Monday, June 28, 2010

Unique Title Problem

A unique title problem

Sam had a small business and he owned the real estate free and
clear. About a year ago he gets call from his buddy Fred, who lives
out of state.
"Sam, this is...." and the call was interrupted by a taped
"this call may be monitored or recorded"
"Sam," Fred continued. "I'm calling from jail. There has been a
horrible mistake and I've been arrested for financial fraud. Of course
I didn't do it. If I had, I'd be able to post the $1 million bail. Can
you help me out so I can stay out of jail and help my lawyer investigate
this mess?"
Sam couldn't bear the thought of Fred rotting in jail. So Sam put up
his commercial building as collateral for Fred's bail bond, giving the
court a mortgage lien on the property.
A year goes by and Fred hasn't gone to trial yet.
Broker Bob knocks on Sam's door with an offer to buy Sam's
commercial building. Sam is nearing retirement age and the offer looks
good, so he signs the purchase agreement.
During the due diligence period--guess what shows up on the title
work? Fred's bail bond.
Sam was really torn--he wanted to sell his building but he couldn't
let Fred rot in jail. Fred's attorney went back to court and persuaded the
judge to release the mortgage for a smaller amount of cash collateral
provided that Fred relinquished his U.S. passport.
But it took the out of state court a month to release the mortgage
before Sam's building could finally close.

Monday, June 21, 2010

Schools, Real Estate and Aging.

Schools, Real Estate and Aging.

I went to visit my family this past weekend. My parents still live in the
home I grew up in the close in Detroit suburb of Oak Park, an area much like
Columbia Heights. In walking and driving around the market appears to be
stabilizing. Very few "for sale" signs.

My sister and brother-in-law live in the next community to the north,
Huntington Woods, which is a beautiful little suburb. Housing stock is
similar to southwest Minneapolis near 50th and France, but there is no
commercial development so property taxes are high. My sister pays $3,600 a
year on a little bungalow on a 40' lot.

It was a beautiful evening as I walked the 1.25 miles from my parents to my
sister's house. Past the sometimes crumbling homes of my childhood friends
that are filled with my memories. Coming from the Twin Cities, I'm still
shocked by the racial divide as those I see enjoying the evening outside in
Oak Park all have black skin. Then I cross 10 Mile road and Highway 696, one
of the most beautiful engineering jobs I've ever seen on an Interstate, as
its built below grade and is very quiet to the surrounding homes.

Now I'm in Huntington Woods and the faces of the children riding their bikes
are all white.

School Districts matter. Oak Park High School, where I graduated from, is
now 96% African American, 3% white and 1% other. It has received a "D Alert"
from the Michigan Department of Education. Test scores at 34% reading
proficiency and 13% math. The district spends $10,000 per student versus the
state average of $9,200 and 48% are eligible for free and reduced lunch.

Compare this to the neighboring Berkley High School, which serves Huntington
Woods where my niece and nephew attended. Its among the few public high
schools in Michigan to receive a distinguished Great Schools Rating of 8 out
of 10 and has a "B" grade. The school is 80% white, 18% African American and
2% other. 16% are eligible for free and reduced lunch. Spending per pupil is
LOWER than Oak Park at $9,089 . Reading had a 69% proficiency and math had
63%. Demographics matter more than school funding when it comes to student

While Oak Park High School students took AP Exams in 4 subjects, Berkley
students took the AP exams in 20 different topics. And that is a shift that
started when I attended Oak Park High School. I would take an advanced class
that my sister had taken 8 before, and it would be the last time that class
was ever offered as the demographic shift was already occurring. While there
was always a significant black population that were bused in from a
neighboring township, Oak Park High was getting an influx of Russian Jews
and Chaldeans (Iraqi Catholics) students that didn't speak English. Those
populations have moved on as the demographics in my home town churn faster
and more dramatically than any other community I've ever encountered.

