In other words, perceptions of economic reality have a lot to do with the eyes of the beholder. This is as true for the real estate crisis that accompanied the Great Recession as it is for the Great Recession itself.
Four years after the market tanked, many people are still waiting for Minneapolis real estate prices to recover. Millions of others are waiting for recoveries in their areas of the country as well.
What's happening, however, is a tension between two conflicting trends. On the one hand, purchasers are more eager than have been in years, because houses are so much more affordable than they've been in a long time.
On the other hand, many current homeowners are unwilling or unable to sell because they owe so much more on their houses than those houses are now worth.
In other words, the sheer number of underwater mortgages is a drag not just on the ability of new buyers to find affordable homes. It's also a drag on the recovery of the real estate market as a whole - especially in places where the percentage of underwater mortgages is highest.
]]> In the Minneapolis area, the number of homes available for sale has dipped considerably in recent months. Cari Linn, the president of the Minneapolis Area Association of Realtors, says that a "domino effect" is taking place - in reverse."People have to find a seller to move," she said. But the inventory of houses available is limited.
Shorts sales and other strategic approaches may be worth considering, however, as buyers and sellers try to get the dominos moving again.
Source: "Homes for Sale Grow Scarce as Sellers Await Higher Prices," John Gittelsohn and Prashant Gopal, BusinessWeek, 5-15-12
]]>Minneapolis real estate attorneys and land use lawyers are monitoring a dispute about pollution limits and regulatory permits that illustrates this point.
The case pits the Minnesota Pollution Control Agency (MPCA) against Northern Metal Recycling, which operates a metal shredder in North Minneapolis.
Northern Metal is seeking to ease restrictions on the types of materials it is allowed to shred at the site. It would also like to raise limits on some of its emissions and have to submit to pollution testing less often.
The MPCA opposes these requests. The result is litigation that is headed for the Minnesota Court of Appeals.
Specifically, what is at issue is an air pollution permit for the metal shredder. The MPCA was weighing whether to require an environmental impact statement (EIS). Northern Metal asserted that the agency was taking too long and sought a court ruling to force a decision.
]]> A Ramsey County judge did issue an order directing the MPCA to decide about the EIS. The MPCA disagreed with the judge's order, however, and appealed it to the Minnesota Court of Appeals. Further proceedings in the MPCA permitting process have been stayed until the Court of Appeals makes a decision in the case.The plant is located near the Lowery Avenue Bridge. The metal shredder was installed in 2009, after a previous legal battle over emissions of mercury and other chemicals.
Source: "Battle over north Minneapolis shredder goes to court of appeals," Randy Furst, Star Tribune, 3-26-12
]]>As Minnesota real estate attorneys, we see the effects of this every day.
One federal action that does potentially offer a measure of relief is the 2007 law allowing a tax break on cancelled or forgiven debt. If your lender agrees to a short sale or a refinancing, for example, you can exclude the amount of the cancelled debt when calculating your income for tax purposes.
Normally, under the tax code, borrowed funds are not considered income because they must be repaid. But if your lender later cancels all or part of your debt, the IRS generally requires you to report as income the amount you no longer owe.
Taxpayers have until December 31 of this year to take advantage of the 2007 law that created a time-limited exception to this general rule.
]]> Of course, it's possible that the Mortgage Forgiveness Debt Relief Act of 2007 could be extended beyond the end of 2012. But there are no signs that taking such action is on the Congressional radar.To be sure, borrowers still have until the end of this year to take advantage of the old law. It generally takes so long to process foreclosures, however, that the deadline for tax absolution may already have passed by the time a house is foreclosed upon.
Source: "Debt-relief window closing soon," Chicago Tribune, 1-13-12
]]>In short, it's still tough out there.
It isn't only homeowners who are hurting, either. So are many homeowners associations in Minneapolis and elsewhere. Associations are increasingly dealing with members who are frustrated on many levels - starting with the fact that their dues are going up while the values of their units goes down.
