The Fallout of a condo conversion

Reflections on a case study.

Just two or three years ago, some of the hot products that we could offer as affordable housing were these condo conversion communities, so popular in Miami and Broward counties. There seemed the best deals available; the developers provided assistance by offering office space to loan officers from mortgage companies and banks, so they could directly assist their buyers in securing the loans.

These were the happy times of the 100% financing, with developers assuming all closing costs, countless “incentives” such as paying off the first six months or the first year of condo maintenance fees, “upgrading” the converted condos with stainless steel appliances, redoing the floors, the cabinets, you name it.

The condo conversions are basically rental properties with a few or hundreds of apartments, which are bought by a developer. Going through legal procedures, making some required physical work on the property, would allow the investors to change the legal status of the rental community from one property to many independently owned “condominium units”.

Starting around 2000/2001, this was one of the hottest markets for builders and real estate investors. Properties bought at an average of $ 60,000 or $70,000 per unit, (this is just an example), would be sold at prices hovering in the $ 200,’s to $250’s and even more. Commissions paid to real estate agents were attractive and everybody seemed quite happy with the situation. Key elements were the organizations put together by the developers to market and sell their products, as well as the surprising complacency of the lenders.

Buyers seemed happy. Buyers signed the developers’ contracts with small deposits, which often left no room for mortgage contingency after 30 days. But in general, everything moved smoothly and new homeowners were happily occupying these units by the thousands. Everybody thought that it was a wonderful way of “accomplishing the American dream of homeownership”. This went on till about the end of 2006, dragging through the first months of 2007.

Fast forward to November 2008. I get a call from a prospective client who wants to be shown a condo she located on my website. I review the listing and find out that it is situated in a well-known condo conversion in Pembroke Pines , which name I remembered from the height of the “bubble”. In 2006, a two-bedroom unit at this community was selling at around $ 250,000.

The prospective buyer pointed out three more listings in the same complex.
All four units are short sales or bank-owned foreclosures.
I set up the showings and meet my client at the place.
I notice immediately a profusion of signs on many units: mainly AUCTIONS posters, foreclosure notices, real estate “for sale” signs. It looked like almost everything there was for sale.
I show the condos and in many of them, close to the back doors, small ant’s mounds were the sign of blight and abandon. Some of the units hadn’t been occupied for months, as evidenced by the state of carpets and bathrooms.

The area is convenient; the general condition of the buildings is good. So what’s wrong?

The actual asking prices varied between around $ 90,000 to $ 110,000. After talking to the listing agents, I have the impression that they hadn’t received too many offers and my feeling is that these places could go for as low or even less than $ 80,000.

That’s about a third of what they were selling a little more than two years ago. Unbelievable? Not quite. That’s the point.

Who can afford these modest $ 80,000 homes? Traditionally, and as per the criteria of Fannie Mae, somebody whose family income hovers in the monthly gross $3,000. (No more than 28% of the gross income can be dedicated to pay for the monthly mortgage, insurance, taxes)
When they were valued at $ 250,000, this monthly income should have been in the $7,000. Otherwise, buyers could have been in trouble sooner or later. But nobody was paying attention, apparently

And this is the real problem.

People who can only afford $80,000 homes, living in $80,000 homes, but having to pay $250,000 mortgages.

Consequences? Many choose to run away. Not only because they feel cheated, but because they make just enough money to pay for an $80,000 home.

Did you get it yet?

Weird? As in most business transactions, when somebody loses, somebody else wins. Let’s analyze this.

The real winners:

- Investors, who purchased large rental properties and converted them to condos at the beginning of the “boom”, sold them very quickly, with high profits. Often after some basic improvements, and large amounts of paperwork, they would convert rentals previously valued at 60 or 80,000 dollars, into units that sold at $ 200,000 and more. These apartments were giving a fair return on their investments to their previous owners, who grabbed the chance to cash on the valuation of their property after many stagnant years.

- Other winners: Mortgage brokers, mortgage bankers, appraisers, who got fat fees and commissions.

In the second and third round of this “bubble”, things gradually changed. Developers started to increase their commissions to attract realtors, frantically arrange easy loans, and put together all kind of creative “incentives.”

Those developers who moved fast managed to sell out. The rest was stuck with a large percentage of their condos, and then their financing banks started to worry.
The last phase was fairly recent: banks foreclosing on developers of dozens of properties, or at least on the high percentage of unsold units.

Of course that due to many different situations I cannot generalize and simplify. Many appraisers, realtors, mortgage brokers, banks were the beneficiaries while it lasted. They had cooperated with these savvy developers who made most of the profit.

