Legal/Legislative Update – December 13, 2015

Published on: December 13, 2015

HUD SMOKING BAN

The Department of Housing and Urban Development is proposing rules that would ban smoking in all of the nation’s public housing developments.

hud_logoApproximately 228,000 public housing units are already covered by smoke-free policies that HUD has been encouraging housing agencies to adopt voluntarily since 2009. The proposed rules would make the remaining 940,000 units smoke-free.

“We have a responsibility to protect public housing residents from the harmful effects of secondhand smoke, especially the elderly and children who suffer from asthma and other respiratory diseases,” HUD Secretary Julián Castro said in a press statement. “This proposed rule will help improve the health of more than 760,000 children and help public housing agencies save $153 million every year in healthcare, repairs and preventable fires,” he added.

Under the HUD proposal, the nation’s 3,100 public housing agencies would have 18 months to enact policies prohibiting smoking of all tobacco products in residential units, administrative offices and indoor common areas as well as in all outdoor areas within 25 feet of residences and administrative offices. Although housing industry executives and analysts generally support the HUD initiative, some pointed out that implementation costs and enforcement may pose problems for the agency.

The smoking ban “would add regulatory requirements to a program that is already facing significant funding shortages,” Amy Glassman, an attorney with Ballard Sparh, told Housing Wire. Smoking bans also raise lease enforcement and fair housing accommodation questions, she noted, “so HUD guidance on both issues would be extremely helpful.”

HERE IT COMES!

arrow-156792_1280If an interest rate hike could ever be anti-climactic, the one the Federal Reserve is expected to announce this month will be. Ongoing and seemingly endless media coverage and industry speculation on the issue illustrate what critics say of economists who have “predicted 10 of the past 5 downturns.” Predictions of this hike were bound to coincide with its reality at some point.
But it seems likely that the strong November employment report (a gain of 211,000 jobs on top of an upwardly revised October total) will either give the Fed the confidence it needs to move off of the zero interest-rate-dime, or eliminate an excuse for not doing so.

“Only the economic equivalent of an asteroid strike could now alter the Fed’s course to raise rates this year,” a New York Times article suggested.

Economists and the financial markets appear close to unanimous in their expectation that the long-anticipated rate adjustment will come this month, with others to follow next year – their number and size depending on how the economy performs.

The Fed’s policy decisions will be driven less by employment growth than by wage gains and inflation trends. Fed Chairman Janet Yellen provided some insight into her current thinking in a speech in late November, when she noted: “Ongoing gains in the labor market, coupled with my judgment that longer-term inflation expectations remain reasonably well anchored, serve to bolster my confidence in a return of inflation to 2% as the disinflationary effects of declines in energy and import prices wane.” Translation: Barring significant economic reversals, the Fed will probably feel comfortable raising interest rates incrementally next year.

Jan Hatzius, senior economist for Goldman Sachs, is expecting the Fed to boost rates by a quarter of a point every quarter, in which case, he predicts, “The economy does more or less what it has been doing in terms of growth.”

HOUSING OUTLOOK MIXED

If this were a weather forecast, it would sound something like this: Moderating temperatures, a mix of clouds and sun with a chance of rain, heavy at times, in some areas. A scorching hot housing market isn’t in the forecast. “Modest” is the adjective you’ll find most often, with the most optimistic forecast (from the National Association of Realtors) anticipating existing sales to total 5.3 million this year, and rise only a little above that, to 5.45 million, next year. “The one variable that could [produce higher totals],” the NAR’s chief economist, Lawrence Yun, suggests, “is if supply can keep up enough to keep a lid on prices, especially with mortgage rates on the rise.”

The NAR is predicting that builders will construct around 1.3 million new homes next year, up from the 1.1 million total estimated for this year; the National Association of Home Builders anticipates only 914,000 starts next year, bringing the new construction pace to 74 percent of what is considered “normal” by the end of next year, rising to about 90 percent by the end of 2017.

That volume won’t keep pace with projected demand, the NAR’s Yun says, and if it doesn’t, “rents and home prices will exceed income growth.”

