Selling and Financing Real Estate

November 13, 2008

On November 8, the Washington Post wrote this about the real estate market:

In soft and declining housing markets, lenders are making a big deal of “comps,” the comparable sales of properties used as benchmarks in home real estate appraisals. Some sellers are forced to renegotiate lower prices with buyers, even after they have a signed contract. Rather than accepting sales of similar properties that closed as much as six to 12 months ago, lenders and mortgage investors are demanding that appraisers include only the freshest comps, ideally those closed within the previous 90 days, to support their valuations. In Richmond, appraiser Perry Turner of P.E. Turner & Co. said his firm has seen numerous cases where using newly mandated 90-day or more recent comps, as opposed to those six months or older, has contributed to valuations lower than the price on the sales contract. Turner said that in 95% of those cases, the listing and selling agents have gotten together and renegotiated the contract rather than lose the deal

Both buyers and sellers should be wary of prices based on comparable sales more than 90 days prior to the appraisal or “market survey.” Sellers need to be wary because a listing based on even six month old sales might be artificially high so that even if a buyer is found, financing may not be available.

In this eroding market, it behooves buyers to be sure that there is a good contingency for financing and to put little down as a deposit. Sellers on the other hand are motivated to get a large deposit. Financing contingencies are sometimes rather unclearly written, so both sides should be quite clear about the meaning of this part of the agreement.


What is Conservatism?

November 12, 2008

I’ve been hearing a lot about where this country is politically and I have to confess that I do not understand much of what is being said. Yesterday I heard a Republican say that “America is right of center.” I sincerely do not understand what that means. I presume that it was intended to mean that Americans support the Republican agenda, but the election offered little to support that position and polls uniformly show that the majority of us support the political issues advanced by so called “liberals” such as opposition to the Iraq war, health care revision, regulation of financial institutions, and establishing a trade balance.

It seems to me that the notions of conservative and liberal are indistinct to say the least with conservatives proposing dramatic changes to the society at least over the last eight years (I’m thinking tax reduction during a war, the “Bush Doctrine” which permits attacking other countries that might be a threat in the future, domestic warrantless surveillance, rendition, Guantanamo and the related human rights issues, abdication of federal oversight of financial institutions, stuff like that) and liberals advocating a return to a balanced budget and trade balance, and rolling back many of the recent changes implemented by the administration.

Another instance of this confusion about what is conservative and what is liberal is the recent Supreme Court case, argued Tuesday, in which the Court heard arguments about the FCC’s right to penalize “fleeting profanity.” The FCC for example fined PBS for airing interviews with old blues men who sometimes used the “s” word.

During oral argument it appeared that the “conservative” judges favored upholding the FCC’s right to control the use of any bad words, while the liberals seemed to disfavor this relatively mild form of censorship. In the courts conservatism is not marked by a philosophical opposition to governmental intrusion into our lives, as conservative judges tend to favor this type of censorship, to favor expansion of the police power and generally to disfavor using civil rights to limit the powers of government. At least in cases involving these competing interests the conservatives are more likely to be on the side of the government. On the other hand when government interferes with business, they are more likely to be on the side of business and the limitation of government.

This reminds me that when the constitution was adopted there was no bill of rights, to Thomas Jefferson’s great disappointment. The conservatives, who generally had opposed the inclusion of a bill of rights, coalesced into the Federalist Party which favored a strong federal government. Federalists were also much more pacifist than Jefferson’s following. I guess the conservatives on the bench take inspiration from John Adams and the Federalists at least in part. The conservatives of that era were for radical changes in the government to centralize and strengthen the power of the federal government.

The just finished presidential election illustrates the blur between conservative and liberal, as these terms are commonly used. McCain could not effectively distinguish his policies from those of Bush. McCain could not identify any bright lines that distinguished his policies from Obama and appealed to the voters. Eventually he seemed to stake his campaign on “character” issues, which to some degree is a euphemism for personal attacks. He did this is substantial part because he could not find the “right of center” where Republicans say most of us reside.


Twyla Tharp

October 4, 2008

I attend dance performances about as frequently as I go to roller derby.  Last night I attended the Twyla Tharp performance at Pacific Northwest Ballet with some friends who truly enjoy dance and would attend dance performances as frequently as I go to Mariners games if the opportunity were here.

