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Minneapolis, Don't Forget to Miss Me 11 Jan 2020 3:17 PM (5 years ago)

First-Time Home Seller, Part III: The Move 10 Jan 2020 5:57 PM (5 years ago)

Before you get your home ready to show prospective buyers, the most important thing to realize is that you have terrible taste.  Sure, you love the color scheme in the dining room and it was fashionable, but trust me, those particular shades of whatever paint you used look awful now and your buyers will hate it.  And if they don't like it then the first thing they'll do when they put an offer together is start to take money off the top.  "Well since we're going to redo almost every surface in there, let's drop our offer by maybe two grand.  I mean Jesus. Burnt orange and chartreuse?"  There is a scientific basis for this as well, in that people react differently to colors, but can more easily imagine their preferred color scheme on a neutral surface.

Lesson 10: Paint it white.  Go back and watch the business card scene from American Psycho, write down every "shade" of white that they describe, bring that list to a Sherwin Williams store, and tell them this is your new color palate.

"Look at that subtle off-white coloring..."

This is a good time to remember that all of your furniture is ugly too.  Sure you knew the couch you picked up in college from someone's alley and is now in the basement man-cave should be passed on to the next generation of kids getting their first apartment or possibly destroyed via exorcism.  But everything you bought since then is awful too.  The bench that looked so charming on the Wayfair website was exactly the wrong one, the klibbig och förfallen from Ikea wasn't put together right and it just so happens your prospective buyers are snobby Swedish furniture assemblers and they will notice such things, and let's not get started on those dining room chairs.


Since I bought my new home before selling, I was able to move my furniture out and stage the house.  You may have to put that in storage or get rid of things to make room, but hiring someone to stage your home can help significantly.  A professional stager is someone with better aesthetic taste than your entire family will ever cumulatively have, who can bring in furniture you could otherwise never afford to put in your home, and who can fool the buyers into thinking that they are not purchasing a house from an uncultured slob.  Since the furniture is not yours though, you won't be able to use it or touch it or look directly at it while your home is selling.  You'll essentially pay a thousand dollars or more to turn your household life into a giant game of "Operation" until a buyer comes along, and it will be worth every penny.

Trust me, nothing of mine EVER looks this stylish.

Now that the house is ready to show to people who will actually give you money, let's go over a few basics that often get overlooked.  Keep things clean.  This means wiping down every imaginable surface, minimizing dust, sweeping and mopping, cleaning windows and mirrors, and getting rid of clutter.  If you've staged your house with other people's furniture but still haven't completely gotten rid of your own, "decluttering" is a physical impossibility.  Do it anyway.  Similar to staging, you may want to hire a professional to take care of details you are psychologically incapable of seeing.  When you walk into a home that you're thinking of buying, you might not notice these things.  But your brain does.  The same is true for your home and prospective buyers.  Every time something in a buyer's brain says, "I don't really like this," whether they realize it or not, that action makes it less likely they'll put in an offer and more likely that they'll come in with a lower bid.

Your home has been painted, staged, cleaned, decluttered of extraneous objects and children, and it's ready to be listed!  The big day is here!  What can you expect?

One of the genuine surprises I had during my sale process was how FAST a live listing turns into a request to see the home.  My listing went live at five o'clock and I was still in the middle of wiping down surfaces, decluttering some spots, and replacing some exterior light bulbs.  I figured I would have part of that late afternoon/early evening to make things just perfect.  Oh how wrong that assumption is.  You see, in today's real estate market there are people who have already sold their homes or agreed to move out of their apartment and are now living in a continuous holding pattern, driving around town with their realtor twenty-four hours a day.  When a listing goes live, they will immediately descend on your home like a flock of circling birds, hoping at least for a bowl of candy or some wax fruit from the staging company that they can grab for nourishment.  Within minutes I was getting requests to see the house and the buyers and their realtors were already on their way.  By 5:15, the first round of people were already trundling through my home, and a seller should really never be around when that happens.

Lesson 11: When your listing goes up, the house should be 100% ready right at that moment because buyers are already waiting for their chance to view your home.

If you and your realtor have worked together and done things well enough (in a hot market; as things cool down the listing process takes longer), you may have an acceptable offer within the first few days.  Then it's time to go through the inspection and appraisal processes, and begin packing up the remainder of your belongings so that you can seamlessly transition from one home to the next.  Of course, this will not happen.

When I moved from a two-bedroom apartment into my Minneapolis home, it was unreal how much STUFF I had accumulated.  Once I finally settled in, I remember saying, “If this is what it’s like moving this much crap from an apartment into a home, I hope I never have to move from this house after I’ve filled it with even more stuff.”  Wisdom from the mouth of babes.

Now at first the task of boxing up your entire life will seem huge but manageable.  Thinking you’ll be able to do this without going crazy is your first mistake. You’ll start by boxing up the more commonly used items in your home because those will be the things your brain recognizes as easily categorized.  Ha ha! Isn’t this exciting?! We’re moving to a new home and I can’t wait to unpack the silverware and kitchen utensils and nice china and sit down to a delicious meal! Except now your utensils and silverware are boxed up and at the BOTTOM of all the other boxes you’ve filled because you put those aside first.  I hope you like eating Ramen noodles and using pizza box tops as plates for the next six weeks! You did it for a few years in college, so how hard can this be?

Or maybe you decide to use an opposite strategy, packing up everything you don't use first. So you wander through the house in a helter-skelter fashion, picking up detritus you haven't used in months or even years. But you can only lump in random objects like needle-nose pliers and galoshes and baseball card collections for so long before your waking hours turn into the equivalent of a deliriously lucid fever dream. And just when you think you won't need some old document like college transcripts or income tax returns from seven years ago, your loan officer will call you up and say that underwriting needs the exact hardest document to find right now or your loan isn't closing on time.

Eventually whatever system you have for packing your belongings will break down.  This is inevitable, and if we're being honest here it wasn't really working to begin with. The more often you use or come across something, the easier it is to categorize it and put it in a box that makes sense for how it will be unpacked and utilized in the new home.  Books, kitchenware, furniture, important documents, wall hangings, rugs, pets, most kids, etc. are all easy to categorize. But remember the time you bought a sewing kit before deciding a new outfit was more convenient than reattaching a button?  Or last Christmas when your mom said she had saved your third-grade research project that was basically a plagiarized encyclopedia entry on Portugal but she decided to keep it all these years for you and now you can’t just THROW IT AWAY. And just a reminder, you bought that guitar, fully intending to teach yourself at least a few chords because how hard can it be?  Or the shoebox full of poems you wrote about your high school crush and even though you’re Facebook friends now and it’s clear you really dodged a bullet on that one those things still have sentimental value. You were going to use the guitar to put that to music, remember?

Your house is FULL of these things.  You may not have thought about them for the better part of a decade, but they have not forgotten about you.  After a while, those will be the only things left unpacked. They will sit out in the open, staring at you, defying you to try and make sense of your life, and then they will scurry off into random drawers, only to resurface just when you thought you had all your belongings boxed up.

This is a good stage to figure out which box has your tablet and a charger, plug those in to watch some Marie Kondo on Netflix, and the load up your car with things you don't know what to do with and bring them to Goodwill. Those sweaters your aunt gave you for three straight Christmases that you never wore, the questionable artwork you couldn't put up even BEFORE your walls took on an unblemished eggshell patina so forget it NOW, your least favorite child, and so on.

When it comes to packing up your life's belongings, the next lesson in moving comes from an adage I've heard home rehabbers use often. The hardest fifty percent is the last ten percent. When your system for organizing and boxing things up breaks down, those last few things are the hardest to categorize and pack.

I went through all of this with just a dog.  As long as I had a few toys and her food and water dishes out, she handled the chaos pretty well.  I can’t imagine what it would be like trying to handle this Herculean cleaning-of-the-stables task with kids in tow - even if you made sure they had toys and food and water dishes.  So anyone trying to juggle a home sale with being a responsible parent, there’s really only one piece of advice I feel qualified to give.

Remember when you were a kid and you went off to summer camp and you had this paranoid thought, Oh my god, what happens if when I get back from camp, I go home and find out that mom and dad MOVED?  As an adult, I’m telling you, this is probably the way you want to do it.

Another item - your house WILL start to behave in different ways.  There WILL be things that happen that never happened in the years that you lived there.  Some of it makes sense when you think about it. Imagine if you and your spouse work the same shift and then for a while suddenly one of you has to work nights.  The things you do with and around each other change because your schedules change. The same is true with your house. You start to use some rooms more and others less; you put strain or stress on the home in a way that you hadn’t before, so in that respect it shouldn’t be surprising that the house acts differently.  Or maybe it’s just a side effect from a random and merciless universe, you decide.

But these things absolutely will happen, and probably AFTER you've had all the relevant inspections and disclosed everything possible to your new buyer and now you have to make them wonder what kind of shabby and decrepit house it is that they're buying.

Right before my house sold, Minneapolis had an unusually late and large snowfall and quick melting.  My basement flooded, and so did basements for people who hadn’t seen condensation for decades. Even though my basement was dry for years and I'd just repainted it with a specific seal to keep it that way, prospective buyers balked at the once-in-a-decade wet conditions. And then the week of the open house, a colony of ants decided to announce their presence. Seven years and I had never seen an ant infestation like this before.  So be prepared to wonder if you have picked up a poltergeist during the moving process, and hopefully that will stay in your old home instead of following you to the new one.

But now...FINALLY you're in your new home! You can start to unpack and begin a new chapter in your life. This is going to be great. And with all the lessons you learned from selling and moving for the first time, you'll be sure to do things that will make this easier in a few years when you move again. Right? ... RIGHT???

I hope you saved that shoebox full of high school love poems. Spread those out on the fancy new desk that the next buyers are sure to love when you sell this place. You're going to need a reminder from time to time of precisely how foolhardy and unattainable your dreams really are.

First-Time Home Seller, Part II: The Finances 4 Jan 2020 6:46 PM (5 years ago)

What is your plan financially?

When I teach classes for people on buying their first homes, one thing I would show was a chart for how much money you need and when you need it.  From the point of just thinking about buying (you may need $15-20 for your own credit report) to the costs of inspections, appraisals, earnest money, and the day of closing.  How long does that process go and when do you need money during those stages? Selling a home isn’t free either, and having the same kind of understanding will make navigating that far easier.

Many cities, Minneapolis included, have pre-sale inspection reports as a requirement.  The inspector may be either a city employee or just someone qualified to review your home for code issues.  In most cases, anything below code will then become the responsibility of the new buyer, sometimes to fix within a specified time period after taking ownership.  The idea is to have no items below that grade, which is another good reason to have a realtor who can help spot those before the inspection. The pre-sale inspections tend to cost between $200 and $500, and if you decide to do any repairs and have them reinspect for a cleaner report at the time of sale, plan on a small fee for a second visit. 

After your inspection and prior to listing, you may want to invest in a few things that will really help your home shine.  You won’t get a second chance to make a first impression, so it’s important to consider taking steps that will proactively address this; things like a professional cleaning service, staging your home with someone else’s furniture that’s nicer than yours, having pets stay in a kennel service, putting any unnecessary children up for adoption, etc.

For most homes in the Twin Cities, if they are in decent shape and priced well, an offer can be accepted within a week or so of listing - sometimes even sooner.  When the offer is accepted, the buyer will do their own inspection and may request other repairs. If you have a limited budget for this, then you can hold the line on an “as is” offer.  Just know that doing so could cost you money in the long run. The accepted offer will typically have a ten-day period during which the buyer can conduct that inspection and request additional repairs.  Those repairs don’t have to be completed prior to the 10-day window, but will need to be done before closing. Likewise, the buyer’s lender could require their own set of repairs as part of their review of the appraisal.  

