Future of Residential Rental Market

No question that the mortgage meltdown and real estate debacle of the last 5 years, have had consequences in all of us, one way or another, that never were possible in our minds as Americans. The concept of homeownership, part of the American Dream, it is not present in the minds of new generations as it used to be. Availability of capital to purchase a home and Creditworthiness of Buyers is at the lowest level in history. Even with interest rates at historical low levels, and maybe dropping more in the short term, and lower home prices, it is not easy to afford a home these days. The Census Bureau shows 17.5% increase in rentals between 2005 and 2010, but many areas have seen much higher increases. Chicago 40%, Phoenix 70%, san Antonio 48%, Dallas 38% Austin 40%, Las Vegas 67%, Orlando and Denver 22% and Orange County California 37%. Apartment vacancies dropped from 8% in 2009 to 5.6% in 2011 as a national average, pushing national rent prices up 2.5% nationally. We will see more investors come into the single family rental business and we predict that millions of dollars will come from institutional investors and REITs into the single family rental market. We do not think Congress will get rid of the mortgage interest deduction for primary residences but if they do rents will skyrocket, renting will become more much attractive that owning, even for those that can afford to purchase a home. Some may point out that unless we allow rent paid for a primary residence to be a tax deductible item, something common in other countries, we are putting extra weight on those forced to rent, but we do not think this will have any life in Congress, based on the current deficit and fiscal cliff. Such a measure will also push rents up. Our personal opinion is that either home buying is fueled by homeownership or rental investment acquisitions, the need for shelter will continue to push real estate development of new homes and purchases of existing homes, having a healthy real estate market at the end, one way or another. Population growth and employemnt rate are crucial for the health of the real estate market.

Tenant Protection Act of 2009

landlords and Tenants must know about the Tenant Protection Act enacted in 2009 as a consequence of the foreclosure crisis. Simply put the Act states the following: Protecting Tenants at Foreclosure Act of 2009 The Protecting Tenants at Foreclosure Act protects tenants from eviction because of foreclosure on the properties they occupy. These provisions took effect on May 20, 2009, and originally were scheduled to expire on December 31, 2012. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) changed the expiration date to December 31, 2014. The tenant protection provisions apply in the case of any foreclosure on a “federally related mortgage loan” or on any dwelling or residential real property. They provide that “any immediate successor in interest” in such a foreclosed property, including a bank that takes title to a house upon foreclosure, will assume the interest subject to the rights of any bona fide tenant and will need to comply with certain notice requirements. Under this law, the immediate successor in interest of a dwelling or residential real property must provide tenants with a notice to vacate at least 90 days before the effective date of such notice. The date of a “notice of foreclosure” is defined as the date on which complete title to a property is transferred to a successor entity or a person as a result of a court order or pursuant to provisions in a mortgage, deed of trust, or security deed. Tenants also must be permitted to stay in the residence until the end of their leases, with two exceptions: (1) When the property is sold after foreclosure to a purchaser who will occupy the property as a primary residence or, (2) When there is no lease or the lease is terminable at will under state law. However, even when these exceptions apply, tenants must still receive 90 days notice before they may be evicted. The protections of this law apply to tenants under a “bona fide” lease or tenancy. A lease or tenancy is “bona fide” only if: (1) The mortgagor or a child, spouse, or parent of the mortgagor under the contract is not the tenant; (2) The lease or tenancy was the product of an arm’s-length transaction; and (3) The lease or tenancy requires the receipt of rent that is not substantially less than fair market rent or the rent is reduced or subsidized due to a federal, state, or local subsidy The law states that “federally related mortgage loan” has the same meaning as in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 USC 2602). The definition includes any loan secured by a lien on one-to-four family residential real property, including individual units of condominiums and cooperatives.

