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I work with a number of contractors in my practice, especially in the area of filing and foreclosing mechanics lien claims. 

Mechanics lien laws were created in order to ensure that laborers and materialmen were paid for the improvements made by them to real property.  In Minnesota, Minnesota Statutes Chapter 514 sets forth the situations when mechanics lien rights arise, as well as the requirements to perfect such a lien.  Minnesota courts have held time and again that, once the technical requirements for perfecting the lien have been met, public policy strongly favors the payment of the lien claimant.

In practice, two elements in the perfection process typically trip up potential lien claimants:  (1) the pre-lien notice requirement ; and (2) filing of the mechanics lien statement  within 120 days of the last day of work.  Contractors who lose their mechanics lien rights (as the law requires strict adherence to the perfection requirements in order to maintain the mechanics lien) are not necessarily out of luck; they should instead consider pursuing the defaulting property owner under a claim called “unjust enrichment”.

In order to establish a claim for unjust enrichment, the plaintiff must show that the defendant knowingly received something of value to which he was not entitled, and that the circumstances are such that it would be unjust for the defendant to retain the benefit. Acton Constr. Co. v. State, 383 N.W.2d 416, 417 (Minn. App. 1986) (the elements of a quasi contract are: (1) a benefit is conferred; (2) the defendant appreciates and knowingly accepts the benefit; and (3) the defendant's retention of the benefit under the circumstances would be inequitable.). 

An action for unjust enrichment does not exist simply because one party benefits from the efforts of others; instead, it must be shown that the plaintiff was unjustly enriched in the sense that the term ‘unjustly' could mean illegally, unlawfully (e.g., fraudulent) or even morally wrongfully enriched. First Nat'l Bank of St. Paul v. Ramier, 311 N.W.2d 502, 504 (Minn. 1981).

A contractor pursuing an unjust enrichment claim should also record a notice of lis pendens against the property in question, which gives notice to the world of the pending litigation regarding that property.  Recording this notice gives the contractor the equivalent of the mechanics lien in that an encumbrance is placed against the property which will prevent any closing and could ultimately mean an expeditious settlement of the claim.

An unjust enrichment claim is not a perfect substitute for a mechanics lien claim; for example, a foreclosing mechanics lien claimant can recover court costs and attorney fees whereas an unjust enrichment claimant cannot.  Still, for the right claim, pursuing a defaulting owner under a theory of unjust enrichment beats writing off the debt.

I play my own webmaster on this site and I FINALLY got around to making some much needed updates to the rest of my site.  You'll find new radio show clips on the Media  page, and I've now got my published articles current on the Articles  page.

A few months back I had the privilege of sitting down to breakfast with my good friend (and member of my BNI “extended family), Jim Bear .  Jim is a financial advisor with J. Alan Financial in Maple Grove and we had an interesting discussion about premium financing. 

What is premium financing?  Simply put, premium financing is a means of financing the premiums to be paid on life insurance policies, thus obviating the need for large outlays of cash or liquidation of assets to pay premiums on life insurance policies.

I deal with a number of instances in my practice where life insurance is an essential planning tool, everything from estate planning  to funding buy-sell agreements  or simply insuring the lives of key people in a business.  Too often, however, the cost of such insurance plays too much of a factor in whether the client(s) heed my advice to purchase insurance.  Premium financing can help overcome this obstacle.

Here’s how it works:  the borrower applies for a life insurance policy and indicates that the premium will be financed.  If the insurer will accept payment of the policy premium via financing, the borrower then applies for the loan.  Upon approval of the loan, the borrower will make a down payment and the loan covers the balance of the premiums due under the policy.

Loans, however, typically require the pledge of some sort of collateral, and loans to finance life insurance premiums are no different.  Typically, the policy’s cash surrender value and other assets (marketable securities, letter of credit, etc.) are pledge as security for the loan.  While the loan can be a fixed term, the more common structure is to have the loan be repaid out of the death benefits from the policy, making it essential that the amount of such death benefits are sufficient enough to repay the loan and provide sufficient income for the beneficiaries’ needs. 