How do the schools impact real estate values? Recent sales in Huntington
Woods range from $211,000, a block away from my sister's bungalow, to
$325,000. Prices in Oak Park range from $25,000 to $77,000 in Oak Park
Schools and $118,000 to $158,000 in the Berkley Schools. So nearly THREE
times the value for a similar size home and lot just by crossing the road
and school district boundary.

Recent home sales for the City of Detroit where the schools are even worse
than Oak Park? There were 2 outliers, one at $99,000 and one at $255,000.
The others ranged from $11,000 to $43,000, with most clustering around
$22,000. That's a single family HOUSE. I wouldn't even speculate what the
lots would be worth.

Statistics are fun to study but what does this mean at a personal level? A
couple years ago SUVs were hot and the Detroit economy was stronger than I
ever recall it in my lifetime. My parents little house was worth $130,000.
Today they would be lucky to get $70,000 and I haven't studied the data
enough to even guess how long it would take to sell at that price.

Mom is 79, and other than a hearing loss she refuses to admit to ("my
hearing is fine, its the doorbell that is broken") is doing well. Dad is 83
and it was hard this trip to see how frail he has become. How his amazing
sense of direction is fading as well as his wonderful math skills. And the
driving is getting a little scary. He has trouble getting around the house
and somehow my folks think this will be fixed by just finding the right
chair that is easier for daddy to get up from. I am so grateful my sister
and brother in law live so close to help Mom and Dad, but there is only so
much they can do.

I visit my Aunt Lucille, who I love and enjoy more than I can express. My
Aunt moved to a senior high rise 8 years ago when "little things added up to
big things" in the single family home that Lucille and her live in boyfriend
Harry, (now deceased) lived in. My Aunt loves this lifestyle and is active
in all the wonderful programming that is available.

Aunt Lucille suggests I talk to my parents about them selling the house and
moving into her beautiful building. I tell my aunt about the big argument I
had with mom that morning. I thought the cut cantaloupe had gone bad and
should be tossed and mom yelled and screamed at me, insisting the melon was
perfectly fine. How can we talk about real estate when we can't even talk
about fruit? Let alone money which is something we just don't talk about in
my family.

And there is "The Stuff"--49 years worth of it. Its not just the stuff, its
the memories. A few years ago when my niece was getting married we were
talking about what to wear to the wedding. I spotted my prom picture hanging
on the wall. "What happened to my prom dress?" "Its in the basement," my mom
said. Sure enough, it was perfectly preserved and I wore it to the wedding.
When I got compliments on it I'd truthfully say, "The dress is as old as the

I get my independent nature from my daddy. Selling their single family home
would be so very difficult. My aging parents remind me that real estate
isn't about statistics -- its about people.

Friday, June 18, 2010

Playing Community Activist

Playing Community Activist

Obama was a community activist and look where that got him! I have no
political aspirations - I just wanted a safe road to ride my bike.

Last February I got the notice that the City of Maple Grove wanted to
rebuild the 30+ year old streets in my subdivision. My neighborhood was
built during an era where sidewalks weren't "in" and its not practical to
add them now.

There is a loop collector street that is only 28' feet wide. When cars are
parked on both sides of the street it creates dangerous conditions for
drivers, bicycles and pedestrians. Parking is not permitted overnight on any
street in Maple Grove. So I came up with the idea to restrict parking to one
side of the street and paint a lane for bikes and pedestrians on the other.
When I ran the idea past Ken, the City Engineer, he thought it was worth

The public hearing was coming up and I wanted to bring my idea to the City
Council. However, I was going to be in Grand Cayman that night. And, while I
cared about the bike lane- I wasn't about to cancel my vacation over it. So
I wrote a petition and started knocking on doors. In February. When it was
so cold the ink froze in my pen and it was tough to remove my mittens.

I live on a cul-du-sac where I know all my immediate neighbors. But not so
many in the general area. Knocking on doors I now have new respect for Girl
Scouts, politicians and siding salesmen. Its hard work and its tough to
catch people at home.

