Losing the keys to the dream

Damage deeper than the headlines, By Diane Butler In the fall of 2007, Harry Brown (whose name has been changed to protect his family’s privacy) was about to be promoted. The promotion came with an opportunity to relocate his engineering-design work to South Carolina. He called his Realtor to get a market analysis when the promotion offer was first made. The comparable sales in his Bloomingburg, N.Y. neighborhood in 2006 brought his home in at $359,000. He was happy with the results and put in for his transfer. Last year, while he was waiting for the approvals, two of his neighbors lost their homes. Those homes, which were of comparable size and style, then sold for prices from $210,000 to $220,000. The assessed values of those homes were $390,000 each. Brown’s $359,000 home was suddenly worth $225,000. His Realtor explained that even if he was able to secure a buyer for his home, it would not appraise for more than the sale price of his neighbors. He was forced to turn down the transfer. He lost his transfer and equity in his home. His home is assessed for a substantial amount more than his house is worth. He and his remaining neighbors in New York will appeal their assessments at his local tax Grievance Day in May. Assessment appeal processes vary but are available in New York, New Jersey and Pennsylvania. Everyone gets hurt Families who were on the financial edge have been the high profile subjects in the mortgage crisis, but people who pay their mortgages on time are affected as well. A domino effect can destabilize neighborhoods, local governments and schools. A foreclosed home usually is sold for about one-half of its assessed value. Pike County Sheriff Phil Bueki has seen a lot of reduced price sales at his Sheriff’s Auctions. Attorneys and county officials say scores of homes in new housing tracts in Lehman Township, valued at $300,000 to as much as $800,000 were marketed and sold to people who could not afford them. Those homes are selling for two-thirds or less of their original value, he said. Auction sale notices cover the walls around Bueki’s bulletin board. He said the volume is unprecedented. “We’re swamped. We can only handle so many auctions each month; and right now we’re booked through June,” he said. Sussex County has been hard-hit. “Since January 2008 through today, our business has been primarily foreclosures and short sales,” said Linda Lazicki of Lazicki Century 21 Realtors in Sussex. “It’s created an ever bigger problem in that appraisers are beginning to use short sales as comparable sales, which brings the market down even more.” To avoid foreclosure, a short sale can be made when a bank reduces the mortgage against a property to accommodate a lower offer from a new buyer. The original owner can still be billed for the difference. Getting a new mortgage is more difficult Brown’s home is also in a neighborhood where there are a substantial number of sub-prime loans, his town is now part of what lenders classify as a “declined market area.” According to Howard Whitman of Met Life, whose lending company services areas in New York and Pennsylvania: “There are three types of classifications that a bank will issue to determine the risk of loans to affected areas. The terms are, rising, stable and declining/distressed.” Orange, Passaic, Sussex, (all of New Jersey) and Pike counties all share the declining market tag. “A declining market will affect the amount of money that a bank will lend on a property,” Whitman said. “If a home falls within a declined area, there will be a five percent decrease in funds available.” This classification also will affect the down payment required by a buyer on a new home purchase. If the area is in a “declining market a lending institution will loan less in anticipation of further dropping sales. The buyer will have to find more cash for the down payment,” Whitman said. In the bigger picture A reduction in the tax base of a small town may have a devastating affect on the services in the town or school district. More widespread problems cut into county budgets. Many local governments expanded services during the real estate boom that preceded the current bust. When housing values decline, local officials have the choice of increasing the tax rate to make up the difference or decreasing services. In Orange County, N.Y., the Monroe-Woodbury School Board added an additional $100,000 to its reserve fund, which is now up to $3.5 million, in anticipation of tax appeal court fights. “People who bought homes in Pike County over the past three to five years are soon going to start feeling over assessed,” said Jack Fisher. John “Jack” Fisher is a Branchville CPA, a “Reagan Republican,” who lives in Pike County. He formerly served as chair of the budget committee of Delaware Valley (Pa.) School District Board of Education and is running for office again this spring. Fisher believes Pike’s county-operated property assessments, last re-evaluated in 1995 are now skewed. “But I also believe the county will defend them,” as a new valuation now would cause real political turmoil, he added. Fisher says most people don’t understand how property taxes work. “Maybe they’re designed to be that way,” he said. Pike County will continue to be a bargain. “I’ve got clients in Byram and Andover paying $8,000, $10,000, $12,000 in property taxes on comparatively modest homes. They come here and pay $3,500 and think its a dream come true,” he added. While hesitant to predict the future, Fisher is optimistic in general, if skeptical about some of the tactics now being employed. “The stock market will come back. It always does; and real estate will always be a good long term investment,” he said. A capitalist at heart, he’s skeptical of bailouts and debt. He forecasts inflation, which could change lifestyles. “We’re going to have more money around, but it will be worth less. People making $40,000 now will make $80,000 with $30,000 in buying power.” “We’ll come out of this, but right now people are scared; and when they’re scared they hunker down ... We have to get back to banking as we knew it and personal financial planning. Too many people live week-to-week and month-to-month,” he said. Diane Butler is a 20-year Realtor-associate broker, licensed in New York and Pennsylvania. Who decides about the markets One reporting company determining market health is Gensworth Mortgage Insurance, which issued new underwriting guidelines on Feb. 2. Those guidelines severely restrict lending to people with a minimum credit scores of 680. For example, second home and manufactured homes are considered ineligible for loans as are loans for new construction on existing permanent homes. Locally, areas that are now considered declining/distressed markets include Morris, Passaic and Sussex counties in N.J., Pike County and Monroe counties in Pa, and Orange and Ulster counties in N.Y.