It’s a good idea to understand exactly what the buyer’s lender will review when it comes to inspection documents regarding your property.  Many lenders will be fairly lenient in this regard and only require repair items if the appraisal says so. But the pre-sale inspection, the buyer’s inspection, the seller’s disclosure or any other repair items agreed to on the purchase contract, the online listing of the property, and even the title work can offer clues to a lender about the property’s condition.  Depending on the loan program, the lender, and the strength of your buyer’s application, any of those things could result in a required repair prior to closing. It’s best to make sure your realtor has a good understanding from the buyer’s agent about what a lender might look for, and then plan accordingly.

And then if you are moving into a new home and using financing to get there, you’ll need your own inspection, earnest money, and appraisal costs for your new transaction as well.  So a timeline looks like this.

Day 1. Pay for the pre-sale inspection of $200-$500.

Day 2 - 7. If any re-inspection is needed, be prepared to do the work and have the inspector out again.  $150 or so for reinspection, plus the cost of any repairs. You may want to invest in a professional cleaner ($100 - $500+ depending on how much work they do) or a professional staging service ($1,000 - $2,000+ also depending on how much of the home they stage).  

Day 8. Your property is listed for sale.

Day 15. Accept an offer!

Days 16 - 25. Put your own offer on a property, and be prepared to pay $500 for your inspection, $1,000 or more for an earnest money deposit, and $500 for your appraisal.  Be prepared to make any repairs required by the buyer. Those could be paid at the time of the work or at closing from your sale proceeds, depending on the contractor and amount or type of work.

Days 26 - 45. Sometime in this period, an appraisal will be done and the property will be reviewed by the buyer’s lender.  Be prepared to make repairs as needed from that review process. Those repairs might be payable from your closing proceeds, but at least a partial up-front payment should be expected.
Days 46 - closing.  Moving vans and any professional moving services or getting friends to help out.  Please be advised that federal law requires that beer and pizza be provided for any such services, regardless of how close of a relationship between you and the friends helping out.  These costs may be due prior to the closing day or could be paid at closing when hopefully you have enough in proceeds to cover it - especially the beer and pizza.

To be sure, you could pay for JUST the pre-sale inspection and hold the line on an “as is” sale, move things out using your own car and a pickup truck, then couch surf with a friend or family member until you find the next home.  But the reality is that selling your home and preparing for the next place to live can cost between $2,500 and $5,000 PLUS any repairs that need to be paid for during the sale process instead of at the closing table.  And the more you put those repairs or costs onto the buyer of your home, the less money the buyer is paying you at closing.

So getting ready to sell means at a minimum paying for a municipal inspection if your city requires one. Other costs may be optional depending on your next steps, and depending on whether you can defer those until your home sells. But getting the most out of your sale could cost you several thousand dollars up front.

Lesson seven: Talk to your realtor about pre-sale inspection costs, potential repairs and other sale costs, and make a plan for that prior to listing the home for sale.

Most home sellers moving on to another owned home are using the equity from the sale to get there. Instead of juggling the sale of your home with the financing and purchase of another, what if there is a different way to go about this?  In my case, there was and it’s called a bridge loan. Bridge loans fill a useful niche in the home selling and buying process.  First off, the home you’re selling is in kind of a gray area for getting a traditional loan. A full refinance comes with thousands in closing costs, so that typically isn’t the ideal way to access equity.  Home equity lines of credit have limited closing costs, but if your home is already on the market many lenders will not extend credit. The goal of most mortgage loans is to make money over time, so part of the property approval process is to check if the house has recently been or is currently listed for sale.

Furthermore, lenders will want to know about recent inquiries on your credit report, which can tip them off if you’re about to take on a new mortgage for the home you’re buying.  If you are moving to a different job market, then employment verifications will make it clear whether you will continue to occupy what is commonly referred to as the “departure residence” as your new home.  Even if you make it all the way to the closing table, boilerplate language on many such loans states that you intend to occupy the home as your primary residence for the foreseeable future. This should go without saying, but it’s generally not a good idea to mislead your lender on a mortgage loan.  In fact, doing so is rather illegal. Applying for credit under false pretenses can lead to a foreclosure proceeding even if your payments are on time, and may even result in civil or criminal penalties. So having all sorts of equity in the home you’re selling can be a case of “water, water everywhere, and not a drop to drink.”

And that’s where a bridge loan comes into play.  The bridge loan lender knows that they are putting either a first or second mortgage on real estate that is expected to sell within the next few months to a year.  Fees are minimal, but the interest rate is going to be higher than a market-rate first mortgage or second loan/credit line. And a bridge loan often has a balloon payment to it, usually twelve months.  What that gives you is a means to access home equity with minimal up-front or closing costs, at a slightly higher rate, and with a term that is expected to be short.

In my case, I had built up significant equity in the home I planned to sell.  I was moving to a market where home values were typically cheaper, at least for the size and location I wanted.  I was looking for a fixer-upper too, and although it had to be livable with a functioning bedroom, bathroom, and kitchen, my new home would likely not qualify to be secured by any kind of funding except a purchase-rehab or renovation-style loan.  I wanted more control over the restoration process than that financing would give me. And I could handle the increased housing expense. A bridge loan was absolutely the perfect mortgage product for my situation.  

Because I didn’t need to max out the available equity, my bridge loan was approved without the need for a full internal appraisal review.  That won’t be the case for everyone who goes this route, so be prepared for some additional out-of-pocket expenses if necessary. Appraisals can cost anywhere from $150 for an exterior-only review and $500 for a full interior site visit - more if your home is more than one unit.

When I started to look for financing options, one name came up pretty frequently for bridge loans.  Deerwood Bank does them and my lender, Brian Rubbelke, took excellent care of me. In fact, I tried shopping around and had a few lenders flat out tell me that they were unfamiliar enough with the process that they just recommended Deerwood.  If there is enough equity in your home to get you to your next place, a bridge loan is a great way to take some pressure off. That allows you to move your belongings from one place to the next without having to coordinate every piece of the transaction to happen back to back, sometimes on the same day.

Lesson eight: A bridge loan can be an ideal way to move from one home to the next, if the circumstances are right.

One of the requirements though is that this financing type has to be in first or second lien position.  If you’re selling for the first time, that usually means the property was one that you bought as a first-time homeowner.  You may have used some down payment assistance to get in the door. If so, be prepared for another set of tasks needed to clear those up.  Just like first mortgages, down payment assistance loans are often originated by one party and then transferred to a servicing entity after closing.  You’ll get the notice of transfer just like any financing entity is required to provide. But since assistance loans generally don’t have monthly payments to them, it’s far more likely that such notices get lost in the shuffle.

This can make it incredibly difficult to clear out any issues.  For instance, if your loan was forgivable over time, it’s likely that the satisfaction of the mortgage was sent to you and it was up to you to record it.  Have you ever recorded your own satisfaction of mortgage? I thought not. If you can’t find the original that was sent your way, you’ll need to request a new one from the appropriate party.  The key word being “from the appropriate party,” because this is where things can get really fun.

Here is a very much not hypothetical situation I went through.  Down payment assistance funds were allocated by the city of Minneapolis and contracted to a neighborhood group. The neighborhood group then picked an organization to administer the funds.  After closing, it wasn’t clear whether the administrator handed the loan off to another servicer or not. The neighborhood group eventually chose another administrator for future assistance loans, and the one that had my assistance package dissolved.  The funds like my loan were then overseen by the city again, although for at least some of those liens, they transferred authority to an entirely different servicer. To complicate matters even more unnecessarily, the city departments and the servicing entities are often staffed by a small number of people and don’t always have equally skilled backups when the person you really need to talk to is on vacation or medical leave.

Bear in mind what I was trying to do here.  My bridge loan needed to pay off this assistance lien.  So we had to find someone who as authorized to 1) confirm the actual payoff amount, 2) accept the payoff payment, and 3) provide the documentation needed to record the satisfaction of the mortgage.  This loan would have been forgiven if enough time passed, so the servicer had an additional motive for accepting my funds. Something that on the surface would seem simple when all you’re saying is, “I have thousands of dollars to give you, will someone PLEASE take my money?” took weeks to resolve. And given my knowledge of mortgage loans in general and community-based downpayment assistance in particular, there are few people with the skill set I had and that I needed to get to the bottom of my particular dilemma.  

"I don't know who you are. I do know what you want. If you are looking for a loan payoff, I can tell you I have money. But what I also have are a very particular set of skills, skills I have acquired over a very long career, skills that make me a nightmare for people like you. If you accept my payoff request now, that will be the end of it. I will not look for you, I will not pursue you. But if you don't, I will look for you, I will find you, and I will...still give you my money because otherwise I can't sell my home."

The existence of a down payment assistance lien combined with a bridge loan added one final mortgage-related quirk to my process.  In Minnesota, whenever a special assistance loan, like a deferred or zero-interest, zero-payment lien gets rolled into an interest-bearing loan, that transaction has to have a credit-counseling service sign off on the fact that the applicant has had a neutral third party review the situation.  I think this is a very good aspect of consumer protection, as it limits the ability of an unscrupulous lender to roll in deferred loans (either to increase fees and commissions or because it’s just more work to incorporate the right thing into the loan process). I was aware of that and built it into the process with my lender and with Powderhorn Residents Group to review my documents.  But if you’re paying off assistance then make sure you’ve located the correct party well in advance and you know whether credit counseling is needed. Build those steps into your sale process early, because finding out at the last minute will cause delays and cost money - maybe even cause the new purchase to fall through entirely.

Lesson nine: Know your home's title land loan/lien situations before selling, and plan ahead to resolve weird stuff if you have down payment assistance liens to deal with.

In my case, I took out a loan for about $63,000.  The payments were about $390 per month. That paid off my down payment assistance and gave me enough to buy my new home in cash.  I used personal savings to cover needed repairs on my new home, which came to about $10,000 prior to the Minneapolis house selling.  The additional mortgage payment was manageable. And I used a combination of personal savings and promises to pay from the sale proceeds to get my Minneapolis house into saleable condition.  That was about $3-5,000 in supplies and labor, plus up-front staging fees. Another $5,000 was paid at closing for the remainder of the work.

Selling my home and arranging for new living situations cost me roughly $20,000 - most of which was paid up front, with some divvied up after my sale closed. Being able to conduct the sale in the way I did made the move far less stressful and likely made me more money. I wasn't able to see what alternate-reality Jeff Skrenes did to sell his home, so I can't say for sure. A more conventional method would probably have cost me about a third of that figure out of pocket, netted slightly less on the sale, and resulted in a higher housing payment for the new home.

This was admittedly atypical.  Most people buy a turnkey home and spend little to nothing on immediate livability repairs.  Most people may not spend that much on renovation prior to a sale, but my home needed new interior paint and some new carpeting.  But I can’t describe the normal way of doing things because that’s not what I did. I was fortunate to have access to equity and enough personal savings to pull it off.  Not everyone will be able to do that, as it requires two housing payments and two rehab/renovation budgets for a while.

These costs are also why I found the proposed changes to the Minneapolis pre-sale inspection to be onerous.  Selling a home isn’t free and the higher costs are going to hit poorer people harder.

Last but not least, and coming much sooner, is the account of how I prepared the home for sale and my new home for occupancy.

When is Your Credit Score not Your Credit Score? 12 Oct 2019 3:58 PM (5 years ago)

Who has monitored their credit on sites like Credit Karma, only to apply for a loan and have the score vary so wildly that you couldn't get financing?  In my time as a mortgage originator, I lost count of how often applicants would say, "But I just checked my score and it was way higher than that!"

My usual response would be that sites like Credit Karma are sort of like Zillow for your credit profile.  The information is a good estimate of what your score and profile are, but lenders don't use that exact formula.  Realtors use a similar line on some disclosures by saying the "information is deemed reliable but not guaranteed."  That was true enough of an explanation when I was on the corporate side of the desk, but I recently applied for my own financing and found out just how hard it can be to navigate what my credit score really is.  I felt like Alice in "Through the Looking Glass," I knew what my credit score was this morning, but it changed a few times since then.

This post will break down what that meant and what happened.  In that order.  Have you ever looked for a recipe online and seen a long soliloquy before the list of ingredients?  "It all started when I took a year off from college to backpack through Italy.  I met a Tuscan grandmother who told me that the secret to a good marinara was patience..."  And here you are thinking, "Damnit, I'm in the checkout aisle at Costco right now and I'm just wondering how to add some zest to the rigatoni.  I don't need to read 'Eat, Pray, Love' first.  Or if I'm being entirely honest here, again."

