When you buy a potential retirement home, you are merging two important aspects of your financial life: real estate and retirement. Most people purchase retirement homes with a twofold purpose: increasing wealth over the long term and having a comfortable home to live in during one’s senior years. It’s true that buying a vacation home now for later retirement use can, in fact, up your net worth. However, you need to determine whether this is truly the best use of your retirement money. Considering the fact that all real estate is local, this can be tough to really get an idea for. It’s crucial to weigh whether investing elsewhere like in a lower risk, lower hassle diversified portfolio of financial assets like stocks and/or bonds could have a better outcome than real estate. Would your money go further elsewhere?

Here’s an example to give you an idea of the thought process in this situation. Let’s say that you plan on putting down sixty thousand dollars cash up front (inclusive of the down payment, closing costs, any rehab necessary, and furnishings), and taking out a one hundred fifty thousand dollar mortgage. Unless you rent the house out as a vacation rental when you aren’t using it, you will likely be losing around one thousand dollars a month by paying the mortgage, property taxes, homeowners insurance and repairs. That annual negative cash flow amount will inflate slightly each year with higher taxes, repairs and insurance. By the time that fifteen years have passed, you will have invested between two hundred sixty and three hundred thousand dollars in the property – sixty thousand up front plus twelve thousand a year (plus inflation) over fifteen years.

But okay, you say, when I sell the house I will recoup these costs… right? Well, let’s see this example though. After fifteen years, your home could conceivably be worth three hundred fifteen thousand dollars, thanks to a three percent annual appreciation (which is a broad assumption in these days of declining home values, but whatever). If you sell it for that amount – again, assuming that you can – you can go ahead and subtract twenty-five thousand dollars right off the bat for selling costs. Subtract one hundred thousand dollars, which is the remaining mortgage balance. That leaves you with one hundred ninety thousand dollars. Alas, you have already invested about three hundred grand in the house to date… so you are now underwater by one hundred ten thousand dollars. You’d need to sell the house for four hundred forty thousand dollars (an annual increase of almost four and a half percent for fifteen years) just to break even. In other words – total long shot.

There’s more insult to add to this injury, if you look at things like an economist would. A financial pro would insist on adding in the opportunity cost of the interest or dividends you would have earned if you invested all the three hundred thousand dollars into a financial asset, as well as any capital repair/replacement/upgrades that you certainly will have done at some point over that fifteen-year period. If you would have invested your cash with a five percent return from the get-go, you would have over four hundred thirty thousand dollars in the bank at year fifteen! Without a doubt, that’s a LOT more than the net one hundred ninety thousand dollars that you would have earned on the second home! If you could manage a six percent interest rate, the returns are even greater: four hundred eighty dollars after fifteen years.

Let’s take money out of the equation for a moment and just talk about realistic things. How exactly do you know for certain that you will definitely want to retire to a certain place in ten or fifteen years? What if you get divorced? What if you can’t handle the climate and need something warmer or cooler in your old age? There’s no question: to minimize risk and get the best return on your hard-earned cash, you are very likely better off keeping your money in a more liquid and less risky asset than a second home. Starting a diversified “retirement home buying fund” over buying a retirement home is probably a better idea. When you get close to retirement, you’ll have plenty of cash to buy your retirement home – be patient.

But Steph, you may be saying – you are not thinking of everything! What happens if I rent the home out, thereby drawing an income on it when not in use by my own family? Well, just know up front that there is no guarantee that you will be able to do this. Before you even fork over one dollar on a vacation rental, you need to ensure that it constitutes a good real estate investment with projected positive returns. Location is almost only the many determining factor in this calculation, but know that most fancy condos or beach houses, where the net rental income is very low compared to the purchase price, usually have projected negative cash on cash returns. Should you “invest” in one of these stinkers, with negative (four percent) cash on cash returns, even if it appreciates two percent per year, you are typically at a zero percent, or worse, return on your equity cash investment. That isn’t a deal most experienced investors would take. Unskilled laypeople might think they had a good shot of pulling through, but the numbers will get them every time.

It’s also worthwhile to mention the fact that vacation rentals are similar to hotels in that, for every dollar in rent you accumulate, you are likely to shell out seventy-five cents in taxes, management fees, furniture, cleaning, and utilities… and that’s before making your mortgage payment each month. That’s why these fancy properties are a losing proposition. Lower risk moderately priced regular rental properties run about thirty to forty percent expense ratio with reasonable mortgage payments. It is the moderately priced units that have decent cash on cash returns.