The big losers?

- Those homeowners who had bought and walked away, leaving the bank to foreclose on their mortgages, experienced an irreparable damage to their credit that will compromise for a long time their ability to purchase again a home.
- Real estate investors, who bought properties, hoping to get rich by “flipping” in the short term. Many of them let the banks foreclose. They have paid for some time the mortgage, the taxes, and the maintenance fees. At a certain point, they have given up.
- The banks and mortgage lenders, of course, who will recover only a small percentage of their loans.
- Fannie Mae, Freddie Mac and other GSE’s who bought these mortgages.
- The buyers of all the bonds and other real-estate-related financial instruments; which could be foreign banks, a hedge fund, a sovereign-fund from an oil-rich country, or a Singapore investor.

Who is guilty?

A key element was the acceptance by lending institutions of unreasonable increases in appraisal values, which had no basis other than speculation.
Nothing can explain that a home built 30 years ago increases 300% in value in a two-or-three-years period. Nothing can validate it.

Of course that the process fed on itself, causing inflationary building costs, but this was not at all sufficient to justify the incredible raise in the appraisals. Banks took the word of appraisers for granted, ignoring common sense. It was enough that two properties in the same neighborhood had sold at unusually and speculative high prices to allow an appraiser to use them in his “comparative analysis”. And from then on, every house in the area could automatically be the beneficiary of a new value based on this “analysis”, and so forth.

Banks would not object on the evident fallacy, and loans kept originating at a maddening pace. Buyers who had never saved a penny for a down payment, were granted homes they couldn’t afford, thanks to negative-amortization loans that would let them live in their new homes for a couple of years, until the inevitable happened. Naturally, mortgage brokers, lenders agents, everybody, would go along and perhaps encourage these appraisals. What about these “no-income-verification” loans? Did anybody doubt that they could sometime become the perfect instrument of deceit, fraud, and misrepresentation? Complicity? Collusion?

How many objections did we hear from Fannie and Freddie, the most expert institutions in the US on mortgage matter? How many voices of reason from Wachovia, Countrywide or Bank of America? Their executives were perhaps too busy showing their shareholders their prodigious short-term balance-sheet results, and cashing their even more prodigious bonuses, while ignoring the fundamentals.

It was a vicious and unending circle of madness, which results we are living now.

Henry B. Nathan is a Florida Real Estate Professional. Please visit my website to search for

Florida Condos, Hallandale Condos, Aventura Condos, Hollywood Condos, Sunny Isles Condos

Books and Readings

At the dawn of a new presidential term, and with no intentions of venting out my political preferences, I find it important to spread around interesting ideas which can help explain what has gone wrong in our country and our economy and what new directions are being suggested to rebuild our nation’s wealth and success and regain our position as world leaders.

A provocative book that have drawn my attention is:

The Predator State:

How Conservatives Abandoned the Free Market and Why Liberals Should Too.

By James K. Galbraith.

Without endorsing its contents ( I am far from being an economist) I found some answers to the agonizing questions of how to save capitalism and a free society after the cataclysmic events that threatens to throw us back to depression-like poverty and hardship.

Here is a synopsis of The Predator State:

The cult of the free market has dominated economic policy-talk since the Reagan revolution of nearly thirty years ago. Tax cuts and small government, monetarism, balanced budgets, deregulation, and free trade are the core elements of this dogma, a dogma so successful that even many liberals accept it. But a funny thing happened on the bridge to the twenty-first century. While liberals continue to bow before the free-market altar, conservatives in the style of George W. Bush have abandoned it altogether. That is why principled conservatives -- the Reagan true believers -- long ago abandoned Bush.

Enter James K. Galbraith, the iconoclastic economist. In this riveting book, Galbraith first dissects the stale remains of Reaganism and shows how Bush and company had no choice except to dump them into the trash. He then explores the true nature of the Bush regime: a "corporate republic," bringing the methods and mentality of big business to public life; a coalition of lobbies, doing the bidding of clients in the oil, mining, military, pharmaceutical, agribusiness, insurance, and media industries; and a predator state, intent not on reducing government but rather on diverting public cash into private hands. In plain English, the Republican Party has been hijacked by political leaders who long since stopped caring if reality conformed to their message.

Galbraith follows with an impertinent question: if conservatives no longer take free markets seriously, why should liberals? Why keep liberal thought in the straitjacket of pay-as-you-go, of assigning inflation control to the Federal Reserve, of attempting to "make markets work"? Why not build a new economic policy based on what is really happening in this country?

