Tag Archives: uncertainty

Skyscraper’s Future up in The Air

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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.

Buying a Foreclosure or Short Sale

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DailyWorth quoted me in Should I Buy a Foreclosure or Short Sale? It reads, in part,

I’m looking to buy a new home, and I’ve noticed that there are a couple of “short sale” and foreclosed homes in the area where I’m interested in living. These homes are priced substantially lower than others, and I’m wondering what the catch is. I’ve heard that short sales or foreclosures often need repairs. What else do I need to know to decide whether to invest in one of these properties?

Purchasing a home through a short sale or a foreclosure process can be a way to get a good deal on a property. But it isn’t for the faint of heart. Both processes are likely to be more complicated than purchasing a home on the open market.

First, make sure you understand the differences between these categories. Both are used when a property owner is in financial distress and can no longer afford mortgage payments.

In a short sale, the proceeds from the sale will fall short of the debt owed on the property. Such a sale can only occur if the mortgage holder (usually a bank) has agreed to accept less than the amount owed on the loan.

In a foreclosure, on the other hand, the mortgage holder has repossessed the property and is trying to recoup its losses by selling the house for the amount still owed on the loan. That amount is typically still less than the market value of the home.

Here are some of the common issues you may encounter when buying a foreclosure or short sale.

Purchasing Delays
If you’re considering buying a property listed as short sale or foreclosure, keep in mind a few things, experts say.“The process for purchasing this kind of property may not be as easy as purchasing a home directly from a seller who is current on their mortgage,” says Colin McDonald, real estate agent with Berkshire Hathaway HomeServices Blake in Delmar, N.Y.For instance, it typically takes six to eight weeks to close on a normal home, McDonald says. But with a short sale or foreclosure, the property may not close for six months or even a year.“[W]hen a property is being listed as a short sale or foreclosure, you’re no longer just dealing with the seller,” McDonald says. “A bank is now involved, and unfortunately, they only care about getting what is owed to them. They will drag the process on for as long as they like.”

Short sales can also take months to get lender approval. “The seller’s bank can make things very difficult, making the borrower jump through many hoops — hoops that can take a long time to navigate,” warns David Reiss, a professor of law at Brooklyn Law School who writes and teaches about real estate.

And in the end, the bank may respond with a counteroffer that doesn’t meet your budget or terms. “So you might wait for a long time only to be disappointed,” says Sep Niakan, owner of Condo Black Book, a leading condo search website in Miami and broker of HB Roswell Realty.

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 Potential Additional Fees
While the price of the home may be low, a foreclosure or short sale often comes with additional transaction costs. With a foreclosure, you may have to pay transfer taxes as well as any superior liens on the property. You may also have to pay an additional fee to the foreclosure company.
Typically, in a short sale, there is a negotiator involved who will require a fee, such as 2.5 percent of the purchase price, McDonald says. The buyer is usually required to pay this fee.You also may have to pay back taxes or other past dues associated with the property. If you buy a condo-foreclosure, for instance, “there may be many years of past due condo association fees that may not appear anywhere in public record, and you might end up inheriting a very large debt,” Niakan says. “Some local and state laws limit the amount you would be responsible for in those cases, but do your homework.”Purchasing a home at a price that is significantly below market always sounds like a good thing — and it can be for the right person. But keep in mind that if the property is really great, “there will be others who will also be interested in it,” McDonald warns. “This includes veteran investors who have deep pockets of cash.”If you hope to get a great home for a low price through a foreclosure or short sale, be sure to do your homework and be aware that it may take a long time and come with extra costs and repairs. And at the end of the day, buying a short sale or foreclosure isn’t for everyone.

“While you may get a good price, you will be paying for the house with uncertainty, delay, and frustration,” Reiss says. “You’ll need to determine for yourself whether it is worth it.”

Mortgage Market Forecast

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OnCourseLearning.com’s new financial services blog quoted me in Mortgage Rates Likely to Remain Low for Foreseeable Future. It opens,

In the weeks since the United Kingdom voted to leave the European Union, previously low interest rates have fallen to near historically low levels.

For the week ending Aug. 25, a 30-year fixed rate mortgage averaged 3.43%, just slightly above the record low of 3.31% established in 2012. At the same time a year ago, the average mortgage rate for a 30-year fixed rate mortgage was 3.84%, according to Freddie Mac.

The drop in interest rates appears to be drawing more homeowners into the mortgage market. Freddie Mac now expects 2016 loan originations to reach $2 trillion, the highest level since 2012.

Market Uncertainty

While markets have calmed since the Brexit vote in late June, the Mortgage Bankers Association cautioned in a July 14 Economic and Mortgage Finance commentary that the actual “terms and conditions of the exit will continue to destabilize markets.”

Global economic uncertainty, oil price fluctuations, slow economic growth and the potential for interest rate hikes suggest market instability will likely continue for some time, experts said. As a result, most analysts expect interest rates will remain low, at least in the short term.

“Those who have been betting on increasing interest rates have been wrong for a long time now,” said David Reiss, professor of law at Brooklyn Law School and research director of its Center for Urban Business Entrepreneurship. He believes rates likely will remain low “over the next six to 12 months, partially driven by a further reduction in spreads between Treasury yields and mortgage rates.”

Greg McBride, chief financial analyst for Bankrate.com, a personal finance website, expects “the backdrop of slow global economic growth, low inflation, and negative interest rates elsewhere will keep demand for U.S. bonds high, and mortgage rates [below] 4% in the foreseeable future.”

In July, Freddie Mac predicted the 30-year rate won’t top 3.6% in 2016, or 4% in 2017.

Lending Opportunities

The low-interest rates have created new opportunities for lenders. Refinance bids recently reached their highest level in three years.

“With mortgage rates having been range-bound for so long, this breakout to the low side has opened the door to refinancing for homeowners who had previously refinanced around 4% or even just below,” McBride said. He expects refinancing demand to continue as long as mortgage rates stay close to 3.5%, but predicts rates may need to drop a bit more to prolong the boom.

Meanwhile, rising home prices are creating more equity, and the MBA expects homeowners to want more cash-out refinancing. In its July 14 report, the MBA raised its 2016 refinance origination forecasts by 10% to $760 billion, replacing its pre-Brexit projection of a decrease.

As rates fall, refinancing becomes attractive earlier for those with outsize mortgages. These jumbo loans are those that exceed $417,000 in most of the country, or $625,000 in high-priced markets like New York and San Francisco, according to a July 7 online article in the Wall Street Journal. With these big loans, lower rates can mean substantial savings.

“Borrowers with larger loans stand to gain more by refinancing, and may not need as large of a rate incentive than borrowers with lower loan balances,” according to the July 14 MBA report. Because more affluent borrowers take out these loans, they generally have fewer delinquencies or foreclosures, and lenders can steer big borrowers to a bank’s other accounts and services. They’re also becoming cheaper: Rates on jumbo loans were at record lows in July, according to the MBA.

Reiss thinks lenders have been somewhat “slow to expand in the jumbo market, and may now gain a leg up over their competitors by doing so.”

Potential Risks

Still, lenders face some risks to profitability, including increased regulatory expenses such as the impact of the Consumer Financial Protection Bureau’s new TRID rule. Most of the pain from the TRID regulations, Reiss said, involve “transition costs for implementing the new regulation, and those costs will decrease over time.”