[Public Speaking] The Future of Residential Real Estate in NYC: NYLS/Center for Real Estate Studies 2-28-12

Posted by Jonathan J. Miller -Sunday, February 26, 2012, 5:33 PM
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Looking forward to my third consecutive annual appearance as a keynote speaker for the Center for Real Estate at New York Law School. Professor of Law and Director of the Center Andrew Berman hosts a great event.

[click on the graphic for more info and registration]

[Appraisal Stories] Aversion to Turtle Soup Prompted Mold Lawsuit

Posted by Jonathan J. Miller -Tuesday, February 7, 2012, 10:00 AM
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A number of years ago, my appraisal firm provided an appraisal for the purchase of a few thousand square foot loft in a new gut rehab conversion in downtown Manhattan. This Inman article on “Homes were reptiles roam” triggered my memory of this story, of which the details are a little fuzzy due to the time that has passed. Still, it’s worth sharing since it’s so bizarre.

Our firm was served a subpoena indicating we complicit in the newly discovered “mold” problem in the condo unit. I should point out that the developer, bank, mortgage broker, real estate broker, attorneys on both sides and others were also subject to the same lawsuit.

We reviewed the appraisal and did not understand why the buyer was coming after all of us. The unit was gut renovated and never occupied at the time of the inspection. We did not observe anything unusual.

Our attorney called on our behalf and got the story. The case was soon thrown out before we had to provide anything. The story goes like this:

• One night the owner was dining out and saw the adjacent table eating “turtle soup.”
• The owner had an epiphany that his life’s work would be to “rescue” all the turtles he could get his hands on.
• Soon there were a few thousand (my recollection) turtles living in the apartment with the heat kept warm enough to keep them thriving.
• Mold began to grow within the apartment.
• The owner claimed the unit was not livable due to the existence of mold and began to sue everyone connected with the sale.
• The unit owner moved out and rented another apartment nearby and brought the turtles with him.
• Mold began to grow in the rental apartment.
• The lawsuit was thrown out.

Note: redacted to protect the guilty/innocent

[Closure?] NY A.G. Sues MERS For Being An End Around

Posted by Jonathan J. Miller -Monday, February 6, 2012, 9:18 AM
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Last week there was plenty of outrage from the directed at Freddie Mac who was found to have been betting against homeowners who were stuck with higher interest rates. They claimed there was a firewall and that they stopped the practice before FHFA, their regulator, told them to – but that wasn’t the point. It’s an unconscionable action from that institution.

FHFA, was once again late to the party (think housing boom and accounting scandal, of formerly named OFHEO). Now a government owned financial institution who is critical to the US housing mortgage market was betting against the US homeowner in conflict of their charter.

In President Obama’s SOTU speech, he announced creation of an office to prosecute those who violated the law related to the housing bubble. The initial reaction of many, including myself was “where were you 3 years ago?” as if this action was too late.

The Freddie Mac debacle and now the MERS lawsuit reestablishes that it is not too late. Without due process, faith in the US financial system will not be repaired.

It has long been held that MERS was merely a clever way to avoid local filing fees and enable rapid transaction of complex financial instruments.

As much as it seems like we are rehashing the past, a sense of justice is missing from national dialog about the aftermath of the housing boom.

I am counting on NY AG Schneiderman to help us feel better about what is right and wrong, no matter how far after the fact.

[All Bark] Making Complaints Against A Real Estate Professional To Get The Win

Posted by Jonathan J. Miller -Monday, January 30, 2012, 8:42 AM
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One of the last pieces of the 2009 Fannie Mae/Cuomo agreement, called HVCC, that essentially (but unintentionally) destroyed the bank appraisal industry is being worked out. A consumer hotline was created to handle complaints about real estate appraisals. These calls are being be directed to the appropriate state licensing board for action.

I’m all for giving people a way to fix a wrong, but there are a few things wrong with the hotline concept (all bark and no bite):

• The states have no additional money to manage their compliance/license departments. Usually a handful of people oversee a profession of thousands of licensees with constant turnover.
• Many states have syphoned off much of the licensing fees to other departments relegating many licensing departments as merely revenue sources.
• How does a state deal with an appraisal complaint effectively? Do they say your adjustments for view wasn’t high or low enough? You can see how challenging it is for them.
• How are the frivolous complaints weeded out? I understand many states have advisory committees from the industry to help process the paperwork but it is a conceptual nightmare.

