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Dan Harkey

Why the Public is Not Happy with Inflation! (Part 2)

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Image from Pixabay

By Dan Harkey

Business & Private Money Finance Consultant

Cell 949 533 8315 email [email protected]

Consider the largest debt-bomb globally, the unfunded portion of social security, Medicare, Medicaid, Military, and public employee pension shortfall. This $150 to$200 trillion estimate does not show up on the government accounting books as a liability. Like a boiling pot of water, the debt simmers, soaking the working-class public through increased taxation, regulation, inflation, and reduced purchasing power (debasement). The retired public may or may not be aware that no trust funds exist because they have always received their checks.

These are loans to the government borrowed from the public that will never be paid back, except by a massive erosion of purchasing power of the dollar (debasement). The government understands that the nasty bogey called inflation will reduce the value of the debt.

The government leaders also encourage a massive influx of new legal and illegal foreigners, who are expected to pay taxes eventually. This is not an immediate solution since 63% to 70% of newly arrived illegal immigrants go on welfare or subsistence government transfer payments. Different articles and statistics differentiate between undocumented non-citizens, illegal immigrants, and non-citizens.

https://cis.org/Report/63-NonCitizen-Households-Access-Welfare-Programs

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In 2019 Social Security and Medicare programs cost an estimated 8.8% of gross domestic product (GDP). GDP is approximately 22 trillion. 22 trillion times 8.8%= $1.936 trillion annual expenses. If you use $1.936 trillion divided by the number of retired of 70 million, then each retired person cost $27,657 each year. Social Security is about .6% to administrate and Medicare about 2%. Private insurers may spend between 12% to 18% on administration costs. End-of-life medical expenses may exceed $150,000 per retiree. About 2% of retirees, about 1.4 million die per year.

There are currently 10,000 people retiring each day, or 3,600,000 per year. If 3.6 million arrive on Social Security rolls and 1.4 million dies, then the net increase is 2.2 million added to the rolls. Each retiree will cost the public an estimated $28,000 per year, or an additional $61 billion per year on top of the $1.9 trillion current

In 2019 there were approximately 64 million retirees (pre-COVID). Adding 3.5 million per year over the next 10-15 years will result in 100 million retires who will expect financial support for retirement income and medical care. But that statistic is in a pre-Covid timeframe. With Covid, the propensity for retirement drastically changed.

COVID brought about a massive spike in retirement and social security application. The number of Social Security recipients skyrocketed. In 2019 there were about 64 million receiving Social Security benefits. In 2021 this number rose to 69.8 million or 70 million. — 70-64=6 million additional retirees in a matter of 2 years. The increased number, including 2022 retirees, will reflect close to a dramatic increase in retirees who apply and receive social security in just three years.

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We are facing turbulent financial trade winds this year and next. Interest rates should rise to combat inflation. Wall Street, big banks, and large corporations will be beating the drums no to raise rates. Borrowing cheap money and leveraging investments is their mantra. With artificially low-interest rates projects, become profitable because borrowing is cheap. Valuations rise accordingly, even to irrational and exuberant levels. But the minute rates begin to rise, profits and irrationally high valuations evaporate and fall back to earth. Boom and bust cycles are not an inherent trait of capitalism but caused by central bank intervention.

Regardless of the conclusion, the Federal Reserve will be there with their trusty computers to readily inject many additional dollar digits (trillions) to continue the U.S. financial Ponzi scheme (spend now and expect someone in the future to repay).

Our economic entire system of governance requires a never-ending Ponzi strategy. Future taxpayers will always be necessary to pay for today’s government expenses. If future spenders have no money because of high taxes, excessive regulations, or refuse to buy stuff, the system will collapse.

Image from Pixabay

The government and mainstream media propaganda machine will have public observers thinking that everything is rosy. The propaganda objective is to keep the population preoccupied with revolving crises designed to frighten them into compliance and submission.

All new fiat currency created by the government is designed to keep the population happy, the government in power, and the voting block reliable. The Ponzi system’s pursuit is conning the public into submission of a perpetual-motion downward economic quagmire. It’s truly a wonderful day in the neighborhood when the government-backed borrowed money flows freely, knowing that it will never be paid back. Of course, most beneficiaries of free-flowing borrowed funds are directed to (FOGS-friends of government.)

The U.S. tax base is not increasing much. Our GDP is about $21-22 trillion. Federal taxes collected appx $3.5 trillion. If we add all state and other forms of taxation, the total is about $5 trillion. The federal government spends close to twice as much as they take in, meaning a $2 to 3.5 trillion shortfall that must be borrowed.

Image from Pixabay

The only viable solution that the U.S. Federal Reserve has is to keep creating fiat money to plug the financial drain dike. What used to be directly on the book’s debt under President Ronald Regan (1/20/1981 to 1/10/1989) of 2 trillion, which is now $30 trillion and will become $100 trillion in our lifetimes. Since that time, the U.S. has gone from the world’s largest international creditor to the world’s largest debtor nation.

The speed of issuing new currency into the system and the subsequent debasement of the dollar is accelerating into uncharted territory, more than any time in our adult life. There will be massive upward price pressure on all goods and services the public will be subjected to. Since inflation is caused by an increase in money supply relative to goods and services, the government’s propensity to print fiat currency is currently experiencing a more than a significant increase in the money supply. Never mind that there is a corresponding increase in national debt!

Government actions are always the root cause of inflation. There was no inflation in the American colonies because there was no mechanism to print fiat currency. Between 1775 and 1779, Congress issued $225 million in fiat Continentals (currency), a massive sum for the time. Subsequent inflation caused prices to rise years 1776=12.99%, 1777=21.84%, 1778=30.19%, 1779= -11.59%(minus). Any rational mind would think that our elite governing leaders would recognize that deficit spending feeds the inflation spiral and needs to be limited.