Premium financing is not appropriate in every instance where life insurance is needed, and there are certainly risks involved, just like any other loan.  Careful consultation with your financial advisor is a must.  Nonetheless, where large amounts of insurance are needed and availability of cash to pay the necessary premiums is an issue, premium financing should be considered.

We are in the midst of severe weather season here in Minnesota.  In the past month, my own home narrowly missed out on damaging wind and hail not once, but twice. 

Had I not been so fortunate, repairing my storm damage would have been a hassle, but not as stressful as it could be.  Why?  Because I’ve been through it before and, given that I live in a part of the Twin Cities that is notorious for severe weather, I keep my contractor  on speed dial. 

Dealing with your insurance company on a storm damage claim can be an extremely stressful process.  We have a running joke in the office that an insurance adjuster would be more properly called an “injuster” because of the injustice wrought by many adjusters in denying even the most straightforward of claims (actually, the “injuster” phrase was coined by a client of our firm who simply misspoke when he meant to say “adjuster”; we all assumed that it was a Freudian slip).   

Dealing with your insurance company requires an experienced, knowledgeable storm damage repair contractor.  Unfortunately too many homeowners go with an unlicensed contractor hoping to save some money (and usually because they have been promised payment of their deductible).  The result?  These homeowners typically end up in my office, seeking legal redress for substandard work or, even worse, a company absconding with the insurance proceeds without performing the contracted-for work.

A recent StarTribune story featured Charlie Durenberger, the chief enforcer of Minnesota’s contractor licensees at the Minnesota Department of Commerce.  You can read the article here; suffice it to say, Mr. Durenberger has seen his share of contractor complaints, and he talks briefly about the reasoning behind using unlicensed contractors and why such a decision is a mistake. 

If you experience storm damage this summer and are in the process of hiring a contractor to do the repairs, here are just a few legal tips as to why it is important to hire a licensed contractor:

1. Only a licensed contractor can obtain proper permits from your city.  Most city codes provide that storm damage repair work (such as siding, roofing and window replacements), like many exterior home improvement projects (decks, additions, and the like) requires a permit be obtained from the city.  No permit means that the work has been performed in violation of city codes and could subject the homeowner to fines and other penalties.  Note:  some unlicensed contractors will encourage the homeowner to obtain the permits (which is the only other alternative to the contractor pulling them).  If this is suggested, you should consider yourself warned that you are dealing with someone without a license.

2. Licensed contractors are insured.  The Minnesota Department of Labor and Industry  – the state agency charged with overseeing contractors – require its licensees to carry a bevy of insurance coverages – workers compensation, general liability and the like.  This insurance covers injuries to workers as well as damage to your home.  In the event of such an occurrence, the insurance takes care of any claims.  An unlicensed contractor likely will not carry such insurance and, as a result, you as a homeowner might find yourself the target of lawsuits and/or claims against your homeowners policy for workplace injuries.  Worse yet, in regards to shoddy work, you could find yourself in a position of having a great claim against the company who performed the work but no means of recovering from them.  That is what we attorneys call chasing a “hollow judgment.” 

3. Minnesota’s Contractor Recovery Fund only pertains to LICENSED contractors.  The Department of Labor and Industry’s Contractor Recovery Fund  compensates owners or lessees of residential property in Minnesota who have suffered an actual and direct out-of-pocket loss due to a licensed contractor's fraudulent, deceptive or dishonest practices, conversion of funds or failure of performance.   The Fund is funded through fees paid by licensed contractors and there is a maximum amount of $75,000 allowed to be paid out relative to any single contractor.  Obviously, a homeowner with such a claim against an unlicensed contractor will not be able to avail themselves of the Fund.
 

In short, trying to save money by using an unlicensed contractor to repair storm damage on your home often times leads to a more expensive problem at a later date.   Homeowners who cut corners in this manner typically find themselves the victims of poor quality work and/or other scams.  Unfortunately, by the time these homeowners end up in my office, it is too late for me to do anything to help them.  So let me give you the advice that I wish that I could have given them:  HIRE A LICENSED CONTRACTOR TO DO ANY WORK ON YOUR HOME.