So I'm switching things up and doing the useful part first and then the story for anyone who's still reading.



The Useful Part

There are three credit bureaus, Experian, Trans Union, and Equifax.  You can get your credit report for free from each of these bureaus once a year, and you can have credit counseling agencies pull and review credit without that counting as an inquiry.  The annual free reports may not have your score.  Credit counseling agencies have, in my experience, been very accurate when it comes to their credit scores lining up with what a mortgage lender sees.  Or you can monitor your score and profile on your own.

There are a wide variety of ways to do that, some free, some with a monthly expense, and some as an added service for another product.  Each of the bureaus can tell you different degrees of information and will allow you to play around with their scoring models, but you may have to pay for those.  More and more credit cards offer some kind of monitoring as part of their service.  Credit Karma is the leading website and app, although you can try a host of others, like Lifelock, IdentitySource, or Vladimir Zuckerberg's Totally not Mining Your Personal Data Service.  On second thought, let's stick with the major bureaus and Credit Karma.

So the real question is, why does Credit Karma or my Discover card tell me I have a 700 score and then my mortgage company says they have a 640?  How can that be, and what can I do about it?

One of the bureaus, Experian, calls their score a FICO score.  And the wonderful part about a FICO score is that there are at least three of them.  One that credit card companies tend to use, one for auto loans, and a third for mortgages.  Typically the credit card FICO score is the highest of these three, then auto loans, then mortgage loans.  The factors that are used to calculate the score are basically the same - do you pay your bills on time, are you over-extended on credit cards, are there major financial problems in the recent past, etc.  But the weight or importance of these factors can be different for each scenario.

It took a customer service rep a few minutes to walk me through where to find this on the Experian site that I paid to access.

For example, of course recent collections harm your score for all three FICO's.  But in the eyes of a credit card company, they may only care if the collection is paid, and the question of how recently it was filed matters less.  A mortgage company may determine that a recent collection - regardless of paid or unpaid status - indicates a higher risk of default on a home loan than a credit card.  So it takes longer for your (mortgage) score to recover from that.

Your credit card service that monitors your score may just be using THEIR scoring model, which although it's directly from the bureaus, could be a drastically different score than what your mortgage lender will see, even though the underlying information is exactly the same.  Credit Karma shows your Trans Union and Equifax scores under the Vantage scoring model.  Which is a commonly-used system that your prospective credit card company, auto loan, or mortgage lender may or may not use.

Lenders, insurance companies, landlords, employers, and other services that evaluate your risk level to them may go to all or any of the credit bureaus and give them their individual criteria and ask for that to be used as a score.  Here is what Credit Karma said to me about that.  (emphasis mine)

On your Credit Karma account, you will see the VantageScore 3.0 scoring model, provided individually by TransUnion and Equifax.  VantageScore 3.0 incorporates a broader set of credit-related data and can score up to 30 million more people than other models.  With so many different scoring models out there, you never know which score a bank will use, but VantageScore 3.0 is a strong predictor for what the banks may see.  Credit bureaus use many different scoring models, even within the same credit bureau.  Each bureau can use dozens of different credit score models based on the requirements of different lenders. 

Dozens!  For each bureau!  And there are three!  So far!  When Tyler Durden blew up just one credit bureau at the end of "Fight Club," you see how futile that gesture really was.

My Story

I went through a divorce and lost my house during the housing crisis.  That left me with a shattered credit report and literally tens of thousands of dollars in bad debt that I cleared up without having to declare bankruptcy.  Before hitting bottom and after recovering, I worked in financial services.  So monitoring my credit is something I do regularly but often with stressful flashbacks to how bad it used to be.  I've seen my score get about as low as the system allows, and it's been pretty damned good too.

Then recently I did two stupid things.  I got mad at Sprint, switched to Verizon, and decided I wasn't going to give them another red cent, credit impact be damned.  After all, I own a home free and clear, I don't need new credit card debt, and I despise taking out a car loan (plus I work less than a mile from my house so I could get by without a vehicle if it comes to that).  Go ahead and put that last bill on my credit report as a collection, you nasty corporate behemoth!  See if I care!  So they did.  And then I decided that maybe I want to fix up my house faster than my monthly savings would allow.  Time to look at mortgage lines of credit.

Lesson number one: Don't do what I did if you have the money to pay that bill.  It harms you more than it harms the company.  There is no "Comcast sucks" algorithm that lenders use, even though they totally should.

And then because the house I bought had no appliances, I took out a store credit loan to get myself a fridge, washer, and dryer.  It's one of those "interest free but if you don't pay it off right away then you get immediately charged for all the interest" deals.  I thought of it as an installment loan because am I really going back there to buy more appliances?  Probably not.  But it was actually a line of credit and since I was paying for other rehab costs and wanted a cushion in my savings for that, I just made the minimums each month.  After a while, the full interest was tacked on.  Which put me over the credit limit I didn't think I had.

Being over a credit limit is the worst non-derogatory item that impacts your credit score.  Lenders think, justifiably so, that going over the limit shows that you can't manage money without borrowing, and that you're a risk to keep on borrowing until you eventually default on something.  Lesson number two: these deals are lines of credit and you should get the balance down at least to 50-60% of the credit limit right away even if you're just going to make minimum payments for a while after that.

I thought my credit score was in the low 700's.  But I applied for a mortgage loan with a place that only uses Experian.  I was floored to find out that score was all the way down to 617, still high enough to get some kind of credit, but not what I was really looking for and certainly not at the rates a 700+ score would get me.  Well, I dug out of way worse situations, so time to roll up my sleeves, get over my damn fool self, and pay off or down some accounts.

Credit Karma only monitored two of the three bureaus, and the one I thought I needed was a separate monthly expense.  Paying Experian meant I could play around with score simulators too.  The collection was zeroed out and the line of credit was paid down to about 60% of the limit.  I could get it down to zero if it that would make a difference in my rate, but tried a smaller reduction first.  Once the reporting caught up with my payments, I had Experian at 672, and the two Credit Karma Vantage scores at 688 and 687.  Not quite at the 700-720 range I was looking for, but worth seeing what kinds of financing I could get.

Back to the original lender I go, and my score jumped all the way up to (drum roll please)...629.  And that's when I found out the important stuff about how there's virtually no limit to the ways you can get a score.  The inner depths of Experian's site did give me the score matching my lender's exact point calculation.  That lender was only using one bureau though, and I now had no clue what my other two scores were.  Sure, Credit Karma had them in the high 680's, but they just told me there are dozens of ways to calculate those scores.

I stopped in at another credit union and decided to rip the band-aid off and have them pull their report.  All's well that ends well however, as a different lender used a different bureau and as far as they were concerned my qualifying score was 705.

To recap:  I did something stupid that dropped my credit scores.  I fixed that stupid thing.  I monitored my score directly with one of the credit bureaus only to find out the creditor's score from the same bureau was over forty points lower than I had been led to believe.  And then Credit Karma, which in my experience is usually overly optimistic compared to what mortgage lenders see, had me pegged at a score eighteen points lower.  As Alice would say after descending down the rabbit hole, "Curioser and curioser."

What can you learn from all of this?

1. The fundamentals of a good credit profile are the same regardless of scoring models.  Pay your bills on time, avoid late payments, collections, charge-offs, public records, and major derogatory events like foreclosures whenever possible.  Know that however bad things get, good financial behavior and time will eventually make things better.
2. Understand the terms of your financing and for all revolving/credit card accounts keep your balance as low as possible in relation to the credit limit.
3. Monitor your credit on a regular basis, through the annual free report, through legitimate paid or free sites, and/or with credit counseling agencies.  If possible, check with a prospective lender about their bureaus and/or scoring models prior to an inquiry, and then try to match the score you see with the score they will see.
4. At some point you'll just have to apply with a lender, see what your score is, and then work with them on any necessary fixes.

Once I was able to find the different FICO scores, the paid service through Experian did show me an exact match to my lender's score.  I've never seen an exact match through any other service, paid or free, except for counseling agencies.  So if you really need to know before a lender sees your report, I'd say your best options are to pay the bureaus directly or go to a counselor - which may require payment for the merged credit report but shouldn't have much in the way of other fees.

First-Time Home Seller, Part One 9 Aug 2019 4:17 PM (5 years ago)

I have worked for almost twenty years with first-time homebuyers - either counseling them as a non-profit employee or counseling them AND closing their mortgages as a loan originator.  So I’ve seen that there’s no shortage of advice out there for first-time homebuyers. But when I went to sell my home, I thought about how little guidance there is for first-time SELLERS.  Which most first-time buyers will become at some point in their lives. Now that my home has sold, I want to walk people through that experience and hopefully provide a few helpful pointers of what you might not have thought about before that undertaking.

If it seems, at times, like a piece of advice comes out of nowhere and one thing doesn’t always follow another in any logical sense, that’s because in the process of selling your home things come out of nowhere and one thing doesn’t always follow another in any logical sense.  Selling your home is sort of like if you’re dating someone and the relationship gets to the point where the two of you are finally ready to take the big step and meet one partner’s friends for board game night. And it turns out you thought you knew how things would go but everyone’s got these inside jokes and they bust out the rule book to prove to you that you’ve been playing Monopoly wrong for your whole life and you’re thinking about breaking up with her before the game is even done but they made you be the damned thimble and now you’re determined to win, if only to prove a point.  

In order to give some semblance of order while still allowing for the occasional non-sequitir, I’ve broken this series down into three categories.  The emotional/mental side of things, the physical/practical aspect, and the finances.

The Emotional and Mental Side of Selling Your Home

Lesson number one: Selling your home is the equivalent of a new, second, full-time job.

The first thing I realized when I began the process was that holy cow, selling a home and buying a new one is REALLY quite taxing mentally and emotionally.  I worked with hundreds of families over the years who were doing this exact thing but had bought only one home before (now two!). Selling made me think that loan originators and realtors and other real estate professionals should almost HAVE to go through this process on their own from time to time.  It’s one thing to guide others through the steps of getting qualified for financing, looking for a home, getting ready to market and sell your own, and then coordinating all the other moving pieces in life. It’s quite another to go through it yourself.  

Getting the paperwork ready to qualify for a new loan, preparing your home for sale, looking for the new house, and everything in between pretty much adds up to the mental and practical equivalent of a second job.  But because your realtor, lender, and most other partners in the sale process all work at this as their full-time jobs, you can expect to have your actual job interrupted constantly either by their tasks or by the difficulty of setting aside your worries until after hours.  Imagine taking on a new job in conjunction with everything else in your life, only the new job might require you to stop everything you're doing at a moment's notice and focus entirely on that for at least a little while. To top it off, the highs of getting qualified, finding a home and getting an accepted offer are exhilarating. The lows can be conversely stressful. The times between the two can feel like endless purgatory.

For all of my buyers that I worked with, you've got an added degree of my admiration for what you went through, and anyone reading this, be prepared for an emotional roller coaster that can permeate almost every aspect of your life for the next few months when you prepare to sell.

My own experience was complicated by the fact that what precipitated my move was a new job opportunity.  So I had job interviews in a different state to juggle with everything else. It was simplified though, because I didn’t have to close on a mortgage to purchase my home at the same time that I was selling.  I didn’t have to worry that complications from a prospective buyer’s side would impact my ability to be in my new home. Even so, at the back of my mind there was always this creeping feeling: what if something goes wrong? 

Thankfully, there are people who can make that burden a little lighter.  Realtors. And for my money, the best ones can be found with Constance Vork and the Vork Real Estate Group.

Lesson number two: Talk to and enlist the services of a Realtor.