Also, don’t be wooed by the old misconception that you can get an income tax write-off for your second home. Unfortunately, rental properties are the ones with decent tax benefits – the mortgage interest deduction rarely does much for Americans on a net level. There is also the simple fact that you should NEVER make a decision based on the prospective tax benefits. No matter what, it is a rule that a tax benefit will not save the day on a bad real estate investment.

In a nutshell, know that, if you are going to invest your cash into an asset, like a second home, that produces only negative cash flow for the term of your investment, you’re stuck hoping some outrageously high appreciation in value will compensate for the negative cash flows. And hoping for appreciation in value is not a very sound, or likely to be successful, investment strategy. You will want to think seriously before dumping your money into a vacation home with the hope of it fulfilling your retirement.

In a housing market as dismal as this one, you need to seize any chance you get to make your listing standout, right? I guess that’s what went through the mind o Michael A. Gales, one NYC resident who made news recently when he put his 66th Street studio apartment up for sale. Capitalizing on the time-honored strategy of pumping up a listing by connecting the home or property to someone or something famous, Gales is claiming that, before Gale lived there (before the building went co-op), current mayor Michael Bloomberg lived there.

Is this the truth, or a colorful myth designed to move traffic? You be the judge. Per Gales’ story, Bloomberg moved into the building in 1966 when he was just kicking off his law career with the Salomon Brothers. He stayed put for close to a decade, even after making partner, because the apartment was “perfectly adequate.” And hey – if it was good enough for him, it should be plenty good enough for you. Right? Right? That last part isn’t explicitly spelled out in any of the material I read surrounding this story, but it’s pretty easy to fill in the blanks.

There’s just one problem with this great story – in an interview, Bloomberg denies ever having lived in the apartment. He did live in the same building for some years, a long time ago, he recalled. He was clearly having a tough time even remembering it. But, although he could recall precious few details of his time in the building, he distinctly remembered his kitchen being on the opposite side of the unit. Still, Gales insists that he is in the right, and that Mayor Bloomberg’s foggy memory is the reason for the discrepancy in their stories. He is still hopeful that the tale will aid him in unloading his apartment.

Bloomberg’s maybe, maybe not apartment is just one in a long line of New York real estate with questionable attachments to celebrities. Recently, the owner of a Bronx penthouse claimed (erroneously, as it turned out) that it was the former home of Eleanor Roosevelt. There is no academically-proven association between the buzz surrounding a celebrity apartment translates into a higher selling price, but that doesn’t seem to put a damper on sellers’ enthusiasm for concocting and sharing these tales. After all, there is a lot of competition out there for anyone looking to sell a home nowadays. One needs to make a splash somehow, right?

One of those people is Metro bus driver and father of six DeAngelo McDonald, who earns sixty-one thousand dollars a year. In 2008, he financed a three hundred thirty-eight thousand dollar home, thanks in part to loans from the city. The house cost twice the amount that city loan officials had estimated that he could afford. Not surprisingly, his three-bedroom home in the Southeast part of the city is now in foreclosure. McDonald, aged forty-eight was a first time homebuyer who says that he was sure “everything was on the up and up.” Since 2008, he has declared bankruptcy and says that he is now worried about his family ending up on the street. He calls his situation “heartbreaking” and “scary.”

For the past three decades, the District has helped buyers subsidize home purchases up to seventy-seven thousand dollars for first-time buyers. To qualify, buyers take part in a pre-purchase regime that includes credit counseling and classes in responsible home-ownership. Buyers are responsible for home shopping on their own and tracking down lenders who are willing to extend a first mortgage to them. In exchange, the D.C. Department of Housing and Community Development provides second mortgages with generous terms — think no interest and deferred payments for five years — designed to make home ownership affordable, even for families of limited means. The goal of the program has always been to expand homeownership in demographics that might otherwise struggle with getting the proverbial foot in the door.

Some of the funds used to power the program come from the U.S. Department of Housing and Urban Development, which provides grants to local governments for affordable housing. The money can be a lifeline for working families in the District, which has wrestled with steep rent increases and an acute shortage of affordable housing. Unfortunately, however, in spite of the program’s noble goals towards helping families out, the fact is that it has inadvertently led many families into greater financial distress. The Washington Post took it upon itself to track some thirteen hundred loans, or about eighty percent of the loans given out within the District between 2005 and 2009. One interesting factoid that emerged was the fact that one in three loans was made on a home priced at two hundred fifty thousand dollars or more, with some home prices coming in over three hundred seventy-five thousand dollars.