I was prepared to have a nice evening, but was nearly awestruck by the performance of the three Tharp pieces, two of which were world premiers and the third a familiar favorite to dance buffs.  Each piece was a highly evocative fusion of elements, some of which were even discernible by me, seamlessly blended to create in me a sense of anticipation throughout the performance.  Elegant balletic movement, folk dance, Chaplinesque  near slapstick,  ballroom dance, gymnastic athleticism, sweeping Romantic gesture, then the abject collapse of all movement.  Not only were all these dance and movement elements merged into the work but the pieces themselves seemed a blend of dance and theater, silent movies, and the images of memory and imagination.

I won’t stray too far into a territory unknown to me.  But great art awakens something in the viewer, an awareness of the richness and possibility of life.  I had that kind of aesthetic experience last night.

Of the three pieces, I was most drawn to the second, called “Afternoon Ball.”  Before I get into that I should say that the first piece was performed to a Brahms quartet, Opus 111. I was struck by the synchrony between the movement and the music, each accenting and complimenting the other.  It was easy to imagine the dancers as the imaginary figures you sometimes see when you close your eyes to listen to music.  The dark underlayment of Brahms contributed to a sense of profundity.

The music for the second piece, the one that particularly struck me, was  composed by a contemporary Russian, Vladimir Martynov, “Autumn Ball of the Elves” (1994).  The first movement was the stark minimalist sound that for me might accompany work by Beckett.   The music builds to attain in the later stages of the work almost an echo of the Brahms piece.

In a very interesting, but slow starting, interview by an overwhelmed reporter from the Stranger Tharp called the piece “existentialist theater . . . the end of the world.”  It conveys a sense of alienation and despair but at its conclusion a brief but strong sense of hope or redemption.  I think this piece resonated for me because I’ve recently been preoccupied with King Lear, the utterly nihilistic work that according to Harold Bloom marked the beginning of western consciousness.

That Stranger interview is one in which you vividly feel the interviewer’s pain and discomfort, as Tharp protects her private mental and emotional life from intrusion.  The interviewer is not prepared to discuss with her her work, so is forced to ask rather broad questions and virtually begs her to jump in and participate, which she grudgingly does.

Toward the end she comments that the decline of art critics in the published media is a very good thing.  She views critics, not as intermediaries promoting quality art to the population, but as obstacles between the artist and the audience.

She then starts interviewing the interviewer and asks him why he does it.  He responds by saying that there is something profound in art that makes it the province of philosophers, citing Aristotle, Nietzsche and Heidegger, among others.  Tharp then says that she thinks of her work as pre-Socratic.  After some brief discussion back and forth she says “turn that thing off so we can have a serious talk” and the tape is instantly over.

Tharp thinking of herself as pre-Socratic fascinates me.  (What I would give to have heard the ensuing talk.)  She likes to think of herself as coming form a time before Plato had inflicted a sense of rigid and perfect system of ideal “things,” which became the gnostic notion that the ideal, true reality, is someplace else and our lives a spent with shadows within a cave.  Aristotle of course was able to lay a rigid system of taxonomy and categorization on this dim world of shadows so that everything had a place.  Then he imposed a system of logic to enable us to trudge among the categories.  Tharp sees herself as before all that when the world was full of mystery, explained by myth and metaphor.


Washington Mutual

September 18, 2008

Did you know that Washington Mutual began just after the Great Seattle Fire in 1889? Here is a thumbnail sketch of its history. It has been around over a century and it appears that now its days are numbered.

Washington Mutual appears to have gone the way of Seafirst Bank in the 1980’s. Seafirst was at the time the biggest, baddest bank in the region and its board of directors hankered for more. At that time national banks were getting fat on third world loans and energy loans. Remember that an asset for a bank is a performing loan.

So you make a loan and you have an asset until a few payments are missed, then it flips to the other side of the balance sheet. This makes banks which loan heavily in one sector quite vulnerable to slumps in that sector of the economy. If the sector slows down things can turn around fast for the bank.