Look, if there is anyone who would appear to not need a realtor in order to sell their home, it would be me.  I spent nineteen years in the Twin Cities housing industry. Between my own connections among realtors, lenders, non-profit housing agencies, investors, and other prospective buyers, there is no doubt in my mind that I could have found someone to buy my home.  And with a property on a high-visibility intersection with car, bus, bike, pedestrian, and heck even those fancy new scooters zipping by, a “For Sale By Owner” sign would have been the milkshake that brought all the buyers to the yard, so to speak. In a market as hot as Minneapolis has been, I had more than a few “we’ll buy your house” postcards too.  I didn’t NEED a realtor to sell my house to someone at some price, but there wasn’t a second where I thought about going through that process without one. Here’s why.

First off, a home is such an emotional belonging.  We don’t always think rationally about our homes when we decide on such minor things as paint color or room layout.  We do what we like, and that’s all fine and good for when the home is ours. So why would we suddenly become dry and analytical and efficient when it comes to attempting to sell?  A good realtor will be right there with you for the emotional highs and lows, and they bring their professional expertise to the process. Every home can be sold, at the right price, but what’s the best price for your home? What's the best time and the best way to get your home in a condition to sell at the ideal price?

For instance, if you want or need a certain sale price and net proceeds for your home (usually the most important part of whether you accept an offer) then how do you to get that value?  Price low and start a bidding war? Price higher to set the expectation of what the home will sell for? If you price too low, will the escalating bids get high enough? If you price too high, will there be limited or no bids at your level, and what does that do if a house sits longer than others usually do in that marketplace?  

Lessons three and four.  Every home is saleable at the right price, and buyers tend to look for true value over negotiating for a bargain.  

Your realtor will also guide you through other parts of the sale that are important to you.  Most of us also want to leave our home and our community in good hands, so finding the right buyer can be more than just who comes in with the highest bid.  In my case, I wanted to ensure as much as possible that my home would sell to an owner-occupant or relative homestead buyer. (Short of a deed restriction, there’s no way of guaranteeing that, and even if a buyer indicates a certain kind of occupancy they have a reasonable right of use and enjoyment to their property after the sale.)  Still, I wanted to do everything I could to maximize the offers coming in from those buyers instead of an investor. A good realtor will do more than just maximize your profit.

Lesson five.  Not every realtor is created equal.

Speaking from experience, there are realtors out there who I absolutely wouldn't want representing me or even my buyer. There are agents out there who I know are top-notch professionals but they wouldn't be a good fit for me or my home. Your experience AND your price can be quite different based on who you choose to represent you.  I only sold my home once, so I can’t exactly describe comparison shopping. But there are some very specific things the Vork Real Estate Group did for me that I don’t think other agents would have achieved to the same degree.

Since I was fortunate enough to be able to move to my new home without selling first, I was able to make some cosmetic repairs and upgrades before listing.  My realtor guided me through which repairs should be done and what the best strategy was for that. A good rule of thumb is to NOT do major remodeling without checking first with your agent.  A new roof, for instance, is going to cost you upwards of ten grand but likely won’t get anywhere near that in an increased sale price unless the roof is obviously failing. So I put in a new carpet, touched up some exterior paint, repainted most of the interior, and did minor repairs to the kitchen and bathrooms.  

Some of those repairs, I wish I had done years ago because they’d have added to my enjoyment of my home.  Others quite honestly helped me detach. Changing a bright and bold color scheme for (to me) a bland, off-white decor made it clear the home wasn’t mine anymore.  “If you hear me say I hate it, that’s actually a good thing,” was my way of complimenting the workers.  

“But I LIKE this color!”  “A buyer won’t, and that could cost you money.”  I don’t know how often I had this exchange with Constance or one of her team members, but it was probably five times too many.

From the time I started preparing my home for sale to the actual closing date, there were countless decisions I had to make that my emotions or my thought process probably would have made worse if it weren’t for the guidance of my realtor team.  Some were seemingly minor. What do I do if my roommate can’t find a new place before closing? Can I bring my dog and my neighbors’ dog and some friends’ dogs over for one last doggie play date? (NO AND WHY DID YOU EVEN ASK!) Could we just keep the cat safely secured in one room and put up signs telling buyers to be careful not to let it out? (HAHA ALSO NO)

Others were pretty major.  We thought about listing on a weekend when temperatures were slated to be in the polar vortex range, and decided to wait one more weekend so that we could try and sell during a major snowstorm instead.  My house, had it been located in the middle of a block on a more secluded street, would have had an easily ascertained listing value. Instead, it was on a busy intersection across from a gas station, but right on a really great bike path.  What was the best strategy for getting the best offers?  

Once the offers came in, the landlord offers were higher, but how much higher was enough to consider that sale vs. to an owner-occupant?  One offer didn’t make it through the inspection contingency period, for minor reasons, so how do I handle that and what’s the best way to get the next offer successfully negotiated?

From the day I knew I was going to sell my home until the day the ink was dry on the closing documents, I went through almost every range of emotions and was at times in a near-constant state of overthinking-driven anxiety. The reason that frame of mind wasn't completely constant was because I had an excellent realtor guiding me along the way. It was either that, or I would have needed a therapist.

Lesson six: therapists can't help you sell your home and don't get paid on commission, but your realtor can sometimes feel like a therapist.

Rental Screening Proposals Go Too Far 9 Jun 2019 12:21 PM (5 years ago)

Minneapolis is proposing a sweeping change to how landlords can screen tenants.  The ordinance is, well, problematic enough to rouse me from my slumber.  I've got a few blog posts left in me on this site and then I'm doing my best to look forward instead of back at my old town.

The proposed changes can be found here and here.

And it's not all bad, to be honest.  But like a lot of what this council does, this proposal takes some good and necessary changes, adds in some trendy left-wing buzzwords, mimics west-coast policies that may or may not apply to the realities of a Minnesota marketplace, tosses those in a blender with some predetermined conclusions and today's ideological purity requirements, and presto!  That's how you get new city code!  Schoolhouse Rock really ought to write a song about this, but it's tough to find words that rhyme with "ordinance."

I do want to break this down into the good, the maybe, and the ugly.  First, the good parts...


According to the authors of a Star Tribune counterpoint, a landlord can file an eviction notice the first day a tenant is late, without notification to the tenant, and that can stay on their record as an eviction even if an actual eviction for non-payment of rent is avoided.  I don't know how often renters are impacted by this, but even if the number is zero or close to it, this is a loophole that needs to be closed.  There's a vast difference between a day and even a month late versus full and forced eviction for several months of unpaid rent.  If rental history showing on-time payments or late payments is part of the screening process already, this seems like it's duplicating the worst parts of a tenant's history and not giving people a fair shake at getting to a better spot.  I think the council is right to look at removing this from consideration.

And that's where the unquestionably positive changes stop.  The criminal history restrictions have some good elements to them.  There really ought to be some tough questions we ask ourselves about how long a criminal history can define someone's options in life.  But it's not as cut-and-dry as proponents make it seem.  For instance, someone pleading guilty to a minor drug offense for something that may soon be legal may very well have been engaging in and known by police and others to have engaged in worse activities. Like if that person assaulted someone in the course of a drug deal but pleaded to a lesser charge of distribution, and at some point in the future distribution of small amounts of marijuana is no longer illegal, what do you do with that conviction that was really for something more serious?

Maybe there's a good way to thread that needle.  But realistically if we're going to decriminalize certain acts and acknowledge that a racially biased legal system has harmed people, and then work to undo that harm, then changes like this may have to be a part of how we give people a chance to rebuild their lives.  Put this one in the category of "Ok, let's try this and see how it helps people, but if it causes problems we should be willing to revisit it."

I'm also of the opinion that in most circumstances, arrests without convictions or charges shouldn't stop someone from getting housing.  However, I think back to when I was assaulted in front of my own home.  Long story short, I was taking down waterlogged sign spam from telephone poles and a perp threatened to assault and rob me, then punched me unprovoked, hopped on the bus like it was his getaway car, and was subsequently arrested.  The assault on me was dropped, presumably because he had other charges he was pleading to, but the last I heard of the case, he wasn't showing up for his scheduled court appearances.

Isn't an arrest like THAT something that a landlord should be able to take into account when figuring out who is the best tenant to lease a property to?  Wouldn't you want the landlord next door or the owner of your apartment complex to be able to 1) find out about such things and 2) use that information to make a determination about whether to rent to one person or another or even let the unit sit vacant until a qualified tenant applies?  Or from this man's perspective, let's say the incident where he punched me was his rock bottom, and he is now trying to put his life back together.  The more access he has to quality housing, the less likely he is to wind up needing to rent from the likes of Mahmood Khan, and then easier it would be for him to continue improving his station.

There's a whole lot of grey area here.  Give too much leeway to landlords, and one bogus arrest could taint someone's housing choices for years and years.  Restrict the use of this data entirely and it becomes harder and harder for landlords to make the right decision on who to rent to.  Minneapolis should look to write rules like the "evicted before convicted" St. Louis Park disgrace out of existence.  But if the pendulum swings too far in the other direction, neighbors bear the burden of unsafe communities.  Reasonable people should agree with the principles behind this, but there are real-world consequences to getting it wrong.

The part that give me the most pause though is the limitation on what kinds of credit history could be considered.  In fact, I was shocked that a credit score of below 500 could be something that a landlord couldn't take into account.  As someone who spent the better part of my twenty years in the Twin Cities in roles where I examined credit (a non-profit credit counselor, a mortgage loan processor and a mortgage loan originator, and even while renting out rooms in my own home), let me explain something about credit scores and the kinds of credit profiles they point to.

It's honestly quite scary that forty percent of Americans couldn't take on an unexpected liability of $400 or more without having to borrow money or start juggling which bills get paid late.  But the reality of it is that once you get below credit scores in the 620-640 range, you see that people at or below that level tend to not even have $400 in borrowing capacity on their credit cards.  Once you get much below 600, people tend not to have open revolving lines of credit at all.  And once you get to the mid 500's and below, people tend to have collections, judgments, charge-offs, tax liens, child support, or other liabilities that could very quickly change into payroll or income garnishment.  And at THAT level, the applicant's rental history, however positive, starts to matter less and less.  If someone has never been late on a housing payment before, but has derogatory credit with a higher likelihood that garnishment will render irrelevant that last shred of fiscal responsibility, shouldn't a landlord be able to know that information and use that information when they decide on a qualified applicant?

Limiting pet deposits is another level of ridiculousness.  The amount of damage a dog or a cat can do to a unit pales in comparison to the pet-related damage deposits that are already legally collected.  If those become even further restricted, I would assume most landlords would respond by simply implementing a "no pet except for disability accommodations" policy.

I've had some experience in this regard.  Through much of my time in Minneapolis, I rented one or two rooms upstairs.  Mainly this was because I had more space in my home than I was using and I felt it was better to provide housing for people than let that space sit empty.  My tenants included:  a recent college graduate who had never lived on his own before, a divorcee who needed a place to restart his life, a struggling artist, an ex-con, a friend of that ex-con who had a spotty rental history of his own, and a person who wound up being a hoarder who cost me significant money in unpaid rent and property repairs.  In other words, almost every single tenant I had in my home is someone who the proposed ordinance changes would be meant to protect.  It's not clear from the language of the ordinance whether it applies to people renting out parts of their own residences, or a second unit or ADU on their property, or if it's just for non-owner-occupied housing that would trigger a rental license requirement.

The ex-con reoffended and never got out of jail before his lease expired.  The ex-con's friend with a spotty history skipped town and bailed on his lease.  The hoarder cost me over two grand in property repairs and I let his last two months of rent slide because I wanted him to be able to go to a new place of residence instead of becoming homeless.  In all, those three tenants cost me over $4,000 in lost rent and property damage.  That pretty much wiped out the net profit from my other tenants.  The cost would have been higher if I'd gone to court to file eviction notices.

And that's where the real world starts to intrude on these noble ideas about rental restrictions.  I have outgoing expenses on my property.  There is most likely some sort of debt associated with it, whether it's secured by the property or a different kind of a credit line.  Even if the property was purchased in cash, an owner is going to want to replenish those funds over time.  Tack on taxes, insurance, and other property-specific fees like association dues. Add whatever utilities a tenant is not covering.  Finally, I know I will have to maintain and upgrade the property from time to time.  So part of my proceeds really should be set aside for that.