Image from Pixabay

There has been ceaseless financialization and globalization over the past 50 years of the Federal Reserve, Wall Street, and mega-banks. By manipulating interest rates to near zero and investing in derivatives contracts, the insiders boosted their wealth upward to an unimaginable level, at least $50 trillion. Greed by beneficiaries of inflation, including the Central bank, Wall Street firms, megabanks, and large corporations, will work hard to keep the illusion going in their favor. Their savvy public relations people might object to the above statement.

Wall Street, megabanks, and large corporations’ benefit from high inflation by operating with exceptionally highly leveraged investments. Financial leveraging means investing very little capital, borrowing cheap money, and using derivatives to leverage-up at a much higher level. One percent capital and ninety-nine percentage leveraged borrowing are not abnormal until things go wrong. Leveraged investments with super cheap borrowing costs are why Wall Street, megabanks, and large corporations won’t raise interest rates.

The disparity is frightening. The wealthiest 10% has increased to at least 70% of all U.S. wealth applied to their asset ledgers. The bottom 50% held 2% of U.S. Wealth. They have now created the largest financial bubble since the 1680 tulip bubble.

https://www.statista.com/chart/19635/wealth-distribution-percentiles-in-the-us/#:~:text=As%20of%20Q1%20of%202021,another%20half%20at%2037.7%20p ercent.

Artificially low-interest rates harm savers who rely on bank interest for income, U.S Securities holders, corporate bondholders, and other interest income-related investment strategies.

Image from Pixabay

Distortion of economic reality created by artificially low-interest rates is hard to comprehend because Wall Street and megabanks have such tight control on government actions. They might object to that statement for public posturing. Butwait, if the market crashes, the elites will merely ask the government to bail them again. Elite leaders in the executive branch of the U.S. government are handpicked from Wall Street firms, particularly Goldman Sachs, BlackRock, The Vanguard Group, and JPMorgan Chase & Co. BlackRock has $10 Trillion assets under management. Vanguard has $8.5 Trillion assets under management. The magnitude of these figures is staggering, considering the U.S. has a total GDP of $22 trillion. You can rest assured that the oligarchs in the U.S. have control over almost all actions of government. Money begets power. Money and power beget influence.

U.S. direct on the book’s debt will balloon to $50 to $100 trillion in the next meltdown. Some Wall Street firms, megabanks, and large corporations will become insolvent from derivatives losses. They will be bailed out, just like they were in 2007-8. Once the next bailout is complete, they will high-five each other and issue big payout bonuses for their hard work creating a colossal financial mess. Just as they did in the 2007-8 bailout, they will take a vacation for all their hard work driving their companies into insolvency. The public is provided little or no information on these bailouts. Only the governing elites have full knowledge.

The ongoing strategy will eventually crash. No one knows when the cows will come home, and the entire system collapses. But the Ponzi strategy has been systematically successful, with a few bumps for over 225 years. Ponzi is an investment swindle strategy. Current participants rely on existing occupants/taxpayers to pay the government the costs now with borrowed funds and expect future generations of occupants/taxpayers to repay the debt. Those new taxpayers can only be paid back by collecting additional funds from subsequent new occupants/ investors. This strategy is the same for Social Security.

Image from Pixabay

The success of the future of your U.S. Ponzi assumes that the dollar will maintain the status of world reserve currency holder. If our leaders keep piss—g off world leaders en masse sooner or later, they will devise a mechanism to circumvent the dollar-based monetary system. Many of the strategies being followed by the current administration will cause the loss of world reserve currency holders. No one would be willing to buy our worthless treasury securities. Seventy-five years of dollar dominance would come to a suicidal end, and deficit spending financed by the other sovereign nations would stop.

Middle-class income earners and those who rely on retirement benefits may have limited ability to keep up with inflation. Living standards could collapse to those of third-world countries with visions of impoverished masses struggling to meet the most basic human needs (access to food, water, and shelter). With inflation, each year arrives with the reality that everything costs more, or dramatically more, to the point where most of the population will struggle to keep up or become stressed out debt-surfs.

Dan Harkey

Dan Harkey is a contributing author to Weekly Real Estate News and is a Business & Financial Consultant. He can be contacted at 949-533-8315 or [email protected].

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

Why the Public is Not Happy with Inflation! (Part 1)

by

Image from Pixabay

By Dan Harkey

Business & Private Money Finance Consultant

Cell 949 533 8315 email [email protected]

In 1913 folks could buy a five-course meal and iced tea for 10 cents.

That was about the time when the Federal Reserve system (central bank) was established. Since that time, approximately 109 years later, as of 2022, inflation increased by 2,740%. Many folks will argue that this is not true.

Inflation Calculator:

https://www.in2013dollars.com/us/inflation/1913?amount=1

Image from Pixabay

The Federal Reserve System is not our friend. A secret meeting was arranged by 6 of the wealthiest bankers at a remote location on Jekyll Island, off the coast of Georgia. This group of wealthy bankers-controlled appx 45% of the banking in the United States. They designed a cartel whereby members (privately owned banks) would lend between members to avoid bank runs. Participants laid the foundation around 1910 as a response to the financial crisis of 1907.

Inner-bank lending allowed higher leverage lending for member banks and eventually drove all non-members out of business. Bank runs occurred when large groups of depositors panicked and demanded the withdrawal of their money, either afraid of bank insolvency or creating it by their actions of mass withdrawal. Now the FDIC is subject to the same limitations about raising additional needed cash as the remainder of the government.

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The U.S. government liked and elected to adopt the inner bank lending system, merging the government’s interest with the private banking cartel. Congress created the Federal Reserve System to provide the nation with a safer, more flexible, and stable monetary and financial system. The Federal Reserve System was born on December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act. The Federal Reserve System now consists of 12 privately owned banks merged with government ownership and control and a Board of Governors located in Washington DC. While the Board of Governors is an independent agency, the Federal Reserve Banks are set up like private corporations. Member banks hold stock in the Federal Reserve Banks and earn dividends.