 

I’ve written before  about the Obama Administration’s “Making Home Affordable”  program and what I saw as its inherent flaws.  What I did not know at the time the program was introduced, however, was how much frustration would be caused to homeowners seeking a modification by the apparent endless layers of bureaucracy and red tape that comprises the process.

In a nutshell, the program is supposed to work like this:  if you qualify for the program, your lender was to notify you.  You then submit a package of information and ultimately you are approved for a “trial modification” where your payment is adjusted (i.e., reduced).  Make the trial modification payment for three months and, theoretically, you qualify for a permanent modification.

Simple enough, right?  Not where the Federal government is involved. 

In the past week, I was retained by a new client to help with a short sale after months of battling with their lender to get even a trial modification approved.  Multiple requests for the same documents which had already been provided ultimately led my client to give up and sell the home.  Additionally, I had another client contact me wanting to pursue legal action against his lender for giving him a similar runaround.  Finally, I chased one lender around for another client (which I agreed to do pro bono because of a longstanding friendship, lest I be accused of profiting off of the modification process, and because I thought my help would consist of a single phone call to straighten things out on their file). 

With regard to the last case, my clients were granted a trial modification late last year.  In theory, they should have been done with their trial period in April and should have received word on their permanent modification.  Instead, it is almost July and the best that their lender can do is to tell them when they call that they’re approved but, for some reason, they cannot seem to send out a written confirmation of the approval and inform my clients of what their new mortgage payment will be.

In an effort to break the logjam, I agreed to place a call to the lender (who happens to be one of those "too big to fail" lenders who begged Congress for a bailout last year) to find out what was going on.  Here’s a timeline of events since I got involved two weeks ago:

• Attempt #1: Lender could not talk to me yet since the authorization form (signed by my clients granting the lender permission to talk to me) was only received that day; I was told to call back after 48 hours.  Surprisingly, the day after my call, my clients received a call saying that their matter had been forwarded on for final review, which we all naively assumed meant that my one call had spurred the lender into action (silly us for thinking that).

• Attempt #2: It took the representative at least ten minutes to confirm that I had an authorization on file; thereafter, I was told that the reason that my clients had not yet received written notification of their approval for permanent modification was due to a computer glitch which they assured me had been fixed as I was on the phone with them (what a coincidence, right?)  At the end of the call, I was told that the written notification was being sent out immediately.

• Attempt #3: A full three days after the alleged written notification was sent, my clients still had not received any word and asked if I would call again.  This time, after being on hold for twenty minutes, I was told that my authorization – a form that I have used for years and which has been accepted by every lender imaginable, including this particular lender on other matters – was not in the proper form.  The problem?  My contact information was on a fax cover sheet and not on the actual authorization.  At this point, I roughed them up a bit.  I asked them why it was that the only people who seem to get a permanent modification under the MHA program are those who contact their local news media with their saga.  I further opined that the seemingly endless excuses given by the lender as to why the information could not be provided to me were an embarrassment to their company.  In the end, however, I was told to resubmit my authorization with the contact information on the same page and call back in 48 hours.  Funny how we’ve come full circle in just three phone calls.

The only thing I can surmise from the runaround given to homeowners by their lenders under the MHA program is, not surprisingly, that the lenders do not want to modify any mortgages, that they would prefer a short sale or foreclosure where they will be paid as much as possible sooner rather than later.  To that end, it is my further conclusion that the endless delays are all part of the plan to make these modifications and the program promoting them fail miserably.

Note that I am not advocating some sort of further governmental action to force these lenders to grant these modifications.  I think that the Federal government is telling enough private businesses what to do without forcing lenders to modify home loans.  My point in writing this firsthand account of how this program works – or should I say, does not work – is to point out that the Making Home Affordable program has nothing to do with providing actual assistance to homeowners and everything to do with making elected officials appear as if they’re doing something to deal with the problem. 

 

Real estate investors in today’s market are commonly involved in purchasing properties which are in foreclosure.  However, with short sales having a low success rate, most Minnesota investors look for ways to get in line behind the owner and other junior creditors to exercise post-sale redemption rights.