The real economy is not a free-market economy. It is a complex combination of private and public institutions, including Social Security, Medicare and Medicaid, higher education, the housing finance system, and a vast federal research establishment. The real problems and challenges -- inequality, climate change, the infrastructure deficit, the subprime crisis, and the future of the dollar -- are problems that cannot be solved by incantations about the market. They will be solved only with planning, with standards and other policies that transcend and even transform markets.

A timely, provocative work whose message will endure beyond this election season, The Predator State will appeal to the broad audience of thoughtful Americans who wish to understand the forces at work in our economy and culture and who seek to live in a nation that is both prosperous and progressive.

The cult of the free market has dominated economic policy-talk since the Reagan revolution of nearly thirty years ago. Tax cuts and small government, monetarism, balanced budgets, deregulation, and free trade are the core elements of this dogma, a dogma so successful that even many liberals accept it. But a funny thing happened on the bridge to the twenty-first century. While liberals continue to bow before the free-market altar, conservatives in the style of George W. Bush have abandoned it altogether. That is why principled conservatives -- the Reagan true believers -- long ago abandoned Bush.

Enter James K. Galbraith, the iconoclastic economist. In this riveting book, Galbraith first dissects the stale remains of Reaganism and shows how Bush and company had no choice except to dump them into the trash. He then explores the true nature of the Bush regime: a "corporate republic," bringing the methods and mentality of big business to public life; a coalition of lobbies, doing the bidding of clients in the oil, mining, military, pharmaceutical, agribusiness, insurance, and media industries; and a predator state, intent not on reducing government but rather on diverting public cash into private hands. In plain English, the Republican Party has been hijacked by political leaders who long since stopped caring if reality conformed to their message.

Galbraith follows with an impertinent question: if conservatives no longer take free markets seriously, why should liberals? Why keep liberal thought in the straitjacket of pay-as-you-go, of assigning inflation control to the Federal Reserve, of attempting to "make markets work"? Why not build a new economic policy based on what is really happening in this country?

The real economy is not a free-market economy. It is a complex combination of private and public institutions, including Social Security, Medicare and Medicaid, higher education, the housing finance system, and a vast federal research establishment. The real problems and challenges -- inequality, climate change, the infrastructure deficit, the subprime crisis, and the future of the dollar -- are problems that cannot be solved by incantations about the market. They will be solved only with planning, with standards and other policies that transcend and even transform markets.

A timely, provocative work whose message will endure beyond this election season, The Predator State will appeal to the broad audience of thoughtful Americans who wish to understand the forces at work in our economy and culture and who seek to live in a nation that is both prosperous and progressive.


Henry B. Nathan is a Florida Realtor at United Realty Group Inc.Visit my website: http://www.condo-southflorida.com/where you can search for Aventura Condos, Florida Condos

More about foreclosure and short sales

October 12, 2008 By Henry B. Nathan

For the last couple of years or so, the new terms “short-sale”, “pre-foreclosure”, “bank-owned” have become very familiar to any active realtor.

Yes, there are courses and classes and conferences to make us aware of the opportunities of this new sector in real estate. And I am continuously receiving emails offering leads on foreclosures and short sales and “BPO’s”.

I have been involved in a few short sales and I even lend occasionally advice to people who ask me what I know about the subject. The fact is that there is not so much to explain about it. It’s just a logical way that a lender can use to handle bad or problem-loans and cut its losses.

So far so good. However, every time I get involved in a short sale or “pre-foreclosure” deal, the bizarre takes over the rational, and weirdness supersedes common sense. Let me explain why I think so:

1) There are some conventions in how we usually handle a real estate sale in the US. Usually we list a property when a seller designates us as his “listing agent” and we place it on the MLS. There are some requisites to do that. He must give us an exclusive right of sale; otherwise we wouldn’t put it on the system.

2) If we have a buyer looking for a property, we will search on the MLS system and establish a relationship with its “listing agent” by asking to show it to our buyer, or requesting additional information.

3) Once an offer is made, an answer is received within a short term, usually 2 or 3 days. It can be an acceptance, a counteroffer, or a rejection. A non-reply within the given term is considered a negative answer.
Now let’s compare this to what a bank involved in a short sale, or foreclosure sale usually does:

A) After talking to his bank, the seller of the troubled property agrees with a real estate agent to list his condo for sale in the MLS. The agent will place a special clause in the listing, stating its special status as a short sale and its contingency to a bank’s approval.

B) When an offer is received, the bank sometimes requires that it must be accompanied by a loan approval or a proof of funding if it’s a cash offer.

C) The buyer’s agent will often find a clause in the listing, stating that no commission is guaranteed. It is known that banks do not like to pay co-operating brokers more than a 2.5% compared to the usual 3%, but even this is not guaranteed. You must accept whatever the bank will definitely wants to pay you. No discussion.

