Monday, August 31, 2009

Health care, Insurance, other non real estate related

I have been involved in some really heated discussions on Facebook relating to health care and insurance. And of course I had to spend some time thinking about it all, of course after posting lots of stuff that was just off the top of my head. After some considered thought, here are a couple things you might think about.

First - As children we are programmed to be socialists: You can't have that unless you brought enough for everyone. We have to share. And a hundred other similar comments. Is this a bad thing? I think it probably is, because it programs us at an early age in a way that might not be appropriate for survival in a capitalistic society. When we later see that someone has something we like, and they aren't sharing it with us, do we feel resentful? Jealous? "Why didn't they bring enough so I can have one, too?"

Maybe this sort of thing is appropriate when we are talking about cookies, but it is not when we talk about laptops or cars. As an NLP practitioner, I can tell you that the unconscious mind will not make any distinction! So this preschool programming is a bad idea.

Second - Insurance is a socialistic thing. Premiums are gathered from everyone, and the "beneficiaries" get paid for their trouble. We all pay for a small group's misfortune. Perhaps it is a good business decision to buy insurance. More on that in a moment. The other side of insurance is that it is necessarily a profitable business, if run correctly. An insurance company must hold massive amounts of wealth in order to guard against a rainy day. Therefore an insurance company (aside from the "side business" of actually insuring) is really a massive investment vehicle for the insurance company stockholders, who by the virtue of the business model, profit from investing other people's money, without being accountable to them because the customers do not expect to get their money back unless a catastrophe occurs.

Finally, let's talk about health insurance. I think it is a different animal than say, car insurance or homeowner's insurance. Why? because health insurance (for the most part) is not catastrophe insurance, as it is implemented by most employers today.

Car insurance pays when you have an accident. You don't go out looking to get in an accident, and you don't usually spend the insurance company's money trying to not have an accident as you drive around (Insurance companies may invest money doing this, like Geico did when they funded some radar guns in the past). Pretty much we dread getting in accidents, and we dread having our home get damaged, or robbed, or vandalized.

The difference with most health insurance plans is that we are almost encouraged to go to the doctor for the smallest thing. After all, it is just a $10 co-pay. Why not go spend a hundred bucks of insurance company money, it only costs me 10, and who knows, this headache might be a tumor, and besides I need some time away from the office.

I worked in corporate America for many years and this is exactly the attitude many people had, at the several places I worked.
You can see how this entitlement mentality could cost insurers lots and lots -- reflected in increased premiums for everyone.

I'm one of those people who has to be near death to actually go to a doctor. I've been blessed with excellent health, and I see a physician on the average of once or twice a year. And it comes out of my pocket, because my insurance plan has a huge deductible and no co-pay. I go, I pay. And, being self-employed, time away from work is time not making money.

So I think the very nature of most health insurance is different from most other insurance. There are two simple things which can change this. First, we need to de-couple employment and health care. Employers should not offer health care. This should be something a person makes their own decision about and buys on the open market. Second, no co-pays, no prescription drug plans, none of that. Insurance pays, after your deductible, the amount of the loss. Just like home owner's insurance. This puts a dis-incentive in place to be sick. It should be as massively inconvenient to be sick as it is to be in an accident or have your home robbed, if you want to insure against it.

What about the people who cannot afford health insurance? This is a harder question. Today, in the United States, if you show up at an ER, for the most part, you will get treated. Should the government pay for it, should they be involved? I don't think so! Let's look at it another way. If you think that it is the job of the government to provide a health benefit for everyone, then what about a basic housing benefit and a basic food benefit? Is it any different? What is means is that those of us who choose to work and pay taxes will support those people who are either unwilling or unable to work. The government, at least the federal government, has no place doing these things.

Bottom line: We live in a capitalistic society. That means that there will be winners and losers. We should create incentives for people to try and win. Offering things for free, or that other people pay for, is not an incentive. I have no incentive to conserve energy when I stay in a hotel. The price is the same whether I set the thermostat on 60 or 75. Insurance should create an incentive to NOT use it. No co-pays. You go, you pay.


Thursday, August 27, 2009


So, I hear you’re scooping up all the cheap residences around the Valley and planning to toss the tenants who look like “questionable” renters, based on the condition they’re keeping the property in, right? Oops. The Protecting Tenants at Foreclosure Act of 2009 (PTFA), part of the Helping Families Save Their Homes Act of 2009 (Pub. L. 111-22, approved May 20, 2009), requires that tenants residing in foreclosed residential properties be provided notice to vacate at least 90 days in advance of the date on which you want to have the tenants vacate your new property. Except where the purchaser will occupy the property as his/her/their primary residence, the term of any bona fide lease also remains in effect for the balance of the term. Oops, some more - but read on.

With the unprecedented number of foreclosures, tenants often were caught unaware that the residential property in which they reside was being foreclosed and were given little notice of the need to vacate the property. The objective of these new protections is to ensure that tenants receive appropriate notice of foreclosure and are not abruptly displaced.

Sections 702 and 703 define the scope of PFTA's coverage over residential properties. The Section 702 requirements to provide tenants with at least 90 days' advance notice to vacate and to preserve the term of any bona fide lease apply to foreclosures on all Federally related mortgage loans or on any dwelling or residential real property. Section 703 makes conforming changes consistent with the Section 702 requirements to the Section 8 rental voucher assistance provisions of the United States Housing Act of 1937 (1937 Act). (All these provisions “sunset” on December 31, 2012, by the way.)

