Tag Archives: Reiss

Paying off Mortgages before Retirement

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I was quoted in Should You Pay off Your Mortgage before Retirement? It opens,

Getting rid of what may be your largest monthly expense and unburdening yourself of debt are great benefits of becoming mortgage free at any age. But it may be particularly attractive as you approach retirement.

“Back in the 20th century, people used to burn their mortgage documents once they had paid the loan off,” said David Reiss, a law professor who specializes in real estate and consumer financial services at Brooklyn Law School in New York. “That practice reflected the freedom that many felt from no longer having to borrow to own their family home.”

Indeed, that emotional freedom helped make the idea of paying off your mortgage before retirement conventional wisdom for financial planning.

And there are still good reasons to consider it.

“It’s always helpful to pay attention to rules of thumb like, ‘You should pay off your mortgage before retirement,’” said Reiss. Those rules are often true under typical circumstances. But you want to understand the assumptions behind the rules and see how they compare with your situation.

Traditionally, the main reasons to pay off your mortgage before retirement are to get rid of the monthly payment (perhaps allowing for a better balance of income with expenses) and to gain the emotional benefit of having your home paid off, said Casey Fleming, a California-based mortgage advisor and the author of Buying and Financing Your New Home.

But there can be other considerations as well. These can include:

Each of these areas can provide good reasons to sunset a mortgage, but also good reasons not to. It all depends on personal circumstances, so it’s important to take a closer look.

Balancing income and expenses

For some people, retirement means shifting to a fixed income that may be lower than what they brought in during their working years. Eliminating a significant bill ahead of time — like a mortgage payment — may make living on a fixed income a little more affordable.

But that may not be the case for everyone.

“For instance, most people see a significant drop in income when they retire,” Reiss said. “If that is not the case for you — you have a great pension, your spouse is still working, etc. — then you have more flexibility when it comes to your mortgage.”

When matching income and expenses in retirement, it’s important also to take a long-term view. For example, if your spouse will retire a few years after you do, you may want to increase your mortgage payments to time their retirement with your loan payoff date.

Emotional benefits

When you carry a mortgage, someone else has a powerful legal hold on your home. Forget to pay your homeowner’s insurance bill? Your lender can buy coverage — very expensive coverage — on your behalf. Miss too many loan payments? Your lender can foreclose.

As noted earlier, taking back that power made paying off the mortgage a celebratory event. Not only did people burn mortgage documents, but some also hung eagles over their doorways, using the symbol of American freedom to herald their freedom from mortgage debt to visitors.

Yet you’re never truly free of foreclosure risk — you’ll still have to pay your property taxes even after you’ve extinguished your mortgage. And most people should still carry homeowner’s insurance, even when a lender doesn’t require it — which means you’ll have to answer to your insurance carrier. If they don’t like the wood-burning stove in your garage, you’ll have to take it out unless you can find another company that approves having it.

Still, many people feel differently about their homes once the mortgage is paid in full.

Liquidity

Paying off your mortgage before you retire — assuming that you’re not already on schedule to do so — means using assets you might otherwise allocate elsewhere.

Generally, if you have enough money in your retirement fund to handle your living expenses comfortably, plus a cushion for extraordinary expenses (like medical bills as you get older), then it’s safe to pay off your mortgage, Fleming said.

But it may be unwise to use liquid assets, such as stocks, bonds, and cash, to pay down your mortgage as you approach retirement because home equity is far less liquid. If, after you retire, you wish you had that money back, you may have to look at options for selling your home, refinancing it, or getting a reverse mortgage, all of which require time and fees.

Return on investment

Paying off any sort of debt gives you a guaranteed return on investment. If you’re carrying a mortgage at 7 percent, paying it off may be attractive because you typically would have difficulty earning a guaranteed 7 percent long term anywhere else.

Of course, with a lower mortgage rate or a higher risk tolerance, early mortgage repayment becomes less attractive from an ROI perspective. So, it becomes a personal choice about risk and lifestyle.

