Bank can go after other assets in Florida if you default on mortgage

Worried that your bank might go after your other assets if you're late on the mortgage or lose your home to foreclosure?

It can happen in Florida, especially if a bank sells your foreclosed house and doesn't recoup the full loan amount and if you're a big-dollar borrower.

With nearly half of all mortgages under water in South Florida, plenty of residents may wonder if their home lender can garnish their wages or suddenly lock down their deposit accounts.

Rules on tapping assets vary by state and depend on the terms of specific loans and accounts.

Problems on typical home loans usually don't crop up before foreclosure. They tend to come after the bank sells the home and ends up short.

In Florida, banks can go to court for a "deficiency judgment" to collect the rest of the money owed on a mortgage after foreclosure, said Anthony di Marco, vice president of the Florida Bankers Association.

Banks can pursue other assets with that judgment. They can file a lien on your boat or car. But "they can't jump priority on a loan," so the lender for that boat or car has first dibs to collect, di Marco said.

Florida banks usually don't target other assets after foreclosure if they don't see much to tap. "Collecting on judgments is time-consuming and costly," said real estate attorney Shari Olefson, a partner at Fowler White Boggs in Fort Lauderdale and author of "Foreclosure Nation: Mortgaging the American Dream."

But banks pay more attention to borrowers with multimillion-dollar homes or businesses that default on big commercial properties. The lender can check if the customer has other accounts with the same bank. Depending on the terms of those savings or checking accounts, they may move to freeze, sweep, garnish or otherwise tap those accounts to collect money owed, Olefson said.

There's another risk for smaller borrowers later. Banks may sell their deficiency judgments to a collection agency. The judgments are valid for up to 20 years. That leaves an agency focused on collections ample time to come after you for the balance still due, she said.

"That's why it's so important for people to deal with these mortgage problems upfront," Olefson said. "So if you have the chance to do a short-sale through the bank, or if you have the chance to negotiate with the bank and clear up the loan — rather than have this financial time-bomb ticking over your head for years — you'll be so much better off working with the bank."

And be sure get any settlement reached with the bank in writing, mortgage specialists add.

No matter what, some types of assets are off the table when banks look to collect money due on homes.

Some federal payments cannot be garnisheed at any time to cover a mortgage. Those include Social Security checks, veterans benefits and some railroad retirement payments, among others, according to the American Bankers Association in Washington, D.C.

Some states don't let banks go after an individual's assets after a home is seized and sold, said Mark Tenhundfeld, the association's senior vice president of regulatory policy.

Even with a deficiency judgment, Florida law specifies 11 items that cannot be garnisheed to pay court orders in most cases, including unemployment benefits, disability checks and payments from Supplemental Security Income, a federal anti-poverty program.

Consumers in Florida have complained about what they see as improper garnishments by banks.

The Florida Office of Financial Regulation said concerns often center on Supplemental Security Income payments garnisheed to pay the mortgage loan.

But a consumer can reverse the practice by showing that the law exempts that income from garnishment or by going to court to resolve the issue, said Flora Beal, a spokeswoman for the regulators office.

Banks have sometimes garnisheed funds that are electronically deposited into a customer's account, not knowing that the money came from exempt sources, according to the Florida Bankers Association.

The borrower's recourse: Inform your bank that the money is exempt and seek to get it back, said the association's di Marco.

That's not always easy, according to South Florida building contractor James Clare III.

Clare said he fell off a roof during a job, was disabled and lost income. He ran late on mortgage payments and other bills. One day, he found that his bank would not allow him access to a disability award electronically deposited into his account at the same bank.

Clare engaged a lawyer, but he said it took weeks for the bank to give him access to the funds and then, only after he agreed to bring some payments up to date.

"I had no choice. It would have cost me more to go to court. My attorney said by the time I'd pay all the fees and all the bills over a year or two, the money's gone," said Clare. "It was the most frustrating time."

January 10, 2011 | By Doreen Hemlock, Sun Sentinel

Solar power beginning to go mainstream

NEW YORK – Oct. 24, 2011 – Solar energy may finally get its day in the sun.

The high costs that for years made it impractical as a mainstream source of energy are plummeting. Real estate companies are racing to install solar panels on office buildings. Utilities are erecting large solar panel “farms” near big cities and in desolate deserts. And creative financing plans are making solar more realistic than ever for homes.

Solar power installations doubled in the United States last year and are expected to double again this year. More solar energy is being planned than any other power source, including nuclear, coal, natural gas and wind.

“We are at the beginning of a turning point,” says Andrew Beebe, who runs global sales for Suntech Power, a manufacturer of solar panels.

Solar’s share of the power business remains tiny. But its promise is great. The sun splashes more clean energy on the planet in one hour than humans use in a year, and daytime is when power is needed most. And solar panels can be installed near where people use power, reducing or eliminating the costs of moving power through a grid.

Solar power has been held back by costs. It’s still about three times more expensive than electricity produced by natural gas, according to estimates by the Energy Information Administration.

But the financial barriers are falling fast. Solar panel prices have plunged by two-thirds since 2008, making it easier for installers to market solar’s financial benefits, and not simply its environmental ones. Homeowners who want to go solar can do so for free and pay the same or less for their power.

Last month two of the nation’s biggest utilities, Exelon and NextEra Energy, each acquired a large California solar power farm in the early stages of development. Another utility, NRG Energy, has announced a plan with Bank of America and the real estate firm Prologis to spend $1.4 billion to install solar systems on 750 commercial rooftops.

Nationwide, solar power installations grew by 102 percent from 2009 to 2010, by far the fastest rate in the past five years.

“Every manufacturer globally is looking around for the next major growth market, and the U.S. is the first one everyone points to,” says Shayle Kann, managing director for solar research at GTM Research.

Making solar affordable still requires large tax breaks and other subsidies from federal and state governments. The main federal subsidy pays for 30 percent of the cost of a residential system. When state and other subsidies are added, as much as 75 percent of the cost can be covered.

But prices of solar panels, the squares of crystalline silicon or thin layers of metal films that turn the sun’s rays into electricity, are falling so fast that its advocates now credibly claim that solar will be able to compete with fossil fuels even when the federal solar subsidy shrinks by two-thirds in 2016.

“Over the past 10 years the industry has made the case that we needed to increase scale so we could reduce prices,” says Arno Harris, CEO of solar developer Recurrent Energy, a subsidiary of Sharp Corp. “We’re seeing it happen.”

The falling prices have made it easier for solar installers to raise the money needed to grow. And they’ve made solar power systems so affordable they can appeal to homeowners who want to save on their electric bill, not just reduce their environmental impact.

Tim Johnson, a high school math teacher in Philadelphia, had wanted to put solar panels on his roof for years. Like many people concerned about the environment, the thought of powering his home without burning fossil fuels had a strong appeal. But with two kids in college, he couldn’t justify spending $15,000, after subsidies, to do it.

But since March, he has generated 50 percent to 75 percent of his electricity with a set of solar panels on his roof, saving 20 percent on his electricity bills. His upfront cost for the system: $0.

Instead of buying and installing the panels himself, he signed up with SunRun, one of a handful of companies that build, own and maintain solar systems on homes. These companies earn money by charging customers for the power the panels produce.