Reference-History of the Federal Reserve banking system:

https://www.federalreserveeducation.org/about-the-fed/history

https://www.federalreserve.gov/aboutthefed/structure-federal-reserve system.htm

A fascinating book about how the Federal Reserve System was created is Creature from Jekyll Island. It is a beautiful read that I could not put down once I started. I have a hard-bound copy in my office now.

Here is a summary of The Creature from Jekyll Island.

https://www.eetimes.com/book-review-the-creature-from-jekyll-island/#

Governments have three methods to raise capital for operational expenses. They tax, borrow, and print new fiat currency (money).

The Federal Reserve is responsible for injecting newly created fiat money into the U.S. monetary system by the tens of trillions of dollars when instructed.

https://www.investopedia.com/ask/answers/082515/who-decides-when-print-money-us.asp

In response to bank runs in 1928, the Federal Deposit Insurance Corporation (FDIC) was established in 1933. The FDIC was an independent federal agency whose purpose was to insure bank and thrift deposits in bank failures. The objective was to maintain public confidence and encourage stability in the financial system by promoting sound banking practices. The question today, almost 100 years later, is whether the FDIC has adequate reserves to insure deposits. They don’t without the usual borrowing from the Federal Reserve.

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The Glass-Steagall Act of 1933 required separating investment and commercial banking operations. This separation was a by-product of inner-mixing bank activities that led up to the great depression. Mixing activities of investment with banking operations was considered too risky and speculative.

Gramm-Leach-Bliley Act of 1999 reversed Glass-Steagall direction by removing legal barriers preventing financial institutions from providing banking, investments, and insurance services as combined business services.

Today banks and non-bank financial institutions are some of the most highly leveraged operating companies in the U.S. Banks and non-bank financial institutions regularly invest with minimal limits in extremely high-risk and highly leveraged securities. Little regard is given to safety measures of bank depositors. They ratchet up leverage positions to maximize yields by purchasing positions in casino-style financial bets in the form of derivatives contracts. Even reserve requirements have been eliminated so that banks are no longer required to keep any reserves on hand for protection in case of excess demands for depositor withdrawals.

Image from Pixabay

Inflation is the direct result of the government’s endless injections of new fiat currency into the economic system, which becomes a corresponding future debt of the taxpayers. Our future sovereign debt, of course, is a systemic fraud because the Federal Reserve and the leaders of this country never plan on paying the debt off or even reducing it. As the Federal Reserve pumps more money into the economic system, there is a corresponding reduction of the dollar’s purchasing power (debasement). Goods and services cost incrementally more. With debased dollars paying off the debt assumes that payments would be made severely diminished valued dollars (cheaper dollars).

Taxpayers can only see future debt piled upon future deficits that they view as their responsibility to repay, as a government national credit card for which they are on the hook. The top tier taxpayers of 1% paid 38.8%, the top 10% paid 71%, and the 25% of taxpayers pay 87% of the federal taxes. All these folks should have great concern about runaway government spending. The bottom 50% of taxpayers in the U.S. pay about 3% of federal taxes. Low-income earners and retired folds relying on Social Security for living costs get crucified by the devil called inflation. This lower socioeconomic tier is first and most severely harmed by inflation and reduced purchasing power because of their limited discretionary or nonexistent incomes.

https://taxfoundation.org/publications/latest-federal-income-tax-data/

https://theintercept.com/2019/04/13/tax-day-taxes-statistics/

Image from Pixabay

The U.S.’s financial problems include accumulated disclosed direct debt of about $30.3 trillion and an estimated $150 to 200 trillion of unfunded, underfunded, and not-disclosed future obligations for Social Security, Medicare, Military, and Federal employee pension obligations. These figures are well disguised on purpose. Remember George Bush Jr’s remarks and his debate with Al Gore when Gore’s economic figures were referred to as “Fuzzy Math”? How would the public react if they understood that their future retirement had been stolen or misallocated and not be available when they needed it?

https://www.usdebtclock.org/

Most, if not all, future financial obligations of the U.S. must come from a combination of current general funds based on tax receipts and newly minted fiat currency in the form of U.S. Treasuries as future debt. This future debt is sold to the public, corporations, and other sovereign nations as treasury securities, backed by the full faith of the U.S. Government. Some entities invest in treasuries for safety, and some are out of compulsion (forced for political expediency).

If one inquires of the solvency of the Social Security trust fund from the mainstream media or online web news, they will tell you that Social Security has almost $3 trillion in trust fund assets (so-called-not). But they will fail to tell you that all the Social Security trust funds are invested in U.S. Treasuries. Treasury securities are debt created by the government and must be repaid upon maturity. Social Security is currently a pay-as-you-go system paid by current taxpayers to benefit of retired folks. If financial demands for Social Security and Medicare exceed available current tax receipts from taxation, then the remainder must come from the Social Security trust fund. But there is little or no liquid assets or cash available in the fund?

Image from Pixabay

Any payments demanded from the Social Security trust fund would require that the government free up money by paying off a corresponding amount of U.S. Treasuries (IOU’s) that are held as assets of the trust fund. Where will the money come from for the government to pay off the Treasuries? If the government cannot locate liquid capital, then they must create it by issuing new treasuries for new parties to purchase to replace the old. What a great trick to pull upon the American public! I want to pay my bills and credit cards where someone else is responsible for repayment.

They swapped the accumulated liquid assets sitting on the books of these Trust Funds for debt instruments that are expected to be owed and paid from future taxpayer receipts. Switching debt that you owe and calling it an investment asset is the ultimate form of financial prestidigitation (magic trick). Yes, an asset that is held on your behalf is misappropriated into debt, and you are responsible for repaying in the future.

Special Studies by the Historian’s Office of Social Security and Research Notes:

https://www.ssa.gov/history/BudgetTreatment.html

Remember the 1980’s rock group, Queen? Freddy Mercury, the lead singer, was a British singer, songwriter, and record producer, and in my opinion, the most outstanding male singer ever. He was known for his flamboyant stage persona and four-octave vocal range. He could sing classic rock-in-roll as well as serious opera. Ironically, he was born, with the name Farrokh Bulsara, in 1946 in Zanzibar to Parsi-Indian Parents.