The American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5, approved February 17, 2009) (Recovery Act) contains similar protections under the heading "Community Development Fund" in Title XII of Division A, which applies to emergency assistance funding provided for the Neighborhood Stabilization Program, if you want to read more about that.
Let’s focus on the coverage of Section 702 in this post – that coverage is very broad. Section 702 applies, commencing after May 20, 2009, to "any foreclosure" on (1) a federally related mortgage loan, or (2) any dwelling or residential real property. Section 702 provides that "federally-related mortgage loan" has the same meaning as that provided in section 3 of the Real Estate Settlement Procedures Act (RESPA) (12 U.S.C. 2602).

The definition of federally-related mortgage loan is very broad in RESPA, but federally-related mortgage loans represent only part of Section 702's coverage. Section 702 further covers "any dwelling or residential property," and that extends the requirements to all residential property foreclosures, regardless of type or entity involved in the foreclosure, no matter whether the tenants receive any type of housing assistance.

The tenants to whom the notice must be provided must be bona-fide tenants, as this term is defined in Section 702(b). Section 702(b) defines “bona fide lease or tenancy,” and under this definition, bona fide tenants do not include the mortgagor or the child, spouse or parent of the mortgagor. (See 702(b)(1)) With respect to the lease, Section 702(b)(2) and (3) provide that a bona fide lease or tenancy must have been the result of an arms-length transaction, and the lease or tenancy requires the receipt of rent that is not “substantially less”(whatever that means these days) than fair market rent for the property or the unit's rent is reduced or subsidized due to a federal, state, or local subsidy. Section 702(a)(2)(B) clarifies that the protections provided by this new law are minimum protections and do not supersede any greater protections (longer advance notice or additional protections) provided by state or local law. California’s got a law on the books already, I understand.
So, here’s when the requirement of Section 702 to provide at least 90 days notice to tenants applies:

(1) The advance notice applies to tenants in any foreclosed dwelling or residential real property, regardless of the type of loan or other security interest on the property.

(2) An advance notice of 90 days is the minimum period of notification. A longer period may be provided, for example, if greater protections are provided by state or local law.

(3) Responsibility for providing the advance notice to tenants falls on the immediate successor in interest of the property, which usually is the purchaser.

(4) The notice must be given to anyone whom, as of the date of the notice of foreclosure, is a bona fide tenant, whether or not there is a lease.

In addition, Section 702 provides that a tenant under any bona fide lease entered into before the notice of foreclosure has the right to occupy the premises until the end of the remaining term of the lease. The only exception to preserving the remaining term of the lease is for a purchaser who will occupy the unit as a primary residence. Even under this exception, however, the tenant must still be provided with the 90-day advance notice to vacate.

Once again, the lease or tenancy must meet the following requirements to be "bona fide" for purposes of Section 702 applying:

(1) The tenant cannot be the mortgagor or the child, spouse, or parent of the mortgagor,

(2) The lease or tenancy must be the result of an arms-length transaction, and

(3) The rent required under the lease cannot be substantially less than “fair market rent” for the property or the rent is subsidized by a federal, state or local subsidy.

So, cagey residential investor, scoop away, but don’t salivate over the forthcoming “rent bumps” until you check your compliance obligations under these federal statutes and any that Arizona may pass that are even more stringent.


Tuesday, August 25, 2009


The long history of Queiroz v. Harvey (a case tried in Maricopa County in 2005, not related to my co-blogger) mercifully came to a satisfying end a couple of months ago. The Court of Appeals had issued a disturbing opinion in May of 2008, in which it held that since the Buyer had cured a default in a real estate purchase contract before it had received Seller’s written notice of cancellation in writing, per the terms of the contract, the Seller was bound to perform. What the Supreme Court of Arizona decided, however, was that an Agent’s dishonest acts could be imputed to the principal even if it was unaware of those acts; therefore, the principal seeking specific performance of the contract could not benefit from Agent conduct that is inequitable. Thus, under the maximum of “he who seeks equity must do equity,” the Buyer could not compel performance from the Seller.

Specifically, Buyer’s Agent rushed to a branch of the title company that was not the branch where the escrow was to be opened without the earnest money deposit and quickly deposited $1,000 earnest money funds by money orders. Shortly thereafter, the Seller’s cancellation notice was sent to the branch where the escrow was to have been opened. Buyer argued this notice was untimely – the breach (failure to deposit earnest money along with the faxed signature page from the contract) was cured prior to the written cancellation notice (expressly required under the contract) was received – and, therefore, the Seller’s cancellation was superseded by the Buyer’s Agent’s cure.

The Court of Appeals was not persuaded by evidence that the “deposit rush” was precipitated by the Agent’s knowledge that the Seller was going to cancel the contract. Instead, it held that as a matter of law that the Buyer as principal actually must know that the Agent was acting dishonestly in its dealings with the Seller before being barred from prevailing on its specific performance claim.

One moment, please, ruled the Supreme Court. A principal seeking specific performance as its remedy may indeed be bound by its Agent’s inequitable conduct, knowledge of that conduct or its absence thereof notwithstanding. A representation by an agent incident to a contract is attributed to a disclosed principal no differently than if the principal made the representation directly “when the agent had actual or apparent authority to make the contract.” The Supreme Court indicated the Court of Appeals misunderstood the meaning of the Weiner opinion from 1963, which suggested that the principal must himself act willfully – but not in a case like this one, the high court opined:. “As between the principal who has retained an unscrupulous agent and an innocent third party who relies on the agent’s misrepresentation, it is the third party who deserves protection.” (¶ 15 of the Supreme Court opinion)

The Supreme Court seemed most impressed by its conclusion that the Agent was concealing the fact, by its hurried deposit of the earnest money from the Agent’s own funds (anonymously, recall, via money orders), that the Buyer might be unable to make payments of the deferred portion (i.e., Seller carry-back) of the purchase price – a non-disclosure “that goes to the heart of the transaction” and therefore should have been disclosed by the principal-Buyer and the Agent to the Seller. For today, truth and justice will out.

