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Bucks Blog: Before Breaking a Lease, Check Your Renter’s Policy

November 8, 2012 by Leave a Comment

An article in Wednesday’s paper detailed the woes of New York City renters whose apartments are uninhabitable because of Hurricane Sandy. Some renters, the article said, were wondering if they should break their leases and find another place to live.

But tenants who have bought renter’s insurance may have other options if they want to stay in their current location.

Loretta Worters of the Insurance Information Institute says the “additional living expense” provision of renter’s insurance, also known as “loss of use” coverage, may come into play if you’re unable to live in your apartment due to a covered event like a hurricane.

In that case, she said, most policies will reimburse additional living expenses, but they may set limits on the amount they will pay. Covered expenses include hotel bills, temporary rentals, restaurant meals and other costs you have to pay while the apartment is being repaired or rebuilt.

“Typically, if you live in a certain size and type of apartment, you will get something” for a comparable dwelling, she wrote.

There are caveats, of course. “Each case is different, each policy is different,” she said.

If there’s flooding, for instance, you probably won’t be reimbursed because most standard renter’s policies don’t cover flooding. There are exceptions, she said, but “most don’t.” You can buy flood insurance from the federal National Flood Insurance Program, but that program doesn’t cover additional living expense, she said.

If you have no heat, or no electricity, you may be covered for your additional expenses, but it depends on the specific language in your policy. Sometimes, she said, the policy will provide coverage if you have only structural damage, but it depends on the situation.

Further, the amount of coverage provided for additional living expenses depends on the specific policy language, she said.  There are often dollar limits — in some cases, 20 percent or more of your policy’s liability limit. A standard liability limit on a rental policy is $100,000, so that would mean benefits of at least $20,000. Some people buy much higher liability limits, so the coverage for additional living expenses would be higher.

Insurers may also place time limits on coverage for living expenses, usually, one to two years.

She advises checking with your insurance company about the alternative arrangements you plan to make, to make sure they’re reasonable and will be covered.

What if your landlord is waiving your rent while the apartment is unlivable? Ms. Worters said any arrangement with your landlord probably wouldn’t affect your coverage for additional living expenses because the insurance company wouldn’t know that your rent was waived. “The honesty factor comes into play here,” she said.

Are you seeking additional living expenses under a renter’s policy? Do you expect your claim to be covered?

Article source: http://bucks.blogs.nytimes.com/2012/11/07/before-breaking-a-lease-check-your-renters-policy/?partner=rss&emc=rss

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Drilling Down: Rush to Drill for Gas Creates Mortgage Conflicts

October 20, 2011 by Leave a Comment

And over the past 10 years, as natural gas has become increasingly important to the nation’s energy future, Americans have signed more than a million of these leases.

But bankers and real estate executives, especially in New York, are starting to pay closer attention to the fine print and are raising provocative questions, such as: What happens if they lend money for a piece of land that ends up storing the equivalent of an Olympic-size swimming pool filled with toxic wastewater from drilling?

Fearful of just such a possibility, some banks have become reluctant to grant mortgages on properties leased for gas drilling. At least eight local or national banks do not typically issue mortgages on such properties, lenders say.

A credit union in upstate New York has started requiring gas companies to promise to pay for any damage caused by drilling that may lead to devaluation of its mortgaged properties. Another will make home loans only to people who expressly agree not to sign a gas lease as long as they hold the mortgage.

More generally, bankers are concerned because many leases allow drillers to operate in ways that violate rules in landowners’ mortgages. These rules also require homeowners to get permission from their mortgage banker before they sign a lease — a fact that most landowners do not know.

Last year, Jack and Carol Pyhtila spent several weeks working to refinance the mortgage on their roughly 30 acres in Tompkins County, N.Y. But when they arrived to sign the mortgage, the lender, Visions Federal Credit Union, had taken a closer look at the lease on their land and revoked its offer, said Mr. Pyhtila, 72.

“They told us there was not enough information yet to know how the lease would affect the property value and they were not sure if it followed the mortgage rules,” he said. Another bank agreed to refinance their loan several months later.

Lenders predict that the conflicts between leases and mortgage rules are not likely to cause foreclosures, nor have they resulted in broad litigation or legislation. But many of the leases do constitute “technical defaults” on the mortgages, lenders say, and will likely result in new rules from local banks and additional hurdles to getting a home loan or refinancing a mortgage.

Some real estate agents have started raising red flags.

“When you decide to sell your house you may find it difficult to do so because many banks, here and elsewhere, will not mortgage properties with gas leases, which, in turn, limits the number of buyers willing and able to buy your property,” wrote Linda Hirvonen, an agent in Ithaca, N.Y., in a newsletter last month.

Banks establish rules for how mortgaged properties can be used, to help ensure that they will hold their value. Banks also need to guarantee that their mortgages meet certain standards so that they can sell them to institutions like Fannie Mae and Freddie Mac, which bundle and sell these mortgages to investors.

“In terms of litigation, there is a real potential for a domino effect here if lenders at each step of the way made guarantees that are invalid,” said Greg May, vice president of residential mortgage lending at Tompkins Trust Company, headquartered in Ithaca.

Banks resell more than 90 percent of new residential mortgages in the United States to institutions like Fannie Mae, Freddie Mac and Ginnie Mae. It is not clear how many mortgages held by major secondary lenders or investors have oil or gas leases on them that do not comply with mortgage rules.

But if even a small percentage do, tens of billions of dollars in mortgages might be affected, raising new concerns for an industry that has suffered in recent years from home loans that proved much riskier than expected.