Johnson pays SunRun $52 a month, and he pays his traditional utility for whatever extra power he needs from the grid. In all, he pays $60 to $100 a month for power; he used to pay $90 to $120.

SunRun can charge Johnson a competitive rate because federal and state subsidies pay for a portion of the installation. Also, the arrangement allows SunRun to take advantage of one of solar’s big advantages. Because it is generated near where it is needed, it doesn’t have to pass through hundreds of miles of wires, transformers and other equipment. The power price SunRun has to beat in order to entice customers like Johnson is an expensive retail rate, bloated with transmission and distribution charges that home solar doesn’t incur.

It would be cheaper over the long run for a homeowner to buy and install a solar system because he would not have to pay a company like SunRun for financing, service and maintenance. But these plans have growing appeal because they don’t require homeowners to lay out thousands of dollars up front.

In California, which leads the nation in solar power installations, 51 percent of the residential solar systems installed through the first three quarters of this year were sold with these plans, up from 12 percent in 2009.

SunRun and competitors such as SolarCity and Sungevity are expanding into more states, including Arizona, Colorado, Delaware, Maryland, Massachusetts, New Jersey and Pennsylvania. Last month, Google announced it would create a fund that local installers in every state can tap so they too can offer no-money-down plans.

Some installers are teaming up with big hardware chains Home Depot and Lowe’s in an effort to expose solar to customers who might not otherwise consider it.

“Awareness is still one of our biggest problems,” says Lynn Jurich, co-founder and president of SunRun, which has a partnership with Home Depot.

Solar panel prices have been declining for years because of lower costs for polycrystalline silicon, the main raw material for most solar panels, and larger-scale manufacturing, especially in Asia. In the last six months, demand has dropped sharply in Germany, the world’s biggest solar market, in response to shrinking subsidies. This has created a global glut of solar panels and accelerated the decline in prices.

Solar panels, which are priced based on the amount of power they can produce during full sunshine, sold for $1.34 per watt in mid-September, according to data from Bloomberg New Energy Finance. That’s down from $1.90 at the beginning of 2010. In 2008, they sold for $4 a watt.

The glut has been gut wrenching for companies that make solar panels. Many of them remain profitable and are growing. But three U.S. panel makers have filed for bankruptcy in two months, including Solyndra, a solar panel maker that received a $528 million federal loan.

Falling profit margins are scaring investors. The stock price of First Solar Inc. has fallen from $170 in April to $53.77. Suntech Power Holdings Co. Ltd. has fallen from $11 to $2.07 over the same period.

The market will not get any easier for small solar panel makers. General Electric Co., Samsung and other big companies are entering the market. This should increase supply and bring down costs even further. GE announced this month that it would build the largest panel factory in the U.S., near Denver.

But what has been treacherous for solar panel makers has been a boon for companies that market and install solar systems, for companies that make electronics and other parts for solar systems, and for solar customers.

To be sure, solar is growing from a very small base. All of the panels now installed across the nation produce enough electricity to power 600,000 homes, or about as much electricity as one large coal-fired power plant.

There are 30,000 megawatts’ worth of solar projects awaiting approval in the U.S., according to the American Public Power Association. Not all of them will be built, either because of regulatory or financial hurdles. But even if only half that is ultimately built, it would be five times what is already installed.

“We’re going in the direction the planet and the industry needs to go,” says Harris.

Copyright © 2011 The Associated Press, Jonathan Fahey, AP energy writer. All rights reserved.

Bank: ‘We’ll reduce your loan, you share future appreciation"

NEW YORK – July 28, 2011 – Ocwen Financial Corp., a servicer of residential mortgages, launched a new loan modification program to reduce the principal on a mortgage for delinquent borrowers, but the borrowers must agree to let loan investors share in future appreciation of the home’s value when the market recovers.

Through the Shared Appreciation Modification program (SAMs), Ocwen will write down the principal of the loan to 95 percent of the home’s current market value. The amount written down will then be forgiven in one-third increments over a three-year timespan, as long as the homeowner remains current on the modified mortgage.

Then, “when the house is later sold or refinanced, the borrower must share 25 percent of the appreciation with the investors that own the loan; borrowers keep 75 percent of the gain,” the company notes.

Loan modifications will be available only to homeowners in negative equity.

“Like all modifications, SAMs help homeowners avoid foreclosure. But they also restore equity,” says Ocwen CEO Ronald Faris in a public statement about the program. “That’s a significant benefit to the customer and, we believe, the economy and housing market. Psychologically, it’s important too. Our analytics tell us that an underwater mortgage is one-and-a-half to two-times more likely to default than one with at least some positive equity.”

The program, which is expected to be rolled out into 33 states, is one of the first principal reduction programs started by a private company.

Source: “Ocwen Unveils New Principal Reduction Program,” HousingWire (July 26, 2011) and “Ocwen Offering Mortgage Modifications That Restore Equity for Underwater Borrowers,” GlobeNewswire (July 26, 2011)

© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688

Sarasota - Manatee Foreclosure 'rocket docket' grounded

By TODD RUGER

Published: Sunday, July 10, 2011 at 5:05 p.m.

The foreclosure "rocket docket" came to Sarasota and Manatee counties two years ago in a flurry of controversy, with hundreds of people standing to lose their home in hearings scheduled to take less than two minutes.

Last month, those expedited court proceedings ended without any hubbub. State funding ran out to pay retired judges and other court workers needed to handle up to 250 foreclosure cases a day.

The loss leaves Sarasota's court system to choke on more than 15,000 pending foreclosures — so many cases that properties can languish in the court system for years before a foreclosure auction.

The end of expedited hearings mean that banks trying to seize homes quickly could see more delays. That may be good news for homeowners, who might have more time before they are forced to move out of their homes.

But experts say it is bad news for the housing recovery because the faster foreclosed properties can be resold to new owners, the faster housing values can recover.

And it will hurt those belonging to homeowner's associations, who have to make up the excess costs when nobody is paying assessments on a property caught in the legal system.

Judges in Sarasota and Manatee counties will still look at ways to whittle down the backlog, but only when they have extra time.

The rocket docket, Circuit Judge Lee Haworth said, will now be more like "a Vespa docket."

The effort to expedite foreclosures began as a way to to handle the huge increase in cases and to stop lenders from purposefully delaying their own cases.

Many lenders allowed cases to founder because when they legally retake the properties they become responsible for paying taxes, insurance and maintenance costs until homes are resold.

When attorneys representing banks do not push cases through the court system, it can leave houses sitting empty for years, putting downward pressure on home values in that neighborhood.

Without the rocket docket, which had court officials set hearings for older cases, judges will have to rely on attorneys for lenders to push the cases through to a foreclosure sale by scheduling hearings. But 30 to 40 percent of those lenders have instructed their attorneys not to hurry the cases for financial reasons, Haworth said.

"So if a party or an attorney has some reason not to move the case, then we don't have any way to move the cases forward on our own," said Haworth, the 12th Judicial Circuit's administrative judge over foreclosures.

Gulfcoast Legal Services in Sarasota, which represents those who cannot afford attorneys, went to most rocket docket sessions to catch homeowners who needed help but did not know the legal system.

