New Construction Condominiums | Daniel Gershburg

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Manhattan Real Estate Lawyer Daniel Gershburg discusses the potential bust from FHA loans in New York City

Wednesday, December 16th, 2009

Unlike many of my other blogs dealing with tips and tricks for purchasing real estate in Brooklyn, Manhattan or anywhere in New York, this one is completely my opinion. No real advice. Just the experience of a Manhattan Real Estate Attorney who has witnessed countless FHA deals that believes there is a huge problem looming.

In the simplest way of saying this, lets compare what happened during the mortgage crisis and whats happening now. During the real estate bubble, individuals were purchasing real estate in lets say the West Village, New York. And they didnt have any income verification or any money to put down for an apartment. No problem. Banks were giving out financing like crazy and so the purchasers would take out 100% financing. Sometimes they would even walk away from their New York City purchase WITH MONEY in their hand after they purchased a unit for a few million. We know how the story ends. It’s not a stretch to say the majority of people who purchased homes in the West Village, Park Slope, Williamsburg, or anywhere in New York City with 100% financing have either foreclosed, are behind in their mortgage payments, or are having issues.

During this bubble, FHA wasnt a word that was used much. The FHA is basically a government agency that insures the loans private lenders give out, and there were caps on those loans in 2004, 2005, etc. Here is an explanation from the New York Times:

“F.H.A. insurance was created for minority and low-income families who could not come up with the traditional down payment of 20 percent required by private lenders. Buyers receive loans from government-approved lenders and are required to document their income and assets. They must pay a substantial insurance premium of 1.75 percent of the loan. But in return, their down payment can be as low as 3.5 percent”

So basically the FHA wasnt insuring very many loans then (proportionate to the loans being taken out.) So if a purchaser just bought a new condo in Union Square New York, and he/she stopped paying, the bank was screwed, and maybe the underwriter of the loan, but not the government.

Fast forward to 2009. This Manhattan Real Estate Attorney is seeing tons of deals being financed using FHA Loans, for individuals who have very little if anything to put down. Sound familiar? Well for the privilege of receiving an FHA loan, which now insures the Private lender that Uncle Sam will step in if the purchaser of that condo in the Financial District defaults, all the purchaser has to do is put own 3.5% of the purchase price. And guess what? The credit requirements aren’t too stringent to get a loan. Lastly, a seller can actually give a concession to help the purchaser pay for the closing costs for his/her shiny new construction closing in Park Slope. Does any of this sound familiar?

Lets go a bit further. That same New York Times article states:

“At Guarantee Mortgage Corporation, which has 150 mortgage brokers in the Bay Area, Seattle and Portland, Ore., F.H.A. loans have grown to about 15 percent of its business, from less than 3 percent a few years ago.

“”It sure has helped us put a lot of deals together,” said Guarantee’s chief sales officer, Bob Siefert. He predicts that a quarter of Guarantee’s deals will soon be guaranteed by the F.H.A.

Some F.H.A. borrowers here say they have the cash for a full down payment but would rather invest it in the stock market or use it for remodeling.”

And even more troubling, courtesy of the LA Times:

“This year alone the agency has backed nearly 2 million mortgages worth at least $328 billion. It insured 21.5% of all new mortgages last year, up from fewer than 6% in 2007.”

Look here is the issue for me. If you’re looking to buy a condo in the East Village, and you have money for a downpayment, thats great. Good luck to you and I’d love to be your East Village Real Estate Attorney. And for the many people who are using FHA to buy homes they can afford all over Greenpoint Brooklyn, Williamsburg, or wherever, good luck to you too. But this Manhattan Real Estate lawyer fears that FHA is being overused. Really, the only distinction between this subprime mess and FHA is about 3.5%. In other words, where before you could buy a condo in Harlem and finance all of it, now, after everything that weve gone through in the Real Estate market, you could buy a condo, but only finance 97.5%! Its insanity to me. Its almost like this is an artifical prop to the real estate market all over New York, let alone the country. Except the difference is, when people start defaulting on their purchase of a Condo in Brighton Beach, the lender wont be on the hook, we will.

And some more news: Representatives in Congress are looking at way of INCREASING the amount an individual can borrow to qualify for an FHA loan. The limits on an FHA backed loan is now about $730,000.00. Which means the government is insuring every penny of that loan if the purchaser defaults. This is downright scary in my opinion.

Tags: attorney, chapter 7 bankruptcy brooklyn, purchase, real estate, sale
Posted in FHA, Gersh Blog, New Construction Condominiums | 1 Comment »

A Brooklyn Real Estate Lawyer says Park Slope Real Estate has a ways to go ….

Thursday, October 1st, 2009

Real Estate closings in New York have been creeping up lately at our offices in Sheepshead Bay. More and more people coming into our offices are first time homebuyers. Many of them are purchasing real estate in Park Slope. Ive devoted seperate blogs about Real Estate in Park Slope previously, but I would very much like to re-iterate a few points, specifically about new construction homes.