In most respects, the purpose of homeowners associations remains the same, despite the downturn in the market. Associations collect dues from residents to take care of common needs like lawn mowing and snow removal. They also create and enforce rules on use of individual units, such as whether residents can have pets, put up gaudy holiday lights, or rent out their units to others.
]]> Rules against renting, in particular, have become a flashpoint for legal challenges at a time when distressed sales of neighboring units can easily reduce the value of neighboring units. Patrick Burns was quoted this week in the Star Tribune on issues faced by cash-strapped associations."You've got associations that can't do routine maintenance," Burns told the Star Trib. "Folks are cash-strapped. You raise somebody's dues $100, that's like raising taxes," he said.
Burns has seen many homeowners associations that are close to bankruptcy, as the problems of financially struggling homeowners become reflected in struggling associations.
Source: "Condo associations feel the heat as fees rise, values sink," Star Tribune, 12-12-11
]]>As Minnesota commercial zoning lawyers, we know the importance of making sure property rights are protected in these cases.
In 2005, Winona, home to Winona State University, passed the first ordinance restricting the percentage of rental units on certain blocks. The figure was set at 30 percent on those blocks.
Northfield, the home city for St. Olaf and Carleton colleges, followed with a similar ordinance in 2007. Residents had complained of issues with excessive noise, inadequate parking and unsightly litter in areas of the city with large concentrations of rental housing. Northfield's ordinance capped rentals at 20 percent per block.
Mankato, the site of Minnesota State University, was next. Its ordinance involved a 25 percent cap on rentals.
Now it's West St. Paul. In September, the city council passed an ordinance limiting rentals properties to 10 percent on certain blocks. The ordinance is due to take effect on January 1.
]]> But homeowners are starting to push back against these restrictive ordinances. In Winona, several homeowners are challenging the city's 30 percent cap. They have filed suit, seeking an injunction against enforcement of the ordinance.The Winona suit contains significant legal issues regarding property rights and the limits of local governments' zoning authority.
City officials in cities that have passed rental caps argue that the goal of the caps isn't to deter rentals. Rather, it is to distribute them more evenly across the city instead of clustered in only a few areas.
The legal issues, however, are far from resolved.
Source: "Suit vs. city: 30% rule musical chairs," Winona Post, 10-26-11
]]>Nationally, it's been especially tough in overheated markets like Miami, Las Vegas and Phoenix. Could it really be, then, that the Twin Cities real estate market is down the most of any in the country in the U.S.?
That's what data from Standard and Poor's Case-Schiller index indicates. The index sows prices in the Minneapolis area to be down 9.1 percent from a year ago - more than anywhere else in the country.
The good news is that, over this past summer, Twin Cities home prices did increase. The increase of 9.0 from March to July was the second highest in the nation, according to the Case-Schiller index. Even when adjusted for season fluctuation, the increase in prices was over 2 percent. This was the second highest in the U.S.
]]> The overall price drop in the past year, however, remains a source of concern. Foreclosures continue to hold down prices in the Twin Cities. The data show that the percentage of home sales that involve foreclosed homes is higher than the national average.This percentage is from 30 to 40 percent of all sales. In other words, over 1 in 3 houses that is sold was foreclosed upon. This does not only affect the price for those houses, but for others as well.
If you have legal questions about housing, talk to a Twin Cities real estate lawyer at our firm to discuss your specific situation.
Source: "Twin Cities house prices: a summer warm-up?" Star Tribune, 9-27-11
]]>The foreclosure numbers are frightening as well. The number of borrowers who have last homes to foreclosure is already nearly 6 million. And another 3.5 million homes are in some stage of foreclosure proceedings.
It is scarcely surprising, then, in such a daunting market, that short sales are increasing. In the second quarter of this year, they accounted for 12 percent of home sales, up from 10 percent in the second quarter of last year.
A short sale is when a lender agrees to let a borrower sell the home for an amount that is less than the unpaid mortgage balance.