Then let's presume I want to actually make a profit.  So let's just say the expenses come out to $800 per month and I want to make $100 in monthly income, I have to charge $900 to my tenant.  And here's a crucial part of the equation:  No amount of rules or regulations that a city imposes is going to change that $800 amount.  Or more accurately, I wouldn't count on lower property taxes lowering that figure any time soon.

And then we have the unknown.  I am going to have a unit vacant and unrented from time to time.  Sometimes I can plan for that, through scheduled maintenance.  More likely I will not.  Even the best of tenants move out and there may be a month or more of vacancy.  Tenants may wind up unable or unwilling to pay rent.  I may have to evict, which costs money.  Tenants may treat the property poorly, requiring unplanned repairs and adding to the vacancy time.  Natural events, such as hail damage, may be unforeseen and require repairs.  I'm going to want to anticipate as many of these costs and scenarios as possible, building in a contingency factor to my rent amount and getting an insurance policy that covers as much as I can afford.  The more I can anticipate (such as determining whether rent will be paid on time) or mitigate (perhaps a higher security deposit for a credit-challenged tenant or pets) the cheaper my rent can be.

But if I can't know certain risk factors or if I cannot use what I believe is a risk factor in determining whether and how to extend a lease agreement, I'll either charge more money or not be a landlord in that city at all.

So the response to these proposed changes will fall into a few categories.  Some landlords will say, "Fine. I support or at least can live with all of these changes with little impact on how I conduct my daily business and decide who should rent from me."  Others will look at parts of the proposal and say, "If I can't look at credit scores alone, then I'll set up credit profile criteria (i.e. no new collections in the past 24 months or no collections totaling more than $2,000) that will help me screen out unqualified applicants."  And that won't significantly change who gets the apartments but it WILL change how much work it takes a landlord to make such a determination.  And if that cost goes up enough, landlords absolutely will pass that on in the form of higher rent.  ESPECIALLY if it's because of a citywide mandate instead of a more naturally-occurring market shift.

Still others will make broad changes, like a no pet policy.  Some will switch to contracts for deed and fly under the radar.  Some will decide to get out of Minneapolis entirely, and others may opt out of using their extra space to provide rental housing.  But the most common response I would anticipate is in the form of higher rents.  Too many restrictions on how someone can decide on the best applicant will mean that there's more unknown risk that a landlord cannot factor into their screening process.  So rents may go up as landlords build up their reserves in anticipation of the next property repair or eviction that they wouldn't have had to undertake within different rules.

There are elements of this proposal that are morally right and demonstrably better than the existing ordinances.  But not everything is a clear-cut improvement and I believe that if the changes were put into place in their current form, that would ironically lead to more housing restrictions and higher rents.  There's a middle ground here, if this council wants it.

On Representation within Neighborhood Boards 8 Feb 2019 6:16 PM (6 years ago)

Image from Wikipedia.

There is an ostensibly noble push to create more diversity on Minneapolis neighborhood boards.  Noble because the premise is sound; community organizations should at least somewhat mirror the demographics of the neighborhoods they serve.  I characterize the current push as coming from a questionable place though, and that leaves me with doubts about whatever policy might come from any changes.

My entire twelve-year connection to north Minneapolis was spent as part of a neighborhood organization, either as a staff person or as a committee and board member - even two years as board chair.  If there is one thing I learned as an absolute truth for community participation during that time, it is this:

Meetings don't make people come to meetings; issues make people come to meetings.

So when city staff, elected officials, or critics and opponents of these organizations make the accurate claim that some don't have enough people of color, renters, or other demographics in attendance or leadership roles, my first questions are...

...what are the issues that would make that person show up?  Are those issues that a neighborhood organization can even address?  If so, what can the organization do to increase that attendance, and if not, can the mission of the organization change?  Because let me tell you; a renter isn't going to show up at a meeting, or won't repeat his attendance if there isn't anything for them to do or benefit from.  A person of color sure as hell isn't going to be a board member just because an organization has a city-mandated quota to fill.


These lessons came into focus in an important way when I tried to organize a Hmong housing forum during my time as Housing Director for the Hawthorne Neighborhood Council.  I worked with some families to spread the word, made my invitations at various events, and had Hmong youth flyer the neighborhood and invite their families.  The big night of the community meeting came and...not a soul showed up.  Not even the ones that helped organize the event.  That led me to one of two conclusions - either life in Hawthorne was just perfect for Hmong households and they had no need to come to a neighborhood meeting, or housing wasn't the issue that was going to get people to show up.

We went with the latter, took a step back, and had a series of listening sessions with these families and organizers at CURA.  What we heard was that safety was the primary concern, and a solution folks wanted was to get a Hmong-speaking police officer on the day shift in our precinct.  Hawthorne commissioned a study from CURA to solidify the data we intuitively knew but needed verified to make our case, and we went to work turning people out for a new meeting.  Several times throughout the campaign, we filled the main room at Farview Park with over a hundred community members, almost all Hmong or Southeast Asian and most from north Minneapolis.  The turnout, the demands, and the strategy were driven by the Hmong and Southeast Asian residents too.

And we won.  We got the first Hmong-speaking officer on the day shift for the fourth precinct.

What we didn't do, however, was get Hmong representation on the neighborhood board.  During my time as an organizer for Hawthorne, we had mostly White board members, some African American leaders, and only two Southeast Asian board or committee members.  Both of those eventually moved out of the community as life led them in different directions and neither joined as a result of the organization's most successful action on behalf of Hmong in the community.  So if the only metric would have been board or committee membership, it's possible that an organization like Hawthorne could do everything right in terms of engagement and organizing, and then get penalized by the city for not getting people to be on a board.

On the other side, as a board member for Jordan we spent the better part of a year with only three board members - all White homeowners.  The Jordan Area Community Council had gone through a contentious period several years back and still struggled with the perception that meetings were acrimonious and chaotic.  It didn't help that we were being consistently sued by a frivolous litigant, causing us to lose our directors' and operators' insurance.  One consequence of that was that any board member could be held personally liable for attorney fees or other damages if we were to lose in court.  Try getting people in the city's poorest neighborhood to participate on a board with that looming over their heads.

Had the city decided to enforce a membership quota of some sort at one of the organization's lowest points, that could have led to penalties that would have literally destroyed the council.  Instead, through intentional board leadership and outreach and especially through the charismatic hard work of our executive director and staff, the organizational leadership much more closely resembles the neighborhood demographics.  Jordan is a standard-bearer in that regard.

A primary responsibility board members assume is to be good stewards of the financial resources the organization has at its disposal.  And that's where renter engagement can be more difficult.  Historically, a significant portion of neighborhood money had to be spent on housing issues.  The most effective uses for that have been things like down payment assistance, rehab loans, energy efficiency upgrades and tests, and gap assistance for larger development projects.  Those initiatives primarily benefit the owners of a property and a renter is at best a secondary or tertiary beneficiary to those programs.

Most organizations want the assistance funds to come back to the community so that they can be reused for the next group of people or programs that need it.  In general, that's just not possible with renter-focused initiatives.  So for a program or organizing drive to come from a neighborhood organization and benefit renters, the idea would have to be rock solid.  Without that, you're essentially asking renters to come to a meeting to represent renters, but not getting much in return.  That's a recipe for high turnover or no representation whatsoever.

So before we get into a flat-out mandate of representation, we have to acknowledge that people of color, renters, people with disabilities, and other under-represented communities have to have a reason to attend a neighborhood meeting.  They have to be able to accomplish something for themselves or others.  Sometimes recognizing that opportunity is as simple as taking a step back and asking what someone wants.  Perhaps an organization simply has to be in a healthier place before it can expand, and strict representation requirements could do more harm than good.  Other times, the funding constraints or legal requirements of certain kinds of non-profit entities may mean the neighborhood group simply isn't the right avenue for that change (such as overt political activity).

Which brings me to the second point in the opening paragraphs - the intent behind this proposal now. The 2040 Plan was just passed, under questionable tactics, no less.  And its primary opponents were either neighborhood organizations themselves or were board members whose opinions may have carried more weight because of their affiliation.  Those groups have, unfortunately, been over-represented in their leadership by White homeowners.  In the other corner, we had supporters from entities like Streetsmn, Our Streets, and Neighbors for More Neighbors.  Although it's hard to say from a cursory view of board rosters there, it would appear that at least the racial demographics are not terribly different - most board and committee members appear to be Caucasian.

When I was board chair at JACC, my refrain to people in my community about the need for better representation was this:  "The organization's positions and recommendations to the city are advisory.  The city tends to go along with what we want, but at BEST ordinances and tradition merely require them to have some sort of community input.  If our council is just a bunch of White homeowners, then that lack of representation can be used as a reason to ignore us.  Even when the city's actions are bad for our neighborhood and their outreach was even worse.  Simply put, we are more powerful with you than without.  We need you."

Instead we have an entrenched power structure and a new, competing power structure.  Both lack enough diversity in their leadership roles to definitively claim the mantle of community engagement in that arena.  The new group then picks up the cloak of the oppressed by claiming their status as renters, although whatever systemic obstacles a White renter faces pale in comparison to the pervasive radiation of systemic racism.  The legitimate criticism of neighborhood organizations' representation is being perverted by the the up-and-coming groups in order to dilute that long-standing clout.  The push for more inclusion is not coming from the groups that deserve or would benefit from that improvement.  It's just more people who are already privileged trying to displace the political power of their similarly situated opponents.

And this is what is genuinely disgusting.  The putative reason for needed change among neighborhood organizations is to get better representation.  But the calls for that change that the city is raising up are not coming from POCI leadership.  Even when the cause is right, if those clamoring for change do so with only the thin veneer of social justice, the change we see will not be appropriate, full, or long-lasting, nor will it serve the people who need and deserve it most.  The city should take a step back, listen to groups with people of color in meaningfully successful leadership roles - some of which are neighborhood councils - and take their cue from what people want and what has been successful.  Anything else will bring about hollow and unfulfilling change that will in reality be no change at all.

Time of Sale Energy Disclosure is the New Regulation Nobody Wants 19 Jan 2019 6:25 PM (6 years ago)

Photo is of my home in Superior, built in 1900 and getting as much rehab as I can do in 2019 and beyond.  Note the amount of insulation.

In an attempt to address energy efficiency, the Minneapolis City Council is poised to consider adding new burdens on the sale of residential homes.  Specifically, a blower-door test and a two-inch hole drilled on the inside of an exterior wall would tell prospective buyers new information about the home they are purchasing.  If implemented, I worry that this will lead to more difficult real estate transactions, lower home values, and possibly even a net loss in energy output.

While my time living in Minneapolis has drawn to a close and my time owning property there also nears an end, that doesn't mean my connection to the city is severed and never to be restored.  A future job, relationship, or investment opportunity could always take me back to the Twin Cities at some point.  And a regulation like this would make me less likely to make that investment in this fair city.

We'll get into the broader market impacts, but first on a personal note...

...I like old houses.  More specifically, I like to find older homes that need a lot of work but once that work is done the restoration really makes the house and the community shine.  The last two homes I have bought were like this, and if I buy another while I'm able, I want to keep on bringing these places back to their former and future glory.  The picture at the head of this article is from my new home in Superior as I do major work on the walls.  The house was built in 1900 and I didn't need an energy audit to tell me that there was little to no insulation.  I'm also unlikely to add insulation unless I'm in this property for decades to come, because just about every square inch inside and out already needs my time and money.

So a report like the one proposed wouldn't tell me anything I already didn't know or assume about the kinds of houses I'm likely to buy.  For my Minneapolis home, Greater Metropolitan Housing Corp did the rehab work and definitely lost money on the deal (although as a housing non-profit, losing money to restore or provide housing is kind of their mission).  Knowing what I know now, I might have been able to do much the work myself and break even.  Which is the plan for my new home in Superior.  From the foundation to the roof, from the electric and plumbing systems to the mechanicals, the floors and interior walls, and new paint on the exterior, there isn't a square inch of the house that doesn't need something done.  My goal is to break even on the acquisition and repair items in terms of the current market value, so that over time the property breaks even like a more traditional purchase.