Of those I talked to most people signed the petition for a total of around
30. But there was this weird guy. "I like to walk in the street" he told me.
I told him he would still be walking in the street as there would be no side
walks. "I like to walk on both sides of the street" and closed the door on
my face. Then there was the little girl who told me her parent was "taking a
nap". I could tell she was lying. Awful thing to send your child to chase
away solicitors.

And then there was the young man with a baseball cap. "Can I talk to your
mom or dad?" I asked. "I'm the owner of the house," he said, as his wife and
baby joined him at the door. They both signed - as you needed to walk this
busy road to get to the community park.

Ken, the City Engineer presented my petition at the hearing while I walked
on the beach in Grand Cayman. And the council advised Ken to study the
issue. So he sent out a survey and 70% responded, with 60% saying "no". They
didn't want to restrict parking in front of THEIR house. Some have multiple
cars: those are the few causing the problems. Others wanted to keep the
street by their house available for guest parking.

While I greatly appreciated all of Ken's efforts - I wanted my bike lane.
When the issue came again before the City Council to accept the bids for the
project I asked to speak. It was great to have the opportunity to thank the
City Council and Staff for making Maple Grove such an amazing place to live.
Our new hospital. All our businesses. Skipping ahead the utilities to permit
the largest Hindu Temple in North America to be built in Maple Grove. The
wonderful parks and trails.

And the awesome job they did on rebuilding Hennepin County Road 30, which I
cross 6 times a week to reach the Hindu Temple where I run the Yoga program.
Before this was completed, I told the council, I had to decide which of the
22 deities in the Hindu Temple I would pray to in order to cross the road
safely. Now the only part of my 15 mile bike ride where I didn't feel safe
was my own neighborhood. I pointed out in the survey that 60% of the 70%
responding "No" only represents 42% of the total neighborhood.

"Go study it" the council told Ken. "I did already", he replied. "Study it
some more".

They are rebuilding the roads this week. I saw Al yesterday, the project
supervisor and he showed me the engineering plans -that a special new storm
water system was being built in the cul-du-sac to filter the storm water
before it dumped into Fish Lake. But alas, no bike lane. Al said too many
people didn't like the idea. And he pointed out something I hadn't thought
of: forcing guests and residents to cross the street to get to their cars
can put them in danger.

The City of Maple Grove really listened to me and seriously considered my
suggestion. For a city of 60,000 people to listen to one little person on
one little issue -I was a successful community activist even without my bike

Friday, June 11, 2010

Back to DC with the Hwy 55 Corridor Coalition

Back to DC with the Highway 55 Corridor Coalition

This week's trip to DC was different in many ways from the same conference
last March. Instead of being the wide eyed innocent tag alongs, Mark
Johanneck, dealer from Morrie's Bufallo Ford and myself were the now the
"experienced" capitol hill visitors along with newcomer Liz Weir, the
charming and dedicated Medina City Councilwoman.

But DC was different as well. It wasn't only the cherry blossoms that were
missing, it was the enthusiasm for getting a new transportation bill passed
that was so prevalent last year from our entire Minnesota delegation. We did
hear rumors that if the Republican's take control of Congress in the
November elections that the Transportation bill could pass in a lame duck
congress by year end.

Our program started with a breakfast on Wednesday where all 10 of our
elected officials were invited to speak. Those accepting were all
Democrats-Colin Peterson, Tim Walz, Betty McCollum, Amy Klobuchar and Jim
Oberstar. Observing no Republicans were attending the breakfast, Liz
predicted no Republicans would show their faces at our office meetings. The
only one who met us at our scheduled meetings? Michele Bachmann. Michele was
running late so we missed Erik Paulsen, but caught up with him the next day.
Al Franken was no where to be found, but we meet with his delightful staff
person who really listened to us.

Last year each of our meetings in the congressional/senate offices were JUST
our Highway 55 group. This year 4 of our 5 meetings (it was a crazy
afternoon running around the hill) involved at least one other group, which
made it harder to get our message across. The group meetings tell me our
elected officials have put transportation at a lower priority than last

Our country is run by 22 year old staffers. Some of the brightest we met
last year have either gotten married and left DC or have been promoted and
are no longer engaged in transportation. Did I say 22? One staffer seemed so
young his voice was still changing. And another had the zits of a 15 year
old. But these are the people who have time to listen and have the ear of
our elected officials.