“The Show Must Go on. The Show Must Go On. Yeah, inside, my heart is breaking. My make-up may be flaking. But my smile still stays on.”

Your future social security payments are an example of “The Show Must Go on.” Proceeds for social security payments are just a hollow shell of current taxation and debt, which may be paid from current taxpayer receipts or by the government issuing new debt instruments, sold to convert proceeds to cash, and spent now. This strategy has worked so far in our history. Still, the accrued government direct debt obligations and the interest due coupled with the under-funded pension and medical obligations will eventually eat up the entire national budget. It is bookkeeping magic. “But the smile still stays on.”

Dan Harkey

Dan Harkey is a contributing author to Weekly Real Estate News and is a Business & Financial Consultant. He can be contacted at 949-533-8315 or [email protected].

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

Friends Do Business with Friends

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Image from Pexels

By Dan Harkey

Business & Finance Consultant

cell 949-533-8315 email [email protected]

“Being and Time” written in 1927, best discussed the concept of authenticity, of being, and caring. Martin Heidegger, a German philosopher, is an excellent read. In Heidegger’s study, he referred to as “Dasein,” which means “Being-there.” One may interpret it as “being-ever-present.” Also, to be fixed, embedded, and immersed in the physical, literal, and tangible day-to-day world. Another good read about the development of Heidegger’s concept of authenticity is in the book, Eclipse of the Self by Michael E. Zimmerman.

In the late-1970s into the early-1980s, I developed a unique strategy and grew from a high school business teacher to one of the highest producing real estate agents between Newport Beach to San Clemente between 1978 and 1984, and later in the mid-2000s to produce up to $10-25 million per month in sales volume in the real property lending business. On a side note, I developed the business curriculum in the 1970’s for Saddleback School District in Orange County, CA. The classes included word processing/keyboarding, typing, business math, consumer education, economics, and accounting. This was pre-computer science days.

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Before 1980, I was an early adopter of cross-selling. I created a real estate brokerage, a public escrow company to close the sales, a mortgage company to originate residential and commercial real estate loans, and a general insurance agency to place the insurance policies on the purchased property. Additionally, the insurance agency placed investment property coverage, liability coverages, auto insurance, life & disability insurance. An adjunct company that I formed was a property management company to manage residential and commercial rental income property, including commercial leasing.

Effective salesmanship is a learned skill set but developing into an authentic and unique being is the treasure. Confucius and Dan say, find a man who enjoys his work, and you will find a person that will never work another day in his life.

If one’s objective in the sales business is to follow up with your few friends, the potential success will be minimal. An effective sales network starts with a few but grows into thousands and tens of thousands.

The 80/20 rule applies to the sales profession. 20% of the salespersons develop 80% of the sales. Conversely, 80% of the salespeople develop 20% of the sales and resulting profits. Successful salespersons are willing to do the heavy lifting and do tasks others refuse to do.

It will help if you start by defining your universe of possibilities. In other words, what is the maximum and broadest number of individuals or prospects that you may develop to sell your products, goods, or services? Is it 1 or 1000 or 10,000? Size matters! A salesperson’s understanding of this process may be limited by lack of experience, willingness to take the risk, or just plain lack of enthusiasm for engaging in a long- term systematic enterprise. A more straightforward explanation is that some people are just plain “lazy and irresponsible.”

Image from Pixabay

I have consulted with many eager salespersons. Yes, the size of one’s prospect lead base matters. But relationships matter more. The size of a prospect network may start with 10 or 20 but grow to 1000 or more. You may start with a smaller number but limit the number of lead potentials unless you sell multimillion-dollar products with a considerable profit margin. Two examples may be Caterpillar and airplanes. These items cost from mid five hundred to hundreds of millions of dollars.

You may want to formulate a strategy to communicate daily to develop new business leads that, hopefully, will become lasting friendships. Therein lies the process, how do you turn prospects into friendships. I do not want to suggest that you create superficial but develop friendships that are bonded by authentic caring and communication. Can you call a friend and have a general conversation and enjoy the time spent without the thought of getting something out of it?

Herein lies the struggle between the salesperson who will never or only marginally become successful and one that can develop into a master salesperson with life fulfillment in relationships with others.

Image from Pixabay

Yes, you locate a buyer; you do not create one. In other words, if you were taught that slick language, like handling the objections and then switching to assumptive close works, Fuller Brush Company and Encyclopedia Britannica may have a job for you. Also, using online tools like LinkedIn and Facebook may be effective or a complete waste of time. A new link with a new person is only the most minute beginning and introduction to developing a future relationship and eventual friendship.

To be effective, a salesperson needs a good customer relations software package (CRM) to manage prospects, memorialize conversations, histories, families, events, interests, backgrounds, and essential aspects of developing a friendship. The effective salesperson needs an email marketing system like Salesforce or MailChimp.

The more you understand your friends more the relationship will grow. They will look forward to talking with you, and you will have mutual interests. And, of course, you will enjoy talking and sharing things that are interesting to you.

Now comes the strategy of calling 10 to 25 prospects per day to become friends over time. What can you do for them? How can you assist them in accomplishing their goals? Continue the exercise until you develop so much business that you can hire assistants. Delegate as much of your job tasks to others, then get back on purpose.

Image from Pixabay

If you make your outbound calls and receive an answerphone, leave a message, then follow up with an email with a purpose message. “Just calling to catch up,” or “Just called to check if I can do anything for you or your clients,” Or “just called to share an interesting article or news segment that I read.”

A difficult part of any conversation is developing the habit of listening rather than doing most of the talking. No, I am not that interesting, no matter who told us we were. It is easy to talk about me when having conversations with others. We can all become amused about ourselves and our life histories. It is imperative to stop talking and start listening.

Developing authentic friendships that will choose to work with you will be a natural transition from acquaintance to business prospect to genuine friendship. The process requires you to learn about your friend’s background, family, and what is important to them, not about you. What can you do to improve their lives, help their client, or help them put bread on the table?

