Glimmers of Hope, but the Pain Lingers

By Ilyce R. Glink with Samuel J. Tamkin
Saturday, June 13, 2009

With housing prices falling and mortgage interest rates rising, it's hard to say the housing market has bottomed out.

And, yet, there are some reasons for a more optimistic housing forecast, according to Mark Zandi, chief economist for Moody's and author of "Financial Shock." The bottom is coming into view, he said in a recent interview.

"The home sales data suggests that demand is stabilizing," he said. "Since last year, new- and existing-home sales have stabilized. It's not going up, but it's not going down either. About half of the existing sales are distressed foreclosure or short sales, and that's part of finding a bottom. I view that as therapeutic."

Zandi said builders have gotten control of their inventory, which is down from the peak earlier this year.

The second step in calling a bottom to the housing market crisis is related to property prices. Zandi believes housing prices will fall an additional 5 to 10 percent, forming a bottom at around 40 percent below the high, set several years ago. But it could take until spring 2010 to get there.

"Most of the price declines are occurring now, but we'll see a big decline this summer. We will see foreclosures surge," which will bring housing prices down further, Zandi said.

Thanks to the decline in housing prices, housing affordability is at the low end of average right now. But a sudden jump in interest rates could turn that around.

"If fixed interest rates rise above 5 percent for very long, it will be a problem in terms of the housing market recovery," he said. "Hopefully the Federal Reserve steps on the accelerator and gets rates back down."

But there is one area that worries Zandi: loan modifications. "The president's loan modification plan has to kick in soon, otherwise all this optimism with regard to the end of the recession and housing market will be misplaced," he said.

Zandi said policymakers are working on adjustments to the current loan modification plans, including adding cash incentives for second-mortgage holders willing to modify loans and for borrowers who pay these new loans on time for a period of years.

"If you look at the administration's loan modification plan, it's lucrative for plan servicers. You'd think they would step up. They say they are, but we need to see it," Zandi said.

Zandi said one reason we're not seeing even more loan modifications is that servicers are "overwhelmed and don't want to invest." The administration hoped that servers would beef up their staff and do more, "but it feels like they're overwhelmed," he said. "It's another reason to be concerned."

The key, Zandi said: "The day the foreclosure and short-sale share of total sales peaks is the day that housing prices will bottom."

Zandi also believes that jobs are a key element to the economic recovery. Predicting that the unemployment rate will top out at 10 percent in early 2010, he says we may have a few months where the unemployment rate exceeds that level.

He also said that we may start to see the effects of the stimulus wear off early next year. While the United States may experience a double-dip recession (also known as the "W"), he thinks it's likely that Congress will approve another, smaller stimulus package to keep the country moving in the right direction.

"It won't be $800 billion, but maybe the policy people will put up $250 [billion] to $300 billion to ensure we don't have double-dip recession."

Q: We expect to be buying our first home in the next couple of months. Would buying a new car as well in the next couple of months affect our ability to qualify for a home loan from a bank?

A: I'm glad you asked now, before you signed a loan for your new car.

When a mortgage lender calculates how much you can afford to spend on a home, the lender looks at the total amount of debt, as well as what part of your income is available to service that debt each month.

Traditional lenders will allow you to spend up to 28 percent of your gross monthly income on your mortgage, taxes and insurance, and up to 36 percent on your total debt, including school loans, auto loans, credit card debt and any other type of personal loans. The more debt you have, the less income you can put toward the mortgage, taxes and insurance. For example, if you don't have any sort of debt, lenders will allow you to spend the entire 36 percent on your mortgage, property taxes and insurance.

(If you get a Federal Housing Administration loan, you may be able to spend more than 40 percent of your gross monthly income on all of your debts. But that will translate into you spending more than half your take-home pay on your mortgage, taxes, insurance and debts.)

When you apply for the loan, lenders will pull a copy of your credit history, which lists all of your loans, your creditors and your payment history. A new car loan will be part of that picture, and it could alter your debt-to-income ratio just enough to make your home loan unaffordable (according to your lender).

What you want to do is make sure nothing significant changes in your financial life from the date you put in your loan application until the date you close on the home. That means putting off any major expenses or purchases.

The lender will often pull a second credit report just to make sure your credit history hasn't changed, which is why if you're going to make a big purchase (such as a car), you're best off waiting until after you've closed on your house. At that point, you're free to spend whatever you can afford, and not worry about how your debt-to-income ratios or amount of cash you have on hand will be affected.

One thing: If you do plan to buy a car, be sure you calculate how much it will cost per month and whether that's affordable. You don't want to buy a new car and have it tip your finances over the edge after you've just closed on your first home.