It’s a sobering statistic in light of the fact that a city guideline suggests that a buyer in a four-person household should, on average, have the ability to purchase a two hundred eighteen thousand dollar house. The price point has fluctuated somewhat in recent years: In 2006, it was two hundred thirty-six thousand dollars. Compare that to the experience of Erica Shorter, a receptionist and single mother, who bought a home in the Southeast for two hundred seventy-five thousand dollars in 2008, and now can barely cover the bills. She claims to have told her daughter that she might not have a “real Christmas” this year – that if the mortgage and utilities got paid and there was food to eat in the refrigerator, then that was Christmas.

Despite its shortcomings on paper, city officials nonetheless defend the Home Purchase Assistance Program, known as HPAP, saying it has helped more than twelve thousand five hundred buyers since its inception. It’s true that some buyers are given loans above and beyond the city guidelines, says Najuma Thorpe, a spokeswoman for the Department of Housing and Community Development, but loans are made on a case-by-case basis, and some buyers are able to afford more than the average. She says that the income/pricing guidelines were laid out by a previous administration based on housing sales in the District and is “by no means a cap or requirement,” she said. She also stated that the concept of affordable housing is “subjective,” with many factors going into that determination. Thorpe stated that all loans through the program are assessed by the Greater Washington Urban League, a nonprofit group that administers the program for the city, as well as underwriters at the banks that provide buyers with first mortgages.

Some buyers required additional assistance from another agency, the D.C. Housing Authority, which offset costs by providing equity in homes it had owned or developed. In the fiscal year 2008, for instance, around fifty percent of sixty-five buyers who bought homes priced at three hundred thousand dollars or more received equity from The DCHA ranging from thirty-five thousand dollars all the way up to three hundred sixty thousand dollars. One of these buyers was Kiesha Smith, a school bus driver who calls the DCHA program “beautiful” because it helped her afford her three hundred eighteen thousand dollar home in 2008. Smith received a one hundred fifty thousand dollar first mortgage from a bank, a seventy-seven thousand dollar second mortgage from the city, and eighty-one thousand dollars in equity assistance from the Housing Authority. As a bonus, she also received ten thousand dollars from a city home-loan fund earmarked for government employees. Smith’s monthly payment on her first mortgage is a modest eight hundred dollars.

Smith is one success story among thousands, but Thorpe says that the city is currently evaluating the loan program, and “looking to make enhancements” to beef it up. It’s believed that the city will submit official recommendations by March. Currently, eighteen percent of all city loan customers are behind on their mortgages. CoreLogic estimates that the average default rate in the DC region overall is just under six percent. Interestingly, the city makes no attempts to track who is behind or current on their first mortgages.

The District is quick to point to the fact that the current foreclosure rate in the loan program is just under two percent. Of course, those numbers are a bit skewed by the fact that the District only counts homes lost to foreclosure. In comparison, the region’s foreclosure rate is just over two percent, but captures a much broader group of homeowners anywhere in the process of foreclosure. For the city’s part, Thorpe says that the city tries to help troubled homeowners restructure payments.

One of the city’s loan officers who specializes in first-time homeowners’ mortgages is Dick Harbin. He reiterates the fact that the sustainability of monthly mortgage payments is a critical part of ensuring the success of initiatives meant to help people buying property for the first time. It’s true that buyers who hit the median income level for the District – sixty-one thousand dollars, as of last year – can usually afford a home priced at around two hundred forty thousand dollars, but that’s assuming that they have minimal debt, good credit and a small household. In fact, most participants in the city program have a low income (defined as between $51,751 and $82,800 for a household of four) or very low-income, who earn less, according to city data. Harbin, who works for Monarch Mortgage in Greenbelt, states that there “has to be a level of advocacy and responsibility from all parties to make sure that on this first home, you are not going from the frying pan to the fryer.”