"I think it's probably good news for the homeowners who are trying to work something out with their lender," Gulfcoast Managing Attorney Elizabeth Boyle said. "We may see lenders make more reasonable offers as the crisis lingers on."

Rocket dockets used around the state have been criticized in some cases for rushing foreclosures without giving homeowners a chance to fight the seizure of their home. Defense attorneys who saw repeated mistakes in paperwork from lenders contend the speed of the hearings could mean some homeowners slipped through the cracks or lost property they should have kept.

While some lenders are content with letting the cases sit, homeowners who pay assessments and their homeowner associations are frustrated because they wind up losing money while no one pays the fees on a foreclosed house.

Once a bank claims ownership, it can sell the house, or begin paying the fees itself.

"The association has to wait for the banks to get hearing time, which may be a couple months down the road," said Sarasota attorney Michelle A. Stellaci Rowe, who represents homeowner associations in foreclosures.

"As each month goes by, assessments are lost. It can add to thousands and thousands of dollars for the association," Stellaci Rowe said. "The people who are paying have to pay more, they have to carry the burden for those who don't pay."

As of this week, the soonest hearing time available for some types of foreclosure hearings was four months out, Haworth said.

At the last rocket docket hearing in Sarasota County, Senior Judge Harry Rapkin dismissed about 60 foreclosure cases caught up in legal issues because they were handled by a foreclosure firm that abandoned the cases.

New firms were not yet ready to handle the cases, which dated back to 2007. Now those cases will have to start over at the beginning of the foreclosure process.

Copyright © 2011 HeraldTribune.com — All rights reserved. Restricted use only.

Local markets heat up with investors

May 31, 2011 – Real estate investors, by three to one, will be more active in their local markets compared to typical homebuyers in the next 24 months; and 69 percent of investors say it’ll be easier to find properties in the near future, according to a survey of real estate investors released by Move, Inc., the management company overseeing Realtor.com.

The Move Investor survey suggests that local markets will be heating up with renewed investor interest and activity. Compared to a year ago, 62 percent of investors are paying more attention to home values in their local markets – only 43.5 percent say it will be harder to find bargains and 41.5 percent expect it to be easier to sell their properties in the next six months.

Meanwhile, 22 percent of investors are bullish and expect prices to rise in the next six to 12 months, and 53.5 percent expect prices to remain relatively the same. Twenty-three percent expect prices to fall in the next six to 12 months.

The Move Investor survey also found that investors are prepared to compete vigorously with traditional first-time homebuyers for hot deals. Two-thirds of investors (65.5 percent) said they expect that first-time buyers’ problems getting a mortgage will make it easier for investors to compete for properties. One in five investors (18.5 percent) say they’ll be cash-only buyers, a strategy that’s out of reach for most first-time buyers. Eight out of 10 (80.5 percent) expect cash discounts from sellers.

Today’s investors – not stereotypical, deal-driven flippers

Contrary to the tactics used by “flippers,” 50 percent of today’s real estate investors plan to hold their properties for five-plus years. Only 11 percent expect to sell within 12 months of purchase. Two-thirds (67.5 percent) say they’re investing for the long term.

Fifty-nine percent (59 percent) told Move they’re new to real estate investing, with 33.5 percent considering their first investment purchase and 8.5 percent in the process of buying and selling their first investment property. Another 17 percent said they just completed their first transaction and plan to make more. Only 36.5 percent have experience in more than one property transaction.

When it comes to repairs and maintenance, 56.5 percent of investors say the repair and maintenance of investment property has not been difficult. Moving forward, 42 percent plan to invest their own time and energy to improve, repair and maintain their properties. The rest said they’d hire a contractor for repairs (29.5 percent) or purchase move-in-ready properties (28 percent). The majority (65.7 percent), don’t expect repair costs to exceed 20 percent of the property’s purchase price.

“This data suggests today’s climate is hot for investing and is attracting a lot of new people that don’t fit the stereotypical deal-driven flippers that buy and sell properties quickly,” said Move, Inc. Chief Executive Officer Steve Berkowitz.

Investors combine cash and credit to snap up properties

While cash is king in many circles, 75.5 percent plan to combine cash and credit to purchase properties as they build their real estate portfolio. In fact, 59.5 percent plan to put less than half down on their next property purchase and they’ll finance the rest. Those planning to use more than 50 percent cash and finance the remainder account for 16 percent of today’s investors. Investors told Move the second most difficult challenge has been finding financing (57 percent).

“The fact that most real estate investors plan on combing cash and credit for their purchases goes against the conventional wisdom that investor transactions today are mostly cash-only sales,” says Berkowitz. “We were surprised to learn that 75 percent of investors are financing portions of their purchases. This suggests they’re seeing tremendous or once in a lifetime opportunities and may be tapping into credit or taking out second trusts on existing properties. The data also shows they’re expecting high returns to match the level of investment they’re making in an arena that is new to many investors.”

High risk leads to high ROI expectations

Based on the investments they’re making in today’s environment, real estate investors clearly expect high yield returns. Nearly half (48 percent) expect a profit of 20 percent or more from their property investments, a 4 percent annual rate of return over five years. Another 40 percent expect a profit of 10 percent, and only 6.5 percent expect a 5 percent or less return on investment. Half (50 percent) of today’s real estate investors plan to hold their properties for five-plus years.

Property investments gateway to homeownership for many

While the survey shows investors will outnumber traditional homebuyers three to one, nearly half (49 percent) plan to live in their investment property until it’s sold or turned into a rental property. Slightly more than half (56.5 percent) will put their investments to work as rental properties, and 28 percent plan to purchase vacation property that they’ll eventually sell. The Move Investor survey also found 30 percent of real estate investors are interested in buying retirement property as an investment.

“The survey suggests some first-time buyers may be looking at investing as a strategy to becoming homeowners,” Berkowitz said. “While today’s market is tough for some, it’s also motivating millions to take an unconventional approach and creatively search for new ways of entering the housing market.”

© 2011 Florida Realtors®

Tax Exemptions May Leave Many More Not Paying Any Tax

TAMPA, Fla. – May 24, 2011 – Florida’s turbulent housing market has had an unintended consequence: Thousands of homeowners don’t pay a dollar in property tax.

No, this isn’t a real estate scam. Blame higher homestead exemptions and falling home prices that essentially removed houses from the tax rolls.

“It’s a basic fundamental in American society and tax policy that everybody should pay something,” said Warren Weathers, chief deputy for the Hillsborough County property appraiser’s office. “Some of these (exemptions) were created for people who barely have anything, and that’s not bad. But there are people ... that have the ability to pay that don’t pay some of their fair share.”

It couldn’t have come at a worse time for budget-conscious municipalities. The exemptions cost the county millions in property tax revenue, and that’s on top of millions lost because of falling values. Hillsborough County saw property taxes owed go from $1.9 billion in 2008 to $1.7 billion in 2009 to $1.5 billion in 2010.

For many of those with tax bills of zero, their properties are valued less by county property appraisers than their qualified homestead exemption, usually $25,000. For properties worth more, a $50,000 exemption brings the tax bill down to almost nothing.

In Hillsborough, more than 7,000 homeowners didn’t pay property taxes last year, according to data from the property appraiser’s office. That’s up from 4,920 in 2008.

