. The Skycap asked if she was moving

So when she is on tour I drive around a lot.  This trip I got to see a large part of Brooklyn, queens and a bit of Manhattan as we have a number of suppliers for the Event Decor Mart located in NYC.  I was was in some nice areas and some not so nice areas.  We rented a condo for the two weeks in Mill Basin Brooklyn using AirBnB.com  Very nice area.  It was far nicer to have a two story townhouse with three baths than a couple of hotel rooms.  I will use AirBnB.com again.

I was absolutely shocked at the lack of for sale signs and appearance of vacant, abandoned homes and residential properties.  The foreclosure crisis does not appear to have had nearly the impact in NYC as it did to us in Milwaukee.

I was talking this over with a buddy.  He felt  the health of housing is reflective of the local job market.  I have to agree.

preload preload preload