History of Fair Housing

On April 11, 1968, President Lyndon Johnson signed the Civil Rights Act of 1968, which was meant as a follow-up to the Civil Rights Act of 1964. The 1968 act expanded on previous acts and prohibited discrimination concerning the sale, rental, and financing of housing based on race, religion, national origin, sex, (and as amended) handicap and family status. Title VIII of the Act is also known as the Fair Housing Act (of 1968). The enactment of the federal Fair Housing Act on April 11, 1968 came only after a long and difficult journey. From 1966-1967, Congress regularly considered the fair housing bill, but failed to garner a strong enough majority for its passage. However, when the Rev. Dr. Martin Luther King, Jr. was assassinated on April 4, 1968, President Lyndon Johnson utilized this national tragedy to urge for the bill's speedy Congressional approval. Since the 1966 open housing marches in Chicago, Dr. King's name had been closely associated with the fair housing legislation. President Johnson viewed the Act as a fitting memorial to the man's life work, and wished to have the Act passed prior to Dr. King's funeral in Atlanta. Another significant issue during this time period was the growing casualty list from Vietnam. The deaths in Vietnam fell heaviest upon young, poor African-American and Hispanic infantrymen. However, on the home front, these men's families could not purchase or rent homes in certain residential developments on account of their race or national origin. Specialized organizations like the NAACP, the GI Forum and the National Committee Against Discrimination In Housing lobbied hard for the Senate to pass the Fair Housing Act and remedy this inequity. Senators Edward Brooke and Edward Kennedy of Massachusetts argued deeply for the passage of this legislation. In particular, Senator Brooke, the first African-American ever to be elected to the Senate by popular vote, spoke personally of his return from World War II and inability to provide a home of his choice for his new family because of his race. With the cities rioting after Dr. King's assassination, and destruction mounting in every part of the United States, the words of President Johnson and Congressional leaders rang the Bell of Reason for the House of Representatives, who subsequently passed the Fair Housing Act. Without debate, the Senate followed the House in its passage of the Act, which President Johnson then signed into law. The power to appoint the first officials administering the Act fell upon President Johnson's successor, Richard Nixon. President Nixon tapped then Governor of Michigan, George Romney, for the post of Secretary of Housing and Urban Development. While serving as Governor, Secretary Romney had successfully campaigned for ratification of a state constitutional provision that prohibited discrimination in housing. President Nixon also appointed Samuel Simmons as the first Assistant Secretary for Equal Housing Opportunity. When April 1969 arrived, HUD could not wait to celebrate the Act's 1st Anniversary. Within that inaugural year, HUD completed the Title VIII Field Operations Handbook, and instituted a formalized complaint process. In truly festive fashion, HUD hosted a gala event in the Grand Ballroom of New York's Plaza Hotel. From across the nation, advocates and politicians shared in this marvelous evening, including one of the organizations that started it all -- the National Committee Against Discrimination In Housing. In subsequent years, the tradition of celebrating Fair Housing Month grew larger and larger. Governors began to issue proclamations that designated April as "Fair Housing Month," and schools across the country sponsored poster and essay contests that focused upon fair housing issues. Regional winners from these contests often enjoyed trips to Washington, DC for events with HUD and their Congressional representatives. Under former Secretaries James T. Lynn and Carla Hills, with the cooperation of the National Association of Homebuilders, National Association of Realtors, and the American Advertising Council these groups adopted fair housing as their theme and provided "free" billboard space throughout the nation. These large 20-foot by 14-foot billboards placed the fair housing message in neighborhoods, industrial centers, agrarian regions and urban cores. Every region also had its own celebrations, meetings, dinners, contests and radio-television shows that featured HUD, state and private fair housing experts and officials. These celebrations continue the spirit behind the original passage of the Act, and are remembered fondly by those who were there from the beginning. Source: US Department of Housing and Urban Development

Homeowners in Foreclosure Pilot Program

NEW YORK – March 23, 2012 – Bank of America says it has begun a pilot program offering some of its mortgage customers who are facing foreclosure a chance to stay in their homes by becoming renters instead of owners.

The “Mortgage to Lease” program, which was launched this week, will be available to fewer than 1,000 BofA customers selected by the bank in test markets in Arizona, Nevada and New York.

Participants will transfer their home’s title to the bank, which will then forgive the outstanding mortgage debt. In exchange, they will be able to lease their home for up to three years at or below the rental market rate. The rent will be less than the participants’ current mortgage payments and customers will not have to pay property taxes or homeowners insurance, the bank said.

“This pilot will help determine whether conversion from homeownership to rental is something our customers, the community and investors will support,” Ron Sturzenegger, legacy asset servicing executive of Bank of America, said in a statement.

Among requirements to qualify for the program, homeowners must have a BofA loan, be behind at least 60 days on payments and be “underwater,” owing more on their mortgages than their homes are worth.

