Local company provides property management on a statewide scale

By Roberta M. Gubbins

Legal News

Single-family homes are not the only victims of foreclosure--multiple family dwellings are also being sold at Sheriff sales. Many are now owned by Fannie Mae and Freddie Mac, unwilling landlords faced with the task of property management and lease negotiation. How do those huge government agencies deal with those issues?

The solution for the State of Michigan was to contact Sixty North, LLC located in East Lansing. Mike Peplowski, partner in the company, spoke recently to the Real Estate Section of the Ingham County Bar Association explaining how his company works with Fannie Mae and Freddie Mac.

"Sixty North has two lines of business, he explained. "The first is a specialized property management business. We have two clients--Fannie Mae and Freddie Mac. We are their exclusive leasing agents and property managers for their foreclosed rental properties in the entire state of Michigan except Detroit area."

"We go as far North as the U P (Upper Peninsula) and as far west to almost a different time zone and all points in-between. Basically Fannie Mae and Freddie Mac honor any current lease that is in place on a foreclosed property. Our mandate is to visit with the current tenant and ask them if they want to sign a lease" with their new landlords.

The criteria for continuing the lease, which does not require a credit check and which Peplowski called "somewhat shocking" are:

* Occupant is not a sex offender

* Occupant is not on a terrorist watch list

As long as they meet those criteria, Peplowski is mandated to "offer them a lease that is either 20 percent greater or 20 percent less than the standard market rate. We have leases that pay $1100 and leases that pay $350.'

Tenants can be offered either a month-to-month lease or a twelve month lease. If a month to month lease, "that house immediately gets put into Fannie Mae's REO (Real Estate Owned) department", a class of property owned by the lender following an unsuccessful sale at a foreclosure auction. The property is then given to REO brokers to be sold.

The tenant is given the option of buying the house, however, "very rarely do they qualify."

The biggest problem is the tenant who has a quasi land contract that has not been recorded and thus has no record of their ownership.

"We can't help them," said Peplowski. "Basically they have three choices--don't sign the lease, sign a month to month lease or sign a twelve month lease--we can't negotiate the terms of the lease."

In situations where the tenants sign a twelve-month lease, Fannie Mae will not send the house to an REO broker or even entertain an offer until the twelve-month period is over.

Sixty North is in charge of maintenance, which he described as "putting Band-Aids on bullet holes. If there is a leaky roof, we will tar where the leak is. Fannie Mae will do everything it can to sink as little money into these houses as possible until the housing market comes back or they find someone who wants to buy it."

Some of the properties, Peplowski noted, are available for little money. He gave the example of a man in Muskegon who bought the duplex he had been renting for about $22,000 and also found a new tenant after the landlord/owner moved out all within 45 days.

"All Fannie and Freddie want to do is get out of the houses in terms of what they have in them," he said. "If it was foreclosed at $100,000, they will accept ten percent over that price to cover expenses."

"We get paid a flat fee per house as long as we collect a lease payment. Even when it goes into eviction, we still have to keep it under management."

Peplowski noted that Sixty North was started with the idea of acquiring LLCs taxed as partnerships that own commercial buildings on the National Registry for the express purpose of syndicating and monetizing the latent tax assets associated with the property.

This is done, he explained, this way.

"Inside the LLC are certain partner shares that are syndicated or sold to investors in the LLC."

At tax time, the investors reportable share of ownership of the LLC, which can include tax credits or deductions come to them "by way of a K1" (the IRS form used to report a shareholders share of losses or profits from a business).

Sixty North buys "LLCs that own buildings on the National Registry to do just this." They place a conservation easement on the building and value what they have compared to highest and best use of the property, which gives an amount that they are giving up in perpetuity. The valuation method is called the 'before and after method.'"

"Our biggest challenge," he said, "is not finding the appropriate buildings, it is finding investors who have a sizable amount of income to offset."

In answer to questions Peplowski said:

By the time we get the houses the sheriff's sale and redemption period is over.

All of our properties on month-to-month are considered 'for sale.' When tenants want to buy the house, but we advise they get a real estate attorney since they are dealing with a giant agency. It is a difficult transaction and takes time.

For more information, Mike Peplowski can be reached at 517 913-0465 or mpep@sixtynorthmgt.com.

Published: Mon, Jan 9, 2012

Comments

  1. No comments
Sign in to post a comment »