Now, more than ever, who you associate with in the real estate business matters profoundly.


Friday, August 21, 2009


One of the quandaries of Chapter 11 bankruptcy law is understanding what is an “executory contract” and what is not; the distinction is critical for appreciating what obligations can be scraped off, like mud from your shoes, if you decide to take this route as a tactical way to save your business or your assets (if you’re out of business). The bankruptcy code is not helpful in defining an executory contract, although everyone has an intuition what it is. The intuition usually is that an executory contract is one that isn’t “completed on both sides.” An executed contract, by contrast, is one that is finished; no performance by anybody remains, in other words.

Seems elementary enough; if someone has additional obligations left, then the contract is executory, right? Under the bankruptcy rules, a debtor who is a party to an executory contract may either reject the contract, affirm it (continuing performance following affirmation) or affirm and assign the contract to a third party (passing on the obligations to the assignee). Where real property-driven agreements are concerned, the waters of clarity are murky. This is because at times, bankruptcy courts, particularly appellate ones, will interpret certain types of contracts as conveying “real property rights” or “interests,” at which point there is doubt whether the election of a bankruptcy debtor persists. There is some irony here; for years in the commercial leasing context, American appellate courts have been eschewing the application of “property rights” concepts in favor of treating leases as contracts, without property heritage obeisance. For example, commercial leases in Arizona incorporate an implied covenant of good faith and fair dealing; this is unusual, because in a strict property rights milieu, good faith isn’t relevant. Think of fiefdoms and lords and vassals. Good faith in medieval times? What?

About 18 months ago, the 9th Circuit Bankruptcy Appellate Panel (“BAP”) weighed in on this issue. The Debtors, named Hayes, wanted to reject restrictive covenants relating to lakeside residential subdivision lots that lowered their property value (because they had a deterrent effect on the sale of the property), or merely were a source of aggravation. The bankruptcy court ruled that residential restrictive covenants do not make an executory contract that could be rejected under Bankruptcy Code §365(a). Hayes appealed; and three judges on the BAP considered the issue. The panel referred to a 1998 opinion from the 9th Circuit Court of Appeals (In re Robert L. Helms Construction) in finding that a contract is executory if the obligations of each party are “so unperformed” at the date of the bankruptcy filing that either party’s failure to complete performance constitutes a material breach of the agreement at issue. In the 1998 Helms opinion, the 9th Circuit held that an option contract is not executory because the optionee’s only true obligation, payment for the option right, is discharged at the time the option arrangement is made. In other words, one party was essentially “done” performing when that bankruptcy was filed; and at least some further performance by each party is required to find an executory contract.

So, the BAP in Hayes’ instance found that while the debtors had an ongoing obligation to comply with the CC&Rs, the Association had few if any continuing obligations. (The only one cited by the judges was the Association’s right – not obligation, in the perspective of the BAP panel – to expel any offending landowner in the subdivision.) The BAP panel pointed out that this didn’t rise to the level of “mutual obligations” at the time the bankruptcy petition was filed or afterwards. The bankruptcy court’s decision was therefore affirmed.

Hmm. So much for the reach of contract law into the realm of real property rights. The BAP panel neglected to comment upon the multiparty dimension of CC&Rs; these actually are “group contracts” among all landowners who are subject to the restrictive covenants – apart from the Association as a party. In other words, each owner has an ongoing obligation to every other landowner in the subdivision not to violate the restrictions on use and other CC&Rs requirements, like maintenance of and insuring their lots, or payment of common area assessments. (That’s why most CC&Rs state that enforcement may be had by the owners’ association or any individual owner or owners.) I suspect that this is a convention of common law in every state in the U.S., although such a convention may have been changed by statute in some jurisdictions. Those obligations to behave in a neighborly way continue in effect every day of a subdivision’s existence. Well, never mind the neighbors. But, be careful if you think that a “property right”-oriented agreement like an option to purchase/lease or a right of first refusal is dischargeable in your bankruptcy, at least in the 9th Circuit states.


Monday, August 17, 2009


On January 26, 2009, this Blog informed you about the Galeb-Miller v. Markham Contracting case on appeal that would be argued the following week, and invited your continued attention to those proceedings. The opinion in the case (1 CA-CV 07-0872) was published as a Memorandum Decision (e.g., one not to be used as precedent in future Arizona litigation) on May 19, 2009. So, was this blogista inattentive? Not really; the loser – big loser, actually, filed a motion for reconsideration in June, and the briefing on that motion was concluded just a few weeks ago. The Galeb case involves the imposition of damages in the form of a penalty upon a party (here, the contractor, supposedly) for the filing in the public records of a groundless lien under A.R.S. Section 33-420, the false lien statute. The big loser here was the owner; the Court of Appeals is being asked to reconsider its decision to deny Galeb-Miller any manner of damages whatever arising under the statute.

The factual background is that Markham Contracting’s attorney filed a lawsuit to foreclose on a lien, and concurrently recorded a notice of lis pendens confirming the existence of a suit and the entitlement of the contractor to a claim sounding in ownership against the real property. Problem was, Galeb earlier had procured and recorded surety lien-discharge bonds to “insure over” the claim of mechanic’s lien before the lis pendens recorded. (By operation of law, the recording of such bonds discharged Markham’s liens.) Now, the surety was one Contractors Bonding and Insurance Co. (“CBIC”); the attorney for Markham had obtained from a title company a “litigation guarantee” report, which identified an interest in the property owned by CBIC. The title company did not apparently disclose the capacity in which CBIC had an encumbrance against title, and the attorney did not inquire – at least, not until it was served with the bonds, into the nature of CBIC’s interest in the property. But the counsel knew that the title company had identified CBIC as a party in interest, who had to be named in the suit (and was not, for reasons unknown here).

