Danger of owning real estate

[DTEJD1997]

Hey all:

 

Owning property can have some very serious drawbacks...especially when you fall behind on your property taxes.  What is so very shocking is that some people have lost their homes over a few hundred dollars.

 

It seems manifestly unjust that an elderly person (or ANY person) should lose their home over a $300 tax bill.  Why can't the municipality simply put a lien on the title?  When the title transfers, the lien has to be paid first?

 

It is also shameful to see that attorneys were involved with this.

 

People need to pay their bills, for sure.  However, how does the government justify somebody losing a $200k asset over a $300 bill?  This seems like legalized theft.

 

These people lost their house.  Their heirs also lost their inheritance.

 

It is a long read, but certainly worth it.

 

If more reporting was done like this, perhaps American newspapers would not be in the trouble that they are...

 

http://www.washingtonpost.com/sf/investigative/2013/09/08/left-with-nothing/

[Guest deepValue]

There's no such thing as private property for poor people. Yet another reason not to be poor.

[cubsfan]

Hey all:

 

Owning property can have some very serious drawbacks...especially when you fall behind on your property taxes.  What is so very shocking is that some people have lost their homes over a few hundred dollars.

 

It seems manifestly unjust that an elderly person (or ANY person) should lose their home over a $300 tax bill.  Why can't the municipality simply put a lien on the title?  When the title transfers, the lien has to be paid first?

 

It is also shameful to see that attorneys were involved with this.

 

People need to pay their bills, for sure.  However, how does the government justify somebody losing a $200k asset over a $300 bill?  This seems like legalized theft.

 

These people lost their house.  Their heirs also lost their inheritance.

 

It is a long read, but certainly worth it.

 

If more reporting was done like this, perhaps American newspapers would not be in the trouble that they are...

 

http://www.washingtonpost.com/sf/investigative/2013/09/08/left-with-nothing/

 

That is truly disgraceful.

[ScottHall]

"Coleman, struggling with dementia, was among those who lost a home. His debt had snowballed to $4,999 — 37 times the original tax bill. Not only did he lose his $197,000 house, but he also was stripped of the equity because tax lien purchasers are entitled to everything, trumping even mortgage companies."

 

That is nonsense. Why must a private lender pass on surplus funds from foreclosure to the owner, but when the government does it it just keeps everything? That makes no sense, and should be illegal.

[ragnarisapirate]

There's no such thing as private property for poor people. Yet another reason not to be poor.

 

Well put.

 

DTE: do you think that the government can do anything that doesn't involve legalized theft? (this is rkabang's cue)

[DTEJD1997]

DTE: do you think that the government can do anything that doesn't involve legalized theft? (this is rkabang's cue)

 

Ragnar:

 

In the end, the government can do anything it puts it's "mind" to.  I am going to suggest that this article is showing a government gone FAR over the edge in it's need/greed/lust to get $.  While everybody must pay their taxes, even the elderly, the manner in which the government did it is manifestly unjust.

 

Back when I was in school....(all those years ago)...we were schooled that a creditor couldn't take more than what was reasonably owed.  The creditor would take their pound of flesh (which could be substantial) and then if there was $ left over, the debtor would get a refund.  Thus, in the case of these house sales, they would get dinged a few thousand in taxes, fees & penalties and then get a refund of the difference.

 

I would suggest that even that is unfair.  These people were taken advantage of because of their age or medical condition.

 

To remedy it...I would suggest that NO person can be forced out of their property for maybe a period of ten years.  The amount owed will be a 1st priority lien placed on the title.  Modest penalties will be assessed and interest will accrue.

This will be paid when the title EVENTUALLY transfers.

 

Heck, you could even make an argument that the owner will ALWAYS have a "life estate" and thus can't be evicted from their property.  As long as they are alive, they get to stay.  Their equity MAY be eroded, but they can't be forced out.

 

I would also suggest that there is a MORAL problem of having a $300 tax bill resulting in FEES & PENALTIES being orders of magnitude HIGHER than the original bill.

 

This is only ONE manifestation of the government turning predatory towards the people.  The government should serve the PEOPLE, not the people serve the government.  We are rapidly going from citizens to being subjects...

