Deed Restrictions

The term seems simple enough, but what are they, and how are they enforced?  The impetus for this week’s topic actually came about because of the articles I wrote about the giant tree that fell in my back yard.  I’ll explain more of that in article #2 of today’s newsletter.

 

In simple terms, deed restrictions are rules or wishes that the holder of a property or government entity wants to be put in place that not only compel current owners, but remain in place even if the property is sold in the future.  These restrictions, unless formally released, will run in perpetuity, and will hold any current or future owner of that property to comply with that rule.  Deed restrictions are legal documents recorded at the State’s Bureau of Conveyances.  Part of the disclosure process when you buy a property is receipt of the title report.  The title report will list all legal documents filed with the state that affect that property.  Be honest, when you bought your home, did you review the title report?  If you did, you get an A.  If you understood what everything meant, you get an A+.  It is vitally import for you to know what you can and cannot do with the most expensive purchase you will ever make.  If you bought an exotic sports car, wouldn’t it be important to know if it was legal to drive on public roads?

 

The simplest form of a deed restriction is zoning.  The government sets land use policy, dictating what lawful means you can use your property for.  If your property is zoned for a particular purpose, unless you get the zoning changed or a variance is issued, you cannot use that property for any unauthorized use.

 

Layered within zoning are building codes set forth by each county.  I know this may seem obvious to you, but some people don’t realize you can’t build whatever you want, just because you own the lot.  Regardless of there being an existing structure or the land is vacant, you should consult with an architect licensed in your area to confirm the maximum for building height, room counts, bathrooms, kitchens, and number of structures if you have any intention of constructing or modifying something already there.

 

Many areas around the state have housing developments that are subject to a Homeowners’ Association, or HOA.  Depending on the rules set forth by the HOA, you may need to get their approval before you can build, remodel, or even change the exterior color of your home.

 

If your property was formerly leasehold and owned by Bishop Estate, now known as Kamehameha Schools, there may be deed restrictions.  When the estate was forced to sell its vast holdings of residential properties, they placed restrictions on those lots to perpetuate their desire to have those neighborhoods retain the current feeling and character.  Each neighborhood had different restrictions, based on what the neighborhood looked like back then.  Examples of those restrictions included prohibiting a 2^nd floor, subdividing larger lots, and restricting walls, fences, and any new structures into their (KS’s) specified setbacks from other property lines.

 

I have seen situations where the seller will place a deed restriction specifying what changes, if any, could be made to the existing home.

 

Homes deemed historic or have exceptional trees on their property also have restrictions.

 

This is where it gets complicated.  Zoning and building codes could be very different than what is specified in a deed restriction.  For example, in Kahala - a former Kamehameha Schools leasehold neighborhood, there is a 1978 deed restriction preventing building anything in a 35-foot setback from the street.  Shortly after KS sold their leasehold properties in fee, many owners obtained building permits and built into that setback.  It was not the responsibility of the state or county to enforce that deed restriction, it was the responsibility of the entity that placed that restriction.  If KS didn’t want people encroaching into those areas on the lots they sold, they needed to take those owners to court to enforce that deed restriction.  The original deed restriction specified that neighbors and/or the Kahala Community Association could also seek resolve through the courts if they wished.  Nearly a decade later, several Kahala owners and the KCA sued several owners for encroaching into that setback.  Those that built said KS demonstrated a lack of diligence in enforcing the restriction, thus making the restriction abandoned, waived, or otherwise unenforceable.  The owners that sued along with the Kahala Community Association eventually settled to allow what was built to stay.  Enforcing a deed restriction can be very costly.  It can also be problematic if it isn’t vigorously enforced over time – especially if the restriction is harsher that current zoning or building codes.

 

A word of caution.  Do your homework.  The last thing you would want to face after buying a home is to find out you can’t do with it what you thought you could do.