The parties tried to settle, but got stuck in a few places, so Galeb sued and asserted it was entitled to damages for the violation of the statute on several groundlessness grounds, being:

a. Markham’s principals knew that the lis pendens was groundless themselves;
b. Markham’s attorney’s knowledge must be imputed to Markham if the officers knew the lis pendens was being recorded, and IF the attorney knew or had reason to know that the lis pendens was groundless;
c. Markham’s counsel was an agent for Markham, and therefore the knowledge of the attorney should be imputed to the principals under common law agency doctrine; and
d. Markham’s lien filings asserted termination fees and interest, categories of expense that are not recoverable under the mechanics’ lien statutory scheme (aka “non-lienable damages”).

Our court of appeals ruled that:

(i) Markham neither knew or had reason to know the discharge bonds had been filed, and did not read the “litigation guarantees,” so Markham likely did not know that the lis pendens filings were groundless; and

(ii) It was improper for the trial court to impute the attorney’s knowledge about the CBIC bonds, which was incomplete at best, to Markham; and

(iii) Because Markham had a good faith belief that it could rightfully impose a lien and therefore refused to relinquish it after demand from the owner, the contractor cannot be acting in bad faith, because the lien statutes are obscure.

Galeb got nothing in damages in the appeal; and the Court of Appeals opinion ends by remanding the matter to Superior Court for fact findings on whether the liens contained a material misstatement or false claim, and whether a letter sent to Markham’s counsel imputed to Markham (or afforded to Markham actual) knowledge that the liens were at least partially invalid due to the termination fees and interest that is statutorily unrecoverable. Galeb filed for reconsideration, likely because it went from having several hundred thousand dollars in a settlement posture to having squatola, other than a big bill from its counsel. So, we await the outcome of the motion to reconsider, and the treatment of the likely Notice of Appeal to the Supreme Court of Arizona to be filed by Galeb to follow.

The Court of Appeals had a little footnote of interest in its decision, numbered 18; it says that given that the recording of the bonds “killed” the mechanics’ liens in the total amount of those bonds, Markham only can be liable for the balance (the amount of the liens not discharged by the recorded bonds) under ARS 33-420. That’s interesting since the lis pendens was recorded after the bonds were; that lis pendens remained of record, which might arguably have chilled prospective purchasers’ inquiries about the property. Maybe someone will reconsider the wisdom of that footnote or at least explain what the Court was thinking along those lines. Also, it would be nice to hear from a court why Markham isn’t required to review the exceptions noted on the litigation guaranty report from the title company, once it has notice that there’s an evident conflicting claim of an encumbrance against the property. Eventually.


Saturday, August 15, 2009


As if commercial landlords weren’t suffering enough, bank takeovers by the FDIC leave additional misery in their wake. Most commercial landlords are familiar with the fact that the federal statute known as FDIA, or Federal Deposit Insurance Act, the legislation governing bank insolvencies. This act essentially is a regulatory bankruptcy code, but acts somewhat differently than the Bankruptcy Code, to permit the FDIC to reject unexpired leases. The way the FDIA works is that a landlord hears from the FDIC by letter, which announces (i) its standing as the receiver for the bank, and (ii) its intention to repudiate leases to which the failed bank is a party. FIRREA, the Financial Institutions Reform, Recovery and Enforcement Act, amended the FDIA to expressly give the power to repudiate contracts, including leases. The FDIA does not, like the bankruptcy code, establish a fixed time period within which a lease must be repudiated; it must be within a “reasonable period.”

So what does a commercial landlord get for compensation under the FDIA? A lessor gets “unpaid rent” up to the date of the appointment of the receiver, and “contractual rent” accrued from the date of that appointment through the date of the FDIC’s repudiation of the lease. Nothing else?- the landlord laments. Well, perhaps there is a bit more relief, depending on the scrutiny of the court reviewing the claims of a commercial landlord. Some courts have defined “unpaid rent” to include rent payments and other obligations, such as those of the tenant institution to keep the premises in good condition and repair. (By contrast, “contractual rent” is nothing more than the sum of money reserved as recurring, periodic rent set out in the lease.)

Take a look at the following extract of an opinion from the Third U.S. Circuit Appeals Court:
“Section 1821(e)(4)(B) states:
Notwithstanding subparagraph (A), the lessor under a lease to which such subparagraph applies shall-
(i) be entitled to the contractual rent accruing before the later of the date-
(I) the notice of disaffirmance or repudiation is mailed; or
(II) the disaffirmance or repudiation becomes effective,
. . . .
(iii) have a claim for any unpaid rent, subject to all appropriate offsets and defenses, due as of the date of the appointment which shall be paid in accordance with this subsection and subsection (i) of this section.

1821(e)(4)(B) provides that a claimant has the right to "unpaid rent" due at the date of appointment of the receiver, and "contractual rent" accruing before the latter of the date that the notice of disaffirmance or repudiation is mailed or the date it becomes effective.

"Rent," paid or unpaid, clearly encompasses contractual rent. Yet "contractual rent" must include a different category of claims than "rent" generally. If it did not, there would have been no reason for Congress to distinguish between "unpaid" and "contractual" rent in section 1821(e)(4)(B) or, at least, Congress would have required the FDIC to pay "unpaid contractual rent" rather then "unpaid rent" due as of the date of the appointment of the receiver. 1821(e)(4)(B) distinguishes between claims that accrue by the date of the receivership and claims that accrue between the date of receivership and the disaffirmance of the lease.

