For Rebound Renters, a Few Things to Remember

By Ilyce R. Glink with Samuel J. Tamkin
Saturday, August 2, 2008

Foreclosures have doubled over the last year, which means a lot of former homeowners are becoming renters again for the first time in a long time.

And there are new lessons to learn: You're not quite the master of your own domain, because you lease the property instead of owning it. You have to live by the landlord's or building's rules and regulations. And you have to remember to change your insurance coverage.

It's easy to remember that when you own a property, you need to budget for homeowners insurance. Your mortgage company requires you to buy an insurance policy when you buy a home, or you will not be allowed to close.

But there is no one to remind a renter that renter's insurance is just as important, although much less expensive.

Approximately 87 million Americans rent, and Harvard University's Joint Center for Housing Studies predicts another million former homeowners will join them this year. Just 40 percent of renters have renter's insurance, according to a new survey by Allstate.

Why don't renters buy insurance for the contents of their home? The Allstate survey found that 43 percent haven't made time to look into it; 33 percent believe that coverage is too expensive; 23 percent believe they don't have enough valuables to make insurance worthwhile; and 10 percent believe landlords are responsible.

It's easy to be fooled into thinking your stuff doesn't have value. Typically, college students move up into the world with hand-me-down furniture. But, in fact, television sets, computers and even hand-me-down furniture have value, and a theft, fire, flood or other catastrophe can leave renters in the lurch.

The typical renter has $30,000 worth of contents -- but renters typically undercount their possessions. Like homeowners, renters need to take an objective look at their belongings and think about how much it would cost to replace them.

But few do. In fact, the Allstate survey found that just one-third of renters have done a home inventory checklist or tried to estimate the cost of replacing everything.

What can you do to protect yourself? Before buying a renters insurance policy, do a home inventory. (This is a good exercise for homeowners as well.) Make a list of all of the possessions you own or are financially responsible for in your rental unit, including furnishings, appliances, artwork, electronic and recreational equipment, books and knickknacks.

Back up your inventory with digital photographs of each item and video to help determine where it is located. If you're so inclined, you can draw a floor plan of the unit and indicate where the major items are located, or use a floor plan provided by your landlord.

It's a good idea to create this as an online file, so that the home inventory, electronic photos and digital video exist together and can be used to bolster your case in the event of a loss.

Once you have a list of your possessions, you'll want to think about how much it would cost to replace them, if your home is destroyed. You might think all you need is a couch, table, chairs, television, computer and new cell phone. But what about plates, glasses and silverware? What will you cook with? Do you need a new toaster oven? And, what about clothes and jewelry?

Add it all up and you could easily spend $20,000 to $50,000 replacing the contents of a one- or two-bedroom home.

Next, shop around for the best renter's insurance policy you can find. Your credit score will play a role here, so pull a copy of your credit history at AnnualCreditReport.com (and buy a copy of your credit score for about $7 at the same site). The higher your score, the better terms, conditions and price you'll be offered for your renter's insurance policy.

Be sure to shop around and talk to a number of insurance companies about their rental insurance policies. Some may offer discounts if you buy your auto insurance and renter's insurance together. Stacking insurance policies can sometimes net you as much as a 15 percent savings.

Renter's insurance typically costs about $15 per month, or about $180 per year for a $30,000 policy.

Q I am trying to decide how to take title to our new house. One of our options is joint tenancy. Because my wife is in the medical profession, if there's ever a malpractice suit against her, her creditor could come after the home. Would owning title as joint tenants help us?

A Consider another way of owning this property that might provide better creditor protections: tenancy by the entirety, which is available only to married couples.

Tenancy by the entirety means that each owner owns the whole property. So, you don't own half, you both own the whole house. The key difference between joint tenancy and tenancy by the entirety is this: If you own property as tenants by the entirety, both spouses must agree before the property becomes subject to one spouse's creditors.

Neither spouse can do anything that would create a claim or lien on the marital property. So, as long as you and your spouse stay married, and you own the property, tenancy by the entirety protects each of your interests. That provides better protection against creditors.

For example, let's say your wife gets sued for malpractice. If the plaintiff wins, the creditors could not force the sale of your house because each of you owns the entire property. The creditors would have to wait until you divorce or the property is sold. If the property is sold, the creditors could stake a claim to your spouse's share of the proceeds.

Tenancy by the entirety isn't available in all states. For more details on whether this is an option for you and how to retitle your property as tenants by the entirety, please discuss the issue with a real estate lawyer.

When I was going through bankruptcy about five years ago, I quitclaimed my name off of my property with my husband to avoid having the house taken. Now, some years later, I want my name back on the property but my husband and I don't know how to do it. Can you help?

You would do it exactly the same way as when you quitclaimed your name off the property. Your spouse would sign a quit-claim deed transferring ownership of the property to you and himself. You would get that document notarized and file it at your local recorder of deeds. You may have other forms to fill out, particularly in states that have taxes on the transfer of deeds, and you may have to pay a fee to your local municipality to transfer title of the home.

But in general, a deed transferring title from your husband to you and your husband, along with the other required forms, should be enough to get title of the home back in both your names.

