a local business owner and realtor talks buying, selling, and more

"One and two years ago, you could literally buy a house for less money down than a car . . . but now we're in downturn."  - Kate Duggan

by Reza Corinne Clifton

In January of 2005, Woonsocket-based business owner Kate Duggan fulfilled a long-time dream and opened a real estate firm. With support from her husband, she started Essex Properties, "a residential and commercial real estate firm" that handles "sales and rentals in Providence and northern Rhode Island."

Two years later, reports were being released and emergency bells were ringing. According to a study cited in an April 24, 2007 Providence Journal article (Foreclosures Soar in Rhode Island), "Rhode Island's 2006 foreclosure rate was the highest in New England," exceeding the high national average as well. Special lending programs for first-time buyers dried up, while recent and established homeowners continue to be in trouble. Real estate businesses also faced problems according to Duggan. "It's been a long run, but . . . there’s no longer any room for people [in the real estate industry] who were selling cars last week who decided to sell mortgages this week."

With a law degree and almost a decade worth of real estate acumen in her background, though, Duggan, does not epitomize the declining real estate worker she characterizes. As the persistent phone calls through the course of our interview prove, Duggan, who is the owner and principal broker of Essex, fits into the other type she describes: "Realtors who are working hard, realtors with experience." The ones, she says, who are "surviving, not getting second jobs," who are "doing fine in this market."

And survival may be the name of the game. According to Duggan, the trends we see in today's market are likely to be seen for a while longer. "People are looking at this like a blip on the screen, but it doesn't work like that. Real estate is very cyclical, usually running on ten-year cycles." The last 10 to 15 years, says Duggan, have seen a "great upward trend, but [now] we're in a downturn." But Duggan has a lot more to share than just bad news. 

How did things get like this?

Many of the problems, says Duggan, go back to finance programs she characterizes as irresponsible and illogical. "The banks, unfortunately, got really greedy over the last seven years, coming up with programs that, in many cases, just didn't make sense. One and two years ago," she illustrates, "you could literally buy a house for less money down than a car. You could buy a house for five hundred dollars!"

But what many of these buyers forgot, says Kate, is that with a new house, you may need money to "fix it up, paint it, or buy new things." The result for some is that they accidentally spend what they don't have.    

Even if these start-up costs could be avoided, many homebuyers have been impacted by a type of loan they signed onto called Adjustable Rate Mortgages (ARM's).  ARM's are generally recognized and defined by interest rates that start low – "teasers" – that often draw buyers to the table, which then steadily go up throughout the life of a mortgage. Each time an owner's rates go up, so does his or her monthly mortgage payment. Furthermore, rates, depending on your mortgage, could go up monthly, quarterly, annually, every three years, or every five years. Kate says rates will change again in the spring "causing individual mortgage payments to rise again."    

ARM's were typically offered to credit-tarnished first-time seekers, but not exclusively. They have emerged as prime examples of "predatory" lending practices and as part of the cause of a sizeable percentage of foreclosures. However, Duggan also says that the popular trend of refinancing homes and spending rather than investing has also been a large factor.

Sell today, escape foreclosure tomorrow.

"It is not a good time to sell," says Duggan. Unless you're facing foreclosure that is, which becomes a possibility after 60 to 90 days of missed mortgage payments. But with the number of foreclosures so high, says Duggan, sellers need to keep in mind that banks are the ones taking over the foreclosed properties, and banks "don't like being landlords." The result is that they are selling properties at rates to sell quickly – usually lower than the rates of a regular property owner or realtor – who could be selling near one or more foreclosed homes in this climate. Consequently, says Duggan, "buyers can beat you up. Not only do I want your house for less than what you could sell it for two years ago" illustrates Duggan, "but I want your lawn mower in the garage and I want your dog." 

It can be daunting for sellers. "Some people are having to come to the closing table with money to sell their homes." For those who can afford to stay at their current homes longer, Duggan recommends not selling. 

But for those who may be facing the risk of foreclosure, selling may be your only option. "There are not many programs for people who've had trouble making their mortgage payments," says Duggan. The alternative is having your home foreclosed upon, which leads to a huge scarlet letter-type of blemish on a person's credit report for years.  

Still, a person facing foreclosure will likely face the same trouble selling their home Duggan describes for others. If that's the case, she says, then "it is a good idea to talk to your bank about accepting a short-sale." A short-sale, explains Duggan, occurs after the bank agrees to accept less for the house than the amount that they originally issued the loan. Remember, says Duggan, "many banks will accept this because they don't want to be landlords. But there is paperwork and a process," and it does impact ones taxes. But it is a better alternative than foreclosure, insists Duggan.