From msnbc.com:
One Baltimore homeowner has found a way to make her message resonate across the nation, and also get her into the office of Maryland Gov. Martin O’Malley.
Unlike many homeowners who are facing foreclosure, Lauren Rymer has been steadily employed since well before she purchased her home in 2006, and only fell behind on her mortgage payments when her property taxes increased 55% in two years. But similar to many homeowners in default, she was unable to qualify for a loan modification or to refinance her interest-only loan.
With her home less than 45 days from foreclosure, she started a hunger strike Monday outside her state Capitol to protest not just potentially losing her own home, but also the structural problems in the industry:
Although Rymer might not get to stay in the house on which she still owes more than $200,000, she’s hoping she can at least negotiate to avoid foreclosure by handing over the deed in lieu of foreclosure.
Californians take note of her property taxes going up 55% over a 2 year period(according to her). Can you imagine what our prop taxes would have done over the years w/o prop 13?
Our new/old governor is against prop 13 and it is a sure bet that they will attempt to attack this tax base of homes, and commercial property, to close the budget over the next several years.
They will use the class warfare approach similar to what is used against wall st. and blame the ‘fat cat’ commercial landlords for robbing the system…next thing you know its all homes over the median or anyone making $200k+/yr because they are rich.
This is coming to your door sooner than you think and no one wins as its just tax money from your pockets being tossed down a black hole of transfer payments. Remember, CA has the higheset number of welfare cases in the country (apx 3x the #2 state of NY) and even though we are the largest state by population we also have the 5th highest percentage of welfare cases (behind tiny DC, Guam, RI, TN) when we should have one of the smallest by % due to sheer population size.
http://www.statemaster.com/graph/eco_wel_cas_tot_rec-economy-welfare-caseloads-total-recipients
People also need to pay attention to discussions about reducing the tax deductibility of mortgage interest and property tax, which would make home ownership more expensive, and could make home values drop.
For purposes of deductability I would see them lowering the cap on the loan size from $1mm down to a much smaller number of say $500k or so. This would allow politicians to a) stick it to the rich, and b) protect ‘main street’ thus all their talking points are covered.
They likely feel that would hit “high priced” homes only…but then the JTR ‘squishdown’ kicks in and everything begins to reset lower.
I would also see more ‘creative’ ownership such as through a business entity where all expenses can be deducted and a loss claimed.
The blurb in the video has:
“Mortgage bill went from $1500 to $2100”
Is that really a tax change?
Kathy, are you trolling intentionally?
Clearfund – that’s what I’m thinking the compromise is.
Restrict the deduction to first time buyers only, with a sale price of under $500k. Then it sunsets in 5 years. Taxpayers subsidizing million dollar homes is both absurd and irresponsible.
Nate – 2 items are listed on the video 1) taxes up 55% and 2) mortgage up to $2100. thus no way of knowing whether both taxes and mortgage went up or whether taxes are included in her mtg bill (i.e. impound account) which caused the mtg bill to rise by $600/mo.
Since her stated mtg payment of $2100/mo = 12%+ on the $200k mtg then i assume the increase in her monthly mtg payment is mostly related to the tax increase.
Art – I can see your theory working its way through the process.
Being a buyer of commercial property in CA, we have had serious discussions about the probability of the prop 13 issue and how underwrite our purchases going forward.
It would be foolish to disregard the probability of rising property taxes in pricing a purchase, but how much does one discount the likelyhood of that happening. How much it hurts values is the easy part.
In summary we are beginning to bake that tax question into our methodology. Now we also get the fund part of determining if mortgage interest will be limited in its deductability on the commercial side as well over time.
On that topic, we’ve discussed offering our own ‘preferred’ shares in properties paying in the 5% range (mortgage equivilent rates) in lieu of traditional mortgages. Thus we will be paying a preferred ‘dividend’ vs. an equivilent amount in interest. Additionally, dividends are not on the table to lose deductability and are currently taxed at a lower rate than the ordinary income tax rates associated with interest income.
clearfund, do you know if the $1.1M cap on deductibility means that any interest on the loan amount over $1.1M is non-deductible?
Meaning, if the loan amount was $1.2M, and the yearly interest was $50,000, then roughly $5000 would not be tax-deductible? Or does it mean that the whole $50,000 is non-deductible?
Kathy:
>which would make home ownership more expensive, and could make home values drop.
Read what you wrote again. Lower home values == lower cost of ownership. Ehem. That’s the best argument in the world for removing those subsidies, because as you stated (backwards, admittedly) it makes housing more expensive. Developers just suck up the difference, the mortgage deduction is in reality a subsidy to them.