If I had to add in the cost of insulation - not because I wanted it, but because I would anticipate that a future buyer would do this required test and then expect it - those numbers become even tighter and make a similar purchase in Minneapolis less likely.  Then a house like this would be likelier to either be demolished or fall into the hands of an unscrupulous investor who would treat it with far less care than a buyer like myself.  And the greenest house is the one that's already built, so demolition for the sake of energy efficiency is the height of foolishness.

Buyers like me are out there and we perform an important role in the housing market.  But we're a small enough subset that it's possible a policy wouldn't be good for us even as it makes sense on a broader scale.  Unfortunately, that's not the case here.

There isn't a single segment of the housing industry that seems to be in favor.  There are no homeowners clamoring for Minneapolis inspectors to break through their walls like the Kool-Aid Man.  And then there are a host of problematic issues with the inspections themselves, such as:

• TISH inspectors aren't insured to drill into walls.
• What happens if asbestos or vermiculite dust falls out of the hole?  Will that trigger additional required repairs?
• How will dust be contained?
• What happens if drilling hits a wire or causes other system damage?
• What happens if an owner objects to the drilling or insists that the drill happen in a different place than the inspector would choose?
• How would an inspector, buyer, or real estate agent know whether the results of the drilling - whether good or bad - are consistent throughout the property?

Much of the focus is on the two-inch hole drilling, but the impacts of blower door testing shouldn't be ignored either.  Industry professionals have estimated that adding that test to the pre-sale inspection could effectively double the cost.  Not every inspector currently has the blower door test equipment, so the need to acquire the tools, then learn and implement the test are going to be passed on to the consumer.  Likewise, the additional insurance risks for drilling will factor into costs.

The Minnesota Center for Energy and Environment (CEE) issued a report as well regarding "basic" and "enhanced" data collection points that could be added to the inspection process.  Basic data included more information points about things like the attic, heating systems, windows, and insulation.  The enhanced home interrogation points included the blower door test and drilling.  On that point, CEE stated:

Through discussions with the inspectors during the pilot and in the focus group, it became apparent that the enhanced inspection was beyond the scope of their inspections. One inspector saw this as a market differentiator, but it was unclear if clients would be willing to pay for this. For most inspectors their buyer’s inspection is already four hours long, so adding something significant to the scope would need to be justified by a large cost. Inspectors were also hesitant to ‘go down the rabbit hole’ of a detailed energy assessment, as they realize the complexities of these recommendations and how they affect the whole home.

And:

Inspectors reported that collecting the basic inspection data fit well within their inspection process, so it added little time to their inspections. The part of the pilot that required the most work for the inspectors was recording this data on a paper form and emailing it to CEE. This added some time in the field, but it was more of an administrative burden for the inspectors. If this burden were reduced this data could be provided at a relatively low cost. 

As stated previously, the inspectors did not think the extra effort and training required for the enhanced inspection justified the cost. Inspectors received $50 more for these inspections, which required an average of 30 additional minutes on-site. We thought some inspectors would be interested in learning this skill, but that proved to be untrue. 

CEE concluded that:

The enhanced inspection proved to be beyond the scope of the inspection process. This inspection was closer to an energy audit and the majority of the inspectors did not see the value of adding this to their inspection process. They do not want to compete with the energy audit offerings, as they are highly subsidized, and would rather refer their clients to an energy audit when applicable. 

(In fairness to CEE, they also have a report to the city council in which they recommend both the basic and enhanced home interrogation procedures.  It's an odd incongruence though, in that their assessment of this market doesn't seem to support the very policy recommendations they bring forth to our elected officials.)

The financial impact on sellers shouldn't be overlooked either.  It's easy to think that even with a doubled or tripled inspection cost, the seller is going to have the money for that expense.  But TISH inspections are paid up front, not at closing.  And in today's economy the average person can't cover a $400 emergency expense.  Even if the inspection fee is put on a credit card or collected at closing, let's remember that not too long ago we had a little bit of a hiccup in the housing market.  If a seller is breaking even or even bringing cash to the closing, these costs become very real.  Hell, they can be barriers in a hot market too, if a seller needs every penny just to move on to their next home.

I'm sure other realtors and lenders can remember transactions like this, but as a former mortgage lender I can recount my fair share of closings where an additional $400 cost on either side of the transaction would have caused a deal to fall apart.

So sellers aren't clamoring for this change.  Realtors are opposed.  Inspectors aren't prepared to take on the additional burdens either.  We'll call CEE's position "conflicted."  Yet in response to these objections, CM Gordon and CM Schroeder essentially release a document that says, "Thanks but we're going full steam ahead anyway."  (Maybe we need a more energy-efficient phrase than full steam...)

If spending, let's say, $5,000 on insulation and energy upgrades gets me $5,000 or more in return on that investment - either energy savings over time or in direct resale value - then the regulatory sting becomes more palatable.  But then it's not making housing any cheaper for a new buyer and as an existing owner I'd still have to be able to shoulder that burden.  Even if the market value isn't quite there, I do agree with the premise that combating climate change is going to require some sacrifices.  We're not going to make an impact on global warming just by doing things voluntarily and at minimal cost.

So there are ways to measure the financial costs weighed against the environmental gains to decide if a new policy is beneficial even in the face of widespread industry protest.  Unfortunately, that's not what I see this council doing.  Instead, it seems like the modus operandi is to operate from a predetermined ideological conclusion (climate change requires us to act), and work backwards from there (of COURSE certain people will be opposed) to retcon a justification for the new policy that would be enacted regardless of community input or evidentiary findings.  The basic updates to these disclosures provide a clear benefit at a minimal cost.  The enhanced changes would be better implemented with incentives instead of requirements.

Yes, the Tree Was Racist and Here's Why That Matters 4 Dec 2018 7:11 PM (6 years ago)

Photo from Chauntyll Allen, now widespread.

I saw the racism in the Minneapolis Fourth Precinct tree instantly.

So I did what so many of us do in this social media age.  I took a screen grab from a friend's Facebook account, put it up on my Twitter feed with a demand for our elected officials to address it, and went back to my day.  I figured I'd contribute to the chorus of calls for apologies, consequences, and reconciliation.  As it turns out, that tweet was one of the first to spread the image broadly, and became a focal point for many people and news agencies.

(A quick side note:  once it became clear that this was getting way more exposure than I expected, I went back and found the source of the original post.  That was Chauntyll Allen, a Black Lives Matter activist.  From that point on, I directed all media inquiries to her - both because she was the original poster and because as a person of color in Minneapolis, her experiences with what that tree means are much more direct and visceral than mine.)

But what I want to address in this post is how so many people, mostly but not entirely White, didn't see what I and so many others saw.  The denials on Twitter, Facebook, and the comment sections of news reports ranged from a thinking it was in poor taste but not racist all the way to seeing the racism and enjoying it.  If you're on the latter part of the spectrum, this post is not for you.  If you're curious as to how this was construed as not just offensive but downright racist, read on...

The most important aspect of understanding the racial undertones is context.  After ten years on the northside, I now live in Superior, Wisconsin.  And most Superiorites that I spoke to who weren't familiar with Minneapolis reacted by saying, "Well, *I* like Funyuns and Natty Ice and fried chicken and Newports.  So do lots of people. I'm not sure what Takis are, but I'll try 'em."  Or, "Lots of White people like those things too, so obviously there's no racism there."

Sure, people of all races like those things.  One of my best friends who smokes prefers Newports, and another close friend's favorite beer is Old E (not in the picture, but a beer heavily marketed to and sold in African American communities).  Both of these friends are White, and saw the racial animus behind this tree instantly.  And if you're not a level seven vegetarian, who doesn't like fried chicken?  I think we can all agree that Popeye's is the best chicken fast food joint.

(We're leaving out the police tape for the time being, which was really the racist cherry on top the racism sundae here.)

But in a food desert like north Minneapolis, the part of the city patrolled by the fourth precinct, Funyuns, Takis, hot Cheetos, and fast food like Popeye's are more heavily consumed than in other parts of the city.  Those items as well as the brands of beer and cigarettes, have traditionally been marketed towards African Americans.  To those of us who have lived over north, the symbolism behind these items was apparent immediately.

To add fuel to this fire, the Minneapolis fourth precinct was the center of a weeks-long protest after a police officer on the northside shot and killed Jamar Clark, an African American.  (that context is for readers unfamiliar at all with north Minneapolis)  So the list of things that might be offensive to the community at large that could go on a Christmas tree should start with:  1.  We'd better not do that.

After the people without much direct interaction with communities like north Minneapolis, that's where we really get into a bevy of excuses that don't hold up.  Again, the key here is context because in a different setting with different people making something like this, the message wouldn't be the same.  And fellow White people, let me just call out a behavior we're guilty of far too often.  When a person of color points out racism, we can fail to acknowledge that experience and then we start with a whole series of mental gymnastics to convince ourselves that racism isn't racism.  We need to do better, myself included.

People have said that the Christmas tree looks like it could be litter that was picked up from the neighborhood. Except it was not litter that was picked up by active neighbors.

People have said that the Christmas tree looks like it could be stuff that a college kid would put on a Christmas tree. Except that it was not put together by college kids.

People have said that this Christmas tree looks like it could be items from a convenience store, especially one on the northside. Except that this Christmas tree was not put together by a convenience store owner or patron.

People have said this was just plain funny, and that the politically correct crowd should just lighten up and not see racism lurking around every corner.  In general, reasonable people can disagree about when PC culture goes too far.  But in the context of a tree in a lobby of a police department in the heart of an African American community that is still raw from multiple police shootings of Black men, this is not the place to push those boundaries and the police department certainly shouldn't be the ones doing so.

People have said that all of these items and more, police tape included, are things found far too often littered throughout the northside.  That's true, but the police department has not offered up an excuse that this was meant to be a statement on litter.

People have tried to dismiss the tree as dark or gallows humor that was not intended to be taken in a different way. This I can understand, I myself have said things in private that, if they were taken without any context whatsoever, could be interpreted as derogatory towards North Minneapolis. Many of us use dark or inappropriate humor as a way to either cope or to tell the truth about the world around us.  But this tree was not put up in an officer's home or in a part of the precinct closed off to the public.  It was on full display in the lobby, which incidentally is a Toys for Tots dropoff site.

So no matter what excuse you want to come up with, understanding the context of this community demands that one accept at least that this tree was put up with no consideration as to how it could be perceived.  I consider it more than a little likely that there was some degree of conscious and intentional racism behind this.

In response to the hubbub, mayor Jacob Frey declared that the officer would be fired by the days end. Frey obviously had no authority to make that final decision because the officer is protected by a whole bunch of statutes and legal or union procedures. Since then, officers have been demoted, put on leave, and had serious disciplinary proceedings begin.

I support what Frey said and did 110%. And here's why: when you call 911 and it takes an officer far too long to respond, and when they do you get the tired line that, "Hey, this is north Minneapolis, what do you expect?"  The officer with that attitude is likely to be the kind of officer who puts up this tree.

When a car full of Black youth gets pulled over and the kids are put in binders and made to sit on the corner while the cops bring in the K-9 unit to sniff for drugs even though the traffic stop was minor and there was no overt sign of drug paraphernalia, the cops who do that are the kinds of cops who would put up this tree.

When a Hmong father is pulled over for driving a Honda Civic because "a lot of these cars are being stolen by chop shop and street racing gangs," the policeman with that prejudice is the kind of policeman who would put up this tree.

When officers respond to a legitimate call for life-threatening situations and they come in with guns drawn even though de-escalation was still a possibility, the officers who do that may well be the kind of officers who would put up this tree.

I've often said that the buzzword of racial equity is not necessarily put into practice through huge initiatives but instead through the daily and tiny interactions local government has with disaffected communities on a regular basis.  Unfortunately, the inverse is also true.  What seem to be small slights of inadvertent racial insensitivity are too often indicators of a much deeper sickness.  To me, that's what this tree represents, and that's why the response has to be equal to the offense.