Banks hedge their bets by selling portions of their loans to other banks, called “participations.” The problem is that this seems to encourage banks to dive much deeper into a given area, so that the advantage of selling off portions of the loan are lost by the sheer magnitude of the lending. Penn Square Bank, a little shopping center bank in Oklahoma City, started making oil loans by the billions and selling off participations to banks around the country. Seafirst invested hundreds of millions of dollars in these participations, as well as serving as the primary bank in many of the loans and became a big player as rapidly as Washington Mutual.

But the bubble burst and Penn Square Bank folded, sending the biggest banks in the country into insolvency. Seafirst, already strapped with nonperforming third world loans was purchased by BankAmerica.

Ten or fifteen  years later Washington Mutual decided to become a big player by riding the home lending boom. It succeeded and grew exponentially. With the bursting of that bubble, it too has I think reached the end of its days. It has probably not been bought out because of concerns about the market — home loans — into which it plunged. Financial institutions are not sure that the bottom has been reached and are reluctant to jump in even at fire sale prices.

There are only two major investment banks left standing and there are serious questions as to whether either one can survive.  With Barklay’s, a foreign bank, buying Lehman it appears that the pool of potential domestic buyers is reduced if not depleted.  It is at least questionable whether the federal government can afford to prop up Washington Mutual, but the country could ill afford to have a bank of its size fail.

Colossal mismanagement has put us in a situation where we are steeped in debt and watching our financial assets, so far only historic investment houses, taken over by foreign interests.


Selling Short: What You Need to Know

September 10, 2008

A “short sale” in Washington State real estate agent parlance is selling during the pendency of a foreclosure. It involves convincing the foreclosing lender to accept less than the full amount owed.

One of the things to watch out for here is a fairly subtle manipulation by the real estate agent to profit by the situation. The case I’m familiar with involved a home owned by a very unsophisticated woman. The real estate agent disclosed that a relation was the buyer and that the sale was “a short sale.” The owner did not understand what this meant and signed the papers offered to her, again relying on her agent and not understanding the terminology of the contract.

She was next told to come down to sign the papers for closing and that there would be no money for her. When she objected, the agent gave her verbal promises that she would receive three thousand dollars after closing but declined to put it in writing.

It turns out that she would have received over ten thousand dollars except that the addenda to the contract provided that she would pay all the buyers’ costs of the loan and settlement charges. It also provided that almost $6000 would go to the Nehemiah Down Payment Assistance Program, which according to the closing agent is a program to refund the buyer’s down payment.

This lady had no understanding that, while she got the price she wanted, over ten thousand dollars of the money was going directly for the buyer’s benefit.

In this way the buyer gets the home for absolutely no money out of pocket and the owner gets nothing. The real estate agent gets the commission. The buyer though is left in the same position as if there had been a foreclosure, except that her credit report will contain reference to a “short sale” rather than foreclosure. What the seller has lost is time that might have been spent trying to make a sale that would give the buyer some money to at least move.


Another Local Approach to Foreclosure Crisis

August 27, 2008

Seattle this spring adopted a small loan program to help foreclosure victims. The program was so narrowly defined that it could not help most of the people needing assistance, but represented a step in the right direction. The principal recommending feature of the program was that the money advanced to homeowners was treated as a secured loan, so the cost of the program would be quite limited.

San Diego’s City Attorney proposes another inexpensive approach that warrants study. He is pushing the City Council to pass a moratorium on foreclosures. Cities and local governments could certainly do this. There might be an argument that the legislature had not conferred this power on local governments, but this at the very least is debatable. The possibility of a challenge alone is no reason to avoid doing something that is helpful to people.


FISA, Immunity, Pardons, and Luthor Collins

July 11, 2008

The recent discussions about immunity in the context of the FISA bill have stirred up a great deal of frustration among people who have been shocked or disapproving of the Bush administration’s apparent cavalier attitude to complying with the law. This resentment no doubt provides some of the fuel for the populist movement that seems to be carrying Obama along. Both Republicans and Democrats have expressed to me frustration that there is not even any meaningful investigation of the charges. The administration does not have immunity but it does seem to operate with impunity.