An additional 5,700 pay some tax, such as to the school board, but they don’t contribute anything toward the county’s general fund. And that’s where the money comes from to pay public services such as roads, sewer service and libraries. That number is up from 1,238 in 2007.

The homes range from modest to middle-class to extravagant. Most owners who don’t owe property taxes live in poor neighborhoods where home values have plummeted.

For example, a shotgun-style home at 2809 N. 10th St., in the Ybor City area north of Interstate 4, is valued at $23,569 by the county property appraiser. The owner has a $25,000 homestead exemption. Taxable value: zero.

Sybil Faulker, 86, has owned the 10th Street home for 50 years and has never paid property taxes. Faulker, who lives on Social Security, said the lower tax bill is critical for the poor, especially in a deep recession.

“It’s a huge help, and I live in a 91-year-old home,” Faulker said. “When people have a brand-new home worth $200,000 to $300,000, that’s different. They have the income to pay.”

Even the housing boom wasn’t enough to push up the value of Faulker’s home enough to cause her to owe property taxes, county records show. But for many, rising values caused property taxes to increase beyond what they could afford. Exemptions were provided to help alleviate the burden, but now that values have plummeted, the exemptions allow more people to pay little or no tax.

During the housing boom, the homestead exemption was raised from $25,000 to $50,000. The Legislature mandated that the second $25,000 could not bring the taxable value to zero. Instead, the property would have to be worth more than $75,000 to get the full $50,000 exemption.

Still, the extra savings is big for some.

Consider a home at 2810 N. 10th St., which sold in 2004 for $145,000. It’s now valued at $67,287 by the property appraiser. The owner has a homestead exemption of $42,287, bringing the taxable value to $25,000.

Few homes in this neighborhood sold, even during the housing boom. Many of the owners are elderly and have stayed put. So these homes weren’t affected by investors who flooded other neighborhoods, artificially driving up prices during the housing bubble.

Hillsborough has always had low-valued homes, especially in the inner city and some rural areas, Weathers said. But other changes to real estate, such as apartment-to-condominium conversions and toxic drywall made in China, have sent taxable values plummeting.

Consider this condo conversion at the Towers at Carrollwood Village. One condo unit sold for $90,000 in 2005 and is now valued at $19,657. The homestead exemption is $17,250, bringing the taxable value to zero.

The rest of the 114 condos in the complex have a similar tax situation, said Chris Weiss of the Hillsborough County property appraiser’s office.

A condominium complex in New Tampa is in the same boat. The Villas Condominiums has 282 units, Weiss said, and was also saturated with investor-owners. Both complexes have been hit hard by foreclosures, he said.

A condo at the New Tampa development sold for $106,900 in 2005 and is now worth just $16,230. The homestead exemption brings the taxable value to nothing.

Toxic drywall costs the county about $1 million in property taxes, Weathers said.

“That’s because Florida gives owners of houses with the tainted drywall a break on their taxes. As long as the drywall is in the house, it isn’t worth anything, say state legislators who passed the bill.

“No one wants to buy a home with this drywall problem,” Weathers said.

The owners of a million-dollar home on Davis Islands saw their tax bill go from $20,192 in 2009 to $6,310. The home’s toxic drywall has made it worthless, according to the county property appraiser. The taxes due for the property are on land only.

Judy Redmiller, a homeowner in South Tampa, says she pays hefty taxes now but didn’t when she lived in Ybor City because her home was valued lower. She says she supports some tax breaks for people who need it, but paying nothing is unreasonable.

“I think everyone should pay some amount because the money goes to schools, streets, services that benefit us all,” Redmiller said.

Private property appraiser David Teacher said he understands people wanting their neighbors to pay their fair share but, he said, there is an upside. Falling home prices and no – or low – property tax is a big incentive for investors to buy.

“There have been some people that say, ‘Oh, that doesn’t sound fair.’ But I have to say the good thing about this is all the cash purchases and investors who are coming and helping us stabilize this market.”

Teacher said he has seen homes in East Tampa selling for as low as $7,000. Sure, he said, they need work, but most still could be good deals.

“What better investment,” he said. “Look at the return on your money. Some homes are selling for less than the cost of a car.”

Copyright © 2011 Tampa Tribune, Fla., Shannon Behnken. Distributed by McClatchy-Tribune Information Services.

Sarasota Realtors Report Rebound in Sales and Prices

by Harold Bubil

Both the number of sales, and, more importantly for homeowners, the average selling price of homes sold in March rebounded from February’s level, according to a just-released report from the Sarasota Association of Realtors.

SAR members sold 800 properties in March – which was the most since September 2005, when the real estate boom started to fade.

March’s selling prices rose by double digits for both houses and condos from the previous month, and pending sales were at the highest level since the real estate boom ended in 2005.

Inventory dropped to 5,501 – less than a third of the available properties on the market during the bad years following the boom.

“Sarasota is clearly a recovering market,” said SAR President Michael Bruno. “Agents are very busy showing properties and writing contracts, and people are excited about our strong market rebound. Obviously, we haven’t seen numbers like these in several years. There is a buzz in the local market that’s reaching out to buyers across the nation and even internationally.”

Highlights of the report:

– House sales, at 580, were up 23 percent from the previous month, and 5 percent from March 2010, when the home-buyer tax credit encouraged 555 purchases.

– Condo sales, at 220, were up 10 percent from February, and 11 percent from March 2010.

– Median sales prices for both houses and condominiums increased to $159,250 for houses and $173,000 for condos, representing a 16 percent and a 26 percent jump, respectively.

– Distressed property sales fell to 43 percent of the total. In February, 47 percent of all sales were foreclosures or short sales.

– The inventory of for-sale houses fell to 6.0 months, down from 8.0 months in February. This could represent “the cusp of a seller’s market,” said the report. For condos, the remaining months of inventory dropped to 9.2 months from 10.4 months in February. Realtors consider a 6-month supplyof for-sale homes to be a balanced market between buyers and sellers.

“Price appreciation normally follows a declining inventory and increased competition among buyers,” explained Bruno. “I’m still hopeful that this trend, which has been evident now for several months, continues into the summer months. Last year, we saw strong activity in April, May and June, probably connected to the federal tax credit. But there is evidence the trend will repeat this year after seeing the March sales and pending sales figures.”

FL House Flippers Seek Inner-City Profits

WASHINGTON – April 18, 2011 – More investors are taking on the risk of flipping homes, despite falling home prices and sluggish real estate markets across the country. But investors say there are still profits to be made in the house flipping business.

Nearly 1 million homes were bought as investment properties in 2010, according to the National Association of Realtors®, and a record number of buyers purchasing properties with cash currently are flooding the market.

Flipping homes for profit is easier in rising markets, but not many markets are reporting increases in home prices, analysts say. In Washington, D.C., Justin Konz of RestorationCapital says his clients are going through four or five properties a month and are making gross profit margins of 35 percent or higher.

Where to find the deals

Flippers mostly are finding their homes through foreclosures auctions, REOs and short sales. They seek homes at rock-bottom prices that will have low fix-up costs, no more than about 5 percent or 10 percent of the purchase price.