Do you think that this is the perfect way for the banks to attract the best and most motivated realtors? Work double for less money?
Usually, in a buyers' market, a smart seller often increases the commission, so buyers’ agents are motivated to give him some priority. But apparently, banks have discovered that they can dictate their conditions, nickel-and-dime us so that they can save a few pennies after sinking billions of dollars in dubious transactions. Naming a listing agent who lives 200 miles away from the property isn't the smartest move either.
But let's not discuss their marketing skills.
They must know what they are doing.

D) When an offer is presented, the bank does not answer within any agreed period.

E) First difference: the listing agent does not remove the property from the MLS.

F) Second difference: the bank can take many months to reply. Meanwhile other offers are frequently received and presented to the bank by the listing agent. The process gradually resembles an auction and the higher bidder might get finally an answer. Or not.

G) Third difference. When a buyer’s agent contacts a bank-owned or foreclosure sale, and even some short sales, we often observe that the same agent or broker has his name on a lot of listings. This agent is sometimes based in a location that is distant from the property. I have seen brokers in Tampa handling listings in Miami. Do these guys have some special connection with the bank? What is the criteria of the banks when they choose their listing brokers?

Frankly, I don’t get any calls from any bank offering me listing business. And I have called a few of these “loss-mitigation” departments! I haven't seen many of the best agents in my area involved in this kind of transactions, either.

H) Fourth difference: Frequently, many of these listing agents don’t even bother to show the property. They designate a “showing company” to take the buyer’s agent call and arrange a showing, usually by means of a lock-box key.
The “showing company” does not usually provide information about the property.
So much for great sales techniques, indeed.

I) Fifth difference: these listing agents very often do not respond at all to phone calls or emails. Perhaps because of the sheer amount of listings they carry, or because they are just disgusted by the whole process. It was transparent to me in some of the cases where I was involved that these listing agents didn’t care too much. In all truth, it looked like nobody cared, except me and the buyer. Some business must result though, and I am not trying to mock or belittle those agents; it's just the whole system that looks so unprofessional.

K) In the case of a short sale, the listed price doesn’t mean too much. It can be very low to attract offers. The listing can sometimes falsely indicate that the price was “approved by the bank”. Correct me if I am wrong but It often bears the mark of “bait and switch”.

L) Now let us study the short-sale transaction from the seller’s point of view: he has possibly initiated the case providing the information required by the bank, often with the assistance of the real estate agent who will list it on the MLS.

M) The seller starts calling the bank. He will get all kind of conflictive information. A different employee will respond to his call every time and everybody looks completely disconnected from what has been done so far. They hang up promising him to call him back the next day, which of course never happens. In many cases, when the seller asks to know what is the exact pay-off of his mortgage, he can get different amounts every time.

N) The seller often gets simultaneous calls from the bank, threatening foreclosure. He sometimes tries to explain that there is a short sales procedure going on. But in spite of having spoken to dozens of bank employees, nobody seems to have any idea of what has been done the day before.

Does this look like a comedy? You bet.

Everybody chasing his own tail in a mad dance. That’s what it looks like.

My personal opinion: Complete disaster. Ridiculous. Tragic. Catastrophic.

A waste of my time, and everybody’s time.

They are the reason I lost a couple of possible sales, and gained the frustration of a few good buyers with cash in hand. I now try to discourage my clients of getting involved in this joke. Am I wrong? Maybe.

But if these banks expect to get out of this mess, they’d better get their act together.

Quickly...


Henry B. Nathan is a Florida Realtor at United Realty Group Inc.Visit my website: http://www.condo-southflorida.com/where you can search for Aventura Condos, Florida Condos,

Bailing out the idiots ...or is there something fishy?

It's amusing, but I don't feel like smiling.

It would be funny if it didn't look very suspicious. The background of the bank crisis makes this case quite eye-opening. It illustrates some of the incredible things that are happening in the real estate and mortgage markets, while our government is embarking on the largest bailout in history.

I am a licensed Florida realtor. In July 2008, one of my clients called me to place an offer on a condo listed in the MLS by another realtor. Located in Hollywood, it was listed for sale at $238,000.

I called the listing agent and he informed me that it was a SHORT SALE, which, as you know, means that the mortgage lender is willing to take a loss. Some time ago, the bank had refused an offer for $ 250,000 but, after a few months, the situation had deteriorated so much that they had lowered their price and would be very open to negotiations.