The North Minneapolis Element of 2040 is Finally Here! Sort of. 20 Nov 2018 9:14 PM (6 years ago)

Stock photo from a previous north Minneapolis 2040 meeting.

Well, it's here.  CM's Cunningham and Ellison have released their joint...plan? proposal? talking points? about how the 2040 Plan will be utilized to benefit north Minneapolis.  It is, without a doubt, a lot of talking points.  But it lacks a certain something.  I will not mince words; this is a series of platitudes that north Minneapolis has heard for years leading up to this plan, and the addition adds nothing of substance to the discourse or concrete actions that may be taken as we move (presumably) forward.  The entirety of the writing can be found in the first link above, and the housing section is quoted here.

The City of Minneapolis will reverse the institutional harms caused to the Northside community by building on the many assets of the community while also prioritizing community wealth building in the form of housing, small business, public safety, youth opportunities, and environmental justice by:
Action Steps
1. Taking actions to stabilize housing stock by increasing homeownership in interior residential areas with a focus on supporting first-time, first-generation homebuyers, and provide “right to return” supports to homebuyers with historic ties to the community, such as those displaced by rising rents or foreclosure or returning home after completing higher education.
2. Increasing access to affordable housing options in neighborhoods, particularly multifamily housing along transit corridors.

To which I respond with the following series of questions...

What specific actions will you take to stabilize housing stock by increasing home ownership?  Will you build on existing partnerships or create new ones?  What are the current barriers to home ownership that you have identified for the area of north Minneapolis?  For residents who live here?  For those who want to live here, or have been displaced and want to return?

What kind of support do you envision providing to those wishing to return after being displaced?  Given that such displacement often occurred (whether rightly or wrongly) due to eviction, foreclosure, a criminal record, or a combination of those things, what will you do to provide stable, affordable housing to households with such barriers?  If your goal is to create home owners from this group, what will you do specifically to help people in those circumstances qualify for a mortgage in either the short or long term?

One of the centerpieces of the 2040 Plan is to allow for triplex (formerly fourplex) construction virtually anywhere throughout the city.  In previous writings I have demonstrated that this addition will not create wealth through ownership for north Minneapolis residents on a meaningful scale, may not attract much investment at all to our vacant lots compared to existing housing elsewhere, and may in fact revive problems from past slumlord activity.  Those claims have not been refuted.  Please either explain why my conclusions were incorrect or demonstrate how the actions in this northside-specific segment will address them.

Another potential change is to create inclusionary zoning that would require a certain percentage of affordable housing units be part of any new construction of a certain size.  The reality of multifamily new construction in north Minneapolis is that it simply doesn't happen without a significant percentage of the units classified as affordable.  In light of this dynamic, how will the 2040 Plan improve upon affordable housing creation on the northside?  To the degree that the Plan in its initial phase was insufficient in this regard, how will your addition to the Plan address that gap?

The 2040 Plan already intended to increase the availability of (presumably) affordable housing, especially along transit corridors.  North Minneapolis already has a high amount of vacant parcels along transit corridors, much of which is city- or county-owned yet has not seen a demand from investors to build on.  How will the Plan or your addition change that lack of investment, and what steps will you take to make sure that northside residents and businesses benefit and build wealth from the new influx of development?

None of the problems identified in the additional comments are new, and in fact most of them are decades and even generations old.  Knowing that these were entrenched, endemic, and long-term issues, why were they not sufficiently addressed in either the first or second iteration of the Plan?  Why was the northside given less than three weeks to review, consider, and respond to a proposal that is most pertinent to our community and drafted by our two council members?  Will there be public meetings on the northside for affected communities to weigh in prior to the anticipated vote on December 7?  If not, will you commit to delaying the vote to give the community enough time to weigh in?

Star Tribune Editorial Raises Red Flag on 2040 Plan 14 Nov 2018 7:19 PM (6 years ago)

The above image is an example of a front porch converted to living space.

Today the Star Tribune published an article titled, "Minneapolis 2040 Helps Address Housing Inequality."  In that article was a startling reference to what the author claims the 2040 Plan can or will do.  In fairness, my interpretation of the article's claims may in fact be incorrect.  I have searched the 2040 Plan website again and it remains a planning document equivalent of trying to find a specific item at a TJ Maxx store.

From the Strib, emphasis mine:

What cannot occur under existing law is exactly the process that would most help those working-class renters: organic, small-scale development, mostly conversions of existing buildings. These developments are unlikely to produce high profit margins — the wealthiest renters are unlikely to trade out gleaming lofts for basement apartments — but they give individual property owners the ability to put another unit or two in an existing house. 

This is exactly the development the 2040 plan seeks to spur, by allowing up to three units on all lots in all residential areas.

 Let's break down why this is bad news...

First let's concede that Minneapolis should be looking for ways to add density and continue to grow.  And the council members with urban planning degrees probably read in a textbook somewhere that one way to add density is to convert existing housing into multiple units.  In an ideal world, that's the least disruptive way to increase housing supply.

We do not live in a textbook example or an ideal world.  And what real world experience tells long-term Minneapolis dwellers is that converting a single-family home into two or more units is almost always poorly done and brings a property into a nearly irredeemable problematic status.  The most common way landlords achieve these conversions is to make the front porch into a bedroom or living room, thus freeing up a reconfiguration of floor patterns and entry points.  Those front porches rarely have a heat source and almost universally extend beyond the foundation of a property.

When a property is not converted well, it doesn't function in the same way as similar but better-constructed units do.  And then those properties are more likely to attract tenants who do not treat the home or the community well.  Not every such conversion is done poorly, and not every poor conversion becomes a problem property.  But long-time residents on the northside and in parts of south Minneapolis can point to a high correlation between such conversions and problem properties.  That connection is far too strong to be mere coincidence.

And then once these houses are improperly converted, it becomes almost impossible to get them out of that stream.  That difficulty is a direct result of how utility creates value in real estate.

When I own a house, that property creates value through its raw materials, its location and land, and its use or utility.  A single-family home's utility is just that; the ability to be used by one family to live in or rent.  If you take that same structure and add a second unit, you add utility.  Now it can be lived in and generate income or it can generate two streams of rent.  It doesn't matter to the owner or seller if that utility has a downward effect on the immediate community surrounding it.  Anyone who wants to buy that house has to pay for that utility because to the current owner that is what drives the value.

Then, having paid for that utility, the new owner is then compelled to continue the existing use.  To do otherwise would be to spend money on reducing the value; a prospect most owners would understandably balk at.

Even if a landlord goes into foreclosure and loses the homes, the banks are going to use the utility factor to sell at a higher price.  It is costly and almost impossible to get properties out of the hands of poor ownership as long as they have that utility.  So when a house gets poorly spliced, these are the potential buyers:  1) another problematic landlord, 2) a benevolent landlord who still will not or cannot restore the property, 3) a governmental or non-profit entity that can spend or lose money on proper restoration (but would not need to do so if better housing policies were enacted in the first place), or 4) the extremely rare individual with the desire and capacity to restore even at a loss.

I'm not saying that we should never expand the number of units in a structure.  When such expansion is carefully done, a community can add density with minimal disruption to its built form.  And that is a laudable goal.  But generations of problem property owners, from Gregge Johnson to Paul Koenig to Mahmood Khan and Steve Meldahl have shown us that the free market left unfettered will not naturally produce such quality conversions.

If this provision of the 2040 Plan is correctly articulated in the Star Tribune editorial, then it is yet another signal that the Plan fundamentally misunderstands how its changes impact poorer communities.  And therefore it is not yet ready for implementation.

Minneapolis 2040 Does Not Serve North Minneapolis 22 Jul 2018 6:34 PM (6 years ago)

Where Will We Put All Those Fourplexes? 29 Mar 2018 7:17 PM (7 years ago)

1. Rental rates for a 2-3 bedroom/1-2 bathroom unit in a fourplex is going to cost more in south and northeast Minneapolis than north.  (This was not a presumption, as I searched online rental listings and spoke with a few property owners to validate what I saw in those searches.  In any case, not a huge surprise.)
2. Property taxes in other parts of town are higher than over north.  (Again, backed up by some research and even a cursory knowledge of our city's tax base.)
3. Insurance, vacancy rates, and maintenance may cost more in north Minneapolis.
4. The type of building and quality of construction should be the same in north as anywhere else.
5. The type of financing and the interest rates for these properties should remain the same citywide.

Who Would Benefit from Relaxed Citywide Multi-Family Zoning? 11 Mar 2018 3:21 PM (7 years ago)

Vacant land, multi-family, and single-family homes.

These parcels are likely already zoned for multi-family housing, but there are plenty of vacant lots around me that would benefit from the addition of 3-4 unit properties.

"Well, the cat's out of the bag," said Council Member Lisa Bender regarding a proposal to relax zoning requirements practically citywide.  The change could result in there being virtually no barriers - from a zoning perspective - to building a four-unit house throughout much of the city.  To be honest, the prospective change excites me more than just about anything I've seen from our new council.  But it is replete with possibilities to further exacerbate some of Minneapolis' worst problems even while it addresses rental housing shortages.

CM's Johnson and Gordon raised some of their own concerns, namely that the new ordinance could result in starter homes being priced out certain markets as the land beneath the home becomes worth enough for investors to purchase, demolish, and build anew.  While this would add a net gain of housing units, it would come at the expense of first-time buyers and would not be the ideal way to roll out such a change.

I share those concerns, and worry that otherwise viable housing will be demolished in favor of new construction of fourplexes.  If that dynamic becomes widespread, then I also worry that we will have a housing change that prices more owners out of south and northeast Minneapolis while passing over the swaths of already-vacant land in north.  And then let's talk about who benefits and how.  Obviously renters benefit from having more options available to them at (hopefully) affordable rates for quality housing.  The communities around the new units get the benefits - and let's be honest, the drawbacks such as they are - of increased density.  And the largest beneficiaries would the the new owners of the four-unit housing expansion.

I will be focusing on those two aspects of the proposal as this post proceeds - how to incorporate a zoning change in ways that minimize the demolition of viable homes and how to ensure that the largest windfalls that ownership provides are aimed at people and communities that have been historically marginalized.



On her Twitter feed, Bender specifically framed the issue as central to racial justice - a connection I would have made as well.  So let's run with that for a moment.  Minnesota is home to some of the largest disparities between whites and minorities when it comes to home ownership, and that gap doesn't get any better when we narrow the ownership to investment or income-producing properties.  And north Minneapolis has been devastated by decades of racist housing policies, redlining, predatory lending, slumlords, demolitions, and then a tornado to top it off.  As a result, we have lost housing units and density, and now have more vacant land than any part of the city.  There is no delicate way to put this:  If north Minneapolis and its residents are not the primary beneficiaries of this zoning change, then it will be nothing more than a continuation of institutionalized racism.

We can intentionally address that element while also alleviating tensions between the traditional camps of preservationists and proponents of greater housing density with a simple solution.  Write it into the ordinance that the variance applies only to properties that have been vacant land prior to January 1, 2018.

Proponents of density and supporters of expanding four-unit housing claim that this change will not result in the widespread, wholesale demolition of existing housing.  I disagree, as we are already seeing viable homes in southwest Minneapolis get purchased for the purpose of demolition and reconstruction of mini-mansions.  It is nothing short of willful ignorance to assume that such a trend would magically not extend to properties that would produce revenue and have instant equity.  But if we're so sure that this won't happen, then codifying the variance to existing vacant land will have little impact anyway.  And if these concerns have merit, then setting this limit will reduce unnecessary demolitions and focus the growth where it is needed most.

Likewise, if a house exists as a one- or two-unit structure, we should be careful about how we allow things to be "remuddled" into fourplexes.  Most north Minneapolis residents can point to a home that was expanded to have more units than it was built for, and these properties are rarely well-kept.  Limiting the change to existing vacant land only will mitigate some of the worst abuses and disparities that have plagued communities like north Minneapolis.