Minnesota has a post-sale redemption period that works like this:  with some narrow exceptions, the homeowner has six (6) months after the sheriff’s sale to redeem the property by paying off the foreclosing lender.  If the homeowner does not exercise his or her redemption rights, each junior creditor, in order of priority, has a seven day period to redeem the property (but they have to file a notice of intent to redeem not later than seven (7) days prior to the expiration of the owner’s redemption period).  If a junior creditor fails to exercise its redemption rights, that junior creditor’s lien is extinguished from the property.  If a junior creditor does so redeem, any other junior creditors still have the right to redeem by paying the foreclosing lender’s balance (plus costs) as well as any amounts owed to the redeeming creditor.

For investors, a property that is in foreclosure may represent a good investment if the investor can purchase the property free and clear of some of the junior liens.  Hence, a very common approach is for the investor to find a property where there is a judgment lien placed against it, purchase the judgment lien for a fraction of the amount of the judgment, wait for other junior creditors whose liens are senior to the judgment lien not to redeem, then redeem and own a property with instant equity. 

Finding the property which is subject to such a judgment and making a deal with the judgment creditor to purchase the judgment are the easy parts of the process.  The tricky part comes when the investor (as assignee of the judgment) seeks to exercise its redemption rights.

Minnesota law  provides that a judgment, once docketed, becomes a lien against any property located within the county where the judgment was docketed; no further filing on the part of the judgment creditor is required.

Minnesota law  also provides, however, that if a junior creditor wishes to redeem from a foreclosure sale, that creditor must record a notice of intent to redeem and records “all documents necessary to create the creditor’s lien and to evidence the creditor’s ownership of the lien, and delivers to the sheriff copies of all of these documents that show when and where the documents were recorded.”  If a creditor fails to do this, then that creditor is not entitled to redeem.

What happens, then, with a judgment creditor, where the lien automatically attaches by law without any recording requirement?  The Minnesota Court of Appeals, in a 2008 Minnesota Court of Appeals case entitled Northern Realty Ventures vs. Minnesota Housing Finance Agency, held that regardless of the fact that the judgment lien attaches automatically to property within the county of docketing, the judgment creditor must record a certified copy of the notice of entry of judgment issued by the court along with its notice of intent to redeem during the time prescribed for doing so by statute.  For a purchaser of a judgment, the notice of assignment and the notice of entry must be recorded. 

For Minnesota real estate investors seeking to redeem from a foreclosure as the assignee of a judgment creditor, take heed of the Northern Realty Ventures case.  Plan accordingly so that you can execute the purchase documents for the judgment, file the assignment of judgment with the court of record, obtain certified copies of both the notice of entry and the notice of assignment (and keep in mind that court schedules are tight these days so the likelihood of immediate filing and delivery of a certified copy is not guaranteed) and get them recorded in the appropriate recording office (county recorder for abstract property and registrar of titles for Torrens property) along with your notice of intent to redeem.  Otherwise, all of your efforts in locating the right property to redeem will be for naught.

With the end of the latest version of the homebuyer tax credits and the rise in interest rates (stemming from the Federal Reserve’s cessation of purchasing mortgaged-backed securities), many in the real estate industry are in wait-and-see mode when it comes to the future health of the U.S. housing market.  All are hoping that the decline in housing values has reached its end and that a “double dip” in values (meaning that values would again decline after a slight increase over the past year) does not occur.

Regardless of the immediate results, eventually the housing market will be on the rise again.  If we want to avoid a downturn similar to what started in late 2006, it is necessary to examine the root causes of the crash in order to avoid repeating those same mistakes again.

To that end, I highly recommend The Housing Boom and Bust  by Dr. Thomas Sowell .  I’ve long been an admirer of Dr. Thomas Sowell,  an economist and senior fellow of the Hoover Institution at Stanford University and one of this country’s best free market thinkers. 

A politically popular theory says that “greed” caused the boom and bust in the housing market.  To exemplify this “greed”, advocates of this theory point to the reckless lowering of lending standards by U.S. banks and mortgage brokers and the rampant speculation in the housing market.  Dr. Sowell carefully points out that these factors were symptoms of the disease. 