Black's Law Dictionary defines rent as "consideration paid for use or occupation of property." Meritor's [taken over in receivership by the FDIC] obligation to maintain the premises in good repair was an element of the consideration it paid for use of the property. Presumably, in lieu of a higher quarterly rent payment, the sublease obligated it to: maintain all parts of the Premises in good repair and condition except for ordinary wear and tear and . . .[to] take all action and . . . make all structural and non-structural, foreseen and unforeseen and ordinary and extraordinary changes and repairs which may be required to keep all parts of the Premises in good repair and condition . . . .

Meritor had an obligation to keep the premises in good condition and repair, and an obligation to ensure that the premises were maintained lawfully, even if satisfaction of these duties required it to make substantial renovations to the property. We find that these obligations constitute "unpaid rent" for the purposes of 12 U.S.C. § 1821(e)(4)(B)'s specification of the receiver's liability.

We construe "contractual rent" more narrowly than "unpaid rent," however, to effect the purpose of the statute in giving the receiver an opportunity to survey the thrift's situation without being immediately required to decide whether to assume large obligations.

While "contractual rent" refers only to those sums that are fixed, regular, periodic charges, the costs of structural repairs to the facade were not fixed, regular, and periodic. Consequently, the FDIC is not subject to any liability for the cost of repairs that accrued after the institution of the receivership because those costs were not contractual rent. The district court, however, found that "Meritor was required under its lease with First Bank to install flashing under the windows and insert vertical joints in the facade to allow for brick movement at a cost of $980,000. This finding seemingly would make the FDIC liable for the structural repairs to the north facade under its obligation for unpaid rent.

The district court, however, made this finding in determining the contractual rent due to First Bank rather than determining the unpaid rent due. As a result, it made its calculations as of the date the FDIC disaffirmed the lease, March 31, 1993, rather than the date Meritor went into receivership, December 11, 1992. Consequently, we must remand for the district court to find what amount, if any, of "unpaid rent" obligations had accrued by the date of the receivership, December 11, 1992.

In addition, we note that the FDIC argues that renovations less extensive than the full $980,000 reconstruction of the facade would have satisfied Meritor's obligations under the sublease. Since the district court's finding that the full reconstruction was required by the sublease was made in the context of denying the claim altogether, the court should consider whether lesser expenditures would have fulfilled Meritor's obligations. We will require this reconsideration because the district court did not address this possibility in its opinion.”

The message to commercial landlords here is to get counsel, and have that person, with you and your broker, read the financial institution’s lease with a gimlet eye. There may be additional sums recoverable as “unpaid rent,” if the obligations of the lessee accrued prior to the date the FDIC was appointed as the receiver. If the sum in controversy is sufficiently great, it may be worth taking the feds to the mat to try recovering it.


Sunday, August 9, 2009


Many years ago I decided that I wanted to be good at gymnastics.

I had never even done a cartwheel, and had no real interest in sports -- at least not ones that involved a ball or anything like that. I was in decent shape, though, because I had been hiking some of the local mountains on a regular basis. I could run for hours without stopping. I even did the Grand Canyon Death March, a 50 mile nonstop rim-to-rim-to-rim insane hike one year and made it through with no problems. I think I had the best time that year, too.

So when I started gymnastics, I had no idea what I was in for. I was 30, and I was, shall we say, anything but skinny. I am also more than 6 feet tall -- not the usual characteristics you find in a gymnast.

My wrists and neck hurt for a year. I kept my wrists taped, and I started working out in a gym to build the strength I would need to do more interesting things in gymnastics -- and I worked out my neck muscles as well, until stuff quit hurting.

A wonderful woman, Cookie, took me under her wing and spent many, many hours, patiently trying to explain to me how to contort myself correctly at just the right times to make things happen. See, as a little kid, we can ape other people's behavior without thinking about it too much. As an adult, we have lots of filters that prevent this -- "If I do that I'll break my leg/arm/neck/butt!!" Plus, some of us are learning impaired when it comes to physical activity. I had to READ about how to do a front handspring. Different people showed me and even took me through the motions like 100 times. I had to READ about how to do the trick! And then, Cookie stayed up until midnight making me do them. "You don't get to leave until I see 3 in a row," she said. That was around 7PM.

Learning back handsprings was harder. With a front handspring you can see where you are going. It is primally wrong to leap backwards onto your hands -- it takes a "leap of faith". And, you must COMMIT. Especially if you are 30, 6'2" and not skinny.
You must TRUST that your coaches are with you. I worked briefly with a Russian gold medal Olympic winner as a coach, and she weaned me off needing to be "spotted" -- a coach stands next to you making sure you don't fall on your head, usually by supporting your back through the middle of the back handspring. She would assure me that she was spotting me, place her hand on my back, and then when I started the trick she would pull her hand out. So it was really a "mental" spot rather than a physical one. Because I really didn't need it, but I didn't know it.

The important things I learned in gymnastics apply directly to success and excellence. First, no matter what you want to do, there are people who are already really good at it, or have done it, and they often are happy to teach and mentor you. They want to see you succeed, because it makes them happy! Great mentors are bonded to the success of their mentorees -- that's what turns them on.

Second, your mentor will know before you do, that you are ready to go it alone. They might be there to give you a "mental" spot, but they know you really do not need it. Sometimes they need to give you a kick in the ass to convice you, though. I know I have needed that a time or two.

Third, and maybe most important, if you really, really want to succeed then you have to have faith in yourself and your mentors, and you have to give it more than 100% effort. I'm not sure I can explain this well; It is when you are on a rock face, 100 feet above the ground, your legs are shaking from the effort and your fingers just won't hold on anymore, and yet there is a handhold just inches out of your reach -- you are already at the 100% level, and you have to look inside, and somewhere find that little extra that will make you leap for that last handhold and grab it to finish the climb. It is when you are in front of 100 of your friends who are all gymnasts, and you are about to (publicly) do back handsprings across the floor, and you only ever did it once before, and you know that just 100% won't make it happen, that you will fall on your ass -- and so you dig down, and in spite of everything, find that extra 5% or 10%, have the faith, and GO FOR IT.