Heres the deal: Many people are buying in Park Slope, specifically new construction condominums, and many of them have absolutely no idea what they are getting into. Many of these new construction sites have used materials that you wouldn’t use to build a dog house (even for people who don’t love dogs, of which Ive found none). The materials are ridiculous. They’re absurd. They’re cheap. But the fact is they were used and the owners now have the privilege of living in new buildings where the elevators dont work, they hear their neighbors coughing (or…you know…) and/or the actual owners are suing the developers.

Why am I creating such a doomsday picture? Because I am a jewish guy from Brooklyn and its in our blood to kvetch. Not really. I am saying this because I know of many individuals who have had the same problem. Dont be fooled. New construction doesn’t mean better. New construction doesnt mean less headache. New construction doesn’t mean more value over the long term. Please, please, please make sure to have your potential new home inspected by an inspector with a great reputation. In this economy, no one in Brooklyn wants to shell out a few hundred bucks if they are not going to buy a place. But think about it. You’re trading in a few hundred dollars for perhaps a life time of headaches and expenses.

Don’t get me wrong. There are some places which were built well during the Real Estate boom in Brooklyn. In my opinion, not legal, just personal, they are just few and far between. If you see that your new construction has multiple mechanics liens filed, and there are lawsuits pending, then there is a good shot the developed weren’t shopping at the expensive aisle at the Home Depot.

Always remember: Caveat Emptor. That cost me about $150,000 and 3 years of education to learn. Its fancy schmancy Brooklyn lawyer talk for Buyer Beware.

Posted in Gersh Blog, New Construction Condominiums, New York City Real Estate | 1 Comment »

Manhattan Real Estate Lawyer shows you how to pick a Manhattan Real Estate Attorney

Monday, July 13th, 2009

As a New York City Real Estate Attorney, Ive been asked to post this for quite some time. The reason I decided not to post it for so long is because it can come off as self serving. ”Oh a lawyer tells you the bad things about other lawyers so he can get your business!” Kind of, but thats not really the point. You see, I, like almost every other lawyer in the world has made occassioal mistakes. Anyone who says otherwise, no matter how experienced, is simply lying. It happens more than once to the best of us. So why write this then? Because I think we need to take a good hard look at ourselves and see what works and what doesn’t, and what should earn a fee and what shouldnt. To be perfectly honest a lawyer might not view $1000 or $2000 the way you would. If you do enough closings, $1000 may not seem like a lot, but to a client, it is. And so here are some tips that Ive compiled about how/when/what you should look for in a Real Estate attorney before you cough up that hard earned money.

1. Pleasantness on the phone during the initial call. Lawyers may think I’m crazy for saying this, and thats fine, but I think one of the most overlooked keys in picking out a good Real Estate Attorney in Manhattan, Brooklyn, etc., is the way he/she talks and LISTENS to you during the initial phone call. Are you being rushed? Is the attorney not listening to what you’re saying? Is he/she simply trying to force you to come in for an appointment? If thats the case, this should raise a red flag. As lawyers, after a few real estate deals, most of them seem to look and sound a like. The problem is that there are critical differences in each and every deal and you don’t want to use someone who may think of you as Real Estate closing #45 for the year as opposed to Don and Alice, or Don and Adam (its 2009) buying their first home. Again, the tone of the phone call may not mean the attorney will never listen to your issues, but it may be a red flag to look out for.

2. Fees. Im going to get killed for saying this, and rightly so, but I haven’t come across any deal, which in my mind, validates a lawyers fee over $1500 at most. Unless the lawyer is setting up a Sponsor for new construction, the work is the same for a $400,000 and a $1.4,000,00.00 deal. The amount of work that can go into a closing may differ, but it won’t differ greatly. Watch out for this.

3. Responsiveness. This is the most crucial aspect of picking and sticking with an attorney. If you email, call, write him/her, do they get back to you in a reasonable (24 hour) period of time. If not, in my opinion, that is a serious serious problem. In my Brooklyn office, there are approximately 30 attorneys within a span of 3 city blocks. The only legitimate way to differentiate yourself is through responsiveness. We as attorneys MUST get back to you clients quite quickly, otherwise we run the risk of you leaving and going somewhere else. Thats why its critical that your attorney get back to you quickly. I have clients who barely ask a question through the entire closing process and I have others who think they’re getting paid by the question. Either way if you’re attorney doesn’t respond its a problem. Especially if you brought it up to them (usually a message from his/her receptionist saying “why doesn’t the attorney call me back) and they still don’t respond.

4. Is he/she showing up to the closing, or is someone else? Again, something you should ask. You paid for Rick the Attorney and not Sam the assistant. If you really want the attorney to show, make sure you ask ahead of time. If they can’t necessarily commit, you may want to think again.

I will have some more tips up soon, and again, this is personal opinion. If you’re happy because your aunt Ruth told you that the attorney is amazing, thats fine. These are just some things I think clients should consider.

Posted in Gersh Blog, Loan Modifications, New Construction Condominiums, New York City Real Estate | 2 Comments »