Another part of the funding behind the city loan program comes in through the HUD HOME Investment Partnerships Program and Community Development Block Grant program. Both programs have drawn increased scrutiny in recent months, with HUD facing questions about its oversight of federal money once it leaves Washington. HUD officials argue that there is an expectation that federal money will be used to subsidize “modest housing” and that local housing agencies must consider how much house a low-income buyer can afford before extending a loan for anything that the borrower in question wants to buy. In a December 2010 audit requested by HUD, the agency’s inspector general criticized the District for subsidizing higher-priced homes without thought for the sustainability of those loans. In the report, spokesman Brian Sullivan slammed officials for not making sure that the families in question were “good candidates for home ownership.” It’s true that the use of federal funds to assist lower-income buyers in purchasing their first home is important, he reasoned, but simply getting these people into a home is not enough. In addition, “local jurisdictions should make certain those they help can sustain their mortgages.”

Other area housing agencies claim to pay more attention when there is a discrepancy between buyer income and the house they desire. This is visible in the lower average home purchase prices in nearby counties: in 2010, buyers in Montgomery County paid an average of about two hundred thousand dollars per home. In Arlington County, the average price was two hundred sixty thousand dollars. In Alexandria, it was just one hundred fifty thousand dollars. Shane Cochran, division chief of Alexandria’s Office of Housing, says that sustainability of the mortgage payment is a high concern of officials.

Although the average home price for a subsidized buyer in the District as of late 2009 was “only” about two hundred thirty thousand dollars, it must be taken into account that the program is far bigger than those in neighboring jurisdictions. Alexandria assisted only thirty-seven buyers and Montgomery one hundred forty-eight in 2010. Arlington has assisted just twenty-two buyers since 2009. On the other hand, the District extended loans to three hundred sixty-two buyers in 2010 alone. Records show the city ramped up its push to put low-income families into homes around 2006, as housing prices increased. That was not the only measure that the district made towards expanding the program, however. It also temporarily bumped the maximum assistance level from forty thousand dollars to seventy-seven thousand dollars. The number of loans increased accordingly: from two hundred seventy-eight in 2006 to five hundred thirteen in 2007.

Although worksheets in city loan files show that loan officers made note of such factors as buyers’ income, debts and employment history, and sent buyers eligibility notices that estimated an affordable purchase price, nothing stopped buyers from choosing more expensive houses, records show. Many did, in fact. Of course, Thorpe’s answer to this was the fact that the eligibility amount was “only an estimate” and that the banks that provided first mortgages determine affordability.

It’s a sentiment backed by Erika White, a loan underwriter at the Urban League. White opines that the group’s estimates as to individual home buyer affordability tended to the conservative side. “We won’t approve a contract if it’s out of their range,” she said. Furthermore, she offered, in some cases buyers’ incomes increase between when the estimate is prepared and when they decide to buy a house. She added that some buyers receive grants to reduce costs. Neither city nor Urban League officials could say how often or how much grant money has been provided, however.

Some buyers also receive additional assistance from the Housing Authority, which provides equity in houses, then secures the investment with a note. But some of those buyers, like Sharon Mitchell, are now having to fight hard to keep from losing everything. Mitchell bought an almost four hundred thousand dollar home in 2008, having been attracted to the new Southeast development. Although she was given a second mortgage from the city of seventy-seven thousand dollars and eighty-four thousand dollars in equity from the Housing Authority, Mitchell’s payment on her overwhelming two hundred fifty-one thousand dollar first mortgage is sixteen hundred dollars a month. When the city’s second mortgage becomes due in about a year, Mitchell will have to pay an additional hundred sixty dollars a month as well, records show. Mitchell, who says that she is “scraping by every month,” moved into her house from a nine hundred dollar a month apartment. Loan officials had estimated she could afford a house priced up to one hundred seventy-eight thousand dollars, records show, but approved the loan anyway. Now Mitchell, a federal employee, says that she was misled into believing that her home would be affordable.

Dena Michaelson, a spokeswoman for the Housing Authority, said she knows of only two foreclosures among hundreds of buyers assisted by the authority over the years. “We are careful that we don’t set up low-income buyers to fail,” she said in a written statement. Thorpe, with the Department of Housing and Community Development, did not comment on specific cases of struggling homeowners, citing privacy. “During the underwriting process, HPAP loans are thoroughly reviewed to ensure that the loans… meet accepted underwriting practices, including affordability guidelines,” Thorpe said. “However, if the buyer assumes additional debt responsibility or if the buyer’s income changes after the home is purchased, that can affect the affordability.”

And yet, the evident patterns are concerning enough that D.C. Council member Jim Graham (D-Ward 1), who said he has long questioned whether the city does enough to ensure that low-income families can sustain their homes, especially in condominiums with rising fees, is questioning whether the program is actually accomplishing anything. There is no doubt that it is “definitely well-intentioned,” he says, but the program, may ultimately be futile if it takes buyers and puts them in a “situation that they can’t afford.”