Our firm has had a handful of complaints directed to the state over the years by individuals who didn’t get what they wanted from our services. Here are a few representative examples:

• A mortgage broker tried to use the appraisal of a property that we had appraised for both parties in a divorce and demanded we make changes to the report including change the client name so he could use it for a refinance by one of the parties (we are prevented by the licensing law to do this) and filed a complaint against us. He threatened us with a dozen phone calls to make the change he wanted and that he “knew people” of influence. The matter was dropped by the state once they received our response.
• A doctor who was buying out a partner of their joint practice looked to us to appraise the real estate. We did so. We found out later from our client that we had appraised the value at a similar amount as the other partner’s appraiser did (we didn’t know the other side got an appraisal or who did it). Our client filed a complaint because he claimed the “real” value was triple (of course!) The only justification in his mind (he provided no supporting sales data) was using a square footage estimate by a real estate broker saying the space was about 75 square feet larger than we measured (it was a few thousand sq ft) so we “must” have been conservative because that 75 square feet would have tipped the scale and tripled the value [sarcasm]. The matter was dropped by the state once we explained.

There are more examples like this but you get the idea – it is the cost of doing business today for an appraiser.

I see hotlines or complaint lines as they are currently handled as a way for erroneous complaints to occur and burden the profession with excessive costs. Yet I believe this is an important function but needs to be handled much more vigorously and intelligently to protect the public but there is no money to do so. Until state governments recognize that effective oversight preserves the integrity of the profession and ultimately keeps overall financing costs lower, then nothing will change. In fact, with the onslaught of the appraisal management company phenomenon of recent years, I’d say the prospect of improvement is nearly impossible.

Case in point, the hotline concept hasn’t kept the massive appraisal management company competency fraud from entering day to day conversations i.e. the common “the appraiser came from 3 hours away and had never been in our market before”.

In America, the accused are innocent until proven guilty but in the private sector, the small business bears the unending burden of cost for frivolous actions because government generally does not have the resources or understanding of how destructive it can be.

Woof.

Mass Court Rules Sale After Bad Foreclosure Doesn’t Transfer Property

Posted by Jonathan J. Miller -Thursday, October 27, 2011, 7:54 AM
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It seems logical to me that a bank can’t foreclose on a mortgage if they can’t prove ownership. You can’t re-take what you don’t own. That’s what last year’s “robo-signer” scandal was all about.

You can appreciate (no pun intended) how much foreclosure volume actually fell after the “robo-signer” scandal last fall in this chart on the Long Island housing market.

Source: Long Island Real Estate Reports

One step further…

According to Bloomberg, The Massachusetts Supreme Judicial Court made recent ruling in that:

banks can’t foreclose on a house if they don’t own the mortgage, went one step further in a closely watched case and said a sale after that foreclosure doesn’t transfer the property. Therefore, the buyer couldn’t bring his court action against a previous owner, the court ruled.

So logically it follows that if this home was resold by the bank even though the bank did not have valid ownership, the chain of title has been broken and the re-sale is not valid until ownership in each step has been proven.

Wow.

If this is universally adopted (can’t see why it wouldn’t), it will scare investors, keep foreclosure sales activity artificially low, keep credit tight and prevent the housing market from clearing excess supply anytime soon. Of course, it isn’t unreasonable to prove you actually own a property when selling it.

That’s why this housing crisis reflects a systemic breakdown – there was a lack of respect for the rule of law (and no criminal penalties to those who did break it) so we keep uncovering problems that have to be resolved before we can start at square one.

What a mess.

[Vortex] Palumbo on USPAP: USPAP {Un}common Sense

Posted by Jonathan J. Miller -Friday, January 28, 2011, 11:27 AM
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Guest Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is currently the Director of Valuation at Weichert Relocation Resources and a user of appraisal services. He spent seven years at Washington Mutual Bank where he was a First Vice President. Mr. Palumbo holds an SRA designation, is AQB certified and he is a State Certified residential appraiser licensed in New Jersey. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his interview on The Housing Helix.
-Jonathan Miller

USPAP {Un}common Sense

It’s hard to believe that I am now reading the 4th exposure draft issued by the Appraisal Standards Board of the Appraisal Foundation on December 10, 2010. It seems like only last week when we all clamored about the 2010-2011 changes to USPAP, most notably, the changes to the Ethics Rule and the disclosure of prior services performed on a property. I leave that to rest for now since we have had plenty of time to debate the impact on the appraisal community and benefit to the public, which is the major impedes for all USPAP changes. There were certainly many lively debates that took place on the topic in and out of classrooms all over the country.

As we move on to 2011 and look ahead I want to present some perspective of the entire USPAP concept, brought to light interestingly enough, by a non-licensed appraiser- student in a 15-hour USPAP class that I had presented in November. Actually this person has very little practical experience to speak of but like many of the newcomers in the industry today she is taking all the courses in succession. This approach, while not the best approach to say the least, is what is happening these days, like it or not. The just-add-water=career concept has invaded the appraisal profession. Years ago it was the practical experience you gained first or in conjunction with the course work. Licensing has a lot to do with the “fast-track” mentality. Whatever the case or the disposition of the students, I usually give the 15-hour USPAP class the speech about how “difficult or different” the 15-hour USPAP course is say versus a Capitalization or Appraisal Principles class. Numbers and definitions are one thing, ethical concepts and interpretations are another. In a math class there can only be one answer, in a class of terms and principles, they are usually straight forward. Even so, there are several areas of USPAP that can be seen as common sense. This discovery was not mine alone but it was made by “Student X” during our 15 hours together.