Find a person who develops enough friendship relationships to do business, and you will both have a whole and enriched life. The journey is never complete!

Developing your unique ability will create a positive magnet around you so that people will be drawn to you through developed friendships, social networking, enhancing your satisfaction, professional career, and the same for those who meet you.

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My opinions, which comes from experience:

  • 20% of the people and friends in your life give you 80% of life’s satisfaction. Conversely, 20% of the negative, disrespectful, and unreliable people will result in 80% of the dissatisfaction. Tolerating people with negative attitudes, belligerent, rude, condescending, game playing, or jealousy does not fit into a satisfying life journey. Included in this group are superficial, sycophantic, and parasitic friendships. Eliminate all these people from your life, pronto?
  • Develop a management infrastructure and support system around you. These may be employees or independent contractors. Only with a whole support staff and operational techniques and strategies can you develop into high sales volumes and consistently deliver a quality outcome. If you allow weak staff members or weak systems, this will drag you down and make you marginally effective.

Thank you for taking the time to read this article.

Dan Harkey

Dan Harkey is a contributing author to Weekly Real Estate News and is a Business & Financial Consultant. He can be contacted at 949-533-8315 or [email protected].

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

Real Property Easements, An Overview. the Purpose & the Risks? (Part 2)

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Image from Pixabay

By Dan Harkey
c 949 533 8315 e [email protected]

Real estate development patterns on a going-forward basis:

Laws have changed, sometimes dramatically, as we have experienced in California. California leadership has recently passed multiple laws to modify the nature of housing occupancy by the public. The changes include urban and suburban housing. The goal is to replace single-family buildings with high-density stack-and-pack cluster apartments and homes. Parking requirements and setbacks have been eliminated to pack them in.

Image from Pixabay

Many developers prefer high-density or cluster zoning and housing to maximize density, space, and profits. Cluster housing was initially defined as housing placement near each other, reducing individual land parcels and yard space to increasing open space and common area amenities. Larger areas of open space within the development form a buffer for adjacent land uses- additionally, cluster housing with homeowner associations would be responsible for the infrastructure maintenance.

There is a distinction between the written physical layouts or placement of easements and written usage agreements memorializing rights and responsibilities between the parties. A well-written agreement is designed to understand the terms and conditions and enforce them among the parties.

A part of centralized development planning is to determine the need and locations of property usage easements. They will be plotted and engineered as part of the approval and development process.

Suburban areas have historically consisted primarily of low-density residential, commercial, and industrial communities away from urban areas but within commuting distance for employment. Suburban communities have had their own political and governmental services jurisdictions.

Populations grew in suburbs because people wanted autonomy from the tightly controlled rules and hectic and congested lifestyles in densely populated urban settings. Suburbs usually provide an overall higher standard of living for a comparable income than the metro or urban lifestyle. Traffic congestion, commercial corridors, shopping, schooling, environmental issues, and freedoms that go with more land and open space make it worth the cost for people to commute into a city for work.

Image from Pixabay

Past President Obama issued a regulation known as AFFH (Affirmatively Furthering Fair Housing). The objective is to create progressive mini-urban cities within the suburbs. The objective was to have suburbs swallowed up by larger cities. These new mini cities would be subject to federal regulations and mandates taking control of zoning and development. This includes eliminating single-family zoning and forcing the building of medium to high-density low-income housing, thereby creating mini-urban-styled downtowns.

Eliminating local government control is the plan to destroy the suburban lifestyle.

Affirmatively Furthering Fair Housing (AFFH) works by holding the development process hostage to the U.S Department of Housing and Urban Development (HUD’s) Community Development Block Grants and federal-planning demands. Suburbs will be prohibited from receiving millions of dollars in HUD grants unless they eliminate single-family zoning, install low and moderate-cost housing, and consolidate and densify commercial and residential districts into stack-and-pack neighborhoods. Highway funds are also planned to be withheld for failure to comply.

Any objections by a local municipality will get municipal leaders of the suburbs sued for discrimination by civil rights groups and by the federal government.

The current administration has reactivated and placed Obama’s AFFH strategy a high priority.

Municipalities commonly use a tool of extortion to gain easements on specifically targeted properties. When the owner applies to process a tentative tract map, the city planners frequently condition the approval to include easements that have little or no benefit to the property owner. In many cases, property owners are even required to pay for the improvements. An “eminent domain action” is frequently used to force property owners to sell their property or allow specified easements. I refer to this as “easement by extortion.” In many cases, property owners are forced to pay for the improvements

In many cases, multiple parties who own adjacent properties, shopping centers, retail centers, industrial, and historic registry facades all require written easement agreements for mutual benefits to protect the interest of all participants. Examples include easements for parking, reciprocal access of ingress/egress corridors, access for installation and maintenance of utilities, operation and management of common areas, and many others.

https://www.nps.gov/tps/tax-incentives/taxdocs/easements-historic-properties.pdf

Actual case studies:

1) Two adjacent property owners who were friends owned and occupied two separate contiguous industrial parcels. The properties are in Gardena, CA. Each land parcel was 40 ft wide by 100 ft deep. The property owner on the right side wanted to build a zero-lot-line building structure that was 40 in width. A zero-lot-line means that the property was initially built-up to the property line with no setbacks. The left-side property owner agreed to construct his building only 30 feet wide so that there would be 10 feet available for ingress/egress of automobiles for use by both properties. The actual physical location for ingress/egress was only 10 feet of the left-side property. The right-side property possessed no other method of entry other than his left neighbor’s property. No written agreements existed, but merely two good old boys who agreed with a handshake and hopefully an occasional cold beer at the local Kelsey’s bar.

An argument and litigation for a prescriptive easement right would be justified since the buildings were built in the 1960s. The original owners and subsequent owners have operated that way ever since.