In many cases, homes that go by short sale remain occupied until they are actually sold. This tends to enable short sale properties to retain value better than foreclosed properties, which often sit empty.
A potential issue for sellers, however, is the possibility of a deficiency judgment by the lender against them. That issue is one that you should discuss with an experienced real estate attorney.
]]> It can take time, as well, to work out a short sale. A survey by the California Association of Realtors found that short sales that were concluded in the second quarter of this year took an average of 245 days to complete. The California survey reported that some clients were foreclosed upon while trying to work out short sales.Source: "Number of short sales on the rise," USA Today, 8-29-11
]]>It's true that, from month to month, the number of foreclosures might go down a bit. But that is partly because the court systems in many states just can't keep up. Especially when those courts have themselves been hit with severe budget problems.
And then there is the problem of dubious banking practices. Consider the case of a married couple recently profiled in the Atlantic. Fred and Deana Dixon, of Massachusetts, sought to modify their home loan two years ago. Their lender was Wells Fargo, which of course is also a prominent player in the Minnesota mortgage market.
]]> Wells Fargo led the Dixons to believe that a modification was possible. Officials from the bank told the couple to stop making regular payments and to provide various types of financial data. The Dixons did this and thought a viable modification process had been established.Then, a year and a half later, the bank declared that the Dixons had defaulted and began foreclosure proceedings. The Dixons sued, seeking to stop the foreclosure. They argued that they had reasonably relied on Wells Fargo's statements that stopping payments was necessary in order to negotiate for a loan modification.
Wells Fargo tried to dismiss the case out of hand. But the U.S. district court has held that the Dixons must be allowed a chance to prove their case.
This ruling is a reminder that homeowners who are fighting foreclosure do have options.
Source: "Justice Foreclosed," The Atlantic, 7-25-11
]]>Foreclosures are still frequent occurrences, especially with so many people struggling in this tough economy. In Hennepin County alone, there were 475 foreclosures in June. Statewide, in the first quarter of 2011, there were 5,364. That's a lot of people losing their homes, and a lot of foreclosed houses pulling down property values.
With the severe slide in home values, many homeowners are underwater on their mortgages. This, in turn, can affect job mobility. After all, it's hard to move to a new place for a job if you can't sell your current house.
And then there is the ongoing reckoning with wrongdoing in the real estate industry that precipitated the housing slump and led to the Great Recession. One episode in this continuing saga was the announcement that Well Fargo will pay an $85 million dollar fine to the Federal Reserve for improper practices in its mortgage business.
]]> The settlement between Well Fargo and the Fed singled out two practices in particular. One was Well Fargo pushing many would-be homebuyers into high-interest loans when they were actually eligible for lower interest rates. The other problematic practice was falsification of underwriting documents by salespeople to give the appearance that certain borrowers were eligible for loans they weren't really eligible for.The settlement between the Fed and Wells Fargo requires the bank to compensate borrowers who were adversely affected by its practices.
If you believe you were harmed by improper lending practices, talk with an experienced real estate lawyer at our firm to discuss your specific situation.
Source: "Wells Fargo Will Pay $85 Million fine to Settle Fed's Subprime-Loan Claims," Bloomberg, 7-20-2011
]]>In practice, however, reverse mortgages can be a nightmare for elderly homeowners. This can happen, for example, when a married couple owns a home together and one of them dies. In the past, federal rules effectively required surviving spouses or heirs to pay off the full amount of the reverse mortgage - even if the value of the home had plummeted.
Because of the drastic decline in real estate values, this rule had the effect of facilitating many foreclosures. The Department of Housing and Urban Development finally rescinded the rule, under pressure from litigation brought by the AARP. But reverse mortgages remain a problematic financing form for many people.
]]> The latest chapter in this evolving story is that some big lenders are getting out of the reverse-mortgage business entirely. Last month, Well Fargo, the largest home lender in the country, announced that it would no longer originate new reverse mortgages. The company cites the possibility of further declines in property values as the reason for its decision.A mortgage industry consultant, Terry Wakefield, put it this way: "Why be in the reverse mortgage business if the equity that you're lending, your collateral, is disintegrating?"
