In March 2007, Governor Strickland created the “Ohio Foreclosure Prevention Task Force” to address the ever-increasing number of foreclosures plaguing the state. The group’s final report, issued in September 2007, identified 27 recommendations for state action. Since the rise in foreclosures likely won’t be going away anytime soon, perhaps it’s appropriate to take stock of Ohio’s progress on the recommendations issued over 16 months ago. 

Here are a few of the Task Force’s ideas where notable progress has been made recently:

 

1. Facilitate land banking of properties.

2. Encourage mediation and alternative dispute resolution.

3. Expedite the post-judgment process of property transfer. 

 

The Ohio legislature deserves a fair amount of credit for getting substantial legislation passed quickly on these issues. Most recently, Governor Strickland signed Senate Bill 353 that authorizes Cuyahoga County to create a “county land reutilization corporation” to manage, develop, and maintain vacant property. Much more can be said about the pros and cons of this land-bank effort (and will be in a later post), but suffice to say it is a positive step toward addressing the mass amounts of abandoned properties in the Cleveland area that have resulted from the rise in foreclosures. At a recent presentation to the Cuyahoga County Law Directors Association, County Treasurer Jim Rokakis was very upbeat about being to tackle the “land” aspect of the foreclosure problem.

 

The goals of encouraging mediation and expediting post-judgment transfer were realized earlier through Substitute House Bill 138, signed by Gov. Strickland in September 2008. The bill made sweeping changes to Ohio’s foreclosure process, all aimed at expediting the process and locating parties who purchase properties at sheriff’s sales. It also explicitly authorizes courts to require the mortgagor and mortgagee to engage in mediation at any stage of the foreclosure. 

 

These actions may not be enough to stem the tide of the current crisis, but addressing foreclosure-related issues through legislation now could certainly help minimize similar problems that arise in the future. Now, about those other 24 recommendations…

Many counties in Ohio, Hamilton and Franklin included, have just completed their triennial valuation of real property. In this day and age of falling real estate values and 401(k) balances, saving money is on everyone’s mind. That makes today a good day to review the Auditor’s new value of your property and ask yourself, “Am I paying taxes based upon my property’s correct value?”

Many factors influence property values, and the Auditor’s appraisers, despite their best efforts, are all too often not privy to all the information. The burden therefore falls on the shoulders of the property owner to provide additional information to the Auditor when necessary. In order to do this, a properly completed Complaint Against the Valuation of Real Property form (see links for  Hamilton County, Franklin County, and  Cuyahoga County forms) must be filed with the Auditor’s office on or before March 31st of the following tax year. This means if you are filing by March 31st of this year, you are actually challenging the valuation of your property as of January 1, 2008. And each county typically has its own set of procedural rules for filing a complaint, so be sure to familiarize yourself with the correct process to avoid dismissal of your case.

 

 

Continue Reading Fact Check: Is Your Property Correctly Valued?

In the past 20 years or so, China’s real estate market has experienced phenomenal growth. Hundreds of skyscrapers bursted into the sky during the two decades and many more are coming. This dramatically changed the landscape of many cities in China. All these skyscrapers and other real estate developments are built on a unique land ownership system. The system is still in its primary state of formation, thus uncertainties exist in many crucial areas. In 2007, the first Property Law of People’s Republic of China was enacted and clarified some of the uncertainties but it is far from eliminating them all. Many land ownership issues are still left undefined. The following is an overview of some aspects of China’s unique system. 

In China a private party cannot “own” land. All land is either “owned” by the State or by the Collectives. The State owns most of urban area land (i.e. commercial land) and the Collectives are the owners of most rural land (i.e. farm land). Under the current system, even though the land itself can not be transferred, the State may pass the right to use its land to private parties through the granting of “Granted Land Use Right” (“GLUR”) or “Allocated Land Use Right” (“ALUR”). In contrast, Collectives are not allowed to transfer the use right of the land they own. Collectives’ land must be converted from Collective ownership into State ownership before the use right of the land can be transferred. There are efforts, including legislative and administrative, to “free” the land owned by Collectives.  The general purpose behind these efforts is to give farmers more “property right” to energize the rural economy in China. 

Continue Reading Introduction to China’s Real Estate Ownership System

Have you ever asked the question when researching a property: "Where did the tanks go ?" or "What were the prior improvements ?"  Now Google Earth can help you out with the recent release of Google Earth v.5.0(beta).  A new tool will display satellite images for a parcel for as far back as satellite images exist for the same.    