Taxes

Another argument in favor of paying off your mortgage before retirement is if you won’t lose a tax deduction by doing so.

“The standard deduction is pretty high now, and many seniors don’t benefit anymore from the mortgage interest tax deduction,” Fleming said.

If your standard deduction is greater than your itemized deductions — and for the vast majority of Americans, it is — you can’t reduce your tax obligations by deducting your mortgage interest.

However, the standard deduction in effect today could halve in 2026. The doubling of the standard deduction that became effective in 2018 is one of many tax code provisions that’s set to expire at the end of 2025.

And even if your mortgage interest by itself doesn’t get you over the standard deduction threshold — in 2023, that’s $13,850 for single taxpayers, $27,700 for married taxpayers who file jointly, and $20,800 for heads of household — when combined with other itemizable deductions such as charitable donations and state and local income taxes, paying off your mortgage early might increase your tax bill.

“If you pay off a mortgage early, you are saving on mortgage interest, but you may also be giving up the mortgage interest deduction,” Reiss said. “If you do not pay it off early, you can earn interest in a bank account, but you will be paying taxes on that interest. You want to think through the consequences of your choice to see which is the most financially attractive, including the tax consequences.”

American College of Mortgage Attorneys

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Just announcing that I have been selected as a Fellow of the American College of Mortgage Attorneys, one of only a couple dozen in New York. ACMA fellows are nominated by their peers, and the designation recognizes excellence in the field.

ACMA comprises 500 attorneys in North America who are experts in mortgage law. Fellows must have distinguished themselves as practitioners in the field of real estate mortgage law through their skills and practice experience, bar association activities, lecturing, authoring articles and program materials, participation in the legislative process, and writing briefs and/or arguing cases that are significant to mortgage transactions.

Fellows share a commitment to giving back to their profession, improving and reforming laws and procedures affecting real estate secured transactions, and raising the level of professionalism of lawyers practicing in this area.

 

Helping Your Kids Qualify for a Mortgage?

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Mitchell Joyce https://creativecommons.org/licenses/by-nc/2.0/

The Wall Street Journal quoted me in Helping Your Kids Qualify for a Mortgage? What to Know Before Cosigning on the Dotted Line. It reads, in part,

With rising interest rates and slowing real-estate sales, homeownership remains out of reach for many would-be buyers. According to the National Association of Home Builders, in the second quarter of 2022, housing affordability fell to its lowest point since the 2007-09 recession.

The NAHB/Wells Fargo Housing Opportunity Index found that just 42.8% of new and existing homes sold between the beginning of April and the end of June were affordable to families earning the U.S. median income of $90,000. This is a sharp drop from the 56.9% of homes sold in the first quarter that were affordable to median-income earners.One option to improve affordability, especially for those who lack good credit: Have mom and dad cosign the mortgage. Many parents are willing to do so, according to data prepared for The Wall Street Journal by LendingTree Inc., an online loan marketplace, which reported that 57% of parents would be willing to cosign their child’s mortgage and 7% have done so in the past.

 *.     *.     *

There is a difference between cosigning and guaranteeing. According to David Reiss, a professor at Brooklyn Law School who specializes in real estate, a parent acting as a co-borrower has the same responsibilities under the loan as their child. They are liable for the payments as they come due and can be sued by the lender for nonpayment if the loan becomes delinquent. But a parent acting as a guarantor has a different legal relationship with both the lender and the child. A parent guarantor would be responsible for the loan only if the child first defaults.

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Does Historic Preservation Limit Affordable Housing?

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I answer that it can in CQ Researcher’s Historic Preservation:  Can The Past Escape The Wrecking Ball?