Then there are those who aren’t interested in holding onto their homes. According to Rebecca Mairone, the national mortgage outreach executive for Bank of America Home Loans, some homeowners faced with economic hardships have moved into other housing and “in many cases have walked away from their homes, leaving behind vacant and deteriorating properties that can cause neighborhood blight.” They simply don’t want anything else to do with the money pits that were their homes, so they chose to take the consequences for walking away.

If the original owners are disinterested in maintaining the property, conventional wisdom holds that reselling the properties would be the next-best course of action for the banks. But, as we discussed at the beginning of this post, location can be a real killer when it comes to marketing even the most reasonably-priced home. Of the stagnating foreclosures, most of the homes are in areas with dwindling populations and few buyers. Detroit activist Jeff DeBruyn points out that Detroit covers one hundred twenty-nine square miles in area and was built to house two point two million, but is currently losing fifty thousand residents a year and currently houses just seven hundred thousand people.

DeBruyn says that he has previously been an advocate for the homeless, a community organizer who helped reopen an abandoned apartment complex and most recently a self-described “entrepreneur” of The Imagination Station, a nonprofit whose ultimate goal is to construct “a creative campus in Detroit built on community, technology, sustainability and the arts.” His immediate goal, however, is rehabilitating two blighted homes across from Detroit’s historic, long-closed Michigan Central Station. For DeBruyn, the deciding line for whether a foreclosed home should be saved is whether it is the only one in an area and is in good condition. In those two cases, he says, it probably should be saved. But he cautioned that “you can’t leave property abandoned for a minute” before bad things start to happen.

One suggestion he has is that, if homes are in foreclosure, it might be a better use of the public’s time and home to “make way for a better use” of these properties. He points out that a large number of properties in Detroit fell into public hands after landlords ignored nuisance-abatement procedures. Still, he says that if it makes neighbors happy to see houses come down, then he is happy too. Detroit doesn’t need to lose any more residents to apathy and dissatisfaction, after all.

Talking about costs: the foreclosure crisis is creating tremendous costs for American families. According to numbers drawn up by The Center for Responsible Lending, foreclosures that took place in 2009 caused almost seventy million neighboring homes to lose an average of seventy-two hundred dollars apiece in equity, for a total loss of over five hundred billion in lost value. The CRL has also projected that, between 2009 and 2012, almost ninety-two million additional American homeowners will lose a mean twenty thousand three hundred dollars in home value thanks to nearby foreclosures, for a total of just under two trillion dollars in negative equity.

The CRL hastened to clarify that its projections represent only property value declines caused by nearby foreclosures, not price drops associated with short sales or the slowdown in local housing markets. The projections are based on data from Credit Suisse, Moody’s Economy.com and the Mortgage Bankers Association. The CRL was initially founded in 2002 by the Self-Help Credit Union, a nonprofit community-development lender, and is supported by several charitable foundations. Its goal is to protect “homeownership and family wealth by working to eliminate abusive financial practices.” It has previously taken a position of advocacy for consumers in legislation regulating both the payday loan industry and credit cards.

Although the concept of demolishing foreclosures has many ardent supporters, not everyone is a fan of simply flattening foreclosures. Julie Dworkin, the director of policy at the Chicago Coalition for the Homeless, dismisses demolition as “not ideal.” Her preference is that homes be rehabbed and made available to families who need a place to live, she said. Along those lines, she says that banks could do two things to make these goals easier to accomplish: making it easier to buy foreclosed homes and donating properties that are still in good shape. Nor is Dworkin alone in this view. Brian Davis, the director of community organizing with the Northeast Ohio Coalition for the Homeless, which is located in Cleveland, said homes should be donated when they first come on the market when they still have some semblance of value. “After six to eight months, they have been stripped and aren’t worth saving,” he said.

Davis states that he knows neighborhoods are largely in favor of leveling blighted homes. He opines, however, that neighbors might discover that it’s “not… a bad thing” if a family moves into these homes, forming a deterrent for criminals. Davis dreams of a program where homes could be preserved and given to homeless people in exchange for their sweat equity: doing the hard work it would take to make the homes presentable and attractive again. His organization’s plan would be to have teams of four with various skills work on the homes, with a team member moving in when it was finished. The team would continue to work until all four members had homes. Davis says that homeless people in his community are stumped as to why homes are being destroyed when the rate of homelessness keeps going up. Even so, he grudgingly admits, there are still some homes that simply are not worth saving.

