In the aftermath of the mortgage market meltdown, the bad news just keeps on coming for those hoping to buy their dream homes. Lending standards are tighter, credit is harder to obtain and rates are rising, making loans even less affordable. If all that isn't bad enough, there are three new threats on the radar screen for those shopping for a home.
- Mechanics Lien
When the subcontractors who install roofing shingles, insulation and everything else that goes into building a new home don't get paid, they place mechanics liens on the property. If this occurs before you close on your new home, the subcontractors get paid at settlement, and a portion of your check goes to them instead of to the builder. If it occurs after you move in, you'll have liens against your property for materials that you already paid for when you borrowed all that money and gave a big check to the builder.
New home buyers who want to protect themselves need to ask their builders to give them written indemnification against mechanics liens. Having this piece of paper doesn't stop the subcontractors from filing liens, but does provide proof that you tried to protect yourself if your builder goes bankrupt and you find yourself in court. Another method of protecting yourself is to ask the builder to provide written signoffs from the subcontractors showing that they have been paid. This second method requires time and effort, so builders often balk. Keep in mind that state laws regarding mechanics liens vary greatly, so they will be of greater concern in some states than others.
- Reassessment Blues
Need to refinance? Trying to sell? That house you just bought may be worth less than you think, as the foreclosures in your hometown may now be factored into home values. When assessors look at comparable homes in the neighborhood, the value of your home is likely to drop if your neighbors haven't been paying their bills. So, in addition to the national decline in home values that has taken place in each of the last two years, your value falls again if the neighborhood falls into foreclosure. While there's nothing you can do to protect yourself, you can use the lower assessment to appeal your real estate taxes, potentially putting a few dollars back in your pocket. (For related reading, see Mortgages: The ABCs Of Refinancing.)
- Condo Conundrum
The trials and tribulations of the current real estate market aren't just limited to new construction and reassessments. Condominium owners are facing troubles too. If owners default, the condo association can run into financial trouble. Bankrupt owners often don't pay their bills. When banks foreclose, they may defer payment of association fees until the property is sold. If a significant portion of condo owners in a particular building are in danger of losing their condos, the condo association may choose to charge higher dues to the other owners in order to do routine maintenance and pay vendors. Can you picture what would happen if, for example, trash pickup stopped occurring or contractors refused to fix that leaky roof?
If you are in the market for a condo, do some research on the strength of your condo association. After you look at the numbers, talk to the neighbors. A little due diligence can go a long way toward providing peace of mind. (To learn more, read 9 Things You Need To Know About Homeowners' Associations.)
A Tough Time to Buy
While depressed real estate prices have certainly resulted in some bargains for buyers, there's a dark side that many would-be homeowners don't see until it's too late. Now, more than ever, buyers need to tread carefully, take their time when shopping, and look before they leap.