If you have questions about reverse mortgages, contact an experienced real estate lawyer at our firm.
Source: "Wells Fargo says it will get out of the reverse-mortgage business," Star Tribune, 6-17-11
]]>Last fall, attorneys general from all 50 states and the District of Columbia began investigating these improper foreclosure practices after widespread reports surfaced about the banks' failures to meet legal requirements for documenting the right to foreclose. One issue was the use of "robosigners" - low-level employees who approved thousands of documents without even reading them.
There were also rampant problems with the way the mortgage industry used a recording system called Mortgage Electronic Registration Services (MERS). MERS made things easier for lenders by enabling them to record changes in ownership electronically, rather than going to county courthouses to do so. But this electronic system also enabled lenders to bundle and sell mortgages in dubious financial packages that were a significant cause of the financial meltdown in 2007.
]]> Last month, state attorneys general told a group of five of the largest banks that the banks' liability is potentially as much as $17 billion. And that figure does not even include claims that might be brought by federal agencies, such as the Department of Housing and Urban Development (HUD).The U.S. Justice Department is another interested party. The U.S. Trustee Program, which oversees bankruptcy and is part of the Justice Department, is seeking $500 million to as much as $1 billion in penalties against the banks as well.
The banks are proposing a settlement in the range of $5 billion in compensation for borrowers harmed by the practices being challenged by the attorneys general. But banks are unlikely to get off the hook so easily, as state and federal investigations into wrongful foreclosures are continuing.
Source: "Banks Face $17 Billion in Suits Over Foreclosures," Wall Street Journal, 5-25-11
]]>Unfortunately, government efforts to help distressed homeowners stay in their homes have not kept pace with this new reality. Programs to assist unemployed homeowners have been poorly conceived and drawn little participation from those in need of assistance.
For example, the Treasury Department started a program last year that in theory allows jobless people to delay their mortgage payments. But the program only allows for a three-month postponement. In practice, though, most people are in between jobs for much longer than that in today's tough economy - nine months, according to the latest data.
]]> Clearly there is a disconnect here between the three-month theory and the nine-month reality. As a result, as of March 31, 2011, the program had fewer than 7400 participants.Overall, one former Federal Reserve economist, Morris Davis, estimates that up to a million people went into foreclosure because of the lack of an effective response to the impact of unemployment on homeowners.
It's not as if the Treasury Department lacked the funds to do so. Treasury received $46 billion from the troubled assets rescue program to be used toward helping people keep their homes. Yet less than $2 billion has been spent.
If you are facing foreclosure, talk over your options with an experienced real estate lawyer at our firm.
Source: "Homeowner relief misses the mark," Star Tribune, 6-4-11
]]>These days, however, that decision is not so clear. Indeed, a new research study suggests that people who choose to default on mortgages they could afford to pay often have better credit scores than others who default.
The study was conducted by FICO, the firm that initiated the well-known credit score that is still widely known by the FICO name. The firm examined data from credit bureaus to build a profile of people who decide upon "strategic default" when three criteria are present:
•· The home is worth less than the homeowners owe on it.
•· The homeowners are over 90 days delinquent in payments on the home loan.
•· The homeowners are current on their other credit arrangements.
The study contained some interesting findings about homeowners who fit this profile and choose to default on the home loan, even though they could afford to continuing paying on it. Those who choose strategic default tend to have higher credit scores and a stronger credit history than others who default on their mortgages.
]]> Those who choose strategic default are "getting their life in order," said Andrew Jennings of FICO, analyzing the research study findings.The FICO study did not determine how many strategic defaults have occurred. But researchers at the University of Chicago have estimated that the percentage of defaults that are strategic defaults rose from 26 percent in March 2009 to 35 percent in September 2010.