In truth, the very government that has been actively engaged in fixing the housing crisis was the most responsible party for creating the environment that led to the crisis.  Moreover, the housing bubble and its subsequent bursting was set in motion at least thirty years prior to the crash with laws passed to encourage the growth of “affordable housing”.

Here’s a brief timeline of events leading to the boom and bust in the housing market:

• Under the auspices of encouraging “affordable housing”, the Federal Government enacted the Community Reinvestment Act of 1977, which directed “each appropriate Federal financial supervisory agency to use its authority when examining financial institutions, to encourage such institutions to help meet the credit needs of the local communities in which the are chartered consistent with the safe and sound operation of such institutions.”

• Starting in late 1989 with the George H.W. Bush administration, and continuing more aggressively with the Clinton administration, the U.S. Department of Justice (“DOJ”) began investigating financial institutions over alleged racial discrimination in mortgage lending practices.  

•  In 1993, the U.S. Department of Housing and Urban Development (“HUD”) began commencing legal actions against some financial institutions who turned down a higher percentage of minority applicants than white applicants for mortgage loans.  In addition, DOJ would use its power to block several bank mergers if either of the banks involved engaged in what DOJ believed were discriminatory lending practices.  Community activist groups such as ACORN seized on this second course of action, pressuring banks to make riskier loans to quell potential objections to an intended merger. 

• With DOJ and community activist groups bearing down on them, lenders loosened their lending practices to approve more low-income borrowers.

• At the same time, HUD imposed quotas upon Fannie Mae and Freddie Mac to purchase mortgages made to people in the “underserved population.”

• In the late 1990s and early 2000s, the Federal Reserve System lowered its interest rates to historically low levels and kept them there for many years.  These low rates, combined with the push on lenders from DOJ and HUD to approve more low-income borrowers, led to the creation of the mortgage products often highlighted as the root cause of the housing bubble; namely, the interest-only mortgages, the adjustable rate mortgages (ARMs) and the option-ARMs which allowed borrowers to skip a monthly payment if they so desired, along with other products classified under the “subprime” banner. 

• The three financial ratings agencies recognized by the Securities and Exchange Commission (“SEC”) – out of the hundreds of similar agencies which exist – Moody’s, Standard & Poor’s and Fitch, having little incentive to develop new and better ways to assess risk because of their government-granted monopoly, overvalued the securities backed by these riskier mortgage products.

• When the Federal Reserve began to raise rates in 2006 to curb fears over inflation, it toppled the house of cards which our housing market had become.  The higher rates choked off what had been a steady stream of new homebuyers, leaving those with the risky loans unable to pay back the mortgages they had received; banks then foreclosed and, not being in the business of owning real estate, sold these homes at greatly reduced rates.  This drove prices even lower and forced other borrowers into default (since they could no longer refinance out of their less favorable mortgage loan nor could they find a willing buyer at a price necessary to satisfy all indebtedness against the home).  And the race to the bottom was on.

• With housing prices falling and defaults rising, the holders of these mortgages (Fannie Mae and Freddie Mac) as well as the holders of the securities backed by these mortgages (Bear Stearns and the like) tanked, triggering the economic recession and leading to the now infamous bailouts (TARP in 2008 and the stimulus bill in 2009).

What’s notable about this timeline is how small a role the usual suspects, i.e., “greedy Wall Street bankers”, “banks and their risky lending practices”, “speculators”, even more abstract villains such as “deregulation” and “the market”, were not at the forefront of causing this current crisis.  Rather, a litany of government agencies – DOJ, HUD, the Federal Reserve, the SEC and government-backed private institutions such as Fannie Mae and Freddie Mac, all acting in furtherance of the Community Reinvestment Act of 1977 and the noble goal of creating more “affordable housing” (whatever that means) – set the events in motion that ultimately led to the crumbling of the U.S. housing market. 