Many people fail to realize that land use policies like historic preservation involve big trade-offs. The most important one is that if you want to protect existing structures from demolition and modification, you can’t replace them with bigger ones that could house more people. Consider:

  • Historic preservation equals height and density restrictions. New building technologies (think steel girders and elevators) allow buildings to be built higher as time goes by. If a city landmarks a large percentage of its inner core, it restricts the ability of that core to go higher. This can lead to sprawl, as a growing population is pushed farther and farther from the city center.
  • Historic preservation favors the wealthy. Limited supply drives up housing prices and apartment rents, benefiting owners. And low-income and younger households are likely to suffer, as they are least able to bear the cost of the increases compared to other households. Future residents — think Midwesterners, Southerners and immigrants seeking to relocate to a city like New York for job opportunities — will also suffer.
  • It isn’t easy for historic preservation to be green. It feels environmentally responsible to protect older, low-density buildings in city centers because you have no dusty demolition, no noisy construction. But it actually comes at a big environmental cost. Denser construction reduces reliance on cars and thereby lowers carbon emissions. People living in a dense city have a much smaller carbon footprint than those in a car-oriented suburb.

Just because preservation comes at a cost does not mean it is bad. Much of our past is worth protecting. Some places benefit from maintaining their identities — think of the European cities that draw the most tourists year in and year out. But it is bad to deploy historic preservation indiscriminately, without evaluating the costs it imposes on current residents and potential future ones.

Cities that want to encourage entrepreneurship and affordable housing should deploy historic preservation and other restrictive land use tools thoughtfully. Otherwise, those cities will be inhabited by comparatively rich folks who complain about the sterility of their current lives and who are nostalgic for “the good old days” when cities were diverse and hotbeds of creativity.

If they fail to understand the trade-offs inherent in historic preservation, they won’t even understand that a part of the problem is the very policy they support to “protect” their vision of their community.

In Spite of It All

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Realtor.com quoted me in 3 Most Mind-Boggling Housing Turf Wars Ever—and What They Can Teach Us All. It opens,

Welcome to turf wars! No, it’s not the latest reality TV show—it’s just a way to describe two (or more) parties insisting that a particular piece of property is their own.

Turf wars are as old as the hills, and the existence of people who could lay claim to them. And they’re at the center of some surprisingly fascinating stories of wealth, greed, and pettiness. It seems that no property is too small to inspire a bitter rivalry—including one about the size of a floor lamp—that could go unresolved for decades.

As proof, check out some of the strangest turf tales below, and the lessons we can all learn from them to avoid the same ugly fate.

1. The smallest land grab ever

In Manhattan on the corner of Christopher Street and 7th Avenue lies a 500-square-inch piece of private property in the shape of a triangle.

The backstory: In 1910, the city demolished a building owned by David Hess to build a subway, but the surveyors missed this small patch in their measurements. Later on, once this error was discovered, the city asked the Hesses to donate it, but the family refused.

For good measure, the family laid a mosaic reading, “Property of the Hess Estate Which Has Never Been Dedicated for Public Purposes.”

Per the New York Times, it’s “one of the smallest pieces left in private ownership as a result of the cutting through a few years ago of the Seventh Avenue extension. It has been assessed on the tax books for $100.”

In 1938 the family sold this parcel to the cigar shop a few feet behind it for $1,000.

Lesson learned: Land survey mistakes—or not bothering with a survey at all—can cost you big-time!

“If there’s any question about who owns what, it’s better to be safe than sorry and get a good survey done,” says David Reiss, a law professor at the Center for Urban Business Entrepreneurship at Brooklyn Law School.

On a more human level, we can learn this: “Spite is about as powerful as an immovable object,” says Reiss. “If you try to dislodge it, you will in all likelihood lose.”

Unfair, Unlawful and Abusive

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I signed on to a Memorandum in Support of a bill to amend New York’s consumer protection law to make it consistent with the laws of 39 other states and the federal government.  St. John’s Gina Calabrese led this effort.  The Memorandum opens,

STATEMENT OF SUPPORT: The undersigned consumer law professors support S.2407/A.679, which would expand the scope and improve enforcement of General Business Law §349 (“GBL 349”), New York’s statute prohibiting deceptive business acts and practices. By adding unfair, unlawful and abusive to the categories of prohibited conduct, this bill would make New York’s consumer protection policy consistent with the laws of 39 other states and the federal government, reflecting policies integral to a well-functioning marketplace.