With as many as 1 in 4 homeowners with a mortgage underwater, the question of strategic default is likely to continue for some time to come. It is, of course, not a decision to make lightly. Even if the house goes through foreclosure, there is still the possibility that the lender will pursue a deficiency judgment at a later date. Talk with an experienced Minneapolis area real estate attorney at our firm about your options.
Source: Study: "Underwater homeowners who walk are credit savvy," USA Today, 4-25-11
]]>"Employment misconduct" for purposes of eligibility for unemployment benefits is defined by statute, but can generally be described as a serious violation of the standards of behavior an employer has a right to expect.
In this case, the former employee was terminated for excessive absenteeism and tardiness. The employer had a progressive discipline policy, which was contained in the employee handbook. The employer had been following the progressive discipline policy in dealing with employee's past absenteeism and tardiness. As a result, the former employee had received past oral warnings and a two-day suspension.
However, eventually the employer apparently lost patience with the employee, and terminated him, rather than issuing a ten-day suspension (which would have been the next level of discipline, and which was the last level before termination). The employee subsequently filed for unemployment benefits, and was denied.
]]> On appeal, the Minnesota Supreme Court held that, at least on the question of eligibility for unemployment benefits, an employer's failure to follow its progressive discipline policy had no effect on whether the employee had committed employment misconduct. As the Court stated, "[p]ut another way, an employee's expectation that the employer will follow its disciplinary procedures has no bearing on whether the employee's conduct violated the standards the employer has a reasonable right to expect or whether any such violation is serious."It is important to note that the Court was not asked to review whether the employee had been wrongfully terminated.
Also, the question of whether an employee's conduct amounts to employment misconduct depends on the circumstances of each case. It is important to consult with experienced employment counsel, such as the attorneys of Patrick Burns & Associates, for any employment issues.
The case is Stagg v. Vintage Place, Inc., 2011 WL 1485426 (Minn. April 20, 2011).
]]>In many market segments, a lot of very good workers are out there, through no fault of their own. Unfortunately, some employers have responded to this situation with dubious and possibly illegal screening practices.
The Equal Employment Opportunity Commission (EEOC) recently held a hearing on a controversial strategy that some employers are using in their hiring practices. According to worker-advocacy groups, news reports and individual job seekers, some employers are including "unemployed need not apply" restrictions in their job postings.
The EEOC enforces federal employment discrimination laws. If it believes that it has found wrongdoing on the part of an employer, it may file a lawsuit against the employer. Persons subject to employment discrimination also can file private causes of action.
]]> Federal Employment Law: Protected ClassesFederal law does not explicitly prohibit employment discrimination against people who are not working. The law does, however, prohibit the use of policies that ultimately discriminate against protected groups.
Under Title VII of the Civil Rights Act and the Age Discrimination in Employment Act, it is illegal to discriminate against potential employees because of their race or their age, if they are 40 years old or older.
The restriction against unemployed job applicants raises concerns because the demographics of the unemployed include a disproportionate representation of these protected classes.
U.S. Unemployment Rates: Complex Numbers
While the unemployment rate of whites is approximately 8 percent, African-Americans' unemployment rate is at more than 15 percent, and Hispanic unemployment is at nearly 12 percent. A government official testified at the EEOC hearing that filtering out unemployed applicants could reduce the chances of considering a minority applicant by as much as one-third.
In addition, one-third of the short-term and medium-term unemployed are at least 40 years old. One-half of the long-term unemployed are at least 40 years old.
Some employers argue that current employment is an important qualification for a job, however. Certain industries, especially those involving technology, evolve quickly. Current employment in such industries might very well be a legitimate prerequisite to ensure that an applicant is qualified for a position requiring an up-to-date knowledge base.
The EEOC is exploring whether a ban on unemployed job applicants has a disparate impact on these groups.
Source: http://blogs.findlaw.com/law_and_life/2011/02/businesses-refuse-to-hire-unemployed-eeoc-says.html
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