Beware of Neighbor’s Home Foreclosure

Today, the media reported on the escalating number of foreclosures across America.

Forbes Magazine via a Reuters Report additionally spoke on the impact in Manhattan. This story by Bob Tedeschi in the New York Times, speaks on the subject of what happens to you if your neighbor falls into foreclosure. With respect to him and the New York Times, I am publishing it below for your convenience to read. The excellent graph which accompanies the article can be found at the Times website http://www.nytimes.com/2009/06/14/realestate/mortgages/14mort.html?nl=your-money&emc=b2

If you know anyone in the position of facing foreclosure, I represent sellers in foreclosure defense. Please contact my office for further information at 800.461.3190.

Beware of Neighbor’s Home Foreclosure
The New York Times
By BOB TEDESCHI
Published: June 12, 2009

WHEN it comes to selling your house or planning your next home equity line of credit, being a nosey neighbor could very well pay off.

That’s one implication of a recent report from the Center for Responsible Lending, a consumer advocacy group based in Durham, N.C.

The report, which was released in May, focuses on the ripple effects of home foreclosures, and suggests that homeowners who are concerned about their home’s value should watch for signs of trouble among their closest neighbors.

This year alone, it says, foreclosures will cause an estimated 69.5 million nearby homes to suffer price declines averaging $7,200 per home. The loss in property value could total $500 billion.

The resulting loss in financial flexibility is significant. “Homeowners who had counted on using their home equity to finance their retirement, cover tuition costs, start a small business, or pay medical bills in many cases no longer have this option,” the report said.

Ellen Schloemer, the executive vice president of the Center for Responsible Lending, said that over the next four years, foreclosures would affect an estimated 91.5 million neighboring homes.

“As the foreclosure crisis continues to worsen, the contagion is spreading,” Ms. Schloemer said. “You can’t just say those foreclosures are hurting someone else.”

The rate of home foreclosures has rise sharply since 2007, when the first subprime adjustable-rate mortgages began resetting to higher rates. But even borrowers with good credit have defaulted on their loans as the economy has faltered.

According to the Mortgage Bankers Association, an industry trade group, about 1.4 percent of all first mortgages entered foreclosure in the first quarter of this year, a 20 percent jump from the fourth quarter of 2008, and a record high.

The center’s report relied on forecasts from Credit Suisse, which said late last year that about nine million homes would probably go into foreclosure in 2009 to 2012. The center also used late 2008 data from the Mortgage Bankers Association to estimate this year’s foreclosure figures (about 2.4 million homes).

Two earlier reports released by the Center for Responsible Lending examined the spillover effects of the mortgage crisis. But this year it relied on new research about how a foreclosure affects neighborhood home values — specifically, a 2008 study that includes researchers at Fannie Mae, the government-sponsored agency, and the University of Connecticut.

This study found that homeowners who lived within 300 feet of a foreclosed residential property experienced a drop of 1.3 percent in home value; those living 300 to 500 feet of the foreclosed home typically see a drop in value of 0.6 percent.

John P. Harding, a professor at the University of Connecticut’s Center for Real Estate and Urban Economic Studies, and an author of the study, said the properties that are most affected by a foreclosure are the ones close enough to see the peeling paint, broken windows and overgrown lawns that often accompany such situations.

The worst time for immediate neighbors to sell their homes, refinance or cash out some of their home equity, Mr. Harding said, is just before the bank takes title to the property, because that is the point of greatest neglect.

After that point, Mr. Harding said, many lenders will at least maintain the property’s appearance well enough to attract prospective buyers.

Of course, the best time to try to sell a home or convert equity into cash is when neighbors are on sound financial footing, though it may not be easy to determine.

Job loss is the biggest cause of mortgage default, according to industry experts, so if a neighbor becomes unemployed, you should probably start your own clock ticking.

For those living outside the immediate vicinity of the foreclosure, but still in the neighborhood, Mr. Harding said home values typically bottom out around the time when the bank actually sells the home.

“My advice would be to try to ride that out, not panic, and know that this is the peak effect from lower-priced competition,” he said.

Mr. Harding said that banks, municipalities and the federal government are justified in financing foreclosure-avoidance programs, but not if they help homeowners just barely afford to stay in their homes. In such situations, neighboring homes could still see values drop.

“You want to offer help at a level at which people can still do critical maintenance to the property,” he said.

CALL TO ACTION - NYS Homebuyer Tax Credit 2009

We only have two weeks left --- please let our New York State legislative persons know that you support the Homebuyer Tax Credit. Please find below a sample letter you can use.

Subject: Please Support $7,000 Homebuyer Tax Credit

As a constituent, I am asking for your support on a critical piece of legislation that would provide a personal income tax credit for the purchase of a home in New York State (A.7125 by Assemblyman Vito Lopez/S.3900 by Senator Joseph Addabbo). With just two weeks left in the 2009 Legislative Session, your support is critical.

Under this legislation, homebuyers would be able to receive a $7,000 New York State personal income tax credit that would be returned to the homeowner over the course of their first three years of homeownership, dependent upon their tax credit eligibility. This tax credit would be applied to the purchase of a one or two family house, townhouse, condominium or cooperative apartment that was purchased for one million dollars or less. The homeowner must reside in the property for at least six months of each year to receive the tax credit.

In light of the current housing and economic crisis, this proposal to ease the tax burden paid by homebuyers is a significant step towards stimulating the New York housing market and revitalizing the economy. Over the past year, sales of single family homes in New York State have dropped over 25% and the statewide median sales price has plummeted by more than $22,000 over the past two years.

This State tax credit will work in conjunction with the temporary $8,000 federal housing tax credit, set to expire on December 1, 2009, further stimulating the New York housing market and economy. Increased home purchases will reduce current inventory and lead to production of new housing, resulting in a recovery from the currently depressed building and construction economic sectors. This will ultimately generate additional tax revenue for New York State government from increased income taxes tied to construction employment, increased real estate mortgage recording and real estate transfer taxes, and increased sales tax revenue on items associated with a home purch ase including home furnishings and durable goods such as refrigerators, washing machines, clothes dryers, etc.

Just this year, California enacted a $10,000 homebuyer tax credit, Utah passed a $6,000 new homebuyer tax credit, and 14 other states have introduced home buyer tax credit legislation. New York State is competing with states such as these to lure and retain a young and well-educated workforce and enacting this legislation is a definitive step in the right direction.

In order to retain a qualified workforce, sustain our economy and strengthen our communities, we must make homeownership more affordable to the average homebuyer. I urge you to become a sponsor of A.7125 by Assemblyman Vito Lopez/S.3900 by Senator Joseph Addabbo and help bring this bill to a vote before the end of the 2009 Legislative session. Time is of the essence and the economy in New York State cannot afford to wait.

Thank you.