Once you open version 5.0(beta) and locate a parcel of interest, you will see a tool bar across the top of your screen.  In the center of the tool bar you will notice an icon of a clock.  When you click on the clock icon a dialog box will appear with a timeline displaying the dates of the satellite images Google has stored of your parcel in question.  Slide the marker across the timeline and the history of the parcel is displayed.  

Although with Sanborn Maps  you can typically go back much further in time, having this information at your fingertips can be a valuable resource.

On January 27, 2009, the front page of the Columbus Dispatch read, “44,000 Jobs Gone.”Other articles report of companies shuttering their facilities or filing bankruptcy. As one affected employee interviewed for the Dispatch article succinctly stated, “It’s scary.” And it’s no less scary for landowners and lenders dealing with properties that have been abandoned.  Landowners whose tenants have abandoned their facilities are trying to recover past rent due and expenses related to cleaning up the equipment, products and chemicals remaining at the facility. Banks are foreclosing on property or are working within the bankruptcy court to recover their money. 

Landowners and first mortgage lenders in these situations should also be aware that they may be subject to environmental clean-up obligations under the Cessation of Regulated Operations (“CRO”) program. CRO was created to protect the public against exposure or pollution from hazardous chemicals left at abandoned facilities. CRO requires the owner or operator of the facility to secure the facility from trespass or vandalism and to comply with 30-day and 90-day deadlines in removing regulated substances and reporting on the progress. If the owner or operator of the facility fails to perform its CRO obligations, then the landowner or first mortgage holder may be responsible to perform certain CRO activities. 

 

Continue Reading The CRO Program: Landowner and Lender Responsibility when a Regulated Facility Closes

As methods of delivering information continue to evolve, we at Ulmer & Berne notice that more and more of our clients and contacts are actively doing business in an “on-line” environment. The tools of the Web 2.0 world of social networking and blogs of every type and nature have created a connectivity of people and a sharing of information never before witnessed. These tools have made a large world smaller and more manageable.

The Real Estate Advisor Law Blog (get it REAL) is written to disseminate pertinent information in a timely manner relating to real estate, construction, financing, environmental and related matters.  From time to time we will write about other issues we think those in the real estate, construction, design and finance industries have an interest in or should be aware of.  Our posts will be concise articles written to identify trends and opportunities that our clients and contacts deem important for their businesses.  We know that your time is valuable and if we are fortunate enough to have your attention for a few minutes a week while reading a blog post we want you to come away with an idea or tool which will translate into making you more effective, profitable and successful.

 Ulmer & Berne is uniquely situated with offices throughout the Mid West and with one of the top real estate law practices in the Mid West. Our attorneys see trends developing from local, regional, national and international perspectives.  We hope that by us sharing our thoughts with you we will demonstrate to our clients and contacts that we have "skin in the game" just as they do. 

The Real Estate Advisor Law Blog is now open for business! You can receive the new blog posts directly by subscribing through your RSS reader, email or just bookmark this page and visit us periodically.  Thanks for visiting us and make sure you leave us your comments from time to time on your thoughts relating to the blog posts which will be published here.

 

I continue to be amazed at the reaction I get when I recommend to clients that they purchase title insurance as part of a real estate transaction. Granted I could be considered biased as I am a licensed title insurance agent, clerked in law school by searching titles in Franklin and the surrounding counties and spent the first 2 years of my legal career as an underwriting attorney for Chicago Title at their headquarters in Chicago. Generally, lending clients have accepted title insurance as a must; but not all developers and residential purchaser’s have seen the light; notwithstanding the Erpenbeck situations which arise from time to time.

So, if you are not yet convinced that title insurance should be a necessary component of your due diligence and closing requirements, below is a list of 73 reasons why you should change your mind which has been assembled by Stewart Title and Lawyers Title at their website Know Your Closing.com.  Most of these items can be located by a search of the public records, but not all.

  

Continue Reading Title Insurance: A Closing Checklist Must

A side effect of the foreclosure crisis has been a growing concern among lending institutions over the possibility of “lender liability.” Lender liability encompasses any number of actions that may be asserted by a borrower against a lender based on either the lending process or final loan documents. Borrowers have been seeking new and inventive ways of avoiding foreclosure, often by bringing these claims against banks as counterclaims in a foreclosure action. 

One of the most fruitful areas for lender liability claims to arise is in pre-agreement negotiations. It is easy for a borrower to embellish conversations to claim that an agreement arose, or even that its terms were more favorable than written. A few simple steps can minimize (although not eliminate) the chance a borrower may be successful on such a claim:

1.        Require a written acknowledgement that any pre-execution communications between borrower and lender are not binding. This is particularly important in the loan work-out setting, where a lender does not want to grant concessions under the original loan documents until a final agreement has been reached.