Part of the public’s outrage about FISA relates to the appearance of hypocrisy. The same law-and-order people who advocate strong criminal sentencing standards advocate immunity for the corporate officials whose conduct apparently involved violation of constitutional rights on a massive scale. The sense of hypocrisy is heightened by the color and class distinctions between the criminal justice defendants and the corporate miscreants.

This frustration is very deep and involves what appears to be a failure of our system of checks and balances. The Republican Congress during the first six years of the Bush administration is widely seen as having allegiance to party over country or over the citizens of the country. During this time effort seemed to be directed to covering up the regularly occurring scandals. The two years of Democratic control of Congress have not been signifiantly different in terms of rendering people in the executive branch accountable for their transgressions. The FISA bill in granting immunity for illegal domestic surveillance was profoundly disillusioning for many. It went beyond disregarding disreputable behavior to condoning it.

FISA’s defender’s chant “national security” and to my knowledge there is nothing more than this rather empty slogan to support the position, a slogan that I had thought was used so much by the Nixon administration that it would not be heard again in connection with domestic activity. This slogan has also been used to justify the treatment of detainees and has been gradually rejected by the courts. Without anything to back it up it is just a slogan famously used around the world throughout the twentieth century. People need more substance to the claim for it to have traction outside of Congress.

The defenders of FISA point out that the guilty can still be prosecuted for crimes that were committed but few doubt that Bush will pardon everyone before leaving office. He, however, can only pardon for federal crimes and at least in theory any enterprising attorney general could investigate and prosecute under state law for crimes committed against its citizens. I doubt that anyone believes this will happen.

Bush is likely to pardon everyone in his administration, making the investigations promised by Obama unlikely. If McCain is elected he would not conduct investigations at all, at least as far as I know. The only way the Bush could be prevented from pardoning everyone would be for him to be impeached. If he were impeached, he could not grant pardons during the process. There appears to be no chance that this might happen.

Thus it appears that this itch to see criminal conduct exposed, or at least investigated, and punished will go unscratched regardless of the party favored in the next election. This rather sorry state of affairs is not without local precedent.

Civilization came to the Seattle area in the middle of the nineteenth century. Settlers first arrives on Alki, then some came to what is now the downtown area. A few located near the mouth of the Duwamish River between the two camps. Civilization, as everyone knows, requires government and the settlers were quick to elect a commissioner: Luthor Collins, our first governmental official. Two years after his arrival he was arrested for lynching a Native American. His civic leadership may have contributed to the dismissal of the charge. Later, having rooted himself in the administration of local affairs, he lynched two Native Americans and presumably it was his his august stature that prevented charges from being made.


Washington Distressed Property Law (2)

June 11, 2008

It appears that most of the complaints about the equity skimming law are originating with representatives of real estate agents. (See a comment to an earlier entry.) The reason for this is that the law impresses new duties on the agents and with the new duties the prospect of liability. Over the years there has been a good deal of marketing to get you to think of real estate agents as “real estate professionals.” This law they believe is taking this idea too far.

The crux of this concern is that real estate agents might be characterized as “distressed home consultants” who the new law says owe a fiduciary duty to the the distressed home owner, someone facing foreclosure. Courts have described “fiduciary duty” as the highest obligation of care, loyalty and good faith. Most distressed home owners believe that they are getting this from the person who is advising them. (For that matter many people who retain a real estate agent imagine that they are receiving this level of commitment.) Illegal equity skimming, at least the cases I have seen, all involve engendering this level of confidence in the home owner and practicing beneath that level.

Representatives of real estate agents argue that this is not fair to the agents because the standard is vague and broad in scope. Remember though that the law applies only to agents, as well as all other people, who meet the definition of “distressed home consultants.” The law describes two categories of these “distressed home consultants.” The first is a person who solicits or contacts a “distressed home owner” and makes a representation or offer to to provide a service that will avoid the foreclosure.

The statute lists 13 types of offers that render a person a “distressed home consultant.” They include such things as avoiding or delaying the foreclosure, arranging a lease with a purchase option and the like. Do any of these things and you are a “distressed home consultant” with a fiduciary duty to the home owner. Clearly a real estate agent could inadvertently say something that would render him or her potentially liable as a fiduciary. So could anyone else.