Back to Johnson's and Gordon's concerns that a new crop of fourplexes could price people out of starter homes in their wards:  I floated the question among some pro-density friends on Twitter and the response I got back was that there are no starter homes left anymore in those neighborhoods, so it doesn't matter.  Now, if you believe THAT, then I have some very bad news for you.  Contrary to what mommy and daddy told you, Fluffy didn't get to live and run around on a farm in outstate Minnesota when he got to be a really old doggy.  Sometimes I really hate having to be the guy who is responsible for sharing facts that dispel certain myths, but such is my burden.

I searched properties listed for sale in those wards, and it's true that the market for single-family homes, condos, and townhomes below $200,000 is very tight indeed.  But in the zip codes that make up Gordon's and Johnson's wards, primarily 55413, 55414, 55417, and 55406, there are approximately fifteen single-family residences (including condos/townhomes) in livable conditions for sale at or under $200,000.  I have considered a starter home to be something closer to $130-150,000 as the initial purchase price, but it's a nebulous term especially in a rising market.  So instead of trying to define what is and is not a starter home, I'll break down how much income someone might need to buy a house on the lower end of the price range in those wards, and compare it to the entry costs to acquire a new fourplex, should those become commonplace.

So that brings us to the question of who can afford entry-level home ownership and the ownership of the hypothetical fourplex.  I'll be using interest rates and mortgage insurance pricing from the Minnesota Housing bond program, because that is a common product for first-time homebuyers and the rates are easily available for anyone who wants to review my calculations.

I took the five lowest-price listings in the zip codes of Johnson's and Gordon's wards, and the median sales price for those properties was $191,000.  That was for a one-bedroom condo though, and the next one up was a $200,000 single-family home, two bedrooms and two bathrooms.  So that is our "starter home" for this exercise.

At $200,000 with a 3% down payment, the loan is $194,000.  MN Housing rates for conventional financing are at 5.25% with no additional closing costs - $1,070 in principal/interest.  Taxes are about $225 per month here, and a decent insurance policy costs between $100-125 per month.  Call it $115.  With a 720 credit score, mortgage insurance could be about $95.

So we're looking at a monthly payment of $1,505.  Lenders want buyers to use 28% of their pre-tax, pre-deduction income towards their housing payment, but can go as high as 50% (or higher in some cases).  I find many buyers either want or need to exceed that 28% level and are comfortable around 35%.  So they would need an income of about $51,600 per year to get into homes on the lower end of the market in those wards.  With down payment assistance available, many buyers who use this program do get in for as little as a thousand or two thousand of their own funds out of pocket.

And let's be realistic here; many of these properties are coming in with multiple offers well above list price.  It is NOT an easy market for first-time homebuyers at the low end of the price range.  But the market does exist and construction of four-unit homes may not significantly alter those dynamics.

Compare that to the fourplex market citywide.  The sample size is rather small - twenty-two fourplexes were sold in Minneapolis in 2017 and some of those may have only been three units.  The median sale price was $365,000.  And although it's hard to project what a specific four-plex would sell for, new construction housing costs typically come in at $125,000 per unit.  That's $500,000 as an entry level cost.  Most Conventional financing options are going to require a 20% down payment on a four-unit structure, for a loan amount of $400,000.  This doesn't quite fit into the MN Housing program, but we'll still use that rate for the time being.

That's a principal/interest payment of $2,208.  Hennepin County's base tax rate is 1.54% of the property value.  The initial tax burden will be that of a vacant lot, but we can assume the liability will eventually rise to something near or above that minimum, $7,700 per year or $642 per month.  Let's ballpark insurance at $200 per month.  We're at a monthly payment of $3,050 to cover a mortgage debt.  Someone's going to need an annual income of $104,000 to keep that payment at 35% of their debt.

Clearly, an owner-occupant is going to have three other units to generate that revenue.  The rent for our currently imaginary fourplex is hard to peg down as it would vary depending on bedroom count, size, location, and quality/amenities of the housing stock, among other factors.  But we're generally going to be in the $1,200-$1,400 per month range.  For loan qualifying purposes, we can usually use 75% of the rents as actual income.  There will be vacancies and repairs that tend to cost at least that much.  So ($1,400 x 3) x 75% = $3,150 per month.  That generates $37,800 per year in income, so our buyer who needs an income of $104k to qualify now has to have $66,200 in their own income to qualify.  And they need $100,000 from their own funds or assistance.  Most down payment assistance programs do not currently extend to four-unit homes.

An FHA transaction could get someone in for as little as 3.5% of the purchase price - $17,500 is still not an easy feat but far more accessible than a hundred grand.  But then the loan amount is higher and FHA loans have mortgage insurance.  Using the same calculations as above, someone would need income around $88,000 plus the rent revenue to get this house under FHA financing.

Council Member Jenkins is quoted in the Star Tribune article effusing over the benefits that she experienced having grown up in and around owner-occupied fourplex housing.  But in our current housing market, simply opening the doors to more four-unit home construction does not fundamentally alter the difficulties of affordable ownership for these properties.  If anything, a fourplex is even harder for either a first-time buyer or a low- to moderate-income buyer to attain.  In fact, out of the twenty-two multi-family (3-4 unit) purchases that were recorded on the MLS last year, none of those properties is currently homesteaded with the county.  In today's market, owner-occupied fourplex purchases simply are not a naturally occurring phenomenon.

That's not to say this idea is without merit.  But understanding the financial costs to ownership makes it clear that simple deregulation of the zoning laws will not lead to some imagined reduction in home ownership disparities and instead will result in already established developers reaping the benefits of owning these buildings.  But there is a path to ownership that could do this, and it's called a land trust.

Minneapolis Needs a Second DFL Party 5 Nov 2017 6:42 PM (7 years ago)

The Abolish the MPD Poll is Full of Terrible Ideas 7 Oct 2017 3:15 PM (7 years ago)

There is a guy running for mayor under the political banner "Rainbows Butterflies Unicorns" and EVEN HE said abolishing the police department is unworkable.

The Conscience of a Moderate 4 Jul 2017 7:57 PM (7 years ago)

I must confess that over the past few years I have been gravely disappointed with the white moderate.  I have almost reached the regrettable conclusion that the Negro's great stumbling block in his stride toward freedom is not the White Citizen's Counciler or the Klu Klux Klanner, but the white moderate, who is more devoted to "order" than to justice; who prefers a negative peace which is the absence of tension to a positive peace which is the presence of justice; who constantly says:  "I agree with you in the goal you seek, but I cannot agree with your methods of direct action"; who paternalistically believes he can set the timetable for another man's freedom; who lives by a mythical concept of time and who constantly advises the Negro to wait for a "more convenient season."

"Appointergate" Wakes up NXNS 1 May 2017 8:13 PM (7 years ago)

*post by the Hawthorne Hawkman, stock image from GIFsme.  I was going for a stock photo of "tempest in a teapot," but a shot glass seems a whole lot better.

"Where is BLM After Northside Shootings?" That's a Loaded Question. 31 May 2016 7:54 PM (8 years ago)

Moving Houses Can Make Minneapolis "Greener" Than a Plastic Bag Ban 10 Apr 2016 7:42 PM (8 years ago)

A house on Broadway and Ilion that may be torn down as development comes along.

And the vacant lot immediately across the alley from this house, which is not part of the proposed development.

But if they ban plastic bags, how will I be able to use plastic bags to pick up the plastic bags that accumulate in my yar--ohhhh.

Small Mistakes Will Cause Big Problems for Bikers on 26th Ave 12 Mar 2016 9:16 PM (9 years ago)

Northwest corner of 2nd St and 26th Ave N

Northeast corner of 26th and Lyndale

From the opposite side.

It's really that bad

I thought about using Mario Paint, but my Super Nintendo is in the basement of my parents' home in Michigan.

What Happened to the Alondra Cano Ethics Complaint? (And Why It Matters) 8 Mar 2016 8:04 PM (9 years ago)

North by Northside is Back 8 Mar 2016 6:32 PM (9 years ago)

"Nobody cares why you haven't been writing.  They care what you write ABOUT," said a good friend of mine when I started to explain why I needed to write a post about my prolonged absence from the blogosphere.  And she was right.  Plus, I basically wrote that column already.

In any case, the reasons essentially boil down to "I was doing other things that aren't particularly interesting to write about, but I have remained active in working to make north Minneapolis a better place."  And that's not an interesting blog post.

But North by Northside is back.  I plan on writing at least one post a week, most likely on a Saturday or Sunday, and hope to average six to eight posts a month.  I want to remain focused on housing, housing preservation, good local governance, and biking/transit.  I'll be blogging through the lens of how north Minneapolis is impacted by these issues.

Prayer Vigil Planned for Penn Ave Fire Victims 5 Oct 2015 8:09 PM (9 years ago)

Does an Infamos Slumlord Want Out of North Minneapolis? 11 Jul 2015 2:21 PM (9 years ago)

3127 Morgan Ave N

As a Jordan neighborhood homeowner and avowed mortgage geek, I take it upon myself to know as much as I can about the local housing market, and I frequently scan the MLS for interesting tidbits.  One such listing popped up a while back.  A house at 3127 Morgan Ave N has been listed for sale with a purchase price of (drum roll, please) $1.45 million. 

I briefly wondered if this was something similar to the $2.5 million house that signaled the downfall of the Paul Koenig/Pamiko empire.  But the listing itself states that the seller is looking to unload a total of sixteen properties, is willing to barter each on an individual basis, and will give a steep discount to someone who is buying all of them at the same time.

The owner of record, according to the city's website, the owner of record is an obscure entity called Entrust Midwest LLC.  Right away, I recognized this as being owned by the notorious BMG, none other than...

...Bashir Moghul.  (author's note: the hyperlink goes to the city of Minneapolis website for rental licensing at this property.  At the time of publication, the rental licensee is Mr. Moghul, but that may change in the future, and so could information after the jump.)


Entrust Midwest was caught up in the Trevor Cook ponzi scheme, and has been the vehicle Moghul has used when buying and selling property on a 1031 exchange.  In plain English, here's what a real estate transaction means under this scenario:

In a typical commercial real estate transaction, the seller is taxed on his or her gains.  Those taxes can be deferred by reinvesting the proceeds through such a mechanism.  If one reinvests into something that is of more value, more diverse, or similarly aligned with a business purpose, the exchange can be used to defer or limit tax liability.

So Bashir Moghul is looking to sell sixteen such properties, and at least some, perhaps all, would be transacted through the exchange.  The question is, why?  What is he seeking to accomplish?

Hopefully he sees the writing on the wall and knows that once the Mahmoud Khan saga nears an end he is probably next on the city's radar.  But under the rules of the 1031 exchange, he could be gearing up to buy more properties, to buy more expensive properties, or to shift his business strategy somewhat.

It's worth mentioning that Khan also tried an unconventional sale of his real estate portfolio, putting it up for sale on Craigslist of all places.  Surprisingly, no one wanted to throw a few million at Khan's collective dilapidation.

There is one more disconcerting element to the story.  If there is any single person or entity on the northside that has a million and a half to sink into sixteen properties at once, that would likely be Havenbrook.  I have to admit, as much as I want to keep an outside corporation from buying up large swaths of north Minneapolis real estate, Havenbrook has done a decent job of maintaining their homes and managing their tenants.  Even so, I do not see them as better than eventually (or immediately) getting these homes into owner-occupied status.

So Bashir wants to sell, and wants to sell quite a large portion of his real estate portfolio here.  The question is, why?

As a footnote, thirteen of the sixteen properties are in north Minneapolis.  They are pictured below, and as expected, they do not impress.

2030 Willow Ave.

2918 Penn Ave N

3346 6th St N

3318 6th St N

3407 Fremont Ave N

2131 Lyndale Ave N

2110 Lyndale Ave N

2422 Aldrich Ave N

2617 Dupont Ave N

1500 Irving Ave N.  Note the broken window upstairs.

1547 22nd Ave N, a property once owned by Stephen Meldahl.

1934 Oliver Ave N