Finally, if you buy the car for cash and still have sufficient money saved up for the purchase of the home, you might not have to worry about the timing of your new car purchase. Just keep in mind that most lenders today will offer lower interest rates, better loan terms and a faster application approval to those buyers who have more cash available for a down payment and reserves.

When we put in an offer to purchase a former model home from the developer in "as is" condition in March, we thought it came with the furniture in the home office. Our real estate agent came by our place and told us that the furniture was being moved to another condominium in the development and that the owner of the development was making that its office.

Q: We found out later that the "owner" was just a regular buyer like us -- and did not even own the furniture when we looked at buying the house.

Does buying something in "as is" condition typically include furniture? Is there any possible recourse?

A: It appears that you're confusing the terminology. When you buy a piece of property in "as is" condition, it generally refers only to the condition of the real property you are purchasing.

Real property refers to the house and the land on which it sits. On the inside of the house, it would include any fixtures, which would be items like attached or built-in light fixtures or built-in bookcases that are permanently attached to the property. Heating and cooling systems are generally included as fixtures. Some kitchen appliances are considered personal property, although in some areas of the country, home sellers take some or all of the kitchen appliances, including the stove and refrigerator.

Personal property refers to the contents of the house, including the furniture and any items that are not permanently affixed to home. For example, a stand-alone garage is generally considered to be real property, but the car inside is personal property.

When you buy in "as is" condition, it means you purchase the home without regard to the physical condition. So, if there is a problem with the roof leaking, you cannot go back to the sellers and claim that they tried to hide this defect in the property. It's truly "buyer beware."

As to your specific question about the personal property coming with the real property in the purchase, you'd need to look at the terms of the purchase and sale agreement you signed. If you wanted anything that is typically considered to be personal property included in the deal, such as specific pieces of furniture, appliances, or other items, you or your real estate agent should have written it into the contract. If it's written into the contract, the seller should be obligated to leave it in the home for you.

There is a space in most purchase contracts that permits you to name the specific items that you want included as part of your purchase. Most contracts have detailed language relating to what needs to stay as part of the home and what the seller can take. Some contracts specify that tacked-down carpeting must remain. Other contracts go further to require that the seller leave all planted vegetation.

You need to assess how you came to believe that you would be entitled to get the furniture as part of the contract. I know of a case in which a home buyer liked the flat-screen TV hanging in the living room of a home he was about to buy and believed that it would be his after closing. Imagine his surprise when he went to the home for the pre-closing inspection and saw that the TV had been unplugged and taken on the wall mount. The TV had not been listed as an item included in the listing sheet nor in the contract, and the buyer was out of luck.

If you wrote into the contract that the office furniture was part of the deal and the seller then took it, you might have a case against the seller. But if you didn't put it in writing, then you probably don't have any legal avenues to pursue.

Did you discuss this issue with your real estate agent? If you had told her that you were interested in the furniture, she could have explained to you that it would not be included in the deal unless it was specifically negotiated and written into the contract.

But in any case, the seller couldn't have transferred ownership of any items he didn't actually own. If the furniture was rented or borrowed, the seller couldn't have made it part of the deal. But if he agreed to sell them to you as part of the sale of the home, the seller might have an obligation to give you the money necessary for you to replace those items that had been agreed to in the contract.

For further details and possible legal options available to you, please consult with a real estate lawyer or litigator.

Q: I have lived in my home for more than 15 years. In spring 2000, I received my 1999 property tax bill for $5,410.82. I just received the 2008 bill for $9,263.20, which is a 72 percent increase in just nine years.

I am 68 years old and retired. I want to stay in my house, but at the current rate of increase each year in my property tax bill, that will not be possible. Since the real estate values dropped in 2008, why did my tax bill still rise more than $700 over the previous year?

What can be done? And how do we do it?

A: Your property has probably gone up in value dramatically since you've been living there. Is the property worth 72 percent more than 15 years ago? Maybe. But like so many areas of the country, it's also likely that your property value has fallen dramatically. But the data your taxing agency is using to value your home may be lagging current information.

But there are things you can do. First, if your taxing authority gives tax breaks to homeowners who live in the home as their primary residence, make sure that you take advantage of that tax benefit and file the required paperwork. As a senior citizen, some municipalities give you a tax break.

Also, if you feel the valuation of your property by your local taxing authority is in error, you should contest your property taxes.

Please contact your local tax assessor's office or local real estate taxing authority and ask for information on when you can contest your tax assessment and bill and how the office recommends you file your appeal.