In Florida, where investors are finding it more difficult to flip homes because of the drastic drop in prices and high inventories, flippers are targeting inner-city properties that are being sold at steep discounts. For example, some of houses are selling for $30,000 when they once sold for $200,000.

Perry Henderson, a real estate agent and investor in Austin, Texas, says the biggest opportunities in flipping are the “ugly” houses that have lingered on the market or “old houses that somebody’s grandma lived in for 40 years and didn’t do anything to. Now, she’s passed away and her family wants to sell quickly.”

Real estate investor Brian Fuller, who with partners buys and sells more than 200 properties a year in the San Diego area, says he’s drawn to the “biggest eyesore on the block.” He says they then “ turn it into the best-looking house there. We’re helping pull up values in the neighborhood.”

Source: “Vulture Investors Flipping Their Ways to Big Profits,” CNNMoney.com (April 13, 2011)

© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688

Buyers Ready to Snatch Bargains This Spring

WASHINGTON – March 23, 2011 – Bargain prices on housing combined with low interest rates below 5 percent may bring the real estate market its busiest spring season in years, economists say.

Distressed sales continue to put downward pressure on home prices, which may lure more buyers off the fence and ready to snag a deal during the typical prime-time buying season.

Some builders are ramping up discounts on new homes as well as boosting commissions to brokers to try to spark more transactions.

Sellers of existing-homes also are getting more competitive in pricing their homes.

“After three years of the housing downturn, people are becoming much more realistic in terms of valuing their homes,” says Lawrence Yun, chief economist at the National Association of Realtors®.

An improved job market with better income potential may also motivate more people to buy, says David Berson of the PMI Group. “Household formations are also very important,” Berson says. “Kids may have moved back in with their parents, or two people may have moved in together because of job concerns. Now they can move into their own place.”

While interest rates are sitting comfortably below 5 percent for now (30-year fixed rates averaged 4.76 percent last week), economists warn the attractive low rates won’t last long.

“Few think mortgage rates are going lower,” says Mark Zandi, Moody’s Analytics chief economist. “It’s more likely they will be 6 percent than 4 percent next spring. This lights a fire under buyers.”

Source: “Discounts expected in spring housing market,” The Wall Street Journal (March 22, 2011)

© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688

Banks are Fixing Up Their Home Before Putting on Market

More banks pay to fix up foreclosures for resale CHICAGO – March 17, 2011 – More banks are investing thousands of dollars to fix up foreclosures in trying to spur sales and appeal to a broader buying pool. Banks have inherited plenty of foreclosed homes that have everything from water damage, mold, broken windows, and missing plumbing fixtures.

But while banks used to be hesitant to invest much money in fixing up these homes, more real estate pros say that banks are heeding their suggestions for repairs and seeing the benefits of how a little investment can make these properties more sellable. As such, they are paying for new paint and carpet, refinishing damaged floors, replacing old windows, and repairing leaky roofs.

They hope to extend the foreclosed homes’ appeal past traditional investors and professional rehabbers. For example, a homebuyer would have trouble securing a mortgage on homes that lenders deem “uninhabitable” because of needed repairs.

The banks interest in fixing up these properties also can help the overall real estate market because the foreclosed properties can sell at a higher price.

Real estate agents say they are making more suggestions to banks on how to spruce up the properties. First, they identify the target customer for a property. For example, if the home will likely appeal to owner-occupant, agents may recommend fixes such as paint to a $25,000 kitchen remodel.

Source: “Banks Fixing Up Foreclosures to Spur Sales; Strategy Aims to Give Them Broader Appeal, Reduce Big Inventory,” The Chicago Tribune (March 13, 2011)

© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688

What Does REO Stand for in Real Estate?

by Tricia Chaves, Demand Media

Overview

REO stands for Real Estate Owned properties, which get reclaimed by the bank or government agency which financed their mortgage after failing to sell at a real estate auction. Generally, REO properties get sold on the open real estate market using a real estate agent or in bulk sales to investors. REO properties generally get sold at a discounted price when compared to comparable properties.

History

Foreclosures in the United States date back to the early 1930s. Following the stock market crash in the fall of 1929, unemployment rose and caused the housing and bank markets to fall. At the same time, a sandstorm- and drought-filled season caused farmers' businesses to fold. By 1933, almost 0.73 percent of the homes in the United States became bank REO properties with about a thousand occurring daily. The nation's first REO auctions, referred to as "penny auctions," forced profit-hungry banks to purge unsold properties, which became liabilities.

Features

An REO property can be any age or style, in virtually any neighborhood. The majority of REO foreclosed properties require work to rehabilitate or repair problems. Typical REO property issues include damaged walls, missing fixtures or appliances and faulty mechanical components. A former property owner's unwilling and unhappy departure coupled with a long period of vacancy is a recipe for property damage.

Benefits


Eager banks may offer attractive financing programs to buyers to unload REO properties. Some REO loan incentives include zero percent or a reduced down payment when compared with conventional loans, lower interest rates, less stringent credit criteria, faster approval and financing for homes which other lenders may not approve.

Negotiation


Vacant REO homes are a profit drain on bank owners, resulting in an urgency for sales. When a buyer makes an offer to purchase a REO home, it can seem less personal and less emotional than a transaction with a traditional homeowner-seller. In an REO home offer, the bank representative simply considers the bank's bottom line and generally makes a fast decision, which can result in a smooth and quick closing.

Warning

Banks typically sell REO properties "as-is." As a buyer, a professional property inspection allows you to make an educated offer for purchase considering the costs involved to repair any existing defects. A buyer may offer less or request the bank make a repair in the instance of major home systems such as electrical, plumbing and mechanics, and the bank may agree to facilitate a sale.

For-Sale-By-Owners Vanish, Sellers Turn to Real Estate Pros

WASHINGTON – Feb. 21, 2011 – For-sale-by-owners are rare nowadays. In fact, the number of FSBOs dropped to record lows over the past year.

Unrepresented sellers make up just 11 percent of the market, down from 13 percent in 2009, according to the 2010 National Association of Realtors® Profile of Home Buyers and Sellers.

With today’s more complex transactions – such as with short sales and foreclosures and frequent changes in mortgage lending – more sellers are finding comfort in the help of real estate professionals to guide them through the process.

In the seller’s market, FSBO sellers tried to sell the home themselves because they thought they could save on commission fees, but today’s sellers realize that if they don’t use an agent, it’ll likely cost them more in the long run, experts say.

“Selling by owner does not guarantee the seller will put 5 [percent] to 6 percent more in his or her pocket in trade for doing all the work and taking on potentially costly liabilities,” Margaret Woda, associate broker with Long & Foster in Crofton, Md., told The Washington Times. “On the contrary, prospective FSBO buyers have their eyes on that 5 percent to 6 percent as well. It’s more likely the buyer will win this negotiation in a buyer’s market with a huge price reduction – probably even larger than the saved commission.”

Some FSBO sellers also often make the mistake of listing their home at a higher price than the market warrants. But even if they do find a buyer for that price, unless it’s a cash purchase, the home has to be appraised and many deals can then fall apart.