BACKGROUND: Enacted almost 50 years ago, GBL 349 prohibits “deceptive” acts and practices. However, it does not currently prohibit unfair, unlawful, and abusive business acts and practices. Most states and the federal government recognize that unfair, unlawful, and abusive acts and practices cause great harm to the public. Traditional businesses have long-standing methods that take advantage of consumers. Modern business developments, products, and services have increased the public’s vulnerability to various harms that may not be encompassed by prohibitions against “deceptive” acts. Technology, collection of personal data, and complex business models (e.g., several entities handling different aspects of a transaction) all play a role. For example:

 Wells Fargo opened millions of unauthorized bank accounts using customer data already in its possession. The Consumer Financial Protection Bureau fined Wells Fargo $100 million using its power to address unfair and abusive practices, not its power to punish deceptive practices.

 New York’s law fails to prevent unfair tactics well-known to consumer experts, including high pressure sales tactics in automobile sales and illegal fees charged by mortgage servicers. Law school clinics have assisted elderly car buyers who were persuaded to relinquish their keys to car dealership staff then detained for hours until they were “worn down” and bought cars or add-ons they didn’t want or need with expensive financing.

Dozens of other states already prohibit unfair practices, such as New York’s neighbors Connecticut, Pennsylvania, and Massachusetts. Even states like Mississippi, Georgia, Tennessee and West Virginia permit consumers to sue for unfair practices. Contrary to fears stoked by business groups, there is no evidence that that has led to an explosion of litigation. And the federal Dodd-Frank Act proscribes abusive consumer financial practices. S.2407/A.679, is not a broad expansion of consumer rights, but more like having New York catch up.

The bill would eliminate the “consumer-oriented” requirement that the courts grafted onto the law. It does not appear in the text of GBL 349. It prevents consumers from holding businesses accountable because meeting the requirement often involves substantial pre-suit investigation. We know of no other state that requires “consumer-oriented” conduct before a court can impose liability.

The bill would improve compliance with and enforcement of GBL 349 because it increases the outdated $50 cap on statutory damages, codifies organizations’ standing to sue, permits class actions, and ensures that a successful plaintiff will be able to recover fees to pay her attorney. Very few consumers will bother to sue for $50, meaning that many bad actors do not have to fear private claims and the law will not be properly enforced. The bill would permit statutory damages of $2,000, which seems modest compared to penalties consumers can obtain under Kansas law of up to $10,000. Strengthening the ability of individuals and organizations to sue businesses for unfair, unlawful, deceptive, and abusive acts ensures that the public will be protected when government agencies do not act to stop illegal practices, whether the reason be different priorities, lack of resources, or lack of impact on a large number of people.

The bill would empower the Attorney General to ensure New Yorkers enjoy a fair and just marketplace and private persons to better protect themselves from unfair, unlawful, abusive, and deceptive practices engaged in by businesses with greater bargaining power and protect the public from ever-evolving anticompetitive and harmful business practices.

Skyscraper’s Future up in The Air

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skyscrapers

The New York Law Journal quoted me in Upper West Side Skyscraper’s Future Uncertain After NY State Court Ruling. The story opens,

The development at 200 Amsterdam Ave. in Manhattan is slated to be the tallest building on the Upper West Side, with its 51 stories rivaling the skyscrapers located further downtown.

But whether this will ever happen has now become questionable, after a state court ruling that found city officials were wrong to follow an interpretation of city zoning law used by the developer to achieve the project’s awesome height.

Supreme Court Justice Franc Perry of Manhattan sided with local community groups looking to halt the building underway at the site. The plaintiffs—the Committee for Environmentally Sound Development and the Municipal Arts Society of New York—were joined by numerous local state and city elected officials in opposing what they say is not only an out-of-character monster development in the Manhattan neighborhood, but one that relied on a faulty zoning law interpretation to move forward.