At the request of my customer, I put immediately presented an offer of $199,000 CASH, with no contingency, which was transmitted to the bank by the listing agent. As required, we provided the bank with the proof of liquid funds that my clients had ready to close.

I did not hear from the bank. I periodically checked with the listing agent who had the contact with the bank. He kept telling me that the bank was silent and had not replied yet.
He told me a couple of times that our offer was the only one and that he hoped that the deal would go through.

About a week ago, I called him again. This time the news was different. The listing agent told me that the bank had foreclosed on the property. Then, the bank gave it to another realtor for sale and it was placed on the Realtors MLS system. Very quickly, the bank got some offers and signed a contract to sell it for $155,000.

I called the new listing agent who is selling the foreclosed condo.
He tried to explain that what looked funny was "usual" since banks have 2 separate divisions, one for foreclosures and the second for short sales, and that they don't act in a coordinate manner. I don't buy into this foolishness. I am sure that a simple note in the file would have made clear to anybody involved in the bank that there was a solid cash offer for $199,000.

The bottom line is that there is no reason why a bank can foreclose on a property where they had an offer to sell for $199,000 and instantly list it (after foreclosure) and sell it for $155,000. That evidently would increase the loss of the bank by $44,000 plus the usual foreclosure expenses. That is an additional loss of about 22%

Later on, I had a conversation with the listing agent who had handled my short-sale offer and he was evidently distressed since he had worked with the seller for a long time, getting offers for up to $250,000 which were systematically ignored or refused by the lender. The outstanding debt was apparently of about $ 288,000. That meant a loss of a little more than 10% on the loan. The bank ended up taking an almost 50% loss. This is one of the major banks. It might be a peanuts case, compared to the hundred of billions these big banks are holding in their portfolios, but still a significant example.

The seller had apparently tried to save his property from foreclosure by selling another apartment, and keep paying his mortgage. But, later on, he opted to put it in short sale hoping to minimize the loan default and salvage his credit.

The realtor told me that after this experience he was considering retiring from this business.

This is not about the loss of a commission by me and the other agent.
Frankly speaking, the point is that this smells very "fishy".

The whole situation could only be one of two things. Complete stupidity, or fraud. Actually I wouldn't worry too much about a bank mishandling their business. But at this point, our whole banking system is being "bailed out" with taxpayers' money and we have the right to know.

Traditionally, there was a fairly transparent way of conducting sales and purchases of real estate. Lately, a very different environment is encountered by many professionals, and some of us fear that, even when people are losing their homes and our whole economy is deeply troubled, some persons or organizations could be involved in unscrupulous dealings.

Although I am not making any accusation, this case is, in my opinion, very strange. Of course, there is also the strong possibility that it's just one more instance of the banking mess, and that this is a case of plain bureaucratic stupidity.

Will our money be used to bail out this kind of businesses?

October 11th, 2008

Henry B. Nathan is a Realtor in South Florida. Please visit my website and search of the top real estate database. Great Search Tools will make your search enjoyable and successful. http://www.condo-southflorida.com

More on Davie and creativity in taxation

October 2, 2008,

I got the news that Davie’s Town Council has postponed a proposed ordinance on billing drivers involved in accidents, to cover the cost of police and fire-rescue.

The proposed fee is of about $ 940 per incident, including the cost of an independent contractor acting as the collection agency.

A decision on the subject is expected in two weeks.

The general outrage might have caused the delay.

I take it as a sign of our cities’ rebellion against their citizens’ decision to limit their unbridled spending. The modest reductions in property taxes gained so far by legislature rulings and constitutional amendments are gradually being upset by new charges and fees for services that are included in the normal function of our government and have always been covered by the taxes collected.

This kind of sneaky double-taxation has been going on for a while. But this new one is just too much.

Congratulation to Michael Mayo, whose article I just read in today’s Sun Sentinel.

For cash-strapped cities, crash fees could be just the start.

Michael Mayo - News Columnist - October 2, 2008

Accident response fees?

Brilliant. That's the proposal being kicked around in Davie.

Can't wait to see what cash-strapped local governments think of next.

In beachfront cities, how about lifeguard fees? Kayak rescue: $50. CPR: $500. Getting to swim another day: Priceless.

Or how about expedited fire response fees? A cool grand if you want a pumper truck to douse those flames within 10 minutes. Water, of course, would be extra.

Or how about public-meeting speaking fees? Something like $20 a minute. Hey, free speech is still free, but those microphones and cameras for your town's webcasts cost money.

Pardon my dripping sarcasm, but I'm ticked about this Davie plan, which got a thumbs-up on first reading last month and will be back on the Council agenda Oct. 15 after being tabled on Wednesday.