Blogger Dean Simmer says that this is also the case in his hometown of Detroit. “There are homes so blighted — burned out, second floor falling in — that no one should live in a home like that,” said Simmer, who teaches at Detroit Cristo Rey High School and runs the school’s information technology department. Simmer, unlike Davis, clearly sees several obstacles to turning foreclosed homes over to the homeless. Banks don’t want to get involved in the issues of “crime, squatters, injury, [and] liability,” he points out. Simmer believes that the best solution would be for the banks would be to have the original property owners keep paying the mortgages and stay in the homes.

Bank of America says that it has identified one hundred homes for possible demolition in Detroit. According to Rick Simon, a spokesman for Bank of America Home Loans, homes designated for demolition are donated to public agencies and “generally would require prohibitive costs to make them habitable.” Usually, he says, these homes are under fifteen thousand dollars in value, are expensive to keep up with or to prepare for possible sale, and are usually located in areas with many vacant properties, creating blight and hurting surrounding property values. The agencies that receive the properties after the demolitions are complete get the task of deciding what will be done with them next. The bank will contribute to the cost of demolition or complete the demolitions before donating the properties, completing the cycle.

Last year, Chicago contracted out the tearing down of five hundred and nine properties, at a cost of twelve million dollars. That comes to just under twenty-four thousand dollars in demolition costs per structure. This year to date, the city has contracted out the demolition of three hundred thirty-five additional buildings at an average cost of just under twenty-three thousand dollars. Things are moving faster in 2012 thanks to some legislation designed to stop properties from stagnating in legal limbo for as long as they have been. A city ordinance was introduced last month to reduce the time it takes for foreclosure to six months, down from the two years now allowed. The goal is to work with banks to pass statewide legislation to speed up the foreclosure process and return the properties to the market.

According to Gus Frangos, the president of the Cuyahoga Land Bank in Cleveland, the state of Ohio has reduced the time it can take to get clear title on a property to just forty-five days. One key change came in the redemption process, which no longer lets a homeowner pay taxes and other costs at the last minute of a foreclosure and take back the property. Frangos said that the redemption process had majorly slowed down what could be done to either rehabilitate or demolish declining properties, with loans and permits delayed. Cuyahoga Land Bank is just two years old, a nonprofit entity that gets funding from penalties and interest paid on delinquent property taxes. It has demolished some five hundred homes, has twice that amount of homes in its inventory, and has disposed of an additional fifteen hundred properties by turning them over to neighbors or churches, or to contractors to rehabilitate. Frangos estimated there are fifteen thousand homes in Ohio’s Cuyahoga County that could be considered for demolition – and that it would be a positive move for the county as a whole, and for the neighborhoods in which these homes reside.

When foreclosed homes are allowed to drag down neighborhood property values, the tax base is also impacted. Before too long, the revenue to the municipality where these homes are is also lowered. While not every home in foreclosure will roll through this destructive cycle, the location in which the home is located has proven to be an excellent predictor of whether it will become a moneypit. Outside of the ZIP code, the condition of a foreclosed home is the second-best indicator of whether there is any money to be had in it post-foreclosure. According to Rick Sharga, who was the senior vice president at RealtyTrac, an online marketplace of foreclosure properties, before he recently left to become the executive vice president at Carrington Mortgage, a financial-management company, “market condition and property condition” are the two primary factors that determine whether a property would be best off being bulldozed or not.

If the home in question is situated in a down market “where there has been a loss of jobs, population or both,” says Sharga, then there is a very good chance that there is simply nobody available to buy the property. Per RealtyTrac’s foreclosure records, which were first published in 2005. Back then, there were about eight hundred thousand foreclosed properties sitting stagnant on lenders’ books. Fewer of ten percent of those vacant homes would eventually be bulldozed, says Sharga. He compares ripping down an unprofitable foreclosure to “pulling a bad tooth to save the rest of them” when the house is in extreme disrepair, a blight on the surrounding neighborhood, or a genuine safety hazard.