Here are a few of “Student X’s discoveries. While discussing the merits of the Competency Rule, “Student X” asked, “Are there appraisers out there who take on assignments without knowing how to do an appraisal?” It seems to me like one should be confident in his or her ability or don’t do the appraisal”. “Isn’t this common sense?” “Right!” some of the students quipped, “problem is they think they are competent but their work indicates something else”. One of my favorites occurred during our discussion of Standard Rule 1-5 both “a” and “b”. This Standard requires the appraiser to “analyze” both the current agreement of sale and the prior sales that have occurred in within 3 years. When I gave examples of “shortcomings” I noted that some appraisers don’t indicate what efforts they made in the normal course of business to obtain a sales contract let alone provide a “dissection or breakdown” of the agreement. We talked also talked about the details of the current listing information sometimes missing. Student X responded about this being a “no-brainer”. Her comment was something like, “I would think the details of the contract, what the listing says would be very important in determining possible fraud, what may be included in the sale, or even just trying to piece the transaction together”. Student X went on about the 3-year prior sale, “geez aren’t most users going to ask about it anyway?”. “Just stating what it sold for does not seem like a big help either”, “a lot of this stuff seems to be common sense”. BINGO I cheered….and these types of dialogues went on a few other occasions over the 2-day class. During an extended discussion regarding Advisory Opinion 22 the concept of advocacy came up. Given Student X’s keen and consistent application of what seems logical I shouldn’t have been surprised to hear her take on advocacy relative to example of the lawyer who provides litigation support services (page A-71 line 272). His comment paraphrased was, “ I would imagine that if one were to gravitate toward advocating a client’s cause that would clash with the independence, impartiality and objectivity required when performing as an appraiser”. “Yes correct” I replied, “you cannot perform both roles at the same time, you must pick one”.

After Day 2 of the class there was an exam. As the room started to empty I noticed Student X, clearing out her belongings and leaving. “Good luck in your new career” I said. “How do you think you did?” I asked? She replied, “Ok I guess, I believe I answered most of them correctly except a few. On those that I was not sure of I just used some common sense”.

Policy prohibits me from revealing if Student X passed the exam. Regardless though, that’s not the point. Here is someone who has little practical experience in our industry. She took a few concepts that give some tenured appraisers a bit of trouble and she applied rational logic. Is all of USPAP that easy to get in its entirety? NO, definitely not. I don’t know what kind of appraiser Student X will be, but I like her approach using the “common sense approach” to problem solving.

In the words of Ben Franklin, “the problem with common sense is it is not so common”. Happy New Year.

[The Housing Helix Podcast] Adam Leitman Bailey, Real Estate Attorney, Founder, Adam Leitman Bailey, P.C., Author

Posted by Jonathan J. Miller -Wednesday, October 13, 2010, 10:36 AM
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I interview the always intense Adam Leitman Bailey, the eponymous founder of the real estate law practice that specializes in real estate.

He’s involved in two high profile cases at the moment, representing the developer of the proposed mosque and cultural center near Ground Zero in a lawsuit and the recent decision in favor of his clients in the case against the sponsor of a luxury condominium building on the Upper East Side who must return a $510,000 buyer’s deposit.  Adam also touches on a another case involving new development known as Sykes v. RFD Third Avenue Associates LLC.

We talk Interstate Land Sales Full Disclosure Act of 1968, how it was interpreted in the Related Co case and what it means to the new development market going forward.

Adam has written a guide for first-time home buyers through the purchase process: Finding the Uncommon Deal: A Top New York Lawyer Explains How to Buy a Home for the Lowest Possible Price, that is scheduled for release by John Wiley & Sons in April 2011.

Check out the podcast.

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.

Eminent Domain Is Now A Video Game

Posted by Jonathan J. Miller -Thursday, September 16, 2010, 4:00 PM
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Ok so we just survived the release of Halo Reach and now there is a new video game to master: Nail Household Fighting Against Demolition Squad

Note the hair curlers?

This morning I was listening to APM Marketplace and with a little digging learned about Nail Household Fighting Against Demolition Squad

Apparently this is popular online video game in China reflects one of the downfalls of rapid economic growth there: eminent domain – government taking back private property from it’s citizens for the greater good.