When we change a law such as the prop. 13, someone is benefitting at the expense of others. If we eliminate the prop. 13, the current owners of houses will suffer because their prop. tax is going up, hence the house price is going down, and the cost of owning the house will go down for short time. But once a buyer joining the rank of home ownership, his/her cost of owning a house will start going up in the future. Over the long term, the cost of owning a house will be similar as today but will be unpredictable because you never know what your property value is. In the short term, all home owners will pay more to balance the state budget.
4.The blurb in the video has:
“Mortgage bill went from $1500 to $2100?
If her taxes went up $600 per month, or $7,200 per year, dividing that by 55% makes her initial tax bill about $13,090 or $1,090 per month.
But payments on her $200,000 mortgage at 5% interest-only are $833 per month.
$833 + $1,090 = $1,923 PIT per month, not $1,500.
Another example of how MSM just throws charts up without checking accuracy.
My guess?
Her tax bill went up $600 per year, or $50 per month. If $50 makes the difference between being able to owning and not owning, then don’t buy a house.
In the article on msn she says her tax assessment increased by 55%.
RE taxes in the Baltimore area can run as high as 2.5%, according the the MD state website. Tax rates cannot be increased by more than 10% in one year, but there doesn’t appear to be any limit on assessments. In most states other than CA, assessed value is not tied to home value; local govts can increase your assessment anytime they decide they need more revenue. IOW, your local govt can increase your tax assessment even though the value of your home has gone down.
RE #13 in Texas a property is assessed at market value, since the creation of county appraisal districts, before then every taxing unit did its own thing. During the boom every year the value went up on my house but for the last 2 years it has been stable. Now a number of states tax at a percentage of assessed value and cap the increase so that the house can decrease in value, but if the taxable value is less than the current value it can increase.
Lyle, do your taxes go down if your property values decrease?
In the current house no, and in Houston in the 1980s the rates did increase but if I recall correctly since there was a 50% cut in assesed value on that house I think they did a bit. Today given that school tax rates are currently frozen they would go down if the value went down. The system is closer to Heinliens system, you value your property as you please but must be willing to sell at that price.
Jeemen – my understanding is that anything over the cap is non deductible but it does not invalidate the deductibility of the first $1mm.
I also know that acquisition debt is treated differently than heloc type debt which has a cap of $100k of principal for deductibility so long as they both are under the cap. That heloc cap can rise if the Funds are used for home improvements, etc.
Rbres – the problem with removing prop 13 isn’t the initial higher taxes as much as it’s the lack of predictability and the uncertainty it adds to the market when combined with politicians desire to fix their mistakes with our money…..
BS. She has an interest only mortgage, the tax hardly matters in comparison. She bought an afford she couldn’t afford, plain and simple.
Why in the world are people protesting these days that they can’t steal? I mean at least thieves have some principle – they just steal without pretension that it’s right.
Psst. The reason her tax went up is because her home is worth more now. Didn’t hear a peep from her as her tax was declining!
As interest rates drop, the mortgage interest deduction becomes less important because the dollar amount of interest one pays becomes lower. When rates hit 3% or less–that is when they will pull, or further minimize the deduction! And, IMHO, it is not such a bad idea–the deduction is one of the reasons that we have a mortgage on our home.
My recollection is that mortgage rates were more or less constrained in the 4.5-5.5% range from when my parents bought their first home just after WWII up until I graduated from college in the early 70’s. In that range, after the tax deduction you’re between 3-4%, so dropping the deduction there would seem about right, as long as there was some level of confidence that rates would remain predictably stable. I never really understood the point of letting them float up in the first place; whether the rates skyrocket in tight money times or the money pool for low rate loans just dries up, the result is still the same – people can’t borrow until things get better.
When she moved in her assessment was low because the house was a rehab and there is a 4 year grace period before the assessment is increased. She says she was not told about the potential change at closing. Then in year 3 her taxes went up by ~200/month but her escrow wasn’t increased. So, to make up for the deficit, the following year her escrow was increased by $400/month. This is the majority of the payment increase. Next year her IO was going to recast to $2100/month anyway. It seems like she could barely afford the house anyway and is way underwater. I think the tax increase is a red herring.
Mike
Someone gave her an interest only mortgage. I’m sure she didn’t go in there with a gun demanding one. I’m sure her mortgage was rated as AAA by the rating company crooks and sold by the originating crook for a nice fat fee. Now who is stealing??