My sister is building a house, and it will be finished soon. She plans on closing in mid-August. Can you tell me the name of a release form from the supplier that she should use?

I think the form you're looking for is a lien waiver, which is a legal form that builders and suppliers fill out indicating that they have been paid in full for a job and that they waive any right against the property they worked on or delivered materials to.

You have to make sure you get the lien waiver from the supplier before you pay him, or in exchange for the check, so you have some protection from a disreputable tradesperson who will take your cash and then put a lien against your property anyway.

Typically, you need not just one lien waiver, but a whole bunch. But if you're working with a builder, the contract with the builder should require the builder to deliver the property lien-free. That means the builder should be the one to get the lien waivers from all of the suppliers and sub-contractors -- not your sister.

So, as a condition to any payment to the builder, or the final payment, the builder will need to deliver a package to your sister to show that all subcontractors and all suppliers have been paid in full and have waived their lien rights against your sister's property.

If your sister is buying a house from a builder, rather than having the house built on land that your sister owns, she should make sure to that she receives title insurance at the closing of the home that would cover her against any lien that could arise from the work done on the property by the builder. The title company would then have to work with the seller/builder to make sure they are satisfied with all of the documentation.

Is this a good market for landlords? I am specifically thinking about trying to generate rental income. I own rental property in Smyrna, Ga., area, about a half-mile from the village green. This is a good neighborhood filled with older houses.

Do you know if that area has held its own as far as value of residential real estate? It's hard to get to the truth with all the ads for agents on the Internet.

I don't know specifically what is going on in your neighborhood, but I can tell you exactly what to do to find out for yourself.

Start by taking a look at all the properties that are on the market now and that are competitive with the types of rental properties you already own. Visit the open houses, so you know what your competition for sale or rentals looks like. Find a real estate agent who has been working in the area long enough to have seen at least one other down market cycle -- or someone new enough who is so starved for business that he or she will work harder than anyone else.

If the area is filled with foreclosures, then you will need someone on your investment team to help you track how much these properties are selling for and how long the timetable for those foreclosure sales is.

Once you start to visit these properties, look at the sales data and pull some rental information, you will know whether these properties will meet your investment needs.

In general, I can tell you that if you don't mind being a landlord, and you have the cash and available credit to purchase properties, it's starting to be an excellent time to buy. There have been twice as many foreclosures this year as last, and if this pace continues, more than 1 million properties will fall into foreclosure in 2008.

Lenders have started to unload some of these properties at advantageous prices, which usually bodes well as a long-term hold. The big-time residential property investors I know are buying up good properties for good prices.

As far as renting out these properties goes, it's tough to command a high price at the moment. But if you can afford to carry them through the tough times, I think you'll enjoy long-term appreciation. Also, as fewer people can afford to buy, they'll look to rent, and landlords will once again prosper.

As a general rule, some real estate investments are better than others. In some areas, you may be able to buy single-family houses but may not find a market for buyers or renters. You need to gauge the market conditions to see whether people are interested in rentals in a particular area and what those conditions are. If you buy a single-family house in an area with many foreclosures and vacancies and few rentals, you may not be able to rent the home even if you buy it at a low price.

I wouldn't plan on making a killing in the short run. It's about what you feel you can comfortably carry for the next few years.

My husband and I are retired, and we have gotten into an insurmountable amount of debt. We are just about maxed out on all our credit cards and are borrowing from one of them to pay another one. I don't know what is going to happen to us if we can't get some relief.

Recently we have been receiving several telephone calls each week saying that there is a program that the federal government is supporting that can help people in debt to recover by lowering mortgage interest rates and cutting their payments. The government gets a fee for doing this.

We need this or something like it desperately, but before we talk to one of their analysts, I need to know how to check if these calls are legitimate. We do not want to give all our credit and personal information to someone who is running a scam.

I'm sorry for your financial troubles, but this sounds like a total scam. It sounds to me like you need some time with the folks at a nonprofit such as Consumer Credit Counseling Services (www.cccsatl.org). They will be able to tell you if your debt is insurmountable or just enormous (but can be paid off). They are also certified housing counselors, so they can help you figure out what programs might be able to offer some relief.

You might also get help by finding a certified housing counselor through the Department of Housing and Urban Development Web site (www.hud.gov) or by calling 888-995-HOPE.

One final thought: If you are so desperately in debt, it's possible that you'll never be able to pay your way out of it. In that case, bankruptcy may be a viable option.

I have been married for 25 years and have three children. My name is not on the deed to our $600,000 home. If I divorce my husband, am I entitled to half of the assets even though the house isn't in my name? We live in Massachusetts. I am sick over this and don't have money for a lawyer.

You may be entitled to half the value of the house, but it will depend on the circumstances.

I'm wondering why your name isn't on the deed after all this time. But even if your name isn't on the deed, if the house is a marital asset (bought after you were married), and particularly if you have contributed sweat equity, if not cash, to the purchase and maintenance of the property, then you may have a good case to make for equal ownership whether or not you are listed on the property.