Continued job gains and, more importantly, wage growth, would offset that concern. “This housing recovery is all about jobs,” David Crowe, the NAHB’s chief economist, says. “If people can get good jobs that pay decent incomes, the housing market will continue to move forward.” Crowe doesn’t think rising interest rates will create significant affordability problems. Even with the adjustments the Fed is expected to make, he notes, rates “will still be low by historical standards and very affordable.”

RAISING THE CEILING

freddie-mac-fannie-mae Boston is among a handful of markets in which the Fannie Mae/Freddie Mac conforming loan limits will rise next year. Those limits – representing the maximum size of the single-family mortgages the secondary market giants will purchase – will rise from $517,500 to $523,250 in Essex, Middlesex, Norfolk, Plymouth, Suffolk and Rockingham Counties.

The largest adjustments will be in the Denver area, where increases of more than $34,000 will push the loan cap in several counties to $458,850. A slightly smaller increase will boost the cap in Sonoma County, CA from $520,950 to $554,300.

Although industry executives had widely predicted that strong appreciation rates would produce a nationwide hike in the conforming limits, the Federal Housing Finance Agency, which oversees Fannie and Freddie, said the 2015 limits will remain in place next year in most areas.

Although steady price increases in many housing markets have lifted thousands of homeowners out of the negative equity trenches, 7.5 million owners are still struggling with homes worth less than their outstanding mortgages, according to the Center for American Progress (CAP). “Close to 1,000 counties across the country present either stagnating or increasing percentages of underwater homes,” a recent CAP report found. “There is still much work to be done in order for the market to fully recover,” the report cautioned.

Airbnb is trying to assuage the concerns of rental housing professionals about the impact this “home sharing” business is having on the properties they own and manage. The company is planning to introduce a “partnership program,” in which it will work jointly with landlords to improve oversight and share revenue from this rapidly growing business. In a recent interview posted on the with National Multi Housing Council’s Web site, Jaja Jackson, head of landlord partnerships for Airbnb, addressed several specific industry concerns, among them:

  • Lease restrictions that prohibit subletting. Short-term rentals involve home sharing, not subletting. Landlords have the discretion to define the arrangement, Jackson said. “It’s only a lease violation if you say it is.”
  • Safety threats posed by a steady stream of visitors unknown to landlords or residents. Airbnb can’t perform a complete background check on all travelers using the service, Jackson agreed. But travelers are screened, he said, and the company collects considerable information about them, including photographs and two pieces of identification. “No guests are anonymous,” he insisted.
  • Potential damage to property. There is little basis for that concern, Jackson said, citing company statistics indicating approximately one incident (involving damage of less than $1,000) per every 60,000 home sharing nights. Airbnb offers a guarantee program, he said, providing reimbursement to owners for up to $1 million in damage to their property.

Jackson also emphasized the revenue opportunities Airbnb’s partnership program will create for rental property owners. The program could provide a powerful marketing mechanism for owners, he noted, as guests report positive experiences in the buildings in which they stay. Guests can become “your brand ambassadors,” he noted. Referral fees can also be lucrative, he added. “There’s a lot of good mojo flowing around. If you can do this right, you can associate your brand with that,” he said.

IN CASE YOU MISSED THIS

Responding to conflicting pressures – rising land costs and consumer demand for more space ─ home builders are constructing larger homes on smaller lots.

Access to credit remains the largest obstacle to home ownership for millenials, some industry executives believe. But a Cleveland Fed study concludes that student debt is the major impediment.

The home ownership rate has fallen to its lowest level since before the Great Depression, but it may not fall any lower, some analysts say. One good sign: The rate actually increased a tiny bit in the third quarter for the first time in two years.

New York Times columnist Gretchen Morgenson alleges that the nation’s largest banks, anxious to grab a larger share of the mortgage market, are quietly pushing to eliminate Fannie Mae and Freddie Mac l and that some “high profile” policy-makers, themselves former banking executives, have advanced those efforts.

It seems the implementation of TRID (the new mortgage disclosure rules) has been a lot smoother and less problematic than mortgage lenders feared and critics predicted.