 

2.        One of the recurring themes in lender liability cases is the borrower’s perception that ongoing negotiations have resulted in an agreement. Placing a termination date in all pre-execution documents can avoid this problem.

 

3.        Early in the loan application process, send a letter to the prospective borrower laying out all the required steps to be taken, by both parties, before a loan will be made.

 

Remember, especially in these times, you must “hope for the best and plan for the worst.” As a lender, you are hoping to benefit from a transaction financially, and are eager to get a deal done. But should litigation arise, you want a pile of evidence that all plainly supports your version of the deal. This shouldn’t be a hard sell, as extensive documentation also benefits the borrower by setting out the path to approval and eliminating any misconceptions. 

 It seems like every day another retailer files bankruptcy.  Many more have frozen new deals, cancelled scheduled openings and even closed open stores. A shopping center landlord must monitor tenant monthly gross sales reports and tenant public filings to anticipate which of its tenants are or could become problem tenants. The landlord should also act quickly to declare a default of a tenant which is not paying rent and other charges timely.  One strategy for a tenant is to withhold rent to build a war chest before it files bankruptcy. A landlord that terminates a lease prior to the tenant filing for bankruptcy protection has significantly improved its leverage.  A well drafted lease, including tight permitted use clauses, can also increase the landlord’s bargaining power.

A relatively new development is "designation rights." A tenant with multiple locations files for bankruptcy. The tenant then has the right to accept or reject its leases. The tenant sells this right to a "designation rights acquirer."  The acquirer seeks a return on its investment by finding new tenants to purchase the leases. In a successful center, the landlord may become vulnerable to having the lease assigned to a party the landlord would prefer not to have in its center, or at rates less than the landlord could otherwise obtain. So another potential income stream to the designation rights acquirer is payment from the landlord  in exchange for the designation rights acquirer rejecting the lease because the landlord does not want to take the chance of having a bad assignment. As more and more retailers are stopping expansion plans, it is possible that designation rights will become less valuable because the designation rights acquirer will both have a smaller universe of potential assignees and because the landlord may be more willing to accept a larger universe of assignees.

The new Bankruptcy Code amendments to Section 365(d)(4) which effectively shortened the period for a tenant to accept or reject a lease was supposed to give the landlord more leverage (120 days/extenable to 210 days).  However, sticking to the rejection period and taking all of the other steps will do no good if there is no demand for the space. The economic reality may still cause the landlord to extend the rejection period and work with the designation rights acquirer. So the real question is whether there is simply too much retail space built and how do we absorb the existing space? One answer seems to be mixed use – adding office and residential into the retail center. In any event, it is clear we will see a shake up in the retail industry in 2009.

If we want a healthier community we need to start with a healthy core city.    I am a social worker, turned tax attorney, turned real estate deal maker. I tell you this because those phases of my life have all brought me to this point in my career.   You know the theory about the donut. If there is a hole in the middle surrounded by wealthy suburbs, eventually the suburbs will crumble. Besides, urban areas are rich in character, more ethnically diverse and in general are more interesting places to hang out. Given the choice many people would prefer to live work and play in an urban landscape.

Tax credits, whether they be historic, low income or new market fuel urban development deals. Without these tax incentives restoring old buildings in the urban core makes little economic sense. The costs to rehabilitate are more then the fair market value of the buildings upon completion considering the low rents and sales price per square foot. Especially in these economic times when every bank is looking for a reason not to lend money, tax credits are even more important. Yes, tax credit deals take more time, are more complicated and result in higher professional fees. However you can raise almost 50% of the project cost in tax credit equity/ subordinate debt through tax credit programs.

 

Just recently I read an article in the Sandusky Register Online about the Ohio Preservation Tax Credit and the resultant loss of a deal in the Sandusky area because the program makes it difficult for it to be used with the New Market Tax Credits program. While the article oversimplified the problem, the problem still exists and I and other professionals are having a hard time convincing the Ohio Department of Development and the Ohio Department of Taxation that it needs to be fixed. Basically the program requires the credit to be allocated in proportion to a member’s ownership interest. In other words it does not allow the credit to be “specially allocated” to a member. This is important because urban development deals usually involve federal historic tax credits, state historic tax credit and either low income housing tax credits or new market tax credits. Different tax investors have different appetites depending on their presence in Ohio and their tax liabilities. If the credits could be specially allocated then investors would pay more for them rather then trying to find one investor for all credits.