 

 

 

Exceptional Tree Update #3

Man, we love our trees.  I write a real estate and mortgage newsletter but have gotten more response over the past month about trees than about almost any other topic.  I got a call this week from The Outdoor Circle.  I first wrote about that organization back in January when writing about murals, artwork, and illegal signs.  The Outdoor Circle not only has helped prevent Hawaii having billboards, but they also promote keeping Hawaii green.  Part of that mission is to help promote people keeping trees versus cutting them down.  They also help promote the state’s Exceptional Tree program.  That program enacted into law in 1975 has its 50^th birthday this year.  The Outdoor Circle is hoping the legislature will update certain aspects of the law to catch up with today’s economic realities.

 

I need to clarify on a couple of aspects of the program because my articles were unclear.  First, the tax deduction to help maintain an exceptional tree on private property is $3,000 per tree, every three years.  If you’ve ever had to get a large tree maintained by a company with a licensed arborist, you’d know your bill will far exceed $1,000 a year.  The OC hopes to get that amount raised to promote a realistic incentive for people to join the program.  Under the program, you’re not required to perform maintenance on the tree.  But if you do, you must apply for a permit from the Division of Urban Forestry showing that a qualified and approved arborist will be maintaining the tree.

 

The second is that once your tree is accepted into the Exceptional Tree Program, like a designated Historic Home, you can’t arbitrarily remove it.  Unless the tree is deemed a threat to health and safety by a licensed arborist, you’ll face a fine of $1,000 for removing it – plus most likely the scorn and protest of your neighbors.  That designation also remains a part of the property and carries forward, even if the property is sold.  If a property has an exceptional tree restriction, that information will be listed on the Department of Planning and Permitting’s website under the “Warnings” tab for the subject property:

 

 

If you would like to know where all the current exceptional trees are throughout the state, the Outdoor Circle maintains an interactive map you can access.  Here’s the website link:  https://www.outdoorcircle.org/trees.html.  They have lots of resources available, including a list of arborists who can maintain or advise you about your tree.

 

 

 

And now the week’s economic news…….

 

Inflation Eases

The latest inflation report confirmed the anticipated decline in the annual rate, removing a major potential threat to the recent rally in mortgage markets.  In addition, the other economic data hinted at slower growth, reducing future inflationary pressures.  As a result, mortgage rates ended the week at the lowest levels since early December.

 

Fed officials keep a close eye on inflation, and the PCE price index is their favored indicator.  In January, Core PCE was 2.6% higher than a year ago, matching expectations, but down from an annual rate of increase of 2.9% last month.  This is good news for mortgage markets, since further progress toward the 2.0% target of the Fed has been challenging, and this desired level has not been achieved since February 2021.

 

The monthly report on consumer confidence published by the Conference Board revealed a deteriorating outlook in nearly every area, particularly from lower-income consumers earning less than $50,000.  The index posted its largest monthly decline in over three years, dropping to just 98.3, far below the consensus forecast and the lowest level since June 2024.  For comparison, it was at 132.6 in February 2020 just before the pandemic.  Consumers expressed greater concern about price increases, as staples such as eggs have skyrocketed, and are worried that looming tariffs might affect a wide range of items.  In addition, pessimism about future employment prospects climbed to a ten-month high.

 

The Department of Labor releases the total number of new claims for unemployment insurance each week.  The latest reading was 242,000, up substantially from 219,000 last week and well above the consensus forecast.  Claims have not been at a higher level since the first week in October.  Bigger picture, though, this was still far below the inflated figures seen during the early months of the pandemic, and in line with the levels which were typical during 2019.  Weekly jobless claims are important because they are one of the timeliest indicators of labor market trends.

 

In January, sales of new homes fell 11% from December, well below the consensus forecast.  However, the largest declines were seen in the South region where there was record snowfall and unusually harsh weather in many areas.  The median new-home price of $446,300 was up 4% from last year at this time and a record high for January.  The supply of new homes rose to the highest level since 2007.

 

 

 

 

 

Next Week

Investors will continue to look for additional information about tariff policies.  For economic reports, the ISM national manufacturing sector index will be released on Monday and the services sector index on Wednesday.  The Trade Deficit will come out on Thursday.  The key Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation are always closely watched.

 

 

Until next week….