Published on: June 12, 2013
OWNERS COMMUNITY ASSOCIATIONS
This may surprise anyone who views condominiums through the prism created by national news reports, but most residents of condominium communities do not think they are evil personified. In fact, a majority ─ and a large majority, at that ─ are reasonably happy with their common interest ownership experience. Several surveys have reached that conclusion, including the most recent one, commissioned by the Foundation for Community Association Research and conducted by Zogby International. The responses reflect a high level of satisfaction with condominium living generally and with the performance of the volunteer boards that govern the communities. Among the findings:
- 92 percent rated their community association experience as either positive (70 percent) or neutral (22 percent);
- 88 percent agreed that their elected governing boards strive to serve the best interests of the community;
- 81percent said they get a “great” or “good” return on their association assessments;
- 76 percent agreed that their association rules protect and enhance property values – only 3 percent disagreed with that conclusion.
In addition to the statistical profile of condominium residents, the survey report charts the dramatic growth of condominiums — from 10,000 communities containing 701,000 housing units in 1970 to 323,600 communities with 25.9 million housing units in 2012. The number of people residing in common interest ownership communities increased from 2.1 million to 63.4 million during that 40 year period.
California and Florida have the largest number of condominiums – 46,000 and 42,500, respectively, representing 14.2 percent and 13.1 percent of the national total. Massachusetts ranks seventh nationally with 11,800 units and 3.6 percent of the total.
The response to the final, much-revised Qualified Mortgage regulations has been more positive than seemed likely given the furor the first iteration of the Consumer Financial Protection Bureau’s proposed rules provoked. The new rules generally require lenders to verify that borrowers have the ability to repay the loans they receive. Loans that meet QM standards are deemed to meet that requirement, providing the liability protection lenders had sought. The key changes applauded by the financial industry:
- Exclude compensation brokers and lenders pay to loan originators from the calculation of the points and fees threshold that determines eligibility for QM treatment. Generally, points and fees can’t exceed 3 percent of the loan; and
- Ease the impact on smaller financial institutions by allowing them to continue originating balloon mortgages (otherwise prohibited under the QM definition) for two years after January 1 2014, when the QM standards take effect. The original rule would have banned those loans immediately for all lenders, except in rural and underserved markets.
“Our Ability-to-Repay rule was crafted to promote responsible lending practices,” CFPB director Richard Cordray said in announcing the final version. “Today’s amendments embody our efforts to make reasonable changes to the rule in order to foster access to responsible credit for consumers.”
Industry trade groups generally agree that the agency has achieved that goal, or at least made progress toward it. “The CFPB and Director Cordray have shown that they are listening to the broad constituency of organizations involved in housing finance,” David Stevens, president and CEO of the Mortgge Bankers Association, said in a press statement. “We are pleased at the adjustments made to the rule as it relates to smaller lenders, regardless of business model, that will allow them to continue to provide the safe and sustainable mortgage products that they are currently offering their borrowers,” he added.
OWNERSHIP RANKS SHRINKING
Despite evidence that the economy is strengthening (sort of) and the housing market recovering, the national homeownership rate is still declining. The most recent Census Bureau data indicate that the ownership rate declined by .4 percent in the first quarter of this year to 65 percent – the lowest level in almost two decades. Although the decline was spread across all age groups, it was steepest (at .8 points) for middle-aged households, between 45 and 55 – a sector in which ownership gains are usually highest. The decline for younger Americans, who have been struggling to find jobs and obtain mortgage financing, was only .3 percent; the 55-64 age cohort, with the highest homeownership rate, saw that fall from 77 percent to 76.7 percent, a loss of.6 percent.
Ownership erosion was most severe for middle-aged householders because “they’re the ones who lost their homes to foreclosure,” Brad Hunter, chief economist for Metrostudy, told reporters. He attributed the minimal loss for the youngest cohort to their enthusiastic response to “the allure of newly rising [home] prices and low interest rates.”
Casting a less positive light on that trend, a separate study has found that younger homeowners are also more likely to be struggling with negative equity. In a recent survey of homeowners aged between 18 and 34, the FINRA Foundation reports that 25 percent said their mortgages were underwater, compared with 14 percent for homeowners overall.