 

I sincerely hope that there is some fallout from this article and that change, reform, and that some officials are shown the door.

 

This should not be happening the USA, at least not the one I grew up in!

[bookie71]

You never own real estate, you only rent it from the taxing authority.

[matjone]

It is  disgusting how this man was treated.  I have bought tax liens before, but I think I'd rather let the money go before I'd take someone's house.  I don't want that on my conscience.

 

I do think that governments have gotten out of control with  greed.  The thing that has upset me the most over the years has been my dealings with the police.  The only time I can get them interested in me is when I have made some minor infraction that they can fine me for, like seatbelt violations for example.  When I have been the victim of a real crime they were completely unhelpful.

[ASTA]

Great reporting, articles like these are great and sad. That for sure makes me not want to be poor.

[krazeenyc]

Ok. The government is always at fault when there is a poor policy in place. But it's interesting that everyone's take here is that the government is attempting to essentially steal from these home owners. It seems to me the big issue here is not regulating the fees/interest charged by the private investors of these tax liens.  Sure nobody wants to see someone's home be taken -- especially for a few hundred dollars -- it really does seem absurd.  But I assume tax liens exist so that deadbeats pay their property taxes (not just the elderly).  What is the solution? What is the limit? Should tax liens + interest and penalties be allowed to accrue such that the mortgage note owner takes a hit? How do you separate the deadbeat with guys like mr coleman.

 

I live in NYC, I believe they specifically do not allow this to happen to the elderly.

 

(By the way -- this article I assume is saying that the man's equity in the home is under $5k right?? If he owned the home outright, and had a tax lien for $5000 including fees, they'd sell the house and he'd get the proceeds from the sale minus $5k right??)

 

The other question here is if the house is sold, does person who owns the tax lien have an responsibility to get the best price? If not, isn't this area potentially going to be littered with sketchy/fraudulent transactions? IE. a house worth $300k, with $5k in liens penalties gets sold for $220k and somehow gets a kickback of some kind?

[twacowfca]

Ok. The government is always at fault when there is a poor policy in place. But it's interesting that everyone's take here is that the government is attempting to essentially steal from these home owners. It seems to me the big issue here is not regulating the fees/interest charged by the private investors of these tax liens.  Sure nobody wants to see someone's home be taken -- especially for a few hundred dollars -- it really does seem absurd.  But I assume tax liens exist so that deadbeats pay their property taxes (not just the elderly).  What is the solution? What is the limit? Should tax liens + interest and penalties be allowed to accrue such that the mortgage note owner takes a hit? How do you separate the deadbeat with guys like mr coleman.

 

I live in NYC, I believe they specifically do not allow this to happen to the elderly.

 

(By the way -- this article I assume is saying that the man's equity in the home is under $5k right?? If he owned the home outright, and had a tax lien for $5000 including fees, they'd sell the house and he'd get the proceeds from the sale minus $5k right??)

 

The other question here is if the house is sold, does person who owns the tax lien have an responsibility to get the best price? If not, isn't this area potentially going to be littered with sketchy/fraudulent transactions? IE. a house worth $300k, with $5k in liens penalties gets sold for $220k and somehow gets a kickback of some kind?

 

In S.C. (Not my state) there is a strung out judicial foreclosure process that can take a year or two.  That state also allows a homeowner to pay off a tax lien that has been sold to a vulture investor within a period of up to six months, if I'm not mistaken.  The attorney general of that state is also empowered to file suit or bring criminal charges against someone who may be guilty of elder abuse in exploitative situations.

[Philip Morris IV]

I wouldn't mean to derail this thread - so if people are interested we can make a new one - but I'm a young guy and have thought meaningfully about never owning real estate (always renting/leasing).  Has anyone else?

 

The idea is that all the homeowner expenses (esp. maintenance and replacement projects) etc. offset the equity accrual if you don't love the property and want to stay there forever.

 

Obviously it's a hugely personal issue, and depends on like-like costs to rent/own.  But personally I like apartments, have few material possessions and like the freshness of living in different places.

