Harrisburg, PA bankruptcy discussions.

It is not news that Harrisburg City is considering bankruptcy as well as tax increases to deal with the city's fiscal crisis. Real estate values in the city (and beyond) will depend on how the city chooses among its options.

Click here for previous posts on Harrisburg tax increases and bankruptcy considerations.

Strategic Defaults; Mortgage Foreclosures; Arnold Ahlert

I have written previously about "strategic defaults." This column from Arnold Ahlert summarizes the issue:

Welcome to the brave new world where clever vocabulary confers absolution on rotten behavior. "We weren't in any financial distress, but the value of the house had declined so precipitously that continuing to stay in this house and paying this inflated mortgage made no sense," said Chris Schreur of California, who contacted a company called You Walk Away, which helped him literally walk away from a freely-signed contractual obligation. "My degree is economics, so I understand that you don't keep putting money into a losing proposition just because you already put money in," he added.


Apparently they don't teach ethics along with economics, which might explain a lot about the current state of the country. Mr Schreur continues: "Objectively the hardest part was the hit to the credit rating. Defaulting on a debt is the hardest thing to accept."

Keep in mind also that Pennsylvania law allows a bank to pursue the former homeowner for a "deficiency judgment." This fact should affect any decision that one might make in this regard.

New records for foreclosures in 2010.

Foreclosures set records across the U.S. in the first quarter of 2010:

A record number of U.S. homes were lost to foreclosure in the first three months of this year, a sign banks are starting to wade through the backlog of troubled home loans at a faster pace, according to a new report.
RealtyTrac Inc. said Thursday that the number of U.S. homes taken over by banks jumped 35 percent in the first quarter from a year ago.

This record comes after foreclosures had set a new record in 2009, both for the year and for the first six months.

Click here for foreclosure predictions from September 2009 and commentary on the effect of foreclosures on the market in general and real estate fraud in particular.

Rising interest rates; The end of an era.

The New York Times last week predicted "a sustained period of rising interest rates." The projections at issue are for a long period of rising rates, not merely a short term fluctuation:

The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing.

“Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.”

The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.

emphasis added

Everyone who has borrowed money in the past thirty (30) years has done so in the climate of falling rates. No one who is fifty years old or less has personally experienced borrowing in a climate of high rates. Attached is a commercial from January 1983 that might remind us of the way things used to be and are soon becoming again. [The film relates to car loans instead of real estate, but the concept is the same.] The ad assumes that the audience would be excited about car loan rates of 11.9%. In 1983, they were right, and they may be right again soon, even though current car loan rates are less than half that amount for 5 year loans and even less for shorter loans.



[H/T Need4Video.com for video conversion]

Landlord-Tenant Security Deposit claims and disputes; 68 P.S. 250.512; Tenant surrender of leased premises.

I have previously written about landlords that find themselves on the receiving end of litigation because they fail to return the tenant's security deposit (or provide a list of damages) within thirty days of the tenant leaving the property.

The statute provides that a landlord must return the deposit or provide the damage list within thirty days of the "termination of a lease or upon surrender and acceptance of the leasehold premises, whichever first occurs . . . " or the landlord is responsible for double the deposit. 68 P.S. 250.512(a) and (c).

Landlords often say that the tenant did not return the keys and they are not sure when the tenant actually left (thus beginning the thirty (30) day countdown). Don't let your dispute turn on when the tenant actually surrendered the premises. In most court disputes as to when the tenant actually left, the tenant will win. Tenants will lie about when they left and the courts will often believe them. Send the letter as soon as you think the tenant might have left. Don't wait for the thirtieth day. Don't get hung up on whether you received "official" notice or the keys. Courts don't get hung up on those issues. Neither should you.