The other way a person can be a “distressed home consultant” is by systematically contacting owners of homes that are in foreclosure. If you systematically solicit people in foreclosure you owe them a fiduciary duty. This should reduce the wildly misleading solicitations that are routinely sent to people after a notice of foreclosure is recorded, then published. Home owners in foreclosure receive dozens of these mailed promises of relief. Real estate agents, and others, who do mass mailings and target these people fall under the definition.

“Fiduciary duty” is a court-defined term that has been in use since long before Washington was a state. It is a term imposed by the courts where there is a relationship of trust and dependence. Its scope is defined by published cases, trial judges and juries. Lawyers have a fiduciary duty to their clients. Escrow agents and closers have fiduciary duties to both the buyer and the seller. The successor trustee performing the foreclosure has fiduciary duties. Trustees of real estate trusts and all other trusts have fiduciary duties. Partners in real estate transactions have fiduciary duties to each other. The concept is far from alien in real estate transactions.

What is interesting to me is that the real estate agents who are so confounded by the idea of having a fiduciary duty already have a fiduciary duty to their clients. This was imposed by the courts some time ago. When agents represent the buyer and the seller, a “dual agency,” they have fiduciary obligations to both sides. I hope that they are aware of this.

I presume that the aspect of fiduciary duty that troubles real estate agents the most is the standard of care. If a real estate agent or anyone else presumes to tell a person in foreclosure what to do or promises relief from the foreclosure, he or she should be held to the standard of care of a profession that can give such advise. This is currently the law. A real estate agent has court approval to fill in the blanks on real estate forms. A real estate agent is not permitted to discuss with the client the legal effect of contractual provisions. This would be the unauthorized practice of law. They are supposed to refer the client to a lawyer for legal advise.

In the context of a foreclosure a real estate agent, or any other person offering advise about what steps to take, is usually offering legal advise regarding foreclosure procedure or legal artifices to avoid foreclosure. This is not something most people (including real estate agents) are qualified to do and it has recently led to broad scale disasters for home owners in connection with equity skimming. A real estate person or anyone else finding himself or herself in this situation should refer the home owner to a lawyer rather than offering legal advise. This is already the law.


Government Transparency

March 19, 2008

Seattle City Councilmember Nick Licata wrote and cosponsored a bill that amazingly enough required lobbyists for the first time to have to register before undertaking to lobby City government. This is his description of that process:

 

LOBBYIST REGISTRATION ORDINANCE

This Monday, March 17, 2008, the Council unanimously passed Council Bill 116154, the lobbyist registration ordinance. I developed this ordinance, and sponsored it, along with co-sponsors Tim Burgess, Richard Conlin, Jean Godden, and Tom Rasmussen.

 

PURPOSE/BACKGROUND

The purpose of the ordinance is to provide greater transparency in government, protect public confidence in government, preserve the integrity of the legislative process, and enable the public to see who is being paid to lobby elected officials. Seattle does not have a lobbyist registration ordinance, unlike every other major city on the West Coast: Portland, San Francisco, Oakland, San Jose, Sacramento, Los Angeles and San Diego all have lobbyist registration ordinances.

For a number of years I believed this needed to be rectified. I started working on such legislation in 2002 and testified before the Seattle Ethics and Elections Commission (SEEC) at that time on a prior version. Years before that another version had been brought before them but it was abandoned because a provision to track grassroots lobbying campaigns might discourage citizen groups in communicating with elected officials. I ran into the same problem in 2002 and in 2007 as well, when some citizen activists thought the legislation was too broad and should be narrowed.

In 2007 I began with a new draft and held a briefing in August in my Public Safety Committee. The following month I hosted a brown bag discussion at City Hall with over 2,000 invitations sent out. Representatives from Washington State, King County and Portland talked about their programs. That fall I met and had discussions with individual citizen activists, and communicated with members of the League of Women Voters and other groups, and gave presentations before Municipal League and other community groups.

As a result over a dozen versions of the ordinance were produced to meet most of the concerns that were raised. Although I felt at times that as each one was addressed the most serious shortcoming of the legislation, a new one would be identified as a must change. Because of the budget period beginning in the fall, I had to put off the ordinance to this year.

