Peter G. Miller
OurBroker®

Murder and mayhem are the common stuff of each day's news, events which create a strange and bizarre real estate issue, the matter of "stigmatized" homes.

It's easy to understand that the value of a home will be reduced if the roof leaks or the basement floods, but matters become more complex when the issue is psychological rather than physical.

Suppose a home is in flawless physical condition, but suppose as well that it's also been the site of a murder or a suicide. Everything works, nothing leaks or floods, but is the home as valuable as a similar property where such events have not occurred?

Some prospective buyers would plainly be discomforted by such news with the result that either they would not bid on the property or they would reduce their offers.

While the feelings of many buyers are entirely understandable, it's also easy to see that sellers may be unfairly hurt in this process.

Suppose a home is the site of a suicide or murder. If the individual who died was a friend or relative of the owners, they no doubt feel enormous loss and perhaps wish to move. But under some state rules, when they offer their home for sale the owners must tell buyers of recent events at the home, thereby lowering its value.

The catch is that a number of states have so-called "stigmatized housing" rules which say that owners and their brokers need not disclose the events at the home related to suicides, accidental deaths, natural deaths, ghosts, or felonies. These rules are inconsistent, however, so that the disclosure requirements in one state may be vastly different than another. And many states have no rules dealing with stigmatized homes, a legal gap which offers no guidance to buyers, sellers, or brokers.

The result is that what must be said depends on where you live. A murder, for example, may have to be disclosed in one state, not disclosed in another, or disclosed today but not after several years.

In looking at the various guidelines which impact stigmatized homes, it's little wonder that state rules are often divided on this issue. Stigmas relate to personal values, preferences, and perceptions, matters difficult to legislate.

If you own a property which is or may be sitgmatized, or if you are considering the purchase of such a property, be certain to first speak with knowledgeable brokers and attorneys in your state to see what disclosures, if any, are required.

Question Of The Week

Q Are the terms "home equity loan" and "second mortgage" the same? If not, how does the mortgage industry define each?

A A "home equity loan" is generally seen as financing added to a home at some point after purchase. It can be a lump sum paid to an owner, or a credit line where the owner can make withdrawals from time to time. As the owner repays the credit line, the amount of available credit increases up to a given limit.

A home equity loan is typically a second mortgage or a second trust. A "mortgage" and a "trust" are somewhat different financial instruments, but they both represent debt secured by real estate. A "mortgage" in general terms is a loan from a lender to a property owner, while a "trust" is a loan from a lender to an owner that is administered by a trustee who can foreclose the property if payments aren't made or release the debt when the loan is paid off.

However, if a home is owned free and clear and the owner obtains a home equity loan, the loan would be a first mortgage or trust. Or, if a home already secures two loans, a home equity mortgage could actually be a third trust or mortgage.

The result is that a "home equity loan" can be a "second mortgage," but this is not always the case.

Weekly Resource

Want to look through huge numbers of federal search engines at one time? Try the new site sponsored by the National Technical Information Service, a part of the Department of Commerce. There are plans to charge for the service after June 1st, but public displeasure may halt such efforts.

Published: May 25, 1999

Use of this article without permission is a violation of federal copyright laws.

Editor's Note: This article reflects the opinions of Peter G. Miller only and not necessarily the views of this or any other publication, organization or Website owner.