Source: “Fewer Sellers Going Do-it-Yourself Route,” The Washington Times (Feb. 11, 2011)

© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688

Shopping Tips For Buying a Home Warranty

CHICAGO – Feb. 21, 2011 – Home warranties can be attractive to homeowners or buyers considering a purchase. These service contracts can cover all of a home’s major systems, such as the furnace or air conditioner, and needed repairs if the appliance breaks or gets damaged.

Some sellers offer a home warranty to lure buyers.

But not all home warranties are the same. Experts say you should carefully weigh costs, policy allowances, and customer feedback before making a decision to ensure you’re getting the best deal. Home warranties cost about $250 to $500 a year.

Here are some more home warranty tips from experts:

• Find customer reviews. Websites, such as homewarrantyreviews.com, review home warranty companies. You also might check how each company is rated with the local Better Business Bureau.

• Check for extra fees. Will you have to pay a set price for service calls?

• Check the coverage allowance. Are there any exclusions? Will the allowance cover the entire cost of a broken appliance or just part of it? For example, if you have older appliances and mechanicals, will the policy cover the full cost of replacing it or just the depreciated value? If the policy only covers the depreciated value when a 20-year-old furnace dies, for example, the reimbursement may not be enough to buy a new one.

• Verify which appliances are included in the coverage. Some companies will allow you to add coverage for swimming pools, while others won’t.

“The biggest thing is awareness of what the exclusions are,” Greg McBride, a senior financial analyst at Bankrate.com, told the Chicago Tribune. “The mere presence of a warranty, by nature, tends to have exclusions. Being aware of that can aid in the decision-making process.”

Source: “When home warranties are worth it,” Chicago Tribune (Feb. 8, 2011)

© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688

Fla.’s existing condo sales up in 4Q 2010

ORLANDO, Fla. – Feb. 10, 2011 – Sales of existing condominiums in Florida rose 6 percent in fourth quarter 2010 compared to the same period a year earlier, according to the latest housing statistics from Florida Realtors®. A total of 17,231 existing condos sold statewide in 4Q 2010; during the same period the year before, a total of 16,229 units changed hands.

Thirteen of Florida’s metropolitan statistical areas (MSAs) reported higher existing condo sales in the fourth quarter, according to Florida Realtors. The statewide existing-condo median sales price was $86,400 for the three-month period; in 4Q 2009, it was $105,600 for a decrease of 18 percent. The statewide existing-condo median price in the fourth quarter was nearly 2.9 percent higher than it was in 3Q 2010.

Looking at Florida’s housing sector in the fourth quarter, Dr. Sean Snaith, director of the University of Central Florida’s Institute for Economic Competitiveness, pointed out that the jobs outlook has a major impact. “Persistently high unemployment constrains demand and feeds into the ongoing foreclosure problem,” Snaith said. “Given the state of the labor market, a continuing decline of home and condo prices in the fourth quarter is not surprising or unexpected. However, it’s important to note the rate of price decline is decelerating.

“As the labor market recovery takes hold in 2011, it will help put a floor beneath price declines and ultimately will provide the basis of housing’s recovery.”

Meanwhile, in the year-to-year quarterly comparison for existing single-family home sales, 39,338 homes sold statewide for the quarter compared to 43,494 homes in 4Q 2009 for a 10 percent decrease. The statewide existing-home median sales price was $134,100 in 4Q 2010; a year earlier, it was $140,500 for a decrease of 5 percent. Sales of foreclosures and other distressed properties continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes, according to the National Association of Realtors® (NAR). The median is a typical market price where half the homes sold for more, half for less.

Optimism has increased slowly but steadily in Florida real estate markets through the fourth quarter of 2010, according to the University of Florida’s Bergstrom Center for Real Estate Studies’ latest quarterly survey of real estate trends. The report surveys economists, industry executives, real estate scholars, researchers and other experts.

Center Director Timothy Becker noted improvement in several key categories, including the outlook for sales in new single-family homes and condominiums, office occupancy, retail occupancy, land investment and capital availability. Respondents’ expectations for occupancy and rent increased across every property type, while the investment outlook rose in a majority of the property types. The statewide outlook was the highest since the survey’s inception in 2006, he said.

“Overall, the market appears to be improving and will continue to improve at a slow pace over the next year,” Becker said.

Low mortgage rates continued to be available during the fourth quarter of the year. According to Freddie Mac, the national commitment rate for a 30-year conventional fixed-rate mortgage averaged 4.41 percent in 4Q 2010; one year earlier, it averaged 4.92 percent.

City of Bradenton to get $520,177 from HUD

The City of Bradenton has received notification from the U.S. Department of Housing and Urban Development that $520,177 is available for this fiscal program year for the City's Community Development Block Grant Program.

The CDBG program works to ensure decent affordable housing, services to the most vulnerable in the City, and job creation through the expansion and retention of businesses. The CDBG program is an important tool that helps local government tackle the challenges facing their communities. This program makes a difference in the lives of thousands of people throughout the City of Bradenton - and millions across the nation.

“The program’s success is the result of strong partnerships among the elected officials at all levels of government, neighborhood based nonprofit organizations, private sector, and HUD,” said Lesa Livingston, Manager, City of Bradenton's Housing & Community Development Division.

HUD awards grant money to communities to carry out a wide range of local development activities directed toward revitalizing neighborhoods, economic development, and providing improved community facilities and services.

Typically, activities funded include construction of public facilities and improvements, such as water systems, streets, and community centers; rehabilitation of houses and landmark structures; assistance to private, for profit entities to carry out economic development activities and the provision of public services.

For more information, please contact Lesa Livingston at (941) 932-9481 or lesa.livingston@cityofbradenton.com.

As housing languishes, mortgage write-downs gain appeal for banks

As housing languishes, mortgage write-downs gain appeal for banks RALEIGH, N.C. – Sept. 9, 2010 – Eager to avoid writing down the loans on their books, banks have been extending many of them with the hope that the market will improve. Even banks that foreclosed on properties have kept them on their books, reluctant to auction them in a market where investors offer as low as 10 cents on the dollar.

Now that appears to be changing, and it could have implications for property owners caught up in the sell-off.

“The proverbial logjam is beginning to break up,” said Jim Anthony, CEO of Anthony & Co., a Raleigh real estate services company.

As evidence, Anthony said BB&T plans to auction $1 billion of performing and nonperforming loans in the Southeast.

BB&T would neither confirm nor deny reports of the auction. “BB&T continues to evaluate opportunities to best execute our problem loan disposition strategy, which may or may not include bulk sales,” said spokeswoman Cynthia Williams.

BB&T has been more aggressive of late in writing down its troubled loans and moving to rid itself of some of them. The bank’s CEO, Kelly King, has indicated the strategy will continue as long as investor appetite for the loans remains at current levels.

Other regional banks, including Pittsburgh-based PNC Financial Services Group and Birmingham, Ala.-based Regions Financial, are pursuing similar strategies.

The move to deal with troubled real estate loans is driven partly by federal regulators who have increased pressure on banks whose capital ratios fall below a certain level.

“I think the banks are coming to terms with the fact that, particularly, commercial real estate is declining in value and it’s just not coming back in the next three months or six months,” said Tony Plath, a banking professor at the University of North Carolina-Charlotte. “It’s going to be a while before we’re out of the hole as far as real estate values are concerned.”