In the words of Mr. Robbins, you can do anything if your WHY is big enough. Doing a back handspring and other tricks -- those are simple, little kids do them all the time without thinking, I've even seen 250 pound football players do them. For me, though, it was ... really hard. It took years of effort, lots of sore muscles, devotion. If you devote that kind of energy to almost any task, you will succeed. The thing that prevents success is not lack of effort, usually, but rather lack of heart. Not a big enough WHY. Do you fall asleep at night, thinking about how you could do something better, or how you can solve the problem at work, or thinking about what might happen and then preparing to be ready for eventualities?

Is your other than conscious mind constantly working to help you solve your problems? If it isn't, then perhaps you lack passion for your work. If your WHY is not big enough, if you are not all fired up about what you do, then you should probably be doing something else, because you will never excel -- or if you do, you won't enjoy it.


Saturday, August 8, 2009

Real Estate Secrets for Home Sellers

Did you ever wonder why your home didn’t sell when you listed it – why it just expired? Or why, as a “for sale by owner” you couldn’t sell your home?

Did you have an agent that listed your home and then you never heard from them again?

Did you think that your agent should have done more advertising?

Here are some facts about selling real estate.

First – the biggest two things about getting your home sold are Price and Condition. Sure, location is important, and some areas move faster than other areas. Right now in the Phoenix market, homes in nice areas are not selling as well as homes in less expensive areas. You can get a great deal on what used to be a million dollar home, perhaps as little as one half of the original price. But the homes that are moving right now are in the below $200,000 range, and the ones below $100,000 are on the market less than a week in most cases, with multiple offers.

What about condition? Almost everyone wants to buy a home that is move-in ready, and looks like a model home. Investors often like to look at homes in poor shape, needing lots of repairs or carpet or paint. Why? Because they know they can buy these homes for much less than a “move in ready” home.

Finally, price. Price is the most important factor in selling your home. Any house will sell for a bargain price; similarly, an overpriced house will never sell.

As a real estate investor and agent, I generally have a good idea of an appropriate selling price for a home – I sell a very high percentage of my listings. Why? Because if I think the seller has an unreasonable expectation in terms of price, I don’t want the listing. There are many agents who think that if they just get the listing, then they can sell the house. The truth is, I don’t want your listing unless I am certain I can sell your house. Having a bunch of overpriced listings costs me money and frustrates the sellers.

Having said that, I do have one program where I will give a seller a listing when I think the home is overpriced. And I charge an up-front fee for it. More about that later.

What about advertising? Won’t more advertising get my house sold faster? Generally not. Real estate agents advertise to get more business. Agents hold open houses to get more business. Agents run magazine ads to get more business. Agents put a sign in the yard – you guessed it – to get more business, not to sell your house. The primary, #1 way homes are sold is through the multiple listing services. The typical homebuyer, these days, starts their search for a home on the Internet. They have an idea of the area they like, and they go to sites like Zillow, or, or Trulia, or any of the home sites and they look at the homes for sale. Where does the information on these sites originate? The multiple listing service.

Sometimes people drive around on Saturday and Sunday, and they go in open houses. They are not usually looking for the house that is open – they are looking for a house in the area. So when I hold an open house, I always, always have with me a list of all the homes for sale in that area. And I have, from time to time, sold a home to someone who came to an open house. But never the home I was holding open.

Most people who look at open houses are the neighbors and other looky-loos, with no intent whatsoever to buy a home anytime soon. These people are great leads – I insist on contact information before I will let anyone see an open house. If you won’t part with your business card, or email address, or phone number, then you don’t get to see my open house. Because I know you won’t be buying it; and at some point in the future, I want to sell you a home, or sell your home. It isn’t about selling this home.

What about signs? I put signs up on most all my listings, and I have an 800 number you can call for information about my listings, right on the sign. Most people who call my signs – again – have no interest in buying the home with the sign, but they are looking for something. More often than not, they want information about what the neighbor is going to get for their home, so they can think about what their home might be worth. The sign is to get me more business, not to sell your home!

Magazine ads are expensive, and work sometimes. I have run many magazine ads, and I never sold any home I had advertised in a magazine, to someone who saw it in the magazine. But I have sold other homes to them. When I run ads, I often put the most attractive homes my office (not just me) has listed, so the ad looks good. It is to get my phone to ring, not to sell the homes I’m advertising. And, it works.

The phalanx of marketing techniques other than the MLS listing – magazine ads, the sign, the 800 number, open houses, home tours, and especially networking with other agents – all help get my phone to ring – to bring me buyers. I know I have succeeded when I get both sides of a transaction; ie. I represent both the buyer and the seller. This means that the buyer actually bought something I was advertising. And it happens, for me about 2%-5% of the time. I don’t go out of my way looking for transactions like this; there are agents who list homes exclusively and use other methods to improve their “double siding”. I take what comes.

So the number one way we sell homes is through the multiple listing service. It is because the information there is syndicated out to multiple sites on the Internet, and because most homebuyers have a friend who is a real estate agent who finds them a home through the multiple listing service.

Pricing – many people use Zillow or another similar online information service to try and get an idea of what their home is worth. My experience is that these services are a great way to see price trends, in that they always use the same, objective method to determine a home price. As for the specific value of a home, you are probably better off using an appraiser or at least an experienced real estate agent who has access to the tax records and multiple listing service to see recent sales and homes under contract. Agents can sometimes also call listing agents with “pending” homes (or AWC – Active With Contingencies) and get a feel for the offer price. Ultimately, though, it is very hard to determine an accurate value without actually obtaining an offer. As agents, we strive to price homes fairly, and start with a price slightly higher than our opinion of the market value. Then, if no offer appears in the first few weeks, we lower the price. I typically lower the price about 3% every two weeks.