If your husband bought the house before you were married, it might not be deemed a marital asset. Then you would have more trouble making a case for yourself as a co-owner.

More important, if your marriage is in jeopardy, then you had better find a way to scrape together a few hundred dollars so that you can spend an hour or two with a divorce lawyer who can walk you through some of the landmines you will surely face if you do separate, and help you figure out the answers to some of these questions.

Four years ago, my stepmother signed a quitclaim deed to her and my father's home. The quitclaim was filed with the court. My father recently passed away. Since they were still married, does she still have claim to the home or would it fall to my two sisters and me?

Simply signing and recording a quitclaim deed doesn't tell the whole story.

To whom did she quitclaim the property? Did she quitclaim her entire interest in the home to your dad? If so, then his will would dictate what would happen to the property.

If the will dictates that she is entitled to all his assets, then she would inherit the property from him. If his will says that all of his assets go to you and your sisters, then she may not have any ownership interest in the property. Then you would have to figure out how to either allow her to live in the property, perhaps renting it from you, or kick her out and sell it.

If your father's will states that his assets are to be divided between his known children and stepchildren, and your stepmother has kids, then you will have to contend with some additional heirs.

The place to start is with the paperwork. Visit a lawyer who can help you go through your father's will (assuming he has one) and the distribution of assets.

Who legally owns the house on the day of closing?

Either the contract of purchase or local custom will dictate who is responsible for the expenses of the home on the day of closing.

When you attend the closing of the home (or, as it is referred to in some states, the settlement), you become the owner of the home at the time you receive the keys and the sellers receive their money.

Almost all homes accrue expenses everyday, such as real estate taxes, homeowner association dues and utilities.

The customs vary from state to state and even from county to county. In some states, the seller is deemed to be the owner of a home on the day of the closing and that seller has to pay all costs associated with the ownership of that home that day. The opposite is true elsewhere.

Some transactions go as far as to state that a buyer pays all costs relating to the ownership of the home if the closing occurs before noon but the seller will pay all those expenses if the closing occurs in the afternoon.

Because this is such a local issue, it's impossible to tell you what your financial responsibilities are for the day of closing. But your real estate agent or closing agent should be aware of these local customs and can guide you.

If your question relates to who gets to live in and possess the home on the day of the closing, the best thing is to have the seller out of the home when the buyer is ready to tender his money to the seller.

In some parts of the country, the custom is to allow the seller to remain in the home the day of the closing or even up to two weeks after the closing. However, if I were representing a buyer, I wouldn't want a buyer to close on the purchase of the home unless the seller was willing to pay for his stay in the home after the closing and was willing to put up a substantial amount of money to assure the buyer that the seller will move out on a specific date and has the money available to pay for that post-closing possession of the home.

If the seller is unwilling to pay for the post-closing possession of the home or is unwilling to put up enough security to satisfy the buyer that the seller will move out on time and will deliver the home in the condition required under the contract, then the seller should move out on the day of the closing and before the buyer delivers his money to the seller.

While this view may be different from the customs and practices in some parts of the country, it protects the buyer from a seller who decides not to move out of the home. It also protects a buyer from a seller who damages the home after the sale or when the seller is moving out, and it encourages a seller to respect the terms of the contract and deliver the home to the buyer on time and in the condition required under the contract.

My wife and I have put a bid in on a house and it is a short sale. We offered $275,000 and we have seen paperwork showing that the owners purchased it for around $350,000.

The sellers have 90 days under the papers we signed to respond to our offer. We have not had any inspections or a survey/appraisal completed yet. The more we think about it, the more we are worried we jumped the gun on this offer.

We might want to get out of the deal before they officially accept our offer. They have $3,000 of our cash in escrow. We would like to know if we can pull out without losing our $3,000.

If, as you have indicated, the sellers have not yet accepted your bid to purchase their property, you should be able to withdraw your offer. But as with so many things, the devil is in the details.

Some contract forms bind the buyer to the offer for some time. During that period of time, the buyer can't cancel, rescind or withdraw the offer. If your contract doesn't have that language, you will need to send a written notice to your seller, the listing agent and the closing agent, if there is one handling your transaction, that you withdraw, cancel and rescind your offer to purchase the home.

To protect your $3,000, you might want to have a real estate lawyer review your contract and send the notice to the seller.

If your seller has accepted your offer to purchase their home, you can't rescind your offer, but in some parts of the country you still might have the ability to terminate the contract. If your contract has a contingency provision allowing you to get legal advice on the purchase, that contingency may also allow you to terminate the contract as a result of having discussed the issues of the purchase with your attorney.

Finally, if your contract has an inspection contingency clause, you might be entitled to terminate the contract if you find things wrong with the home and the seller refuses to fix those items to your satisfaction.

Ilyce R. Glink is an author and nationally syndicated columnist. Her latest book is "100 Questions Every First-Time Home Buyer Should Ask." Samuel J. Tamkin is a real estate lawyer in Chicago. If you have questions for them, write Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022, or contact them through Glink's Web sites,http://www.thinkglink.comandhttp://www.expertrealestatetips.net.

© 2008 Ilyce R. Glink and Samuel J. Tamkin

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