The auctions also are a sign that the gap between what the banks will take for the loans – and what investors will pay – is narrowing.

“I think all of the banks have reached the point where they realize they’re not going to get 80 cents on the dollar for the value of the loans they package,” Plath said. “They’re going to be looking at something like 35 or 40 cents on the dollar, which seems to be where these loan packages are selling.”

For property owners whose loans are included in these packages, the auctions could mean trouble.

If an investor buys a loan for 40 cents on the dollar, that means they can foreclose on the property, auction it off and still make a profit.

“The borrowers that are included in the package face much more rigorous collection efforts on behalf of the buyer,” Plath said. “(If you’re a borrower,) you really don’t want that loan sold.”

© 2010 The News & Observer (Raleigh, N.C.). Distributed by McClatchy-Tribune Information Services.

Fed governor: Turn REOs into rentals

Fed governor: Turn REOs into rentals WASHINGTON – Sept. 3, 2010 – Federal Reserve Governor Elizabeth Duke, speaking at a conference on vacant housing, called for more alternatives for the disposal of REO properties besides traditional homeownership.

Duke advocated an increase in rental housing, lease-purchase deals and converting foreclosed owners to renters.

“Homeownership, long promoted by federal policy and facilitated by local housing organizations, cannot and should not be the only alternative to REO properties,” Duke said. “Even in the best of times, homeownership limits mobility in the labor market.”

Source: Reuters News (09/01/2010)

© Copyright 2010 INFORMATION, INC. Bethesda, MD (301) 215-4688

Have home prices hit bottom?

By Michael Braga

Published: Sunday, March 28, 2010 at 1:00 a.m.

The long drop may be over.

The great home price decline that began on the Gulf Coast more than four years ago finally shows signs of ending.

In the Sarasota-Bradenton market, the median price for single-family homes hit a low of $144,000 in February 2009. Since then, it has bounced around, creeping as high as $167,400.

Some skeptics warn that more bad news lurks, thanks to an expected flood of foreclosures and a paucity of bank lending.

But a growing number of market watchers see signs the price decline has ended.

• The number of for-sale properties continues to push toward a more healthy level. In the Sarasota market, there was a 10.6-month inventory last month -- the amount of time it would take to sell every home on the market at the current rate of sales -- down from 11.5 months in January. Six months is considered equilibrium between buyers and sellers.

• The lower end of the market -- homes selling for $200,000 or less -- has stabilized. Thanks to strong investor demand, there have been bidding wars for homes in that range. For the 12 months ended Jan. 31, the median price for low-end homes in Sarasota has risen no higher than $110,000 and fallen no lower than $99,000.

• The top of the market -- homes that sell for $500,000 and above -- may still face turmoil. More people than realized bought luxury homes they could not afford, says Jack McCabe, the real estate consultant who correctly called the top of the market in 2005. Those houses will be sold at deep discounts during the next two years, he predicts.

Still, all those bargains at the high end will help raise median prices.

"The sheer fact that more transactions will take place in the upper range will have the net effect of dragging up the median," McCabe said.

At low end: stability

Jeff Twigg, who spends his days driving the region checking out properties for sale through courthouse auctions, says there is considerably more competition among bidders these days -- so much so that he and his partner are passing on opportunities because they think competitors are bidding too much.

Eric Greenstein, an agent at Tarpon Coast Realty, says similar activity is affecting the short sale market, made up of sellers who owe more to banks than their properties are now worth.

"Six months ago, the market was still dipping," Greenstein said. "When a buyer made an offer on a property and the bank would come back six months later to accept, the end user would say, 'Forget it,' because values would be lower at that point. Now the banks are countering with higher offers and buyers are accepting because the price pendulum is swinging in the opposite direction."

Others market watchers, including Matt Augustyniak, the president of Manatee County's Horizon Realty, say a new wave of foreclosures may be avoided because of new federal rules governing short sales and the expansion of the Obama administration's mortgage-aid plan announced last week.

"The new rules will force banks to respond to short sale offers within 10 days," Augustyniak said. "They don't have to accept, but they have to come back with a number they would be willing to accept, and that might speed short sales and eliminate some foreclosures."

Because bank foreclosures usually sell for 20 percent less than short sales, overall prices will trend higher if the pace of short sales accelerates, he said.

At high end: uncertainty

Sales at the upper end of the market haven't yet picked up. Sales in the $500,000-and-above range actually fell by 30 percent in Sarasota and Manatee counties during the 12 months ended Jan. 31, compared with the same period a year earlier, statistics generated by TrendGraphix show.

It is also taking longer for luxury homes to sell -- 194 days on average in Sarasota County during the 12 months ended Jan. 31 compared with 171 days during the same period a year earlier. In Manatee County, it took 205 days to sell a home in the $500,000 and above range, compared with 156 days the year before.

"Days on the market only increase if properties are listed too high," said Hannerle Moore, a luxury agent with Michael Saunders & Co. "Many high-end sellers are still hoping for a return to 2005 prices and that's many, many, many years away. As I tell my clients, you can either be like the lady across the street who has had her house on the market for 936 days or you can price your property to sell."

For McCabe's theory about the median price to play out, more luxury homes must come to market during the next two years at much lower prices, and buyers have to snap them up with the same gusto being displayed at the low end.

National statistics show that adjustable-rate jumbo mortgages that high-end buyers obtained during the boom years from 2004 through 2007 are starting to reset, which should lead to more foreclosures, said Gordon Hester, who runs a high-end mortgage brokerage on Siesta Key.

"Banks are going to have more of these problems. They are bigger problems and they will want to get out of them as soon as they can," Hester said. "That will mean a huge fall in prices."

That has already happened in a small way in Sarasota County, court records show. Eleven of 129 properties that sold for more than $1 million during the 12 months ended Feb. 28 were foreclosure sales of unimproved homes. During the same period a year earlier, just one of the 151 sales was a foreclosure.

Prices of the 11 unimproved homes that were seized and sold by banks were 27 percent lower than the owners originally paid. The previous 12 months, high-end foreclosed homes sold for only 13 percent less than the owners originally paid.

The big question among market watchers is whether there is enough demand for high-end properties, even at greatly reduced prices.

"Those homes will be sold at a range where credit is still tight and there would have to be a lot of cash buyers, and I'm not sure that will be the case," said Sean Snaith, a University of Central Florida economist.

"It is not as if we haven't had foreclosures at the high end yet. That end has had foreclosures as well and we haven't seen the median go up."

Northern buyers return?

Add in the fact that it is still difficult for home buyers to get bank loans, and you have a recipe for a weak market heavily dependent on cash buyers.

But McCabe -- who predicts that prices will gradually move higher for two years before rising at a more normal 4 percent to 6 percent a year -- thinks there is plenty of pent-up demand.

Northern buyers who were priced out of the market during the boom have been waiting to buy ever since, he said.

When prices drop by 50 percent or more, those buyers will act quickly.

"They will see incredible opportunities toward the end of the year to pick up $2 million properties for under $1 million," he said.

When It's Ok to Walk Away From Your Home

Millions of Americans are now deeply underwater on their mortgage. If you're among them, you need to stop living in a dream world and give serious thought to walking away from the debt.