Partisanship was prevalent in the breakfast talks, as well as finger
pointing between the House, Senate and the White House. Democratic
Congressman Jim Oberstar, age 75, has been serving Minnesota's 8th district
in Washington for 47 years, 34 of those as a Congressman. Since 2007 he has
chaired the powerful committee on Transportation and Infrastructure. Jim's
life's work has been our nation's transportation system. He has drafted a
bill to completely retool transportation, establish more reliable funding
and drastically reduce the time it takes to get projects completed. This is
the bill he thought he could get enacted by September 2009.

This year Jim Oberstar described his historic bill as "a hill too high for
Mr. Obama to climb." I was so moved to meet this wonderful man who has so
much integrity, who is bipartisan, and so much knowledge as he spoke without
notes with fact after fact. And to be so rebuffed in his life's work by a
President of his own party -tears were rolling down my checks as I felt his

Our meetings completed, the 3 of us went to observe the Senate. The only
Senators present were the presiding one and the 2 debating. The others,
unless they are participating in a debate or are called for a vote, just
have their staff watch on C-Span. Barbara Boxer was speaking and I have to
say I wouldn't let her join my Critical Thinking Club. She tried to make a
case that the oil spill in the Gulf was causing air pollution in California.
She didn't connect the dots. We had enough of that and left to observe the
House. We were lucky to see Jim Oberstar debate a bill he sponsored
regarding releasing coast guard funding for the oil spill. The bill passed
410 to 0 and it was fun to watch Jim literally "cross the aisle" to confer
with the Republicans.

As we walked around DC we spotted a beautiful new building that looked like
a 12 story ship. New buildings are rare in DC. Then I noticed it was the DC
Headquarters for the National Association of Realtors and the headquarters
for RPAC, one of the largest and most influential political action
committees in the nation. Along with about 1.4 million Realtors', I've
helped finance that building so I asked for a tour Its the first LEED
certified building in DC.

Wednesday, June 2, 2010

Changes to Property Tax Laws


As expected, the legislature cleared up the current mess in the Tax Court
that prohibited Assessors from being expert witnesses. This confusion was
the result of a couple challenges by attorneys and caused delays in the tax
court process due to the uncertainty. There was a period of suspense whether
the Governor would sign the bill, as it was passed around the fishing
opener. But Governor Pawlenty came back in time to sign the bill. Assessors
can again testify in property tax court as expert witnesses. That was a high
profile one in the property tax community, these other 2 changes slipped
through more or less unnoticed.

The lowest tax rate is for vacant land classified as Agricultural Homestead,
taxed at the .50 rate for up to $1,400,000. John and Mary hadn't used up the
full $1,400,000 and they owned another farm as part of an LLC. So they
called their legislator and asked for the law to be changed so the LLC land
can count toward the $1,400,000 and be taxed at the lowest rate.

The Minnesota Revenue Department Property Tax Division got wind of this and
attempted to rally the assessors to fight the bill. "I already do it that
way now", replied some of the assessors. So the Revenue Department really
couldn't fight the bill on the basis that it would be too hard to
administer. And the bill passed.

A similar situation occurred with the taxation of Federally leased land.
Some counties taxed it, some didn't. So now they are all tax exempt.

These real life examples raises three issues with our property tax system:

1) Even though all assessors are working with state law, different counties
administer it differently.

2) Every time someone whines to their legislator, and with the ag
homestead/LLC thing it really just one couple, the legislature can change
the rules. This diverts the time of the assessors and the legislators and
raises costs for every one to implement the change.

3) The big one that affects all of us: every time one property class is
taxed less the rest of us have to make up the difference. Remember the
assessors don't set taxes, they just cut up the pie. So when someone else
pays less, each of us pay more.