Monday, November 5, 2012

Who Owns Your Property?

We call it pride of ownership.  It’s such a powerful motivator that we are willing to put up with insuperable obstacles and a killing job to buy a house, a decent car, a big screen TV.  

Sonny Soldano (not his real name) lived in an apartment for years.  Every time he paid his rent, which went up every year, he wondered why he was dropping such a wad of cash on someone else’s property.  So he put away a few bucks after his wife got a raise and bought a house.  He paid $300,000 for his ten year old house in a decent middle-class neighborhood with acceptable schools.  He put up $60,000 in savings and took out a $240,000 30-year variable-rate mortgage at 4% for the first 3 years. His mortgage is $1146 per month, which was only $140 more than he was paying for rent.  On top of that, the mortgaging bank wants to escrow his tax payments.  Since he lives in a nice suburban school district supported by school bonds, he has real estate taxes of $8400 per year, so the bank adds $700 per month to his mortgage bill.  He also had to pay $6500 when he bought the house, for title, fees, termite inspection, points on the loan and a myriad of other charges, but he paid those out of cash.

So now his lovely house is $1846 per month, plus the $66,500 he took out of his pocket to buy it, which might have earned some interest or appreciation if invested.  Sonny walks out of the settlement meeting at the title company office feeling like Atlas with a huge weight on his shoulders, while everyone around him congratulates him on his new home.  His wife sees a nest for the kids, his friends come to make housewarming gifts and he tries to ignore the 30 pages of legal fine print where he signed his life away.  Soon he has his furniture set up, his car in the garage, and stacks of cardboard boxes everywhere that he has no time to empty, because he is now working overtime hoping for a raise.

Sonny figures he will make up for all this with the tax deduction for his mortgage interest, which Obama will try to eliminate if he can, and prays for appreciation on the house, which is merely inflation due to Federal Reserve monetary policy.

Sonny is a “homeowner” now.

But what, exactly, does he own?

He has $60,000 worth of equity in his house, less whatever he owes on the taxes.  But he has no control over this equity.  Unlike an equivalent investment in the stock market, he cannot sell it - he lives there.  It may or may not appreciate, depending on the housing market and the economy, and all he can do is ride out these waves.  Every month he must plow back $1846, of which only $346 goes into his equity.  This is a saving plan where the homeowner pays the bank to keep his money, not the other way around.
He can’t sell this house to anyone until all the taxes, water and sewer fees, utilities and other liens are resolved or paid, and then the bank gets paid on the proceeds before Sonny does. He is last on the payee list.   If this were a bond or a stock, he would not be last on the payee list.

He can’t plant alfalfa on his front lawn, put up a tower for his ham radio or graze goats in the back yard because these are all against the town ordinances or the covenants and restrictions that go with the land under “his” house.  About all he is allowed to do is paint the inside in puce and apricot, and even there the realtor will warn him it must be beige in order to resell it.  

So what makes this “his” house?  He can’t do anything he wants to do with it.

The terms of the mortgage effectively give control over the property to the bank.  The original bank resold the mortgage note to CitiBank but kept the lucrative mortgage processing and billing.  That allows them to hold the tax escrow and pay no interest on it  and collect any late payments and foreclosure fees if he defaults.  They also get a percent of the payments.  CitiBank chopped up his mortgage in a hash with many others and issued an asset based security against the mashup.  Now a variety of banks, investment companies and sovereign funds outside the U.S. own pieces of Sonny’s house.

So what makes this “his” house?  A lot of big players have more in it than he has.  All he has is possession, and he can be evicted.

The town Sonny lives in issues school bonds.  Legally, these are bonds backed by the town’s real estate base.  Real estate taxes are a prior lien when push comes to shove.  Because of this prior lien, the town actually owns the house, and if the town defaults on its bonds, the bond holder can “take” Sonny’s house and sell it, along with whole tracts of “private” property, at auction.  There is no way Sonny can escape this town lien, even if he pays his tax every month.  Look at the tax lien clause in any municipal real-estate backed bond.

With all these liens and mortgages, not to mention easements, rights of way, riparian rights, covenants and restriction, EPA regulations, and eminent domain seizures, it is obvious Sonny is living at the dispensation of banks and governments, hardly secure in “his” domicile.  If he loses his income, misses a few payments, fails to present insurance, the mortgage rate goes way up, or his town goes belly up, he is out, out, out.

Our Federal and State governments have been pursuing a course of statism over the last administration and they are focussing on this weakness in the previously unassailable right of individuals to own and hold property.  Tyranny does not require  a gun at the head or a barbed wire concentration camp, it only requires the stroke of a judge’s pen and a marshal’’s visit to your front door.  

We have certainly gone a long way from our inalienable rights.  The Constitution of Pennsylvania, in reflection of and in agreement with other states, says clearly:

“That all men are born equally free and independent, and have certain natural, inherent and inalienable rights, amongst which are, the enjoying and defending life and liberty, acquiring, possessing and protecting property, and pursuing and obtaining happiness and safety.”

Also, I refer you to the following article:

1 comment:

  1. Always good to read new posts, Snowflake. Keep up the good work. :)