The most salient point of Dr. Sowell’s book is his analysis of the government attempts to revive the housing market.  In fact, he writes, “the market has already responded quickly to the housing crisis, with a drastic reduction in interest-only loans, no-down-payment loans, and other such ‘creative’ financing.” Everything else – the homebuyer tax credits, the loan modification programs, TARP and stimulus bills – are simply more of the same:  a government solution to a government-created problem, and likely will result in a similar set of unintended consequences as the last round of fixes. 

So, you ask, what is the solution to this larger problem; i.e., the nonstop government intervention into the free market?  You’ll have to read the book to find out.

Eminent domain refers to the power possessed by the state over all property within the state, specifically its power to appropriate property for a public use. The proceeding by which a government unit exercises its eminent domain power is called a condemnation proceeding.

Eminent domain powers are regularly used by governments in order to create and expand rights-of-way.  In recent decades, however, governments have sought to expand what constitutes a “public use” by using eminent domain for urban renewal and other seemingly private development projects.  To do this, the government claims that an area is “blighted” in order to qualify it for urban renewal redevelopment.

Recently, two highly-publicized condemnation proceedings from the past, which occurred more than forty years apart, have found their way back into the headlines and demonstrate the problems which arise when urban renewal/redevelopment projects are carried out in a “ready-fire-aim” fashion. 

Here in Minnesota, the discovery of the first three floors of the Metropolitan Building in a Delano scrap yard has brought back memories of the infamous Gateway District urban renewal project  of the early 1960s, where the City of Minneapolis essentially demolished a large chunk of its downtown area in order to rid itself of its seedier aspects.  “The Met”, as it was called, was the focus of the earliest of historic preservation efforts in Minnesota but, unfortunately, the Minnesota Supreme Court ruled in 1960 that the City of Minneapolis could take the Met down with everything else in the Gateway.  Nearly five decades later, some sites still sit empty and a movement is on to recover the Metropolitan’s remnants for an as-yet determined use.

Meanwhile, an eminent domain case which took on national significance after a highly-criticized U.S. Supreme Court case has found its way back into the headlines.  The case of Kelo v. City of New London involved the City of New London, Connecticut attempting to take private property, including the home of Suzette Kelo, in order to redevelop the area into a new corporate facility for Pfizer, Inc.  Five years later, Pfizer has pulled out of its expansion plans and the property  taken by New London sits vacant with no current prospects for a replacement project.

The 1960 Minnesota Supreme Court case focused on whether the City of Minneapolis could use its takings power under the Municipal Housing and Redevelopment Act to redevelop property other than housing, whereas the Kelo case focused on whether taking property for economic development constituted a “public use.”  In both cases, the courts answered yes, the government taking proceeded and the buildings came down.

The cases involving the Met and the Kelo property share something else in common as well.  Each case prompted a societal outcry leading to changes being made to prevent these situations from happening again.  The Met’s fate prompted Minnesota’s historical preservation movement, and today we have non-profit organizations such as the Preservation Alliance of Minnesota  which seek to protect buildings and other structures with historical significance from the wrecking ball.  Similarly, the Kelo decision spurred state legislatures to enact tighter restrictions on the use of eminent domain powers for economic development. 

The larger question, however, in both instances, is why do we engage in such myopic thinking about urban planning in this country.  For example, during the housing boom of the early 2000s, the City of Minneapolis saw an exponential increase in new condominium developments, many built from the ground up.  Some of these developments were very near to the Gateway District.  As I watched these buildings go up, I could not help but wonder whether any of the hotels which were demolished in the Gateway between the 1960s and the 1990s could have been repurposed into condominiums for less cost than and without the use of additional resources in the newly constructed buildings. 

Case in point:  the Nicollet Hotel.  Once the crown jewel of Minneapolis hotels, the Nicollet ultimately fell into disrepair and met with the wrecking ball in 1991.  Here’s a picture of the Nicollet in its heyday: 

And here’s a picture of the site today:

Yep, that’s right folks; nearly twenty years after its demolition, the Nicollet Hotel site remains a parking lot while condominiums have sprouted up all around it.  Was that a wise use of resources?