The right-side property owner owned his property free and clear. The left-side property owner had the first lien of $300,000. A lender suggested that the property owners hire a civil engineer and a lawyer to draft a reciprocal usage easement for ingress/egress. The owners must submit the plans and agreement to the building and planning department for approval. Upon city approval, the reciprocal easement agreement could be recorded. Once the contract was signed and recorded, the easement would remain on the property title.

In this fact-specific case, the problem was that the newly drafted easement would be recorded in the first lien position on the right-side property but as a second lien position on the left-side property. The left-side property’s recorded easement would be in a second lien position behind a $300,000 first trust deed lender. If the borrower on the left side defaulted on his loan and the property was lost in foreclosure, the recorded usage easement would be foreclosed, extinguished, or ceased. Subsequent owners would be damaged and have no right of access. Lack of access for automobile ingress/egress would drastically diminish the functionality and desirability, and the value would be severely affected.

Image from Pixabay

2) An auto body and fender shop fronted on a busy street but had no direct access to the auto storage yard. Entry into the repair shop was available only through an alleyway. All the properties along the street have the same issue and potential risk.

The lender’s task in processing and underwriting a requested loan was to verify that the alley right-of-way was either a publicly owned street or a written reciprocal easement agreement signed and approved by the property owners who required continued access through the alleyway. The recorded easement was verified that it existed and did run with the land. Risk abated.

Image from Pixabay

3) A barbershop operator had the chance to purchase the real property at the location of his operating business. The location was an A+ situated at the entry to a regional shopping mall. Part of the lender’s processing and underwriting staff’s task was to verify a reciprocal parking easement agreement for all the tenants in the shopping center and the inline retail shops near the entry. The recorded easement was verified and did, in fact, run-with-the-land. Risk abated.

4) A small shopping owner and adjacent church struck an informal deal to use each other’s parking. An informal letter arrangement was arranged between two property owners who mutually benefited by being able to use the other owner’s property. The informal agreement does not run with the land. The arrangements are usually for a specified time and are cancellable with a 30/60/90-day notice. Although Sunday mornings were problematic, a large church occupied one side of the street, with marginally adequate parking. Church attendees were able to use the available parking across the street. There is a shopping center across the street with semi-adequate parking, although Saturdays are problematic. A letter agreement was drawn up for common usage of parking rather than an easement. The agreement specifically spelled out the terms of times for needed use of both parties and was cancellable by either party with a 60 days’ notice. There is an unsolved risk because of the informal nature of the agreement.

5) Land loan. A lender made a commercial loan on a vacant parcel adjacent to a large shopping center. The parcel was located strategically at the most prominent entry to the shopping center.

Image from Pixabay

An appraisal was obtained that reflected values as a developed small commercial for drive-through fast food or coffee establishment.

The parcels necessitated every square inch for development with little flexibility. Parking was adequate because it was adjacent to the large shopping center with no prohibitions on the number of spaces. There were no parking easements, but there was also no prohibition.

The borrower’s attorneys drafted an agreement. The principal property owner made a deal with the largest shopping center tenant to place prominent entrance monument signage on the subject parcel without the knowledge of the land lenders. The property owner/borrower attempted to strongarm the land lender into signing it the subordination agreement making the land lender’s first lien junior to the signage easement.

Image from Pixabay

What a preposterous and foolish request! But the borrower/owner of the property was looking for a fool of a lender. How about a massive unforeseen risk for a lender? The lender rightly refused the request.

If the lender had agreed to sign the subordination and allowed a colossal monument sign in the middle of the vacant commercial parcel, the parcel value would have plummeted to a small park to donate to the local municipality as a feel-good exercise.

Understanding easements in relation to real estate ownership and development is full of complex issues. Civil engineers and land planning lawyers specializing in this section of real estate law should assist in drawing the property boundaries, alignments, and applications for municipal approvals. Work with a title company to have the easements recorded and insured. Assess the benefits and risks. Do not circumvent best practices.

Thank You

Dan Harkey

This article is an overview for a general educational purpose only. The information presented should not be relied upon without the advice of counsel.

Dan Harkey is a contributing author to Weekly Real Estate News and is a Business & Financial Consultant. He can be contacted at 949-533-8315 or [email protected].

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

Real Property Easements, An Overview. the Purpose & the Risks? (Part 1)

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Image from Pixabay

By Dan Harkey

c 949 533 8315 e [email protected]

This overview of real property easements has relevance to property owners, real estate agents & brokers, mortgage agents & lenders, insurance agents & brokers, escrow officers, and title insurers.

What are real property easements?

An easement is a non-possessory right conveyed from one property owner (#1) to another property owner (#2) to use, enter, or cross over a parcel (or a portion) that is owned by the party (#1). Non-possessory means that party (#2) possesses a right to use, enter, or cross but does not own or have no property ownership claims. claims of ownership to the property.

A non-possessory interest in a property restricts its free use because it is an encumbrance on the property. The non-possessory interest (easement) is generally recorded against the property in municipal public records and serves to cloud the title.

There are two types of possessory interest: freehold and leasehold estates.

Fee ownership Interests are generally subject to certain easements such as utilities and public rights of way.

“A public right of way easement gives the public or organization the right to access and use property in specific situations for limited purposes. A right of way is an easement that established the freedom to use a pathway or road on another person’s property without conferring ownership.”

Easements generally run with the land into perpetuity (for all time) unless expired or canceled by the parties. They may be expressed, implied, by necessity, or by prescription.

https://www.forbes.com/advisor/mortgages/what-is-an-easement/

https://www.lorman.com/resources/easements-in-california-creation-of-easements-16986

https://www.clta.org/page/article6/A-Legal-Introduction-to-Easements.htm

What are reciprocal usage easements?

Reciprocal easements are non-possessory interests conveyed between two or more property owners. An agreement establishes the terms for easements, restrictions, and covenants between two or more different parties. The agreement is mutual between two or more parties to benefit each other, usually equally.