For short sale listings (listings in which the seller has no opportunity to get anything out of the transaction because they owe more than the home is worth) I specifically require that the seller agree to lower the price on this basis, as it is generally what the banks like to see – start a little high and lower the price systematically until someone makes an offer.

People attempting to sell their home themselves are usually trying to save money – namely, the commission. Without help from a real estate agent, though, they seem to have trouble setting the price. Here is an example from recent FSBO ads in Phoenix:
A seller is advertising their home, as a FSBO, for around $240,000 in the East Valley. This property was purchased for around $140,000 before the market bubble. Looking at the various comparable properties, the owner will be lucky to sell it for more than they paid! An agent has listed it now (the owner perhaps got tired of not selling) for more than $200,000! What do you think the likelihood that anyone using a competent agent, who can see the comps, would pay that much for the home? Either they will have to reduce the price at least $30,000 - $40,000 or they probably won’t get an offer.

This is going to frustrate the seller and his agent, and gives other agents a bad name. What if the agent had done their job and educated the seller as to the real, current market value of the home? The seller might be able to make a better decision about what to do. Instead, the seller is faced with some questions and anxiety: (Note: I have no idea what the seller owes on the home) “But I have to sell it for what I owe the bank, at least, right?”, and “What if it doesn’t sell, I can’t keep making the payments”, or “I have to move to Zimbabwe to take care of my great uncle” – we can’t know what is in the mind of this seller. What is clear (at least from what I can find from looking at the FSBO ad, the tax records, and the MLS system) is that the home was way, way overpriced as a FSBO and now is only “way” overpriced as an agent listing.

So here is my offer:

If you want me to list your home, either we have to agree on price, or you can pay my up-front listing fee with no guarantees. If we agree on price, I will list your home for a 6% commission. If you want my “39 day” guarantee, then you must pay 7% and there are other requirements including (but not limited to) staging, inspection, and appraisal.

If you want me to just list your home so you get MLS exposure and you (for whatever reason) choose to ignore my pricing expertise, then I will list your home in the MLS for $500 plus a 3% commission.
The choice is yours.

Patrick Harvey
Associate Broker
Certified Short Sale Negotiator
Move On Real Estate Group
(480) 390-7369 Direct

Friday, August 7, 2009


The downturn in the economy has hit tourism and hospitality industries hard, as many discretionary dollars have been funneled into “day trips” and “stay at home vacations.” Arizona lodging providers are contemplating increasing revenues by offering lodging to persons who are in a position to want to stay with them “for a while,” without knowing exactly how long a sojourn that might turn out to be. It’s creative income production, and likely tempting, but hotel and motel operators need to think about a few issues in deciding whether to offer lodging on a seemingly – fixed-term basis.

The Arizona Residential Landlord Tenant Act (“ARLTA”) theoretically does not apply to “transient occupancy” in a hotel or motel, under ARS §33-1308(4); this complicates the decision of lodging providers, because the ARLTA does apply to a rental agreement of short duration, like one involving “a roomer who pays weekly rent”. In other words, a week-to-week guest, in some circumstances, may be covered by the ARLTA.

An initial observation is that in order to be bound by that landlord - tenant act, a hotelier likely will need to have a written lease agreement. Does the hotel/motel operator really want to be bound by the act? On the one hand, “innkeepers” have some obligations to guests under Arizona law. On the other hand, residential landlords have a mess of obligations under Arizona law, including possibly the requirement of registering its facilities with the Maricopa County Assessor as having “Residential Rental Property.” If a parcel of property is used for residential rental purposes, the parcel must be listed as a “class four” property for tax assessment purposes.

Also, know that the municipality where the lodging facility is located may have a transaction privilege tax on residential rent receipts; and failure to pay that tax will result in a penalty or fine by the municipality. The innkeeper should check on that circumstance in assessing this situation; getting a fine from a city or town just to accommodate a person or a handful of persons for a longer-term stay seems cost - ineffective.

The county where the facility is located has the right to inspect the rental property under the “slumlord” statutes. Practically speaking, that probably will not happen often, however, other than in response to a lodger’s complaint in writing filed with the county. Still, the innkeeper needs to realize that a landlord’s essential obligations under the ARLTA are found in Article 2 of the act, starting at ARS §33-1321. Very basically, the categories of commitments involve (i) maintenance of the rental unit, (ii) accounting for the tenant’s security deposit (if there is one) when the lease lapses, and (iii) lockouts of tenants and disposition of a tenant’s property when the lease is “over,” for whatever reason. I don’t think that the innkeeper will have any trouble complying with any of the physical-condition requirements, just in the ordinary course of maintaining the facility. But a disgruntled “tenant” can make you fix the toilet in his “unit,” instead of an innkeeper employing the more convenient device of just moving him/her/them to another room at the facility for a while or for keeps – if there’s a written lease, that is. And disposing of property of the departed occupant under the ARLTA requires lots of notice – giving and other hoops for a landlord to jump through. There’s more on the landlord’s obligations under the ARLTA in a February, 2009 post on this site.

It’s not uncommon for a landlord – tenant act not to define “transience.” Arizona’s doesn’t; neither did Oregon’s or Illinois’, in days past. I think the definition of a “transient occupancy” is a circumstance where a person does not have an expectation of indefinite occupancy of a particular dwelling unit. So, this is my modest suggestion to innkeepers: Don’t allow anyone to become a tenant, in a situation where the tenant thinks he/she will be in Room 679 as long as the rent is paid every week/month on time.