It's basically a city money grab on insurance companies by a third-party vendor, the Cost Recovery Corporation of Dayton, Ohio. According to CRC president Regina Moore, the company would get roughly 10 percent of the amount billed. The city would get the rest.

The proposed contract calls for at-fault drivers in accidents to pay for everything from the number of cops to the type of fire-rescue equipment called out to the scene.

It would even bill for the amount of time a police officer had to spend in court testifying as a witness ($80 an hour, according to the company's fee schedule).

According to the proposed ordinance, when "a no-fault declaration is made, the fee imposed may be proportionately charged to all drivers involved."

Ouch.

The fees would be billed to nonresidents and residents alike. Call me naive and hopelessly old-fashioned, but I always thought some municipal services were part of the civic compact, paid by tax dollars. Things like emergency rescue and police response to wrecks.

Welcome to government as user-fee capitalism, where a price will be put on everything.

"Where does it end?" Davie Mayor Tom Truex said Wednesday. At first, Truex supported a limited recovery fee plan for major accidents on major highways that run through Davie, like Interstate 595. But he opposes the broader plan.

"It's not a crash recovery fee," he said. "It's an accident tax."

Moore said the concept has been successful in many cities, encouraging safer driving and leading to a reduction in accidents.

Or maybe it just leads to an increase in unreported minor accidents.

She insisted that wasn't the case. She also insisted it wouldn't lead to hit-and-runs. She must not know South Florida very well.

A 2006 policy brief by the National Association of Mutual Insurance Companies called the fee "a form of double taxation" and criticized CRC for "employing aggressive and threatening tactics" to collect fees.

"Simply untrue," Moore said.

Moore said those responsible for accidents should pay for costly services they require. So why not charge swimmers who get caught in riptides for lifeguards?

"You're taking it to a complete extreme," she said.

No, that's taking this to its logical conclusion.

Don't like the direction things are headed? Write your local elected officials.

But if you want them to read your thoughts, that might be a $10 bifocal maintenance fee, please.

Henry B. Nathan is a Florida Real Estate Professional. Please visit my website to search for

Florida Condos, Hallandale Condos, Aventura Condos, Hollywood Condos, Sunny Isles Condos

Creative Taxation

Is that a good definition?

Davie sets the tone on what we can expect from our local governments.

I have been a permanent advocate of lower property taxes.

A key source of employment in Florida, housing construction, sales, financing and maintenance are major components of our economy. Property taxes have increased well above the official inflation rates during the last two or three decades.

Thousands of new homes and condos in every location have surely tremendously broadened the taxable base of most cities in South Florida. That has not been enough to feed the appetite of voracious cities and counties.

A couple of lukewarm regulations by our Florida congressmen have aimed to ease homeowners’ pains, as well as an amendment recently approved to increase the homestead exemption amount. Our taxes are calculated on the assessed value of each property, which is determined by the county property appraiser’s office, multiplied by the “millage” which is determined by the local governments.

While our legislators have focused on reducing the assessed values, local governments are starting to defeat this purpose by increasing their millage, which is what was to expect, and I wrote about it a long time ago.

However, the flood of new service charges that many cities are implementing is starting to look more and more as double taxation. Charging us for services traditionally covered by our property taxes is the new plague that relentless local authorities are uncovering. I wouldn’t be surprised if the cop handing you a ticket for a traffic violation could include an additional bill for his “services” with a "thank you for your business" remark, or if a local library could charge you a “shipping and handling” fee every time you pick a book.

Here is an example of this kind of creativity. The city of Davie is today's winner. Read this article from the Sun Sentinel.

By Susannah Bryan - South Florida Sun-Sentinel - September 30, 2008

Accident response fees are so controversial that five states — Georgia, Indiana, Missouri, Pennsylvania and Tennessee — have passed laws to ban them.

Yet Davie on Wednesday is set to give final approval to a measure that would bill at-fault residents and out-of-towners an estimated $840 for costs associated with responding to car accidents. If it can't be determined who is at fault, all parties would be billed.

"It is a cost recovery fee for people who are creating havoc on our highways," Councilwoman Susan Starkey said on Monday.

If approved, Davie would become the first municipality in South Florida to charge such a fee. The town tentatively approved it 3-2 on Sept. 17, with council members Michael Crowley, Marlon Luis and Susan Starkey supporting it. Mayor Tom Truex and Councilman Bryan Caletka rejected it.

As Davie moves ahead, insurance companies are working to persuade Florida to ban such fees. They argue the fee will raise insurance rates and is really a hidden tax.