It costs between five and thirty thousand dollars to tear a house down, depending on how big it is and how it was constructed. Renovating and repairing a blighted house for resale, on the other hand, can cost five or six figures. When you consider the fact that taxes, maintenance and liability are all steadily mounting on a monthly basis and that the property is effectively losing money costs add up to a continuing loss on a property, the most cost-effective means of disposal is the bulldozer. This is a fact confirmed by Jumana Bauwens, a spokeswoman for Bank of America Home Loans, who says that her bank often demolishes homes that have a value of around five thousand dollars, knowing that it could cost as much as fifty thousand dollars just to make them habitable.

One of those people is landlord Jeffrey Cusimano, who ditched some six hundred thousand bucks in unpaid taxes by letting thirty-four properties fall into foreclosure and then buying them back at auction for disgustingly low amounts. Cusimano is currently letting an additional fifty-four properties fall into foreclosure, says The Detroit News. He owes almost three hundred forty thousand dollars in back taxes on these properties. Cusimano is cavalier about his actions, and doesn’t deny how he worked the system. By way of explanation he says “it’s the times,” and dismissively states that he had his eye “on thirty others in better neighborhoods” if he failed to win back his properties on the auction block.

According to The News, the owners of about four hundred properties managed to erase nearly five million dollars in taxes and liens last fall by buying back their own homes and businesses. Doing such a thing in cities where investors vie to outbid one another at tax auctions would be a risky undertaking, but Detroit’s real estate market is a virtual wasteland thanks to significant population loss during the Great Recession, with many vacant homes and businesses sitting empty. It’s very uncommon for anyone to bid against the former owners at auction, reports the newspaper. The county first offers the homes at a price equal to the unpaid taxes and liens plus five hundred dollars. But if no one bids (and generally, nobody does) the properties are offered the next month for just five hundred dollars apiece. It is rare for property owners to encounter any difficulty scooping up their land again, minus those pesky tax bills.

Enraged by these reports, Detroit officials are calling on the Legislature to make it impossible for owners to buy back their foreclosed properties to avoid taxes. The state allows the county to do that, but Wayne County Treasurer Raymond Wojtowicz said that would be onerous to the point of mootness to enforce with the volume of foreclosure sales. After all, the people taking advantage of the loophole are not just investors, says The News. Nonprofit groups are also getting in on the game and “helping” impoverished homeowners wipe out taxes and delinquent water bills by doing the same thing. They are actually quite defensive of it, too, if Ted Phillips of the United Community Housing Coalition is any example on which to go. “They owe so much and have so little,” Phillips told The News. “This is their only option.”

In fact, some of the property owners are justifying their actions by claiming that annual tax bills in some cases exceed the severely-diminished value of the homes. According to the Detroit Free Press, over forty-two thousand property owners in Wayne County are at risk of foreclosure thanks to three years of unpaid taxes. That’s sixty percent more than last year. Ninety percent of those property owners live in Detroit.

The waiver was initially set in place in 2010 and was due to meet its sunset this month. Under its provisions, regulations that prohibit the agency from insuring mortgages used to purchase homes that are bought and resold in less than ninety days are suspended. “This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight,” said Acting Federal Housing Administration Commissioner Carol Galante.

And lest you think otherwise, abandonment and blight are a significant problem right now, especially in low-income neighborhoods. Communities where the average household income falls below the poverty level are especially susceptible to lower property values thanks to foreclosed homes that sit indefinitely and are put upon by criminals, and act as magnets for crime and other social ills. Real estate flippers often rehab these damaged homes before reselling them, improving conditions for neighborhoods. Just the act of selling them alone is a help, never mind fixing them up as well. The FHA, which does not issue mortgages but insures them, is a primary player when it comes to mortgage lending in low-income communities. Many loans in these communities could not be issued without FHA backing. That’s why their approval of flipping is so important if the plan is to work.

Initially, the FHA penalized flippers due to concerns over the practices of predatory flippers. These unethical types were snatching up cheap homes and then quickly reselling the same ones at inflated prices to unsuspecting borrowers who weren’t aware of problems within the home. For flippers to qualify now for the FHA waiver, there are certain requirements to be met. For one, the transaction must be “arms length” with no other relationship between seller and buyer. Furthermore, if the new sale price is twenty or more above the previous selling price, the lender has to document and justify the increase (such as showing proof that significant work went into rehabbing the home) and meet other conditions, such as making sure the home has been inspected by a competent and licensed home inspector.

Ever since the initial FHA waiver took effect in February of last year, the FHA has insured more than forty-two million loans to purchase homes that were being resold within ninety days. These totaled more than seven billion big bucks in mortgage principal, which is no small potatoes in a day and age when calling the housing market moribund is putting it mildly.