No, you shouldn't feel bad about it, and you shouldn't feel guilty. The lenders would do the same to you—in a heartbeat. You need to put yourself and your family's finances first.

How widespread is this? More than 11 million families are in "negative equity"—that is, they owe more on their home than it is worth—according to a report out this week by FirstAmerican Core Logic, a real-estate data firm. That's a quarter of all families with mortgages. And for more than five million of those borrowers, the crisis is extreme: They are more than 25% underwater—the equivalent of having a $100,000 loan on a property now worth just $75,000 or less. That's true for a fifth of mortgage holders in California, nearly a third in Florida and an incredible 50% in Nevada.

Are you in this situation? Are you still battling to pay the bills each month, even when it may make little financial sense to do so?

It's time for some tough talk.

Stop trying to chase your lost equity. That money is gone. Don't think like the gambler who blows more and more cash trying to win back his losses. That's how a lot of people turn a small loss into a big one.

And do the math. Even if you hope the real estate market is near the bottom—it's possible, but by no means certain—it may still take years to see any meaningful recovery. If you are 25% underwater, your home will have to rise by 33% just to get you back to even.

Is that likely? And over what time period? Even if home prices rose by 5% a year from here, that would still take six years. And during that time you could instead be building fresh savings elsewhere.

Bloomberg News

A real-estate agent moves a torn "Lender Foreclosure" sign outside a foreclosed home in Reno, Nev., last Monday.

If you are reluctant to give up on "your" home, realize that it isn't "yours." If you are in negative equity, it's the bank's home. You're just renting it. And right now you may be paying way above market rates. You need to be ruthless about your cash flow.

Are you worried about the legal consequences of walking away? Certainly, you should check with a lawyer before doing anything, but the consequences will probably be more limited than you think.

In "non-recourse" states, the mortgage lender may have no right to come after you for any shortfall. They may have no option but to take the home, sell it and eat the loss. According to a survey last year by the Federal Reserve Bank of Richmond, such states include negative-equity hot spots California and Arizona. Even in "recourse" states, lenders may have limited ability to come after you. Often they'd have to jump a lot of legal hurdles, and it's just not worth it for them. They're swamped with cases anyway.

"In my experience, right now they're not really going after anyone," says Richard Nemeth, a bankruptcy attorney in Cleveland. "They just don't have the resources."

If you've taken smart steps to protect your money, you may be safer still. For example, money held in a 401(k), Individual Retirement Account or pension plan is sheltered from creditors.

Sure, a strategic foreclosure may hurt your credit score. But if you're in financial difficulties, it's probably already suffered. And your credit score is not the only thing in life that matters.

Still, when it comes to the idea of walking away from debts, many people are held back by a sense of morality. They feel it's wrong to abandon their obligations. They don't want to be a deadbeat.

Your instincts, while honorable, are leading you astray.

The economy is fundamentally amoral.

Sometimes I think middle-class Americans are the only people who haven't worked this out yet. They're operating with a gallant but completely out-of-date plan of attack—like an old-fashioned cavalry with plumed hats and shining swords charging against machine guns.

Do you think your lenders would be shy about squeezing you for an extra nickel if they thought they could get away with it?

They knew what they were doing when they wrote your loan. Many were guilty of malpractice, but they pocketed good money and they've gotten away with it. And if they thought your loan was "risk free," how come they were charging you so much more than the interest on Treasury bonds?

If you're only a small amount underwater on your mortgage, it's probably the case that you're going to be better off staying put. But if you are deeply underwater, it's a different matter.

Whether we like it or not, walking away from debts is as American as apple pie. Companies file for bankruptcy all the time, and their lenders eat the losses. Executives and investors pocketed millions from the likes of Washington Mutual, Lehman Brothers and Bear Stearns when the going was good. They didn't have to give back one cent of that money when the companies went into bankruptcy.

Limited liability, after all, is one of the main reasons every business from your local dry-cleaner to a major multinational gets incorporated in the first place. They're not shy about protecting themselves if things go wrong. You shouldn't be either.

For Landlords, the Numbers are Starting to Look Better

By MP McQueen

Home prices are falling, rents are tumbling, and apartment vacancies are rising. So why are thousands of small investors becoming landlords?

Because real-estate prices have fallen much faster than rents, the math of buying a rental has actually improved substantially in most parts of the country. Money invested in an apartment complex today typically generates annual returns of 7% to 8% right off the bat, up from less than 6% at the peak of the housing bubble in 2006.

If your property appreciates in value or rents rise, you could end up with double-digit annualized returns when you sell it. But higher returns usually come with higher risks. If you overpay for a rental property or you buy in the wrong market at the wrong time, you can lose a lot of money.

In general, landlords should pick communities where real-estate prices and rents appear to have nearly bottomed out, and jobs are stabilizing. Some of the best deals are in places like Fort Worth, Texas, or Columbus, Ohio, where prices never went wild. Markets like Las Vegas and Phoenix, both plagued by overbuilding, and Detroit, hurt by auto-industry woes, still look dicey.

But other markets like San Francisco or Chicago can still be attractive for landlords who find the right neighborhoods. Fred Bertucci, 50 years old, has been investing in small apartment properties in the Chicago suburbs since 1990. In August, he and his business partner, Kevin Moriarty, 54, bought a six-unit apartment house out of foreclosure for $280,000. It brings in about $25,000 per year in net operating income, he says, or about a 9% yield on the dollars invested. That's up from roughly a 5% yield several years ago when prices were higher, he says.

Being a landlord now isn't easy. You need good credit and plenty of cash—as much as 50% of the purchase price—because banks are still skittish about lending. You need extra cash for handling repairs and vacancies, and you must have the patience to deal with difficult renters.

If you buy an investment property, you should expect to hold it for three to five years or more. Much of the big money from quickly flipping properties already has been made, and conditions now favor long-term owners who want an investment that will throw off income and slowly gain value over time.

"It's a great time for someone who is focused on increasing his net worth, rather than doubling his money in a short period of time," says John Burns, a real estate consultant in Irvine, Calif.

Geoffrey Koblick, 55, who has been investing in residential and commercial real estate for many years, recently scooped up two apartment buildings in Northern California. He didn't buy any properties from 2003 through 2007, when "prices were too high based on the income the properties were generating," he says.

Mr. Koblick says he and his partners paid $3.3 million in May 2009 for a 23-unit building in Berkeley that generates $199,500 in net operating income, for a 6% return. They are upgrading the property, and Mr. Koblick expects its value to increase dramatically over the next seven to 10 years, when he hopes to sell it. Since they bought the building with a 33% down payment, he projects the partners will end up with an annualized return of 15%.

Of course, things often don't go as planned in real estate. J.P. Botha, 33, bought a new one-bedroom condo in Manhattan for $775,000 in 2007. Property values were rising, and he figured he'd sell it for a profit. Instead, its value on completion fell more than 25%. So he rented it out. His first tenant bailed after five months when she lost her job. He had to make a price concession to find and keep a second tenant.

"I'm hemorrhaging over a grand a month," said Mr. Botha, who took out a 30-year mortgage to finance his investment. Still, he says he is taking the long view on his investment: "Once I pay off the loan I will have an income-generating property for the rest of my life."