Today, thanks in large part to the efforts of the historic preservation movement, we’re seeing several downtown buildings repurposed into hotels (such as the Foshay, which is now the “W”).  However, we’ve simply shifted our ire from buildings of the first half of the twentieth century to those of the second half, and the result has been the loss of the original Guthrie Theatre , the Minneapolis Public Library  and a structure that Minnesota pioneered:  the enclosed mall (Apache Plaza  has already been replaced with a lifestyle center, and Brookdale certainly could meet a similar fate).

“Demolish and replace” as an urban planning philosophy often produces results akin to bad plastic surgery, with eminent domain serving as the scalpel.  If instances such as the Metropolitan’s demolition (which is now seen, as many at the time predicted, to be a colossal mistake) and the Kelo case teach us anything, it is that governments would be wise to think long and hard before pulling the trigger on exercising its eminent domain powers.  Otherwise, we lose a part of our history and some of our liberties as well.

 

The State of Minnesota has long been criticized by those in the business development field for its inability to complete with surrounding states with economic incentives for businesses to locate or expand there, as well as incentives and financial incentives to launch new ventures.  Now comes the new "Angel Tax Credit."  You can read my latest article about the tax credit here .

The preliminary consensus is that, while better than nothing, Minnesota needs more than just the tax credit (which is limited and subject to numerous qualfiications and restrictions) in order to cultivate a more hospitable environment to new business ventures.  What is necessary to produce this new environment has become the topic of considerable discussion, and that, more than anything, might in time be the tax credit's biggest benefit.

Just this past week, MinnPost.com posted a story about the Twin Cities housing market.  Apparently, 41% of Twin Cities homes are “underwater”, i.e., the homeowners owe more than what their homes are worth. 

The fact that almost half of Twin Cities homeowners owe more than what they could get if they sold their home has profound implications for the local housing market; in essence, these homeowners are taken out of the pool of potential buyers for available inventory, as they would either have to come up with enough cash to pay the difference between the sale price and the mortgage balance at closing, or opt for a short sale (which would adversely affect their credit and prevent them from qualifying for a new mortgage for a new home, not to mention they would have no equity from the sale to use as the down payment for the new home).

What this means is that, unless they want to damage their credit, 41% of Twin Cities homeowners are stuck right where they are, and likely for the next few years.

A less obvious result from these statistics is that the possibility for disputes between neighbors is substantially greater as well, given that a homeowner who finds himself or herself at odds with their neighbor(s) does not have the option of moving out of the neighborhood as a means of resolving the situation. 

Neighbor disputes have existed in this country as early as the 1880s with the Hatfields and McCoys, and come in many varieties.  Boundary disputes, nuisance noise complaints and trespass claims are all common types of neighbor vs. neighbor feuds.  On at least three occasions in nearly a decade of practicing law, I have consulted with people wanting to take legal action against their neighbor when the neighbor did something to his or her own property that my clients believed caused their own properties to flood. 

There have been many well-publicized neighbor disputes in the last few decades.  Guns N Roses lead singer Axl Rose even penned a song “Right Next Door to Hell”  in the early 1990s about an ongoing feud with his neighbor.  The most famous – or should I say, infamous – neighbor dispute in recent years has taken place in Utah.  City councilman Mark Easton had a beautiful view of the East Mountains, until a new neighbor purchased the lot below his house and built a new home. The new home was 18 inches higher than the ordinances would allow, so Councilman Easton, mad about his lost view, went to the city to make sure they enforced the lower roof line ordinance. The new neighbor had to drop the roof line, at great expense.

Thereafter, Councilman Easton called the city, and informed them that his new neighbor had installed some vents on the side of his home. Easton didn’t like the look of these vents and asked the city to investigate.

When they went to his home to see the vent view, this is what they found:

Neighborhoods with homeowners associations are particularly susceptible to neighbor disputes, especially in the current market.  With many associations being transitioned prematurely to (or should I say “dumped on”) the residents, resident-controlled association boards are left to oversee the enforcement of very complex covenants which oftentimes put some neighbors in the position of having the authority to tell others what they can do with their own properties.  This can lead to very bad situations.