LEGAL BRIEFS

SUPERLIEN VICTORY

ri_supreme_ctDelivering a long-awaited and much-appreciated victory to the condominium associations, the Rhode Island Supreme Court ruled that a foreclosure under the state’s priority lien statute eliminates the first mortgage lien. A Superior Court had ruled to the contrary in Twenty Eleven, LLC vs. Botelho, concluding that while the statute allowed a condo association to foreclose, the foreclosure did not extinguish the rights of a first mortgage lender, which still stood first in line to collect the proceeds of the foreclosure sale.

The plaintiff (Twenty Eleven) purchased a unit sold by an association that had foreclosed on a delinquent owner. When the lender attempted to foreclose on the unit after the foreclosure sale, Twenty Eleven asked the Superior Court to issue a “quiet title” affirming its ownership of the unit. The Superior Court refused, ruling that the condominium’s priority lien had not extinguished the lender’s rights.

Representing Twenty Eleven, Goodman, Shapiro & Lombardi, LLC argued that this reading of the statute negated the effect and intent of the priority lien. The Rhode Island Supreme Court agreed.

The lender could have protected its interests by paying the delinquent fees, foreclosing itself, or exercising the post-foreclosure right of redemption the statute provides. Having failed to take any of those steps, the court said, the lender could not complain about the adverse result. “The inequity [the lender] decries is …of its own making and not a reason to give [the statute] a singular reading at odds with its text,” the court said.

But the Rhode Island court also made it clear that it did not much like the statute it was upholding, noting the “draconian” nature of its effects. Nonetheless, the court said, “it is not our task to rewrite the statute or circumvent the Legislature’s intent to achieve a more temperate result. Rather, our task is to interpret the legislation as it is written.”

Courts in Nevada and the District of Columbia have also ruled that the priority lien extinguishes a first mortgage lien.

This Rhode Island decision is the latest development in what has become a widening battle between the Federal Housing Finance Agency (chief regulator for Fannie Mae and Freddie Mac), which is challenging the priority lien in state courts, and the condominium industry, which is fighting to preserve it.

RIGHTS ARE ASSIGNABLE – IF OWNED

Condo developers sometimes assume – or want to assume – that their development rights have a half-life close to that of uranium. A Utah appeals court found the life span to be somewhat more limited. (Todd Hollow Apartments at Deer Mountain v. Homes at Deer Mountain Homeowners Association).

The declaration creating this residential development gave the developer (Canyon Ridge) the right to “reduce” the project by “by withdrawing or eliminating… any land, improvements and associated Common Areas to the extent that such land and Improvements are owned exclusively by Master Developer.” The declaration also made the developer’s rights assignable.

The development included an apartment building, which Canyon Ridge sold to Todd Hollow in 1999. The developer sold his last remaining interest in the development in 2005.

condoactIn 2012, about 12 years after purchasing the apartment, Todd Hollow became dissatisfied with the services provided by the homeowners association. At Todd Hollow’s request, the developer (Canyon Ridge) conveyed its right to reduce the property to Todd Hollow, which exercised that right by withdrawing the apartment building from the declaration. When Todd Hollow ceased paying its assessments, the association recorded a lien against the apartments, which Todd Hollow said was invalid. When the HOA refused to erase the lien, Todd Hollow sued.

The trial court dismissed the suit, finding that the assignment of the developer’s withdrawal right and Todd Hollow’s withdrawal of the apartment from the declaration were improper, because the developer’s assignment rights expired when he sold his last interest in the development. Todd Hollow appealed, arguing that the developer’s assignment rights survived, even when his ownership interest ended.

The appeals court disagreed, citing a fairly basic premise of property law: “It is well established that an assignor cannot assign rights he or she does not have.”

At the time of the assignment, the court noted, the developer did not own any land or improvements in the community. “It thus had no right to withdraw anything. Consequently, it had no reduction option to assign, and Todd Hollow received no reduction right in the assignment. In sum,” the court concluded, “we reject Todd Hollow’s claim because, having conveyed away all its property, the Master Developer could not separately assign its right to withdraw that property from the HOA.”

WORTH QUOTING:

“It would have been my preference to have more investigations of individual actions because obviously everything that went wrong or was illegal was done by some individual, not by an abstract firm.” Former Federal Reserve Chairman Ben Bernanke, in an interview with USA Today, agreeing that some Wall Street execs should have gone to jail for their role in the financial meltdown.