“It is finally a declaration that zoning law means something and developers can’t make it up as they go along,” said Emery Celli Brinckerhoff & Abady name attorney Richard Emery, who represented the plaintiffs.

Since 1978, developers and city buildings officials have relied on the so-called Minkin Memo, named after the former head of the city’s Department of Buildings’ Irving Minkin, for guidance on what experts call an ambiguity in the city’s zoning law towards so-called tax lots. These are additional subdivisions of city real estate, which can overlap with or be included inside a zoning lot.

Under the Minkin memo, developers have been able to pull together extra vertical building rights that nearby property owners aren’t using, offering the opportunity to boost the size of a project such as 200 Amsterdam beyond what would normally be allowed.

“The zoning resolution is ambiguous about when a zoning lot can be formed from partial tax lot; it never deals with that problem,” said Stewart Sterk, the Mack Professor of Real Estate Law and director of the Center for Real Estate Law & Policy at the Cardozo School of Law.

Initially, city officials had no problem with the move. DOB issued a permit to the developers for a residential and community facility building at the site of the Lincoln Towers condos on the Upper West Side. The developers relied on the Minkin memo as the basis for the acquisition tax lots that combined partial and whole lots to provide the developers with the vertical building rights needed for their skyscraper.

Shortly after DOB green lighted the project, the Committee for Environmentally Sound Development challenged the DOB’s decision. The challenge snowballed, and soon seemingly every local elected official, from state Assemblyman Richard Gottfried to borough president Gale Brewer, were opposed to the plan. The project’s permit was appealed by both CESD and the Municipal Arts Society to the city’s Board of Standards and Appeals.

In March 208, DOB made an official about-face on the project. In a letter from assistant general counsel to the BSA, the department said the Minkin memo provided an incorrect interpretation and that zoning regulations did not in fact intend for zoning lots to consist of partial tax lots.

The BSA was not persuaded by the arguments and in July 2018 voted 3-1 not to grant the appeal, with one board member abstaining. The plaintiffs soon after pursued a review of the BSA’s decision in state Supreme Court.

In subjecting the developers’ permit to further review, Perry pointedly took issue with BSA view of the process.

“BSA found that the Subject Zoning lot is ‘unsubdivided,’ within the meaning of the [New York City Zoning Resolution], simply because Developer has declared it to be so,” the judge wrote.

Noting that the referenced law states that a zoning lot is defined by being “unsubdivided” within a single block, Perry said BSA’s interpretation would render the term “superfluous,” and run “afoul of elementary rules of statutory construction.”

Since DOB saw the light on the Minkin memo during the appeal process, the court said the department’s statutory basis for the issuance of the permit to begin with was undermined. BSA’s decision was nullified and vacated, and the board was directed to review the project’s permit application “in accordance with the plain language” of the zoning regulation and Perry’s order.

As Cordozo’s Sterk noted, the development at 200 Amsterdam was far from the first to use the Milkin memo to justify partial tax lot usage in a building plan. Perry’s decision has the ability to throw uncertainty around zoning and building issues into a business sector highly adverse to such things, Sterk said.

But just as important for Sterk is the question now of when a government agency becomes estopped from changing its mind after it’s already induced people to rely on its existing interpretation.

“That’s a big problem in this case, because clearly developers have put millions of dollars into this project in reliance on an existing interpretation,” he said.

Brooklyn Law School professor David Reiss, who is the research director of the school’s Center for Urban Business Entrepreneurship, said he saw the case as less of a “good guy vs. bad guy” dynamic as much as one of whether the assurances of government officials can be binding.

“There’s a reliance on government statements and government permissions,” Reiss said, while noting the project has already commenced.

Should the case stand, he predicted it would serve to rattle developers’ confidence in their dealings with the city going forward.

“It’s more uncertainty in a process that’s already pretty uncertain,” he said.