Here is an article written by Doug Nusbaum that details his ideas on how to help fix the Real Estate Market.
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Where
we might be headed

PATENT PENDING
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.
Suggested
Ideas for How The New System Works
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:
Minimized
leverage of ownership. Thus a homeowners equity is protected. If
they wish to have a leveraged investment, in housing then they
can purchase NHU's on the commodities exchange, or housing
options.
If
they need to move, they do not have to refinance. They simply
take their NHU's at their current face value and go to a new
house. They keep paying the mortgage on the NHU's they had
promised to buy, and those NHU's move from the mortgage column to
the paid column. If the value of the new home is different from
that of the old home, than a cash settlement can be made for the
difference, or the number of mortgage payments remaining can be
adjusted, or other financial arrangements can be made. See
attached for samples.
Buying
and selling costs are reduced. A nominal fee of maybe one percent
is paid to do all the paper work, inspect and appraise the
houses, and whatever else is deemed necessary. The owner moves
out of house ONE which reverts to the PRP, and moves to house
TWO. House TWO would be part of the rental or vacation home pool
or inhabited by a second tier owner who would then move out. If
the owner can not find a home to his liking, he will have the
option of buying another home into the PRP, or of simply leaving
the PRP pool as per contractual agreement.
Known
costs for high value items requiring repair and maintenance as
well as reduced costs for insurance and distributed over time.
Because a UO will be managing several hundreds of not thousands
of units, they can arrange for scheduled inspections and routine
maintenance and even replacement of high value items with known
lifetimes. Because of economies of scale the costs associated
with these necessary functions will be less when compared to
those costs for current private home owners.
They
can also self insure. To encourage due care on the part of an
owner, if a covered item fails after an owner has been at a
property for six months, he will have to pay 10% of the cost of
repair or replacement.
In
these times of financial crisis, the greatest benefit is this
one. Suppose that a person suffers a financial reversal, and the
value of their home has gone down. As long as they have some
reasonable income, this is not a problem. The person simply moves
to a smaller house, one that they can afford. Remember that the
NHU's have not lost all their value, just gone down in value. But
if they had 400 sq ft, of NHU and are in a 2000 sq foot home,
they can move into a 1200 sq foot home and have a 33% ownership
value, and start paying rent plus on the remaining 800 sq ft,
Their payments will have gone down by ½ but their living space
will only have gone down by 40%
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**********
Additional
Notes
Sharia
Law
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.
Monetizing
MBSes (Mortgage backed securities)
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
not 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 lower 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 publicity. But 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 will 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.
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 do not
care. If you want to get our country fixed, and think that this
is a way to do it, you better not expect any help from those who
brought you the current mess. Spread the word. Make noise.