There’s no evidence that foreclosures are contagious; just because your neighbors lose their home doesn’t mean you will suffer the same fate. But it does mean that the value of your property will almost certainly suffer. A recent study by the Center for Responsible Lending quantified the impact.
The study, “Collateral Damage: The Spillover Costs of Foreclosures,” estimated that foreclosures nationally reduced the value of neighboring properties by a combined total of nearly $2 trillion, with half those losses on properties in minority neighborhoods.
Neighboring foreclosures reduced household wealth by an average of about $21,000 per household– the equivalent of about 7 percent of the value of the homes, the study found. In minority neighborhoods, the average loss was $37,000 or 13 percent of the average median value of homes the report, “
“CRL’s report is troubling evidence of how much the economic costs of foreclosures are spilling over into communities all over America,” Wade Henderson, president and CEO of the Leadership Conference on Civil and Human Rights, said in the CRL press release. “Communities of color – which have been targeted for years by predatory lenders, and abused for years by mortgage servicers – have been practically drowning,” he added. “Until policymakers get serious about reducing foreclosures and restoring meaningful home ownership in all communities, a full economic recovery will likely remain out of reach.”
Courts in Massachusetts and California have recently considered the disclosure obligations of real estate brokers, and brokers are not likely to be entirely happy with their conclusions. In the Massachusetts case (DeWolfe v. Hingham Centre, LTD), the Supreme Judicial Court (SJC) considered the broker’s obligation to verify property information provided by the seller. Sellers of a residential property in Norwell had told the listing broker that it was zoned “Residential Business B.” There was no evidence that a business had ever operated from the property, the neighboring properties on both sides were residences, and the broker, who had sold other properties in the community, had never heard of a “Residential Business B” zoning classification. The broker, nonetheless, told the buyer that the zoning would allow her to operate the hair salon she planned to establish.
When the buyer discovered after completing the purchase that the commercial enterprise was not allowed, she sued the sellers and the broker. The broker argued that he had accurately conveyed the zoning information the sellers provided and had no obligation to independently verify it. The court concluded otherwise. Given the obvious questions raised by the property’s location in a residential area, the unrecognizable zoning classification, and the property’s non-commercial history, the court said, it was not reasonable for the broker to rely on the seller’s information. The broker’s duty of care to the buyer required him to investigate further.
This may not represent a trend, but a California appeals court has also concluded in a different context that the duty of care brokers owe is more comprehensive than they might assume. In this case (Hall v. Aurora Loan Services), an agent was showing a foreclosed property to prospective buyers. An inspection report provided to the listing broker had included among many required repairs the replacement of stairs leading to a bonus room located in the attic. The agent (Hall), aware that the property had been shown multiple times, concluded after inspecting it that the ladder appeared safe, but cautioned prospective buyers to be careful using it. When she followed them up the stairs the ladder broke and Hall) fell, breaking her leg and injuring her knees. Hall and her husband sued both the foreclosing lender and the listing agent.
A trial court dismissed the suit, finding that there was no reason to assume that the defendants had constructive knowledge of the dangerous conditions. But the Appellate Court disagreed. A real estate agent’s duties derive not just from the contract, the court said, but from the laws of agency, which impose a duty of care extending “to all persons, including third persons, within the area of foreseeable risk.”
Relying on an earlier case in which the court held that real estate agents are required “to discover dangerous conditions of property they are marketing and to warn visitors of them or to make them safe.” the court concluded that the defendants might be held liable for the injury suffered by the plaintiff if they knew of the dangerous condition and failed to disclose it. Reversing the lower court’s decision to dismiss the action, the Appellate Court ruled that a trial court should determine whether the defendants “knew or should have known that the stairway ladder in this case was a concealed danger.”
“I think most of us would agree that people who have, say, little formal schooling but labor honestly and diligently to help feed, clothe, and educate their families are deserving of greater respect — and help, if necessary — than many people who are superficially more successful. They’re more fun to have a beer with, too.” ― Federal Reserve Chairman Ben Bernanke, in an address to graduating seniors at Princeton.