I know whereof I speak.  Two years ago, I was installed as the President of my homeowners association after the developer went under and handed control over about five years earlier than expected.  Our neighborhood, a master planned community designed to attract young professionals and executives and their families, has, in addition to common amenities such as a community center, parks and a swimming pool, an extensive set of rules and regulations about what you can and cannot do with your property.  Among these rules and regulations are architectural and landscape guidelines and the provision for a committee (known as the Architectural Review Committee, or “ARC” for short) charged with overseeing compliance with the guidelines.

In the year preceding my election as President, the national builder in the neighborhood saw the market getting worse before it would get better and deeply discounted its remaining inventory.  The result?  Some buyers who did not fit the original target market of the neighborhood were attracted to cheap houses and access to the pool and did not pay much attention to the big binder of rules which they were handed at their closing. 

I live next to one such example.  When I first stopped by my new neighbor’s house to introduce myself and give him a neighborhood directory on a cold snowy January morning, his first question to me was “where do I get my pool key?”  I had to explain to him that the pool was an outdoor pool and was closed for at least the next four months.  I should have realized then that I was in for an interesting time living next to this individual.

Once the residents took over the association and I started my term as President, my wife also became involved as part of ARC.  When the snow melted in the spring, one of the first ARC meetings involved reviewing a plan submitted by our new neighbor for landscaping and a deck.  Eventually the plan was approved with some revisions, but not after my neighbor’s contractor called my wife one evening (apparently given my wife’s number out of the directory) and castigated her about ARC and the association rules. 

The construction process was another story.  After fielding complaints from residents about the mess left in the street by his contractor, I had no other choice but to contact the City, who in turn called the sheriff.  Needless to say, my neighbor was none too happy about this and somehow in his warped mind blamed my wife for the hassle. 

Next came the inspection of the deck as requested by the ARC chairman.  That’s when all hell broke loose.  My wife was asked to be a part of the inspection committee (in hindsight, I wish I would have told the ARC chairman that this was about as stupid an idea as he had ever had) and by the end of the day, my neighbor stood on his front porch and yelled at her.  The next night, the association Board voted unanimously to send a letter to the neighbor explaining that he could not treat volunteers in that manner and that our neighborhood was special because of all the rules and regulations (which he apparently had not read). 

Long story short:  one Board member (who was also the ARC chairman) decided to play out his Jimmy Carter diplomatic mission fantasy and created even more tension between us and our neighbor.  Later in the summer, my wife caught our neighbor trying to put a mouse which he had caught in his yard down the sump pump outlet in our yard.  Eventually, in October of that year, fed up with the childish behavior as well as my fellow Board member’s attempts to prevent me from resolving the issue (it was suggested that I not speak with him directly for some time, which I did in order to try to diffuse the situation), I gave up and quit the Board.

The next spring, the problems continued.  My neighbor’s inability to stay on his side of the property line when mowing from the previous summer continued.  My wife politely asked him if he could stay on his side of the lot line, and his response was to call the sheriff and report that she had confronted him.

After that, I certainly wasn’t going to go speak to him (after all, I’ve got a law license to protect and I didn’t need false complaints being filed against me with the sheriff).  I did, however, post a few observations about that day and subsequent quirky behavior on social media sites, which has amused my friends to no end.  In fact, over the last year I’ve turned my goofball neighbor into quite the Facebook celebrity, delighting my friends with tales of his spraying weed killer all over himself in a windstorm, wiping his house down with a towel in a downpour and, in a most ironic moment, decorating his heavily discounted house with blue lights (blue light special; get it?). 

Unfortunately, I am not the only person in our neighborhood with neighbor issues.  Another of the discount buyers has so many cars and so much junk in the front yard that Fred Sanford  would be proud, and any attempts to enforce rules against them leads to pushback and problems. 

I can tell you from personal experience that neighbor disputes are not fun. At this point I probably have enough grounds for an injunction or restraining order against “my favorite neighbor” (as he’s known to my friends on Facebook), but I think the old adage that “tall fences make for good neighbors” will someday soon prove true in my case (of course, I’m at the mercy of the neighbors of mine who now sit on ARC to approve my desired fence).  Until then, however, I’ll make lemons out of lemonade by informing my friends of the exploits of the character living next door to me.