[turar]

Philip, I'm not yet sure that I'm with you ideologically, but I've been "with you" by circumstance, having been renting all my life so far, I'm in my early 30s. It definitely helps with mobility and being able to pack-up and move wherever you want or wherever a new job is with a short notice. But at some point, especially with family/kids, it might make sense to settle down for a decade or two into owned real estate, until the kids are grown, after which the freedom of not owning real estate is again a good proposition. On the other hand, real estate is a good way to diversify your overall asset base, instead of renting and having all your money in equity markets.

[CorpRaider]

yeah there is usually a redemption period.

[Philip Morris IV]

Philip, I'm not yet sure that I'm with you ideologically, but I've been "with you" by circumstance, having been renting all my life so far, I'm in my early 30s. It definitely helps with mobility and being able to pack-up and move wherever you want or wherever a new job is with a short notice. But at some point, especially with family/kids, it might make sense to settle down for a decade or two into owned real estate, until the kids are grown, after which the freedom of not owning real estate is again a good proposition. On the other hand, real estate is a good way to diversify your overall asset base, instead of renting and having all your money in equity markets.

 

Yes, I did consider the family component.  Especially considering schools.  Might even scrap this idea altogether in 5 years, so who knows.

 

For now I'm still in dream mode.  Personally not sure if I'll have kids, and hope to find a wife that shares the same love of adventure.

[DTEJD1997]

I wouldn't mean to derail this thread - so if people are interested we can make a new one - but I'm a young guy and have thought meaningfully about never owning real estate (always renting/leasing).  Has anyone else?

 

The idea is that all the homeowner expenses (esp. maintenance and replacement projects) etc. offset the equity accrual if you don't love the property and want to stay there forever.

 

I've always rented my personal dwelling.  I've owned commercial real estate in the past several times.

 

I've also had family members that rented.  They did so for a variety of reasons.  Owning a house is a good thing, but it isn't right for 100% of people.

 

When you factor in repairs, upgrades and taxes, that can take away a lot of the upside.

 

It also depends where you buy.  If you bought in California in the 70's, you are doing well.  If you bought in Detroit in the 70's, you've lost money.  Real estate does not always go up, even over long periods of time.

 

I've also seen large tracts of real estate become worthless OR even have a NEGATIVE VALUE.

 

So yes, there are other people out there who don't own houses.

[nodnub]

.

 

(By the way -- this article I assume is saying that the man's equity in the home is under $5k right?? If he owned the home outright, and had a tax lien for $5000 including fees, they'd sell the house and he'd get the proceeds from the sale minus $5k right??)

 

Wrong.  The article states clearly that people with paid-off houses can lose their house to a tax lien investor over a small unpaid tax bill. Mostly cases where person is destitute and cxant pay taxes or has dementia and doesn't understand the tax lien process and tax lien sale.  n It also explicitly states that in these jurisdictions in question that the lien buyer has the right to keep all sale proceeds in excess of the tax lien amount.  It's a pretty exploitive situation.

 

It is worth reading the entire article, it's very interesting.  Made me want to throw up a bit. 

 

Read an interesting thing about the bidding process in thr related article on tax lien bid rigging.  Worth reading that as well. 

[rkbabang]

There's no such thing as private property for poor people. Yet another reason not to be poor.

 

Well put.

 

DTE: do you think that the government can do anything that doesn't involve legalized theft? (this is rkabang's cue)

 

Sorry I'm late, I just started reading this topic today.  Taxation is the taking of property under the threat of violence.  Unless someone has a difference definition of "theft" than I do, I think your question answers itself.  You can think of the taking of this persons house as simply an increase in his tax rate to 100%.  There is no moral difference between taking 1% and 100%, it is the same crime just perpetrated to a different degree. Sure if I'm mugged on the street I'd be happier if the thief takes $10 rather than $1000, but the crime is the same either way.  Whether you pay a 2% property tax or they take your whole house, you've still been mugged.

[Mikenhe]

Owning your own home is great – in the right circumstances.

 

For me it’s the family thing – the mental stability of owning your house is good for mamma – and if she’s happy – we can all be happy..

I’m about to buy again. I’ve had a good run recently in the markets and I’ve cashed out some of that and will be investing in real estate – my own. Plus the house will be owned outright.