"We have been trying hard to fight back," saidWilliam Stander, assistant vice president of Property Casualty Insurers Association of America, a trade group that represents more than 1,000 companies nationwide. "The idea that you should have to pay for police and fire services, it's offensive."

Insurers lobbied five states to ban the accident fee and each agreed because of concerns over double taxation.

State Rep. Martin Kiar, D-Davie, said the issue may come up in Florida this legislative session.

"People are having such a tough time making ends meet," Kiar said. "For the cities to impose another fee, it's just not fair to our people."

On July 28, Pembroke Pines commissioners voted against a similar fee, citing concerns it would expose the city to costly legal challenges. Officials in Plantation, Miramar and Southwest Ranches, who had briefly considered the idea, say they have dropped it.

If approved, Davie would hire Dayton, Ohio-based Cost Recovery Corp. to bill insurers. If they don't pay, nonresidents would get a bill but residents would not.

Supporters argue that Davie responds to more accidents than other cities because it is surrounded by Interstates 95, 595, 75 and Florida's Turnpike. As proposed, the fee would apply to accidents on highways and local roads that require emergency response, including those outside town.

Critics say the fee may lead to a tit-for-tat mentality, with cash-strapped cities passing similar laws to raise money.

In July, Weston City Manager John Flint said his city would likely charge an accident fee to residents of cities who impose such a fee on Westonites. But on Monday, Mayor Eric Hersh said he opposes such a plan.

"If everyone starts charging, it's really nothing but an increase in taxes for everybody," Hersh said.

The plan also doesn't sit well with Steve Breitkreuz, a councilman in nearby Southwest Ranches.

"It doesn't sound neighborly," he said. "It creates animosity between the towns. It may set a precedence that will ripple out through the communities and we'll all be looking out for our own."

Henry B. Nathan is a Florida Realtor at United Realty Group Inc.Visit my website: http://www.condo-southflorida.com/where you can search for Aventura Condos, Florida Condos,

Supreme Courts strikes out amendments from ballots

Governor Crist had high hopes that Justices would finally line up with the proponents of the amendments to be included in November ballot.

They unanimously (7-0) decided that the titles and summaries on the proposed ballot were misleading to the voters.

We will have to wait for the Florida legislators to address the issue again. They have two years before new constitutional amendments can be voted.
I personally believe that the issues were too important to be dealt with the sort of casualness it drew from our elected officials, who were perhaps too busy to spend the necessary time and attention.

The Legislature did not come out with a reasonable solution to high property tax woes, notorious for afflicting residents and out of state property owners.

The proposal by the Taxation and Budget Reform Commission was evidently a partisan approach, in its attempt to sneak in the constitutional amendments, school vouchers plans which would have forced taxpayers to subsidize religious schools. Justices' opinion was that these considerations was completely out of the scope of this commission which meets every twenty years.

School boards were evidently relieved. Teachers, bus drivers had fought the proposal since its inception. Funding for schools would be been guaranteed for only one year, leaving at the whim of the legislature's disposal to thereafter replace the traditional funding of schools through property taxes revenues.

We will not see an increase of our sales taxes by 1%, nor will services presently exempt, be taxed to replace the lost revenues of property tax reduction.

The Realtors Association was disappointed, since a tax reduction of about 25% for residents and non-resident property owners as well, would have been a shot in the arm for the real estate industry.

And what do I personally think? The truth is that real estate is my business and I would appreciate anything that could alleviate the downturn, attract buyers, and slow down foreclosures and short sales.

However, as a concerned citizen, I believe that swapping taxes is no solution.

Our schools system which is dead last in the US, should be respected and its funding cannot be left to the whim of an obscure Taxation and Budget Reform Commission that meets every 20 years. It is ridiculous that what our legislature could not accomplish in many long sessions, should be addressed in this manner.

I did not appreciate that the constitutional separation between state and religion could be compromised by these amendments, and that the voters would have been misled by a sneaky ballot summary that did not adequately inform about the long-term consequences of these amendments if they were approved.

I wrote it many times. Tax Swaps are a game that only postpones the reality check.

The problem must be solved by a balance between what property owners want to pay versus the services they want to be provided. This should leave out the happy spending, the unnecessary bureaucracy, and the excesses that we have seen in cities and counties budgets.

Efficiency, thrift and good management are the words I want to hear.
Threats of service cuts, and "tax swaps" are not the answer.

On the other hand, I don't believe that punishing those who do not own their residence, by increasing their sales taxes, and adding new taxes, is the best way to solve the problems of those who are lucky enough to own their home.


Here is the text published in the Sun Sentinel February 4th, 2008:

Property tax bills won't drop any time soon, but sales taxes won't go up, either.
And school funding will stay the same.