But in late 2007, during my term as Council President, I began having the sign-in sheets to the Council offices posted on the Council*s website. Many meetings between Councilmembers and City departments take place in the Council offices, so this allowed the public to see when city departments were meeting with Councilmembers.

I began January with a version that incorporated most of the recommendations, including dropping the grassroots lobbying section, and met again with SEEC. The much amended ordinance was passed by the Culture, Civil Rights, Health and Personnel Committee on February 27, 2008, and I believe now reflects the best practices for lobbyist registration ordinances. Laws in Portland, San Francisco, Los Angeles, San Diego, San Francisco, Denver, Sacramento, Austin, Madison, New York, and Columbus were reviewed in developing this proposal.

SUMMARY OF ORDINANCE

The ordinance requires lobbyists to register if they meet two conditions: 1) they are paid, and 2) they lobby at least four days during a quarter. This is the standard used by Washington State.Lobbying constitutes communication with Councilmembers, the Mayor, and their staff in an attempt to influence them to develop, propose, adopt or reject legislation. The ordinance requires disclosure of who is lobbying, who is paying them to lobby, and the subject and specific legislation they are lobbying on.

The Seattle Ethics and ElectionsCommission will be responsible for administration and enforcement. The reporting requirements are designed to be reasonable, and to use forms similar to those used by the State Public Disclosure Commission. The ordinance will go into effect in 180 days, or 30 days after SEEC adopts rules, whichever comes first. This is to allow sufficient time for implementation.

The ordinance requires the registration of public employees who are specifically employed to lobby, or lobbyists who are retained by an agency of government. Other public employees are exempted. This standard was based on the King County ordinance. Persons who limit lobbying to public sessions are also exempt, as are collective bargaining activities by labor organizations.

IN PURSUIT OF THE PERFECT

I thought writing this legislation should be fairly straight forward since both King County and Washington State have similar laws on the books and we adopted most of their features, recognizing that there were differences between them. In fact in reviewing other municipal lobbying legislation, there is considerable variation in exemptions, definitions, applications, and enforcement. It is difficult to say which is best.

Some reviewers of my legislation, like the Chamber of Commerce, suggested the ordinance be narrowed so as to not include lobbying *on behalf of others*; this could exempt, for example, developers who lobby for themselves (e.g. Industrial Lands, Downtown rezone, would have exempted many of the people lobbying.) I did not include this proposed change.

Others, like the SEEC, wanted employees of other government agencies to register as lobbyists rather than just their designated lobbyists, and some citizen activists wanted city employees to register as well. There was no support for either recommendation on the Council, I think for practical reasons. Elected representatives are paid to communicate with all types of government employees including those from other government bodies. Each communication, including emails, could conceivably have to be listed if someone felt it was influencing legislation. The amount of paper work generated could be staggering. I think that is the reason we have not found other municipal lobbying laws including those provisions.

It*s also noteworthy that among the 48 criteria the Center for Public Integrity used in determining that Washington State had the best state lobbyist registration law in the USA, they made no mention of requiring other governments or employees of a government to register.

My goal has been to get an ordinance passed so that at least Seattle would be on a par with other major west coast cities. This ordinance will accomplish that goal. Once it is up and running and we see how it works in practice, we can examine improvements. Ethics and Elections is required to issue an annual report to the City Council on the effectiveness of the ordinance. This will give us the tool we need to see how it works, and what to look at in the future.

 

 


City of Seattle Audit

February 20, 2008

For those intrepid souls willing to look at something written by an auditor, the Seattle Auditor’s report for 2007 gives an interesting list of areas in which the City needs improvement. Some are refrains we hear year after year, but the report should be taken as a potentially useful tool for those engaged with the City on any of the listed issues. It covers topics ranging form the massively under financed duty to represent indigents to the substantially disregarded Cable Customer Bill of Rights, which got so much attention when it was passed. The report is here. Those who do not already subscribe might be interested in Nick Licata’s newsletter called “Urban Politics.” To subscribe go to urbanpolitics-subscribe@speakeasy.net.