The money I’ve been spending on rent will go into maintaining the property and also pumping up the 401k – so I get some tax benefit out of it..

We’ll own for at least 7 years – the time it takes to get the youngest through school as we like the school district. After that – who knows – we might pack it in and buy an RV and travel for a few years. Impossible to plan beyond the 7 years at this point.

Renting does have its advantages but also its disadvantages. We had a nice apartment, but the people above us liked to exercise their dog in the apartment and also indulge in the occasional bout of domestic violence to the point where the police were called on several occasions. Not the environment I wanted for my kids. Moved out of that to a nice house with a pool. More than I wanted to pay but great for the kids. Then 3 months ago we got served (as tenants) with a copy of the summons that Wells Fargo issued to the owner because he hadn’t bothered using any of our rent money (or any money) to pay the mortgage. It was then that we decided we’d like more control over our living environment.

 

[rkbabang]

I wouldn't mean to derail this thread - so if people are interested we can make a new one - but I'm a young guy and have thought meaningfully about never owning real estate (always renting/leasing).  Has anyone else?

 

The idea is that all the homeowner expenses (esp. maintenance and replacement projects) etc. offset the equity accrual if you don't love the property and want to stay there forever.

 

Obviously it's a hugely personal issue, and depends on like-like costs to rent/own.  But personally I like apartments, have few material possessions and like the freshness of living in different places.

 

 

My advice would be to not thinking of a home you intend to live in as an investment.

 

I'm on my third home so far and of the 2 I bought and sold I made money on the first one and lost money on the second one.  My first home was a small 1300sqft starter home, which I bought when I was 23 and my wife was 21.  We sold that for more than double what we paid for it 6 years later, so that we could build a larger home.  Our second home, which we built was about 2500sqft.  We stayed in it for 8 years and lost about $125K on it when we sold it.  We upgraded once again 2 years ago and the only thing that makes me feel better about losing $125K on that second house is that the people who sold me my current house sold it to me for over $250K less than they purchased it for 5 years earlier.

 

A home that you live in is just a depreciating object.  It doesn't produce income, it doesn't have any earnings, it doesn't grow organically.  It isn't even an object like gold coins which don't take any maintenance or wear out. A home just sits there and gets older.  Sure you can maintain it (which costs money) and it will hold value, but due to market swings in one direction or the other there is no way to predict how much value it will have in 30years or even in 3 years.

 

My advice would be to live where and how you want to live without consideration to your home as an investment.  Some people like renting and the freedom from maintenance and the ease of moving on to somewhere else.  Some people are like me, I enjoy owning my own home. I like being able to do what I want in and to the place where I live.  If I want to paint a wall I paint it, if I want to tear down a wall I tear it down, re-do kitchens and bath rooms, replace the flooring, or put in a pool.  I can own pets, raise chickens and goats, tear up a 2000sqft section of my lawn and plant a vegetable garden. All things I've done.  There is a kind of freedom to not answering to anyone when you want to modify the environment where you live in order to make it more fitting to your own needs or liking.  I am more than willing to pay extra for that. If it turns out in the end I didn't pay extra or even made money, that is just gravy.  In life there are no do-overs, you only get one chance to get it right.  If you have any goal at all when it comes to your personal housing, it should be to find a way to live where and how you want to live.

 

Long story short, if you enjoy renting you should keep renting.

 

 

[Morgan]

I definetely agree that there can be some significant costs associated with owning real estate. One's own home isn't as investment, but a liability. Sure, some people make money buying a house and selling it later when it's time to move or they die. But I wouldn't be surprised at all if a pretty solid portion of people only break even becuase of all the transaction costs involved plus repairs/maintenance or bad market timing or whatever. 

 

I think it'll probably be a while before I own a house of my own as opposed to just living in one of our apartment buildings. Essentially free living, but obviously not as nice or as private as a single family home. I certainly know all about the costs of maintenance though. :o 

[DoddDisciple]

Housing has historically grown at about 1% above inflation according to Shiller, so 4% p.a. I wouldn't have a problem renting, but owning just made sense where I am. That being said, I assumed a 1% per year DECREASE in the value of the house and barely rising rental costs and the numbers made sense for me.