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Process for making small residential units easier and less expensive to own and transfer, thus ameliorating the current mortgage mortgage / foreclosure crisis and reduce risks using a form of transferable mortgage
This is a new way of buying, owning, transferring and residing in personal residential real estate. It relies on existing methods, some slightly modified, and arranged in a new way. This Patent restores the concept of home ownership to its original form of being almost entirely for the purpose of acquiring a place to live, and removes it as a form of short term investment or as a source of day to day money via Home Equity Lines of Credit (HELOCS). It also removes much of the element of financial risk, and many of the tax problems and and necessary tricks that arise when a person sells a house and moves to a new home.
My new way of real estate ownership, which I call RE-new can be accomplished either by private parties operating under existing law, or by changing the law to accommodate the new concepts, or by some combination of both methods. In either case, it will have to start out as private parties using my method.
To start with, remember that property ownership is an abstraction set into law defining rights and responsibilities among the parties. Those rights and responsibilities are whatever the relevant laws and contracts say that they are.
It is clearly impossible to describe all the ways that contractual agreements can be created to arrive at a given goal that is mutually agreed upon by the contracting parties. This patent covers the use of four items together to define a new way of owning and using property. Each of them has been used separately over the past 30+ years, perhaps under different names. It is the combination of the four of them into one unified method that makes this process unique.
There are four key parts to my method. Much of my patent relies upon private parties making contracts. This patent suggests how some parameters be set for those contracts. Should a contract be created that does not abide by those suggestions, that does not necessarily mean that this patent does not apply to the business practices engaged in by the contracting parties.
Part I. The Normalized Housing Unit.
There now exist futures contracts in housing. That is to say, that just as one can own rights to gold, or rights to oil via commodities markets, one can own rights to houses without actually owning a house. Unfortunately these contracts are out of the range of the average homeowner, let along the average person. The first part of my method is what I call a Normalized Housing Unit or an NHU. Its size will be some unit of area. Examples used in this application will use a size of one square foot, and will have a price as determined by the appropriate market, and will be available in either of three forms, national, regional or state. A contract for a NHU will specify what type it is, and when specifying a region, will describe the region which could be as large as several states, or as small as a zip code. NHU's will be fiduciary instruments like futures contracts. It is my recommendation that a federal law should be enacted that so that NHU's used to purchase property must be owned in their entirety. That is they will not be allowed to be leveraged or borrowed against. Until and unless such a law is passed, they will instruments issued by the PRP's, and by contract the total number of such instruments issued will match area of residential properties owned by a PRP (See II below). With regard to leverage, they may fall under the rules of stocks, where they can only be leveraged at 50%. The value of NHU's will be determined by how they trade on a commodities exchange or, if that is not available, by professional appraisals or some other agreeable method.
A contract between a owner and a PRP to occupy a house using NHUs should require that there be a mix of the three types of NHUs with the following suggested constrictions. At least 1/3 of the NHUs should be national, and no more than 40% should be regional. This will have the affect of minimizing the fluctuations of the “value” of a persons housing equity. As will be seen below, this equity is portable, and can not be obliterated by a decrease in house values.
The NHU, along with supplemental contracts for specific homes will replace the mortgage. This is spelled out below. A NHU has some of the properties of fractional real estate ownership
Part II. Pools of Real Properties or PRPs.
There will exist umbrella organizations that could be corporations or CO-OPs or non profits or something similar. The purpose of this umbrella organization is to acquire what I call a Pool or Real Properties and be responsible for them. Instead of a mortgage tied to a specific property that is owned by a specific legal person and a title to that property owned by the person, ownership will be split into two complementary parts belonging to two different entities. The two entities shall be the Umbrella Organization (UO) and the owner/user or owner/landlord . The UO will be simply a corporate entity that holds title to and globally manages a number of residential properties the PRP. The stock holders shall be, primarily, the owners of houses acquired with NHU's and other UO's. UO's will arrange for annual inspections of properties and for routine maintenance of such things as Pool Pumps, HVAC, septic tanks, Roofs, etc on those properties that are part of the PRP. UO's will share in the change of properties value with owners of properties, thus distributing and reducing short term risk, while allowing individuals to participate in the long term global appreciation of real estate.
Part III. A new form of title.
Title shall consist of a private form of Torrens title along with appropriate real covenants. As long as a given property stays with a given PRP, there will be no need for title searches, or title transfers. The specific rights and responsibilities that one normally thinks of as ownership, shall be spelled out in contracts between individuals who wish to 'own' the property, and a UO that controls the PRP. Covenants on the title will prohibit any PRP from placing any encumbrance upon such a property, or selling such a property without the explicit written consent of the owner.
If a person / owner needs to “encumber” some of their property, they may do so by moving some of their wholly owned NHUs back into the pool on which they are paying the mortgage.
Part IV A different form of mortgage.
The new form of mortgage will not be on the property, but rather on the NHU's required to be the equivalent in area of the home in which the mortgage payer will reside. As the mortgage is paid off, it will be by paying off and acquiring fully paid off NHU's so that the number of NHU's in the mortgage goes down, and they are all, essentially, leveraged near 100% This makes it easier to to make mortgages portable. See below. Since the mortgage is on financial instruments, (NHUs) it is easy to pick them up and move them to a new property when a person wishes to change his residence or vacation home.