Instead, consider this – enter into a longer term guest agreement, where room charges only have to be paid monthly. Don’t call the arrangement a lease; write up something called a “Transient Occupancy Agreement”. Have that agreement recite that the rent is due every XX days, and that the parties presume that the occupant paying his charges timely will continue consistently to occupy Room 679. But, and here’s the big but, recite in the agreement that on some period of days of prior notice, the innkeeper has the right to relocate the occupant to another room. That way, two things will be favorable to the innkeeper:

• If the innkeeper doesn’t have time, labor, materials, whatever, to fix the toilet in Room 679, it won’t have to – instead, it can move the occupant to another place for a while until it gets around to having the toilet fixed; and
• The occupant cannot claim to be protected by the ARLTA, because, since an innkeeper has the right to relocate him as need arises, the renter does not have an expectation of indefinite occupancy of a particular room at the inn.

Courts have not landed upon a length, or range of lengths, of overnight stays that distinguish transients from “roomers.” Permanent residence, and therefore the application of the ARLTA, is going to be evaluated by external appearances of the intentions of the parties. The most important “appearance,” I suspect, is whether the occupant indicates by his or her behavior intent to establish a permanent residence.


Monday, August 3, 2009


So the Governor sues the entire state legislature to turn over bills that passed the house and senate but were not “timely” presented for her signature or, as the case might be, veto. (Okay, there’s a third alternative where a bill becomes law if the Governor takes no action on a bill for 5 days if the legislature is in session, and 10 days if it is not.) Under the current state of monkey-business, it’s hard to know if anyone is at home in either branch of our government.

Nothing in the State Constitution requires bills passed through the legislature to be presented to the Governor for disposition within a certain number of days. A bill isn’t “stale” just because the session of the legislature is about to close, under the Arizona Constitution. Likewise, there isn’t anything in Title 41 of the Arizona Revised Statutes that requires presentation of endorsed bills within a fixed time of passage. Which is why the Petition for Special Action and the supporting memorandum from the Governor’s camp had no citation to relevant authority. The case brought by the Governor was a dead-bang loser from its inception. But then, Arizona’s citizens were the real losers in the special action litigation, its legal costs having been funded with tax dollars.

Fear not: State government has in mind a method to recoup those costs. It’s a moral tale, ironically reprising the “timing is everything” narrative. It seems Senate Bill 1271 has residential real estate investors in a twist. The law intends to “gotcha” speculators by taking away the deficiency judgment “safe harbor” found in A.R.S. §33-814. You’ll recall that the Arizona Supreme Court in Baker v. Gardner said that on a lot of 2.5 acres or less used as a single-family residence, no lender could obtain a “deficiency” judgment following a foreclosure. The Supreme Court’s policy reasoning was that a homeowner should not suffer the outrageous misfortune of having a lender bid too cheaply at a foreclosure sale, on the theory that the lender would just take the shortfall out of the hide of its former borrower. The misfortune would be too burdensome, coupled with the reality of the borrower having already lost his or her (or their) primary residence. Enough suffering, already, said the Baker v. Gardner court.

But wind the clock forward; now, it’s the borrower wanting to part with the property too cheaply, via the ubiquitous “short sale” process, leaving the lender holding the bag under §33-814. So, the wise legislature drafted the bill to knock the skids out from under the borrower – maybe. Now, Section 814(G) has added hurdles to the “safe harbor seeker.” First, the borrower must show that the residence has received a “certificate of occupancy,” meaning clearance for occupancy by the municipality or the county. (Whoops – hopefully someone in the legislature had its research service confirm that all Arizona cities, towns and counties issue such certificates for residential building; otherwise, certain of our citizens have been denied substantive due process, equal protection of the laws or some combination thereof! There’s a difference between a certificate of occupancy and the structure merely passing its final inspection.)

Next, the borrower (aka the “Trustor” under the Deed of Trust) seeking harborage has to show that he/she/they occupied the structure for “six consecutive months.” This hurdle were intended, I suspect, to avoid protection for the person who either (a) was buying houses (and will perhaps continue to buy houses) and hoped to resell them quickly or to rent them as a part of his investment portfolio, without intending to be the occupant, or (b) was having a house built by a contractor but defaulted on the construction loan before completion. Why the (b) instance party who lost his job (and therefore his ability to pay) is less deserving of harborage than someone whose house is finished is mysterious, but let me not digress.

The interesting point about SB 1271 is the text about 6 consecutive occupancy months, because nowhere in the bill is it mentioned “measured from when”. Suppose the owner of the house lived in the house for 185 days straight during 2001, then accepted a job transfer, moved from Show Low and has been renting the house ever since? Renter, of course, has lost his job, and now there’s no replacement tenant to feed the mortgage. Safe harbor-time? How about the devout member of the Latter Day Saints church, or any other religious denomination, who has been the mission coordinator in a foreign land since the beginning of this year? What about persons temporarily detailed abroad through a job that subsequently was cut via a reduction in force? And members of the armed services; or what about the civilian contractors who are providing military consultation or support in Afghanistan – what about them? What if the residence is owned in joint tenancy and one of the two joint tenants hasn’t occupied for 180 consecutive days? How about folks who are hospitalized or otherwise confined to an institution for a prolonged period? Are these folks eligible for the safe harbor, or not?

And one other thing: The borrower has to prove the six consecutive occupancy months. Now you have all the excuse you’ll ever need for not tossing those accumulated piles of season’s greetings cards from all your friends, from one year to the next.

Some court will have to figure all these mysteries out. And you’ll be fronting judicial salaries as the bench tries to untangle another mess, courtesy of the legislature, with an assist from the Governor.