GUEST POST: The Importance of Rentals In Milwaukee

Below is a very thought provoking guest post from fellow blogger (and friend and fellow AASEW Board Member) Tim Ballering:

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The Journal is reporting:

Over the next three years, Barrett said raze orders in the city are expected to grow to 1,600 homes, with a cost of $24 million. ”We have a very severe problem right now,” Barrett said.

No kidding we have a “severe problem ” This a problem that continues to grow rather than moderating. The number of abandoned and foreclosed houses was bad nine months ago and with fresh snow on the ground you can see even a greater number of unoccupied properties than ever before. At least here on the Southside of Milwaukee these numbers are far worse than what is being reported by the city.

How much of the $24 million of anticipated razing costs could be avoided by making it more favorable to rehab properties and restore them to the tax rolls?

Perhaps the city would do better by working with, instead of against people willing to invest their own money, time and effort into putting foreclosures back in service. I’m not even suggesting a hand up, just not the current beat down attitude. Not only would there be less spent on bulldozing, but more of the tax base would remain plus the positive economic impact for the community due to spending by owners to maintain and operate this housing.

Between taxes and the sewer and water bills the city gets at least $5-6 million per year from 1600 functional properties. In the three year period Barrett defines this is a potential of $18 million in city revenue if the buildings were returned to occupancy. Add this to the $24 million to bulldoze and you are north of 40 million dollars.

Can every property that is deemed to be worthy of razing able to be salvaged, of course not. But many that are in the pipeline today can be. Every day that a property sits unattended is a day closer to the wrecking ball being the only option for that property. There are many properties sitting vacant today that are worthy of repair, but will not be so six months or a year from now.

Additionally every time someone like you or I take on the challenge of putting properties back in service the local economy sees a benefit through the wages and materials we pay to get the job done. All but one of my employees live in the city. While the money you spend at the Home Depot doesn’t stay in Milwaukee, the person who is employed by the Home Depot lives in the area and spend their wages here.

A downside for us, but an upside for the community is a greater amount of housing stock available holds rents down. A more competative market also forces owners to do more to properties to get and keep them rented.

Once the property is back in service ongoing maintenance similarly impacts the local economy in a positive manner. It is estimated that repairs and improvements to rental properties represent $90 -120 million a year in the city of Milwaukee alone. (These numbers are derived from our company’s experiences, the experiences of other long term owners that I’ve discussed this with and data from the Census Bureau’s Property Owners and Managers Survey. Our data and that of many other owners indicate a slightly higher number than the Census)

Our company has the capacity and had the will to do 10-12 such projects a year without any government monies. Heck if the environment was more favorable I could see us doing two properties a month. We have not made an offer in MIlwaukee since November due the unfavorable policies adopted by the city. See my prior post on buying foreclosures in Milwaukee. I talk to a lot of other owners with similar capacities that say the same thing.

Milwaukee acts like they are the only girl at the dance – as though real estate investors need to accept their petty obstructions and poor treatment because they are the only game in town. But there are many other places to invest that treat owners much better. One of our members is doing a big rehab in Beloit. When I asked his project manager how it was going with the city he said they were unbelievably nice and truly seem they want to see the project succeed. We are actively looking at the South Florida market today.

A few notes:

These 1,600 properties must be city owned or near to being city owned. If they were bank owned the city could and would force the banks to demo the properties on the bank’s dime. A growing trend is banks that simply walked away from the mortgage rather than be subjected to the bad side of city regulations and fees. In another instance I spoke to an owner who the bank sued- he thought he lost the properties to foreclosure only to find out later that it was a money judgment only suit. This adds to the zombie housing effect. And you though only borrowers walked away. ;-)

Our police chief is in the news speaking about the link between foreclosed and abandoned housing and crime. I am certain he is correct on this. But the Milwaukee Police do not do what they should in cases of property vandalism. See my prior post on property vandalism and the lack of police response. This vandalism accelerate the rate of properties that are no longer viable for rehab.

State's Budget Bill Amends Tenant Protection Act

On June 29, 2009 Governor Jim Doyle signed the 2009-11 state biennial budget bill into law. This law in part made modifications to the Tenant Protection Act (starts on page 108) which offers tenants certain protections during the foreclosure process. My earlier post on the Tenant Protection Act can be read here.

Specifically, the state budget bill modified the current law related to tenant protections in foreclosure actions as follows:

1. ADDED - If an eviction action seeks to remove a tenant whose tenancy was terminated as a result of a foreclosure judgment and sale, the complaint must identify that the lawsuit is an eviction that is being brought as a result of a foreclosure action.

2. ADDED - A tenant cannot be named as a party in a foreclosure action unless s/he has a lien or ownership interest in the property. The fact that a tenant lives in the rental property that is being foreclosed upon is not enough to name them as a party in a foreclosure action.

3. ADDED - If a tenant is improperly named as a party in a foreclosure action the court shall award the tenant $250 in damages plus his/hers reasonable attorney's fees.

4. DELETED - The portion of the Tenant Protection Act that required the exclusion of any tenant information related to foreclosure actions from appearing on CCAP. That section was replaced with #2 above.

AASEW MEETING ON HOW TO BUY FORECLOSED PROPERTIES - MAY 18th

Anyone interested in purchasing foreclosed properties will not want to miss the Apartment Association of Southeastern Wisconsin's upcoming monthly meeting on Monday, May 18, 2009 at 7 pm at the Best Western Midway Hotel located at 1005 S. Moorland Rd. in Brookfield.

Attorney James Mulligan, an expert in the area of foreclosures, will be the key note speaker and will discuss how to purchase foreclosed properties as well as provide us with some common pitfalls to avoid. Also on hand will be Jason Fernhaber and Brian Meidam, rental property investors and current AASEW members. Both Jason and Brian have obtained many of their rental properties through the foreclosure process and will be there to answer any nuts and bolts questions that you may have on the process.

TENANT PROTECTION ACT PASSED

A new law has recently been passed that will affect rental property owners that may be in the unfortunate position of having their properties foreclosed upon as well as those individuals that may be purchasing a property that has been foreclosed. Sen. Lena Taylor's bill referred to as the "Tenant Protection Act" (SB 78) was incorporated into the budget repair bill that was recently passed.

The new law requires that the property owner notify any prospective tenant in writing that (a) a foreclosure action has been commenced, and (b) if a judgment for foreclosure has already been entered, the date when the redemption period expires. Further any rental agreement that is entered into while a foreclosure action is pending must include a separate written statement, signed by the tenant, stating that the owner has provided the above notice to the new tenant. The rental agreement will be voidable at the option of the tenant if it does not include the written statement.

With regard to current tenants, the new law requires that the plaintiff in the foreclosure action (typically a financial institution) give the tenants several notices advising them as to the status of the foreclosure action. Failure to provide the notices will allow the tenant to be awarded $250 in damages plus reasonable attorney's fees.

Also under the new law, if a tenancy is terminated as a result of a foreclosure judgment the tenant may retain possession of the unit for up to 2 months after the end of the month in which the sale of the property is confirmed (but the tenant must pay rent during this period at the same rate that was applicable prior to the confirmation). Also the tenant may withhold rent in an amount equal to the security deposit during the last month of possession. Furthermore, no eviction judgment for the removal of the tenant whose tenancy was terminated as a result of a foreclosure judgment, may be executed before the end of the second month after the foreclosure sale was confirmed.

Finally, if an eviction action was commenced against a tenant and their removal from the rental property was due to a mortgage foreclosure then no information regarding that eviction can be included on CCAP.

The newly enacted law can be viewed here (it starts on page 108)