Typically, a tax assessment board determines the value of a property on the basis of a recent purchase price, what other properties that can be similarly classified are valued, the amenities of the home, its construction properties, location in a neighborhood and other qualities.

If you decide to contest the valuation of your property and your real estate taxes, you will want to see how your property compares to other homes in its same tax classification, along with a comparison of the type of home, its size, amenities and condition. Some of these characteristics and the valuations are available online, but in other cases, your research will lead you to the office where those records are kept.

Once you have researched your home along with other similar homes, you'll have a better idea whether your home's real estate taxes are too high. If they are, you will have to present a case before the taxing authority to persuade them to reduce your taxes.

That appeal may be as simple as correcting errors that the tax assessor has for your home. For example, if the assessor believes your home is a two-story, 3,800-square-foot home when it's really a one-story, 1,800-square-foot home, you may receive a tax reduction once that error is corrected.

A more involved appeal would involve proving that the taxing board has made a mistake in valuing your home when compared to other similarly situated homes. Appeals of this type can take many shapes and forms.

There are local tax appeal lawyers and other experts who can help you through the appeal process.

Q: I own an investment property with a partner who wants out. Both our names are on the deed, but the note is in his name only. We have $30,000 left on the mortgage.

My partner agreed to sell his share of the house to me for $30,000 (the amount left on the loan) and remove his name from the deed. My lender informed me that I can't just pay off the loan, but must get the home appraised and get my own loan for the appraised amount. He said I cannot even just get a mortgage for the remaining $30,000 owed.

I'm unclear why I must do this if I already own the home. Why can't I pay off the $30,000 loan and remove my partner's name from the deed?

A: Your gut feeling seems correct. If you owe a balance of $30,000 on your home, you should be able to pay that amount off and be done with the lender. If you need a new loan, you should be able to get a $30,000 new loan, pay off the old loan and be done with it.

I'm not sure what your current lender's issue is, but I do know that many lenders try to avoid loans that are as small as yours. To underwrite a new loan for $30,000 will cost the lender as much money as a loan three times that size.

If you and your partner agreed that you would have the sole obligation to repay the $30,000 on the loan and that would settle all amounts between the two of you, you might be able to obtain an equity line of credit for $30,000 that you can take out in your name to pay off the other mortgage. Your interest rate may be higher, but you may not have all of the expenses associated with taking out a first mortgage.

You'll have to compare the costs of a new first mortgage with the costs of a home equity line of credit to see which is the smarter move.

You may also want to shop the loan around with other lenders to see if you can get a better deal with another lender. You can try a savings and loan or a community bank in your area, as well as a national mortgage lender.

Keep in mind that the property is an investment property, and some investment properties are harder to finance these days than they were a couple of years ago. If you find it difficult to obtain financing for the investment property, you might try to obtain the financing by using your primary residence if you have equity in it. While using your primary residence to take money out to pay off your partner isn't ideal and could put your property at risk, it gives you an additional option for financing.

Q: Do I have to pay any debts owed on credit cards that have not been paid at all in the past five years? Are credit card companies allowed to sell your account, and can those companies come after you? Also, is there a time limit on when a credit card company can collect or take you to court? I want to know how these things will affect my credit history and credit score because I'm thinking about taking advantage of the $8,000 first-time-home-buyer tax credit.

A: The simple answer to your question is that most credit card companies can come after you for an uncollected debt for as long as permitted by law. You need to know what the statute of limitations is in your state to determine whether a company can still come after you. In some cases, companies can come after you for up to 10 years. The statute of limitations doesn't necessarily tie into the last time you paid the debt. It takes into account how much time has passed since the creditor attempted to collect on the debt.

And, yes, credit card companies (and in fact most creditors) can sell their right to collect the debt from you to another company. The companies that typically buy those rights are called collection companies or collection agencies. If a collection agency buys the rights to collect a specific credit card debt, it can then chase you for the amount you owe plus extra fees and interest on the debt.

While many times collection agencies are trying to collect a legitimate debt, you need to be careful. There are times that debts are no longer collectible but companies will try to collect anyway. The Federal Trade Commission ( carefully regulates debt collectors and publishes the Fair Debt Collection Practices Act on its Web site so that you'll know what a debt collector can and cannot do in trying to collect from you.

For example, if your state has a statue of limitations of four years, and in the fifth year a collector comes knocking on your door, you can refuse to pay. But what you shouldn't do is admit that you owe the debt. If you admit the debt, you might give that collector the right to pursue you for the debt for another four years, or longer.

You should also not make a partial payment on that old debt. Any action that renews the debt can give that creditor the right to go after you.

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 to Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022, or contact them through Glink's Web sites, and

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