Using the example above, property owner (#1) may use the owner’s (#2) property. Reciprocally owner (#2) may use the owner’s (#1s) property. You scratch my back, and I will scratch yours for mutually beneficial purposes.

https://www.davis-stirling.com/HOME/reciprocal-easements-defined

What are reciprocal easement agreements?

Image from Pixabay

https://www.coxcastle.com/news-and-publications/2013/fall-2013-retail-perspectives-newsletter/understanding-reciprocal-easement-agreements#:~:text=Typically%2C%20reciprocal%20easement%20agreements %20(%22,as%20an%20integrated%20shopping%20center.

https://www.contractscounsel.com/t/us/reciprocal-easement-agreement

Consider two adjacent commercial parcels, each with 20,000 square feet of land. One land parcel has a local grocery store, and the other has a restaurant. The owners structured a reciprocal easement agreement to allow both parcels to provide entry to commercial supply trucks and for parking. With the building footprint, required setbacks, and parking, there is not enough room for large trucks to deliver supplies without overlapping parcels.

What are prescriptive easements?

Conflicts and litigation may arise to prove what may be referred to as claimed rights to pass over a property. A “prescriptive easement” is a “claim of possessory right to pass” across another person’s real property that was acquired by continued use without permission of the owner for a legally defined period. Usually, a claimant has the burden of proof of the elements necessary to establish that the easement has been created over time by prescription (California Code of Civil Procedures 321). In California, a claimant is required to adequately prove that they have possessed the prescriptive easement by continuous use for at least five years. Other states have similar regulations.

The statutory time for prescriptive easements varies from state to state. Each claim is fact-specific, with the possibility of winning some and losing some. Proving the claimant’s rights can take time, resulting in litigation and being fraught with the risk of losing. All this frustration could have been avoided with well-documented agreements.

The issue of exclusive vs. non-exclusive easements must also be proved-up. Will the easement run with the land and bind all future owners? In California, 2d 872 (2002). California Civil Code 1104 provides that a transfer of real property passes all easements attached thereto.

There are many types of easements for dozens of different purposes:

https://en.wikipedia.org/wiki/Easement

Are easements transferable from one party to another?

Image from Pexels

Most easements are recorded and are a matter of public record. When a property is transferred to another party the easements are transferred and remain on title. An easement generally remains with the property.

https://www.findlaw.com/realestate/land-use-laws/easements-and-transfer-of-land.html

Why should property owners, real estate brokers, and lenders make such a big deal about easements? What’s so important?

Owners, realtors, and lenders should be aware of the vast reservoir of property usage limitations caused by property easements limiting property usage and reducing a property’s development potential and value.

“Easements are like having a giant network of squid-like tentacles on your property that you can’t touch, see, or hear but had seriously better handle. Failure to deal with each easement (tentacle) could result in catastrophic consequences, including diminished property value and limited or total inability to develop the property.”

Easements are clouds on the title. An easement is an encumbrance against a property referenced by agreements and claims to enforce rights and obligations. Whether recorded or not, the easement still reflects a clouded title.

When a realtor or lender drives up to a property, they may admire the beauty and tranquility of the setting. The home elevation, topography, floorplan, panoramic views, and hardscape are outstanding. The property location may be the best. Selling the sizzle is appropriate but limited to the realtor’s spectacle performance and buyer’s immediate response. But there is a large prohibitive easement for a neighborhood storm drain running across the yard where the purchaser planned on placing a nice swimming pool. They were not disclosed of the storm drain easement.

Legal risks for an agent may be devastating. “I am the buyer’s agent. I did not read the preliminary title report, ask the title company for copies of all easements, nor ask them to chart out all easement placements on the property.” But the buyer’s confession that they did not read the preliminary title report does suggest a breach of fiduciary duty and constructive fraud. Failure to disclose was felony stupid.

Image from Pexels

“Constructive fraud comprises of any act or omission or concealment involving a breach of legal or equitable duty, trust or confidence which results in damage to another, even though the conduct is not otherwise fraudulent.” Salahuddin vs. Valley of California, Inc. (1994).

Constructive fraud means that fraud was created because any reasonable real estate fiduciary should possess this knowledge or know about these facts/circumstances. Failure to disclose constructive fraud.

What lurks underneath the ground is a web of easements that limit land usage, building size, and economic feasibility, inhibiting overall value. A 100,000 sq ft parcel may only have 10,000 square feet of a buildable pad because of restrictive easements.

A 20,000-square-foot property that appears to be worth $100 per foot, but 80% has limited use because of restrictive easements. Only 20% of the parcel is buildable. A buyer may not be willing to pay $100 per square foot for 20,000 of land when only 4,000 square feet are buildable.

Risk and liability flash red for the principal parties and their agents:

Image from Pixabay

Knowledge is the key. On any transaction, the parties should obtain a preliminary title report, obtain written copies of all easements, and request a survey performed by the title company to determine survey boundaries and potential adverse effects on the property. An appraiser will be interested in the results.

Principal buyers and their agents will decide what easements are appropriate and acceptable and what easements are not. Accepting the property as-is, renegotiating the price, or outright rejecting the purchase are possible options.

History:

Image from Pixabay

Many buildings that were constructed in the earlier part of this century, before the 1960s, lacked adequate parking and, in most cases, lacked formal agreements about common on-site usage for ingress/egress for walking and automobiles. In property law, ingress/egress refers to the rights of a person to pass over a real property for entry, leaving, and return across the property.

Familiar transportation sources were walking, bicycles, horseback, and horse-drawn carriages. Building growth clustered around the center of town was standard. The advancement of the automobile, which made transportation more flexible, had not yet matured. The requirement for expanded parking areas had not matured.