I hate to waffle on giving an answer as to whether a reverse mortgage is the right choice for anyone’s grandmother – and that was pretty much what the columnist said as well – but the truth is simply that there are many factors to consider before applying for a reverse mortgage. A reverse mortgage is a loan product available to homeowners aged sixty-two or older who own their home mortgage-free or are nearly mortgage-free. Unlike a home equity line of credit or second mortgage, however, the homeowner does not have to make monthly payments on a second mortgage. The loan is not due back until the home in question is no longer the primary residence of the owner. For seniors who have either completely paid off their home or owe very little on the balance, this kind of loan can provide a means of living comfortably until they pass away or have to leave home, such as to go to a nursing home or to live with family. At the point when the homeowner has to leave the house, the house is sold. The amount of the reverse mortgage is paid first, and the rest goes to the estate of the homeowner. There is always the option of “buying out” the reverse mortgage by paying back the money that has been taken out.

The main benefit of a reverse mortgage is the fact that it allows you to tap into the equity of the property, and that loan doesn’t have to be paid off until you sell the home or move from it permanently. That’s a big deal when an elderly person needs money, as does the grandmother in question. Fans of this type of financial transaction would say that reverse mortgage give the elderly something that they badly need in their golden years: peace of mind. A reverse mortgage provides the mental comfort that comes with financial security. And hey, let’s say that the senior in question has a well-funded retirement… well, reverse mortgages can have other uses as well. Yes, they are primarily used for needs. On the other hand, however, the proceeds can be used for home improvements or a large purchase like a recreational vehicle, boat, or new car. Seniors with no one to inherit their assets might utilize a reverse mortgage to get the maximum benefit of their home ownership in their golden years, since that old saying is true – you can’t take it with you. Why suffer in poverty when you can cash in one of your most significant assets now and help yourself out?

The problem is that reverse mortgage fees can be quite high. If the beloved senior in your life needs a small amount of money for health care expenses, the cost of the reverse mortgage may exceed the health care costs involved. You really have the question whether a reverse mortgage is the best idea, and look at the big picture. What kind of health problems might the proverbial grandma be facing in the future, and does she have the means to deal with them as they arise? Is there the potential of an assisted living facility, skilled nursing at home, or a nursing home in the future? If any of these are a real possibility, then a reverse mortgage might be worthwhile.

There is another option of course, although it might seem less viable in this troubled housing market: if your grandmother is no longer living in the home, you might consider selling the home and using the proceeds to assist your grandmother in all of her living and health care costs. Of course, you would need to find someone to buy the home.

Unlike selling a home, getting a reverse mortgage is fairly simple. It’s actually fairly simple to get a reverse mortgage, despite any credit snags or other issues that you might have going on. Qualifications for a reverse mortgage include being over the age of sixty-two, as I already said, and either owning your home outright or having only a low balance left on the mortgage. The home will need to be your primary residence. Homeowners have to undertake credit counseling before they can receive a reverse mortgage, but credit scores are not taken into account in terms of eligibility for this kind of loan. The flexibility of a reverse mortgage extends beyond just the qualification phase, too. Reverse mortgage lenders can distribute funds in a lump sum or make payments to the senior citizen over time, which is great for those seniors who are using reverse mortgages for different purposes. Need to pay a big medical bill? That lump sum might be a good idea. If you just need a bump on your fixed income to deal with daily expenses, however, then monthly disbursement might be the best option. Those payments over time can be similar to an annuity that pays a monthly amount until the senior citizen dies, sells the home, or no longer uses it as a primary residence. Again, for those with a fixed income, this can be a real blessing.

If someone’s grandmother – or themselves – is seriously considering a reverse mortgage, they should talk to a lender about their choices and the pros and cons. They should consult with someone who, without applying for the loan itself, can try to determine what the costs would be to obtain the reverse mortgage and how much money might be obtained from it. At that point, you will have a better basis by which to judge whether a reverse mortgage is right for your situation.

If it isn’t, then you can move to plan “B.” Usually, that’s the question of selling the home or not. Will this plan work, or will it would be too disruptive to the elderly person in question? In addition to her health issues and financial issues, the columnist advises, you also need to consider your grandma’s personal needs. There are sometimes problems that have no good solution, unfortunately, but hopefully something will work out for all the grandparents out there.