Eminent domain was expanded to include the benefit of private development in the KELO et al. v. CITY OF NEW LONDON et al. case a few years ago which expanded the definition to include the benefit for private development and touched a nerve since property rights are one of the most cherished rights of US citizenship.

Now expand that concept to millions of people and you have an idea of the scope of eminent domain property takings in China.

[Fannie Mae ] Appraisal Regs: They Actually Want To See What The Property Interior Looks Like

Posted by Jonathan J. Miller -Wednesday, September 1, 2010, 11:00 AM
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To show you how bad things got, Fannie Mae is now in the process upgrading their appraisal regulations to reflect more prudent risk management. Part of this upgrade was to begin to insist that appraisers have local market knowledge and to now actually take pictures of the interior of a property being inspected and appraised.

They relied on AVMs, computer-aided valuation tools that are wildly inaccurate. Why not just require an appraiser to click a picture?

In the past, Fannie Mae did not provide requirements concerning lenders making changes to the opinion of market value reflected in the appraisal report. During Fannie Mae’s post-purchase reviews, cases were identified where the lender had reduced the opinion of market value in the appraisal report based upon underwriter judgment, automated valuation models, or other methodology. Therefore, Fannie Mae has updated its appraisal policies to address the practice of lenders changing the appraiser’s opinion of market value and also to provide specific guidance when an appraisal is considered deficient.

It begs the question, what kind of appraiser would NOT take photos inside the property? Would a good appraiser not take hand written notes either? The whole logic here is crazy (nothing like setting yourself up to be sued down the road for correctly saying the home was a wreck when the borrower claims it was renovated).

I got a generic email from a lender yesterday that made this announcement seem like a huge deal. How much does a digital photo cost, remembering the reports are rarely printed these days, being delivered as a pdf or electronically.

Dear Sir or Madam: On Wednesday, September 1st 2010 [NAME REDACTED] will require interior photos that meet new Fannie Mae guidelines. (Fannie Mae Announcement SEL-2010-09).

This will effect any appraisal with an effective date of 9/1/10 or later. The guideline is listed below and also each engagement letter you will receive from SLS.

Interior photographs, which must, at a minimum, include:
– the kitchen;
– all bathrooms;
– main living area;
– examples of physical deterioration, if present; and
– examples of recent updates, such as restoration, remodeling, and renovation, if present

Thank you,

Vendor Relations Team

In Fannie Mae’s Announcement SEL-2010-09 Selling Guide Updates and Additional Guidance on Appraisal-Related Policies they want the appraiser to provide interior photos.

Good grief.

We have been providing interior photos since we were founded in 1986. It’s not like we should have received extra credit for doing that.

Based on my experiences in the 1980s, initial reason for not requiring them was the cost to the appraiser for film, photo processing, etc. in ordert to keep costs down. However my firm went digital in 1998 (12 years ago) and I felt the “no photo required” regulation later came to mean that many lenders and the GSEs didn’t want to know what the interior of the property looked like (aka don’t tell, I won’t ask).

[Estate Tax] 2010: Throw Momma From the Train?

Posted by Jonathan J. Miller -Monday, June 14, 2010, 12:01 AM
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The New York Times had a trifecta of estate-related coverage this weekend.

In What an Estate Looks Like to the Taxman explores the lack of estate tax for 2011. The threshold could be dropped from $3.5M in 2009 to $1M in 2011 if its reinstated. The coffers are pretty empty with all the spending post-credit crunch so I would find it hard to believe that it won’t be re-instated.

When Congress passed a law that eliminated the estate tax for people who die this calendar year — with plans to bring it back with a vengeance in 2011 — the joke among estate planners was that 2010 might go down as the year of “Throw Momma From the Train.”

The Confusion Over the Dormant Estate Tax Keeps Advisers Busy talks about the scramble for estate planning this year. Since housing tends to be the biggest asset in a typical estate, and the level of property values in the region, I’m anticipating a lot of estate tax appraisals next year.

The real problem comes for the merely rich — individuals worth more than $1 million and less than $3.5 million and couples with net worths of $2 million to $7 million who previously did not have to worry about the estate tax. If Congress fails to act again this year, the estate tax laws next year will revert to their levels before 2001, and that could snare a host of people who set up the estate plans on the assumption that there would be no tax when they died.

The real estate section cover story this weekend was Loved. Lived In. Listed as an Estate Sale. The article covers a fact of life (no pun intended) in real estate. In NYC, “estate condition” is a common term that suggests the property needs significant updating.

That is when the property entered the realm of the estate sale, a segment of the market often inhabited by one-of-a-kind apartments that haven’t been touched in decades. These places tend not to be bargains, especially after factoring in the often necessary and sometimes costly renovation. But they attract a certain species of intrepid buyer, satisfying an appetite for an ambitious redo, architectural distinction or an aura of prestige.