Some lawyers who specialize in oil and gas leases said they were not worried.

“The leases have not created any practical conflict or issue with mortgages,” said Adam J. Schultz, a lawyer in Syracuse, adding that there are thousands of gas leases on mortgaged properties in New York and Pennsylvania and that state environmental regulations helped protect property values.

Most of the bankers and mortgage experts interviewed also emphasized that they were not opposed to expanded drilling. The surge in such drilling has created thousands of jobs, bolstered American energy supplies and turned some landowners into millionaires, they said.

However, the banking industry is only starting to appreciate the complexity and possible consequences, they added.

“It’s truly Pandora’s box,” said Cosimo Manzo, a vice president of First Heritage Financial, a mortgage services company in Philadelphia, during a presentation to Pennsylvania lenders posted online in July by a state credit union association. He also compared getting leases to comply with mortgage rules to solving a Rubik’s Cube.

If local banks do not require that leases comport with mortgage rules, Fannie Mae and Freddie Mac may stop buying mortgages from these banks, Mr. Manzo said. Other experts warned that the two institutions, or investors who bought mortgage-backed securities, may also force local lenders to buy back noncompliant mortgages.

Kitty Bennett contributed research.

Article source: http://feeds.nytimes.com/click.phdo?i=6a1645c29dfe9b88fc3acf77de2a575d

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Bucks: Leasing a Car? It May Have Hidden Value

June 24, 2011 by Leave a Comment

The common wisdom is that it’s more expensive to lease a car than to buy one. But the recent rise in used-car prices may provide a lucrative opportunity for those with leases to come out ahead of the game.

That’s because dealers set a so-called residual price when they lease a car — what the car is expected to be worth at the end of the lease. Typically, consumers can either turn their car in when the lease is up, or buy the car for the residual value. (If they want to buy it before the lease is up, the price is called the buyback amount.)

Now, with a spike in used-car prices as a result of tight supply, it’s likely that many residual values are significantly lower than the current market value of the car. That means that people whose leases are ending now — or who want to exit their lease early — can expect a good deal if they buy the car, or can even turn a tidy profit by selling the car themselves and pocketing the difference.

An article published Friday describes a Prius owner who did just that: Spencer Hunter, an Oregon lawyer, tells how he sold his Prius less than 72 hours after he posted an ad on Craigslist. Over the 13 months he leased his 2010 Prius, Mr. Hunter said he spent $3,860 on the car, not including gas. Last month, after buying out the lease and selling the car, he ended up with a check for $3,900 — a profit of $40.

Michael Bor, co-founder of a new used-car consignment business called CarLotz, which helps owners sell their cars for a fee, says other leases may also have residual values that are worth much more. “Not until recently have used-car values appreciated so much,” he said.

During the economic downturn, new-car sales — and the trade-ins that often accompany them — slowed sharply, so there are now fewer used cars available for sale. Roughly 60 percent of new-car sales involve trade-ins, said Paul Taylor, chief economist for the National Automobile Dealers Association. (The current situation is the reverse of what happened from 2005 to 2007, when there was a boom in new-car sales, and trade-ins flooded dealerships with used cars.)

Given the rise in used-car prices, it’s probable that forecasts for residual values made over the last three to five years, the typical duration of auto leases, were low. “What’s likely to happen now is they underestimated the value of the car,” Mr. Taylor said. “So the residual price is low, and you have more incentive to purchase it. Or, buy it and then sell it.”

Mr. Bor is in favor of selling. In the past, he said, if you turned your car in at the end of a lease, you weren’t giving up much value. “Today, if you hand the car over, you might as well put a suitcase full of hundreds in the trunk.”

He gives the example of his wife’s car, a 2008 Volvo XC90. Her lease has more than a year left, and when they called the finance company this week, they were given a buyout price of $18,500. She could arrange to sell it privately, he said, for about $27,000, based on values found at online sites like Autotrader.com, and industry sources like Manheim. She could then pay off the balance and keep the $8,500 difference, or use part of it for a down payment for another car. Prices vary geographically, and by model (prices have risen the most on smaller, fuel-efficient models), so her case is perhaps an extreme example, he said. But it’s likely that residual values on many leases offer significant “hidden” savings.

Car leasers may be catching on to the idea. According to CNW Marketing Research, an Oregon company that follows car trends, 21.8 percent of car leasers are now buying their vehicles, up from a historic average of 16.4 percent. Of those who buy the leased car, nearly 40 percent sell it within six months, compared with 27.3 percent historically, CNW said.

Typically, the car’s residual value is listed on the lease documents. Or you can call the finance company for a payoff amount, if you still have time on your lease. The market for used cars is brisk right now, but if you go the sell-it-yourself route, Mr. Bor said, you should start planning to do so at least a month or two before your lease expires.

The downside, of course, is that selling the car yourself, instead of simply handing over the keys to the dealer, requires a significant investment of time and energy that many people don’t want to make. Many dread the hassle of advertising the car on Craigslist or other online sites and dealing with strangers who want to test-drive it.

That’s where Mr. Bor sees an opportunity for his business, which recently opened its first location near Richmond, Va. CarLotz sells the car for fees and a commission totaling about $800; the seller keeps the rest. Out-of-state sellers can ship him cars to sell and still make a profit, even with the fee, he claims, because prices are so high.

Do you lease a car? Is its market value greater than its buyback value?

Article source: http://feeds.nytimes.com/click.phdo?i=04c29bfbbce9424c95e4810ceb258a83

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