The bank based in Charlotte, N.C., said it will at first own the homes, then sell them to investors. If the program is successful, it could be expanded to include real-estate investors who buy qualifying properties and keep the occupants on as tenants.

“If this evolves from a pilot into a more broadly based program, we also see potential benefits from helping to stabilize housing prices in the surrounding community and curtail neighborhood blight by keeping a portion of distressed properties off the market,” Sturzenegger said.

Foreclosure tracking firm RealtyTrac says foreclosure activity has picked up in some states, as banks deal with a backlog of homes with mortgages that had gone unpaid yet remained in limbo due to delays stemming from foreclosure-abuse claims.

Nevada has the nation’s highest foreclosure rate as of last month, with one in every 278 households in the state receiving a foreclosure-related filing, twice the national average, according to RealtyTrac. Arizona ranks third behind California, while New York has not been as hard hit, with one in every 4,604 households receiving a foreclosure-related filing.

source:Claudette Bruck, CCIM Legislative Chair Florida CCIM Chapter

Florida Amendment 4 "Why vote Yes on 4"

1. Eliminating Property Tax Loopholes

Amendment 4 empowers the Legislature to stop “recapture”, a property tax trap that forces some homeowners to pay higher property taxes even if their home’s market value declines.

2. Saving Small Business Owners

Amendment 4 will lower the cap on assessment increases for non-homestead properties from 10% to 5% per year. For small businesses and commercial property owners, Amendment 4 provides the stability and the tax relief that they need to get out of this recession and create the jobs Florida needs now.

3. Renewing Florida’s Promise

With nearly 1 million Floridians still out of work and hundreds of thousands more underemployed, we must pursue new policies that will drive prosperity back to Florida and restore our economic future. Amendment 4’s new cap on non-homestead properties will attract new investment in Florida’s economy, which will help revitalize communities impacted by the recession, and spur job growth in the cities and counties that need it most.

4. Empowering New Homeowners

Families looking for their first home or looking to move back into a home after downsizing for the recession will benefit greatly from Amendment 4. Amendment 4 offers an additional homestead exemption for new homebuyers that will last up to five years, rewarding new homeowners for finding the right home for their needs.

Foreign Investors in US Real Estate

Investors around the world have always had great interest in properties in the United States and the reasons are clear. Not only real estate offers a safe investment with good returns but it also offers total control of the investment and it is an excellent hedge against inflation. The United States offers good economic and political stability like no other country in the world. Therefore any investor interested in real property should have in his/her portfolio real estate in the United States of America but many considerations are important when it comes to foreign investors acquiring properties in the US. Last year 72% of the foreign investors surveyed stated they will increase their investments in properties in the United States in the following 12 months, mainly in commercial real estate although the influence of foreign investment in residential properties is very high in South Florida and it is one of the reasons a real estate market recovery should be soon a reality in our area.

One of the most important aspects is the tax laws affecting foreign investment in real property. In 1986 there were many changes in the law and all foreign investors should be aware of all recent changes as well so they can establish the proper structure under which take title to properties. Can I take title under my personal name? Shall I take title under a domestic US corporation or limited liability company? Who should be the owner of that US entity, me and my family or a foreign company or trust controlled by us? Or shall I take title under an offshore company? In using offshore companies, should they be from my Country of origin or shall I use tax heaven jurisdiction?

All these questions are very important before one makes a decision to invest in properties in the United States because they will affect the operation and returns of the investment and proper planning will avoid costly mistakes.

It is crucial to analyze current US Treaties with the Country of origin. If the foreign investor’s country has a treaty with the US this will affect the type of entity and structure as well as the operation of the investment so it should be analyzed carefully taking into account possible future changes.

It is very important to analyze the income tax liability of the investment based on the chosen structure since this will affect the after tax return on the investment as well. The analysis should be of the nature to have potential estate and income tax issues in concert with the desired succession plans and investment objectives of the foreign investor.

Only property managers and brokers with the right experience in structuring investments for foreign clients have the knowledge to assist clients in analyzing real estate returns and investment objectives and are the ones that can properly orchestrate the work of other professionals such as real estate attorneys, tax attorneys and accountants to properly assist the foreign investor in optimizing portfolio operation and returns while enjoying all the benefits of a safe and sound investment in real property in the United States.

Our organization has the knowledge an skills of assisting foreign investors as well as the contacts with the right professionals to assure investment success.