Additional terms Unless otherwise stated, an Owner will be an individual using NHU's to reside in a property to which a PRP has conventional title. A PRP will be called a corporate owner.
People will be able to acquire Normalized Housing Units (NHUs) The NHU's will be able to be used to acquire and use living space in any house in a Pool of Real Property (PRP) in accordance with the rules and regulations of that Umbrella Organization (UO) that owns the PRP. How each UO structures its rules, and the relationships with other UO's will be up that Umbrella Organization. It will work like this.
A UO will manage its properties for the benefit of those who own them, and for the corporate stock holders. Each house will have associated with it shares of the particular UO to which it belongs. The owner of the house will also be a stock holder of UO that manages the PRP. The shares and ownership will be structured in such a way that home owners will own a minimum of at least 25% of the UO. Of course, the owners could own as much as all of the PRP.
There will be a minimum of how many NHU's a person needs to own in order to occupy a home in a PRP as an owner. The resident owner will then acquire a “mortgage” on the number of remaining NHU's that would be required to own the given house in full. This new mortgage will have some of the properties of a futures contract. That is, it will be an agreement to purchase a set number of NHU's for a fixed price. When a person buys a property in a PRP, his equity will increase as he acquires fully paid off NHU's NHU's can decrease in value, but because there is no leverage involved the decrease and increase is, essentially just at face value.
In addition there will be other costs that are associated with owning a house such as insurance and maintenance. Because of the size of the PRP it will be able to benefit from systematic scheduled maintenance and large scale purchasing of supplies and contracting.
The UO maintains a pool of approximately 10% of its PRP to be used for vacation homes or as rentals at below market rates, and possibly an additional second tier of reduced cost properties. This is how a reduced cost property functions. Some people are not that fussy about their residence. One home is pretty much like another. Other people want things just so. They simply must have more rooms rather than larger rooms or visa versa. Or they must have tile rather than carpet.
So, if you are willing to be a second tier owner, you can get a break on your costs by being willing to change homes with 60 days notice, or some other number determined by contract. Moving expenses will be paid for by some combination of the PRP and the party acquiring your home. You will not be expected to move more often than once ever (to be contractually determined)
If a person still can not find a suitable home in a PRP, then they can work with the UO to acquire or build a home and place it into the PRP and then make that their residence.
The greatest benefits for owners in this system are as follows:
Many people have lost hard earned down payments in the tens of thousands of dollars when they lost their homes to foreclosures. Others are about to loose those down payments. We are not addressing those who refinanced their homes, or purchased them with zero down. In order to give these victims of Wall Street incompetence the advantages of this system, new UO's (Umbrella Organizations) will be encouraged to share the leveraged appreciation of the properties that they buy with those who have been the victims of foreclosure, or are about to loose their homes to foreclosures. The purpose of this is to allow hard working families to regain lost investments. Banks will also be encouraged to offer better terms in such situations.
This saving the American Dream (STAD) program will benefit all concerned. An example is included
**********End of Provisional application for a Patent**********
This system can easily be made to conform to Sharia Law. That is, as far as the home owner is concerned there is no paying of interest on money that is lent. This is because NHU's are wholly owned. Rent is paid on that part of the house that is not owned. I am sure that the advantages of this are obvious.
I n this article in “The Atlantic” on page 6 is the following statement: “The economist Andrew Oswald has demonstrated that in both the United States and Europe, those places with higher homeownership rates also suffer from higher unemployment. Homeownership, Oswald found, is a more important predictor of unemployment than rates of unionization or the generosity of welfare benefits. Too often, it ties people to declining or blighted locations, and forces them into work—if they can find it—that is a poor match for their interests and abilities.” But my system breaks the ties. “Owners” can move almost as easily as renters to locations where there is a better fit between their talents and a particular geographic area. See also this two page article in The Atlantic
Monetizing MBSes (Mortgage backed securities)
The statements below do NOT apply to a CDO of other than first level and CDS which were more like forms of gambling and some form of pyramid schemes. I make no claim that my system can turn lead into gold
A financial institution takes the properties that they have taken back after foreclosing on them. Then they create NHU's based only on the average value of properties in a region in which a property exists. The NHU's will be discounted based on the degree of property deterioration of foreclosed properties. The key here is that, whereas at one point there existed securities that were backed up by mortgages that had been sliced and diced, and because of the current situation the mortgages could really no longer be evaluated, and so the securities could not be evaluated, now we have securities made of pieces of paper (POPs) that each reflect several fractions of different houses of known square footage. Now it is easy to evaluate the total square footage represented by a POP that used to be a MBS. This total Square footage can now be evaluated via the NHU's. What was once a MBS of dubious value is now a contract for a commodity that can be, relatively easily, traded.