In days gone by, two or more property owners might verbally agree that they would build adjacent buildings and use a small portion of one of the land parcels for ingress/egress, as oral agreements tend to do. Many old verbal agreements have gone wrong, as oral agreements tend to do. Handshake agreements broke down, and conflicts arose with future ownership. Problems also arose when descendants and partners disagreed with the interpretation and or benefits of the original verbal easement agreement.

https://www.findlaw.com/realestate/land-use-laws/express-and-implied-easements.html

Municipalities, property owners, and lawyers began memorializing the agreements in written form. At the same time, the creation of municipal planning departments and zoning ordinances came into being. Owners were then required to hire civil engineers to draft a written placement of physical easements and obtain approval from the municipality. It is common practice to hire a land planning lawyer to handle the application process for various approvals with the respective city planning department.

Upon approval by the city, the agreements and drawing of physical placement of the easements encumbering the property were generally recorded in public records. The objective was for the recorded agreements to provide public notice that the easement existed and would bind all future owners in perpetuity.

Many older structures were built prior to creating and enforcing building and zoning ordinances. Zoning ordinances were adopted in California as early as the 1920s and have continued to evolve. Prohibitions related to setbacks, height & density restrictions, floor area ratios, required parking, deed restrictions, necessary amenities, and acceptable building materials all have occurred over time. Laws have been passed that now control aspects of ownership.

(to be continued…)

This article is an overview for a general educational purpose only. The information presented should not be relied upon without the advice of counsel.

Dan Harkey is a contributing author to Weekly Real Estate News and is a Business & Financial Consultant. He can be contacted at 949-533-8315 or [email protected].

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

Relax and Recharge in Your Mental Hobby Shop

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Image from Pixabay

By Dan Harkey

Most people have a place they go to or an activity they engage in that helps them move into peacefulness, serenity, and resolve. They can spend time happily away from exterior societal pressures. I refer to that state of being as their Mental Hobby Shop, which will help them to exclude all the extraneous life pressures and extraneous violations of their sovereignty. Each of us needs to define where our mental hobby shop is located and conscientiously try to spend more valuable time there.

Here are a few examples of preferred hobby shops:

Image from Pixabay

  • Garage tinkering: Time spent in the garage with things like bicycles, cars, or motorcycles. There is nothing like washing and waxing a bike to take you into another world. How about repairing something, organizing useless stuff, or inventing something useful?
  • Golf and active sports: Time spent on a golf course, tennis court, or workout facility. How about riding horses or cruising on a street bicycle or mountain bike?
  • Personal activities: Time spent with individual activities such as painting, scrapbooking, reading a good novel or playing a musical instrument.
  • Family: Time spent with family and pets at a picnic or outing where life’s daily pressures are minimal, and enjoyment is paramount.
  • Outdoors: Time spent walking on a trail, park, or beach. Being outdoors has excellent therapeutic value. Getting close to nature is always rewarding. I have enjoyed walking in the rain on the beach with a raincoat.
  • Vacations: Great time to explore, whether at local parks, national parks, or leaving on a jet plane. How about a local harbor getaway or an extended cruise ship vacation?
  • Camping retreats: Time spent camping, with a BBQ, or RV with friends and family.
  • Tranquility: Reading books, listening to tapes or videos that reflect positive thoughts rather than anguish, disgust, or pain. There is no need for intensive inquiry or into searching for meaning. That includes avoiding watching news that portrays our circumstance as an inevitable Armageddon. Just positive thoughts!
  • You are helping others: Volunteering for various activities that help others without expecting a financial return.

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My Mental Hobby Shop consists of the activities.

  1. My garage: Time spent tinkering in my garage, maybe even having a beer, and listening to classic rock or country music.
  2. Out on the road: Time spent with my motorcycles and electric bicycle, washing, waxing, checking the tire pressure, or riding out on the road. Just head out on the highway, looking for adventure. Where have I heard that before? Much like being in the movie, Born to Be Wild, only with much less wild at my age. I may head out for a destination to meet my buddies who belong to the 4-B Club. 4-B stands for bikes, buddies, beer, burgers, and discussing buddy things.
  3. Walking: on the beach, around the harbor, through a delightful park, or around the neighborhood. 3 to 4 miles is my goal. I get sunshine, vitamin d, exercise, a nice breeze, and peace of mind. After a shower, I feel great.

Image from Pexels

Identify where your Mental Hoppy Shop exists and conscientiously spend more time there. Life will be more rewarding where your state of happiness dwells. Happiness creates renewed energy and motivation, stimulates creative thought, and feeds overall physical and emotional health. The key is to detach from work-related issues and societal pressures and stop reading and listening to mainstream news propaganda.

News media outlets spew news full of sensationalism followed by a barrage of advertisements. The news is designed to sell you something and to create strife about how terrible everything is. Of every one-half hour segment that someone watches mainstream news, only about thirteen minutes is considered news, although the content is always filtered through an ideological kaleidoscope. Then ad nauseam advertising segments follow for about seventeen minutes.

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Within mainstream news, the commentators and the guest experts consistently deliver the narrative as subscribed to by the media company. FOX, MSNBC, AND CNN present material from an opposite perspective. Experts will work within an approved framework for acceptance and consensus-building, rather than seeking truth. Experts will act to ensure job security, cultivate kindred relationships, expand their careers, and seek more notoriety.

Little independent critical thinking and unbiased scientific analysis can be found in the mainstream media. Those who want actual and truthful content can find alternative news sites and information sources online.

Yes, turn off the toxic tube and cell phone! Yes, turning off is difficult to do for a few of us who are extroverted, outgoing and task oriented. Those folks tend to be direct, decisive, driven and demanding. But they can also become addicted to staying connected and watching 24/7 biased propaganda news.

This article is intended for educational purposes only and is not a solicitation.

© Dan Harkey. This material’s unauthorized use or duplication without express and written permission from this author or owner is strictly prohibited. The article may be used in marketing efforts, provided that full and clear credit is given to Dan Harkey. The credit displayed when you forward any article must include Dan Harkey, Business & Finance consultant. You are not authorized to modify the articles title or the content.

This article is an overview for a general educational purpose only. The information presented should not be relied upon without the advice of counsel.

Dan Harkey is a contributing author to Weekly Real Estate News and is a Business & Financial Consultant. He can be contacted at 949-533-8315 or [email protected].