The state Supreme Court on Wednesday removed a multibillion tax swap plan from the November ballot, leaving supporters empty-handed for at least two more years in their quest for lower real estate taxes. Critics of the plan to eliminate most school property taxes said the ruling averts a potential disaster for public education.

The court issued the 7-0 ruling four hours after justices forcefully argued during a courtroom hearing that the ballot summary for Amendment 5 would have misled voters about its potential implications for school funding. The ruling is final.

The justices also knocked off the Nov. 4 ballot a pair of voucher amendments, in the latest twist in Florida's long-running legislative and legal battle over whether taxpayers' money can be used to send children to private religious schools.

In the tax case, justices said Wednesday that the amendment's 90-word ballot title and summary failed to give voters fair warning that the replacement revenue promised for schools was guaranteed only for the first year, 2010-11. After that, it would have been up to the Legislature.

The Amendment 5 plan would have handed a 25 percent tax cut to Florida property owners. But it could have jeopardized school funding, critics said, and led to a boost in the 6-cent sales tax and a state charge on services such as dry cleaning.

Gov. Charlie Crist, who backed the plan, said through a spokeswoman he was "disappointed the people will not have the opportunity to vote to lower their taxes."

"It really postpones significant, meaningful property tax reform for a long time, sadly," said John Mike, president of the Realtors Association of the Palm Beaches. Realtors now look to the 2010 election as the next chance to put a major tax initiative before voters.

Praise for the ruling came swiftly from the amendment's broad base of critics, from business interests worried about a services tax to teachers to some prominent Republican legislators. "Deep in my heart I knew that these were not good amendments for children, and that ultimately the American legal system would prevail," said Broward Schools Superintendent James Notter.

The Palm Beach County School Board chairman, Bill Graham, said the ruling is "almost Christmas and Hanukkah in September."

In the voucher case, the justices ruled unanimously to remove from the ballot two plans, Amendments 7 and 9, that would have set the constitutional groundwork for children to attend private religious schools at taxpayers' expense. At issue was whether vouchers would go beyond the scope of the appointed Taxation and Budget Reform Commission, which meets every 20 years to propose changes to the state's tax laws.Former Gov. Jeb Bush, a staunch supporter of vouchers, weighed in with a rare statement, saying the ruling was "extremely disappointing." Bush said the ruling places current voucher programs that subsidize more than 20,000 students in private schools in legal limbo.

Henry B. Nathan is a Florida Realtor at United Realty Group Inc.Visit my website: http://www.condo-southflorida.com/where you can search for Aventura Condos, Florida Condos,

Statistics - Real Estate - South Florida

Time to do some statistical work:

Not a bright year for real estate, for sure. Let’s count the marbles. These are the closed sales Jan.1st 2008 up to August 22, 2008 in Broward County.

Southeast Broward: East of I-95. (North County Line Road to New Griffin Road)

175 Single Family Homes
289 Condos/Townhomes

South=Central Broward: (West Hollywood-Hallandale)

342 Single Family Homes
157 Condos/Townhomes

Southwest Broward:

1098 Single family Homes
591 Condos/Townhomes

Fort Lauderdale (East of 441, South of MacNab Rd.)

758 Single family homes
965 Condos

Fort Lauderdale (West of 441, South of MacNab Rd.)

1346 Single Family homes
1209 Condos/Townhomes

Northeast Broward (East of Turnpike, North of McNab Rd)

423 Single Family Homes
1071 Condos/Towhomes


Northwest Broward (West of Turnpike, North of McNab Rd)

978 Single Family Homes
636 Condos/Townhomes


Let’s analyze the same kind of information classified by cities, for some of my main markets: Sold so far in 2008, by all Realtors in:


Aventura: 79 homes – 489 Condos
Bal Harbour- 3 homes – 79 Condos
Brickell - 3 homes – 186 Condos
Fort Lauderdale – 582 homes – 807 Condos
Hallandale – 27 homes – 375 Condos
Hollywood – 428 homes – 405 Condos
Miami Beach – 88 homes – 861 Condos
North Bay Village – 4 homes – 35 Condos
Sunny Isles – 6 homes – 338 Condos
Surfside – 18 homes – 23 Condos

I will try to do some comparisons between the same periods in 2008 and 2007.

I bet the results will be worse for 2008. We'll wait and see.

Maybe tomorrow.

Henry B. Nathan is a Florida Realtor at United Realty Group Inc.
Visit my website: http://www.condo-southflorida.com/
where you can search for Aventura Condos, Florida Condos,