People with poor credit and little equity can move into a house and quickly change sweat for NHU's while paying to acquire NHU's
For example consider a package of MBS. Bank forecloses. The underlying mortgage becomes worthless. This lowers values of all other MBSes. Bank now has a property on its hands that starts to deteriorate by the day. How are the underlying MBS's to be valued? Assume that the bank has 10,000 homes at say 150,000 each. Why 150,000? No one knows. No one knows the value of the homes. But at an average of 2000 sq feet each, we know that the bank does have 20 million square feet of housing, and that these could be used to create 20 million Normalized Housing Units. If the bank were to give the 10,000 homeowners who had lost their homes 100 NHU's each for a value of say $1.00 then the bank would get a lot of good publicity. Now you have an instant market. You have a million NHU's on the market with people anxious to sell. Bargain hunters will be looking to buy cheap and sell for a higher price. After a week of trading, you probably have a fairly good idea as to what the rest of the 19 million NHU's are worth. Thus you have an idea of what the MBS's are worth.
And yes, I am aware that new laws may have be created to make this legal. In the meantime I suspect that some lawyer somewhere will be able to interpret existing laws in such a way as to make this legal. And since everyone benefits, it should work. Should anybody point out how “I do not know what I am doing”, well I would ask, where is your evidence that anyone on Wall Street or in DC knows more about what they are doing than I do? The ideas in this paper have the advantage of being fairly straightforward and grounded in reality as we know it. In fact, there is not a single idea in this paper that has not worked in other areas
Politicians Care? Yeah, right!!
At least two politicians had full access to this information back in October, and neither thought it was worthwhile. Either they did not understand it, or they did not see how it was helpful to themselves. Other politicians know about it, but also have shown no interest. If you want to get our country fixed, and think that this is a way to do it, you had best not expect any help from those who brought you the current mess. Lest you wonder who those are, it is most of the “experts” with “experience” within 50 miles of either NYC or Washington DC. So, it is up to you. contact me here Spread the word. Make noise, get involved and maybe Make Money.
ownership is nothing more than a social convention of rights among
various parties including the state. There is no necessity to tie
a particular person to a particular piece of property and include
a purchase agreement in that arrangement. Assume the existence of
a pool of property managed or owned by some type of corporate
entity. This corporate entity could be a co-op, a regular
corporation, a LLC, or any other group of people as deemed
appropriate. To be general, we call this an Umbrella Organization
(UO) that manages the pool of real properties (PRP) Its purpose is
primarily the management of the pool of the properties for the
benefit of those who live in them --- users of property (UP). One
can say that with regard to this enterprise, that there will be
two classes of people. Corporate share holders, and property users
or members. Quite often there will be a high degree of overlap
between these two classes.
Further savings will be achieved by the UO globally managing maintenance of properties and benefiting from economies of scale in such maintenance.
Even after this wave of foreclosures is over, our culture and economy will start to resemble an economic LeBrae Tar Pit. People will be economic prisoners of their homes unable to relocate for better jobs or other reasons. Because they are upside down in their homes they will not be able to sell them unless they are able to pay off the balance of the mortgage. Then, if they move, they will have to come up with another down payment in order to get another home, and that assumes that their credit has not been compromised. Hundreds of thousands, if not millions of people will have become mired in a sort of economic prison created by their home. The American dream changed via economic alchemy, orchestrated by failed wall street financial institutions that got bailed out using homeowners tax dollars.
Does anybody think that this situation could be anything other than another anchor on the recovery. What happens to economic mobility if geographic mobility is severely compromised?
Here it is in table format
A new better and less expensive way to own your own home.
The standard home ownership situation
My New System
Why the new system is different
My new way of owning real estate is like a combination of the best features of a farmers co-op and a Real estate Investment Trust (REIT). A corporation manages a pool of real estate for the benefit of the owners of the real estate. To distinguish this from other corporations formed for other purposes, I want to call such entities using my system umbrella organizations (UO). The housing units may be stand alone houses or condos, or apartments. The owners of the UO will be share holders. Shareholders can be individuals, other UO's, and owners / users of the properties in the UO, or other entities. I will attempt to limit the licensing of my process in such a manner that at least ｽ of the shares shall be held by either other UO's or people living in the properties.
The new system will work in a fairly straightforward manner. The UO owns a pool of properties. That pool makes up a total of hundreds of thousands if not millions of square feet of property. A normalized housing unit is simply the average value of one square foot of property. Some properties will have a premium, some will be discounted because of where the property is or for other reasons. By contract a person will have NHU's based on the a mix of the average value of all properties, on the average value of properties in a particular area of UO, and some NHU's specific to a specific house.
Now think about home ownership for a minute. It is a contractual and legally binding agreement between at least two parties the “homeowner” and the state. Usually there is a third party, , the finance company in the form of a bank. My system introduces a fourth party, the UO whose purpose is to act as a facilitator and intermediary for the benefit of the homeowners and the banks. All transactions by the UO shall be posted to the Internet on a monthly basis. Except by a vote of a 2/3 majority of the stock holders, no encumbrances shall be added to the properties by the UO, and in no event shall such an encumbrance exceed 50% of the value of the properties except when the property is purchased.
This is how the 4th party changes the dynamics of how home ownership works.