What if an individual homeowner could designate their house to become and then remain a debt-free house and forever serve a particular community, such as non-profit workers?
Free and Open Source Software Inspiration
This is inspired Richard Stallman’s Free Software idea that lead directly to both Open Source software and Creative Commons. His approach relies on a background of restrictive laws, in his case copyright law after the passing of the radical 1976 rewrite which made everything expressed copyrighted and effectively forever. Stallman’s brilliant insight in 1983 was that since the government made all expressed ideas subject to ownership, those owners could put covenants on their use. His covenant was to voluntarily give up some of the privileges of the monopoly ownership. This was not needed before the law became so restrictive, but became needed because the community nature of writing software became precarious (the world lost the Lisp Machine Operating System, for instance, which caused Richard to invent Free Software, but this is a longer story). His ideas spread to every nation and now a very large percentage of all software used is Free or Open Source.
What if homeowners could forever benefit in the same way that software writers were helped by Free and Open Source Software licenses and create communities where helped by Creative Commons licenses? Here is how this could work.
The Problem with Housing Debt
At this point, most houses are put back under mortgage every time it is sold. Since houses are sold every 6 years, on average, and mortgages are typically 30 years long, houses can stay under mortgage debt forever. Also, the owner is mostly paying interest rather than principal in the first 6 years, so when the house is sold, the owner must pay as much money to get out of a house as they put in. Therefore house prices must go up continually if have the owners are not to lose money. This is not only unlikely and unstable, it becomes a burden on future generations with increasing debt on old houses. So instead of buying and owning a house outright, most people owe a monthy mortgage payment. This has many of the insecurities of rent, so that if a person loses their job or has a medical emergency, then they can lose their house through foreclosure. And losing one’s house through foreclosure is more painful than moving out of a rented house. Also, since the market adjusts to what people can pay each month and this stays fairly stable, the price of the house is largely determined interest rate. If the interest rates go up and down from 6% (1965) to 14% (1985) and them back to 4% (2005) , then the price of houses fluxuates wildly which causes all sorts of havoc. All in all, it seems like a bad idea to have most houses under debt. What if we can get some houses out of this?
Using the Free Software idea, what if homeowners could voluntarily take their house out of the perpetual debt cycle and therefore secure a home that people can own outright? This would be a sacrifice to those first owners, but some might see it instead as an investment in the future.
Possible Benefits from Debt-Free Housing
Actually, there has always been debt-free housing such as pastor’s houses, student dormitories, fraternities, and some university faculty housing. Also, a hundred years ago, mortgages, if they existed were short, and people paid them off. But this is now the exception. The idea here is to make it easy to free houses from debt on a distributed and grass-roots way without requiring being part of a large institution.
- Quality student housing, such as the cooperatives around many colleges,
- Support teachers, non-profit hospital workers, or other public benefit workers in a community that may be priced out of living near where they work,
- Enduringly affordable housing for low-income people that is owned not rented,
- Housing for retirees so they can stay in their communities as their income drops,
- Quality housing for single parents, or other needy populations.
How to Permanently Free Houses from Debt
I can think of two approaches for homeowners to create debt-free housing , one is to have a non-profit have an ownership interest in the house, and this is explored in other posts on this blog. Another is to put binding restrictions on the title and file it with the county. This needs more investigation, but here is how it might work:
An owner of a house can deed a house to become a “Trust House” by adding a standard document (“Deed of Trust”) the title of the house filed with the government. A new non-profit Housing Trust organization, I believe is needed to help administer this system. This could have a volunteer board elected from former owners of Trust Houses.
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Required Covenants in the Deed of Trust:
- Owner of this Trust House agrees to be a Trustee on nearby houses,
- Trustees for this particular house are the geographically nearest Trust House owners, say 11 of them. This keeps governance local and resilient,
- The Housing Trust has the right to seize the house if the Trustees determines these Covenants are broken,
- In case of foreclosure, or not paying taxes… what happens?
- Removal or modification of the Deed of Trust can be requested by the Trustees but a larger number of Trust House owners must be involved to decide what to do, say 23 of them.
- No New Debt:
- No new liens may be placed on the house: original mortgage, if any, gets passed on as-is or same terms.
- No material benefit can be derived by one owner as it passes to the next (no “key money” as they call it in NYC as some rent control apartments are passed on)
- Optional Covenants can be put on the property by the original purchaser such as: characteristics of the preferred futures buyer, and how often these characteristics are enforced.
Voila! Houses shed their debt once and for all.
Can restrictions like this be placed on titles?
Should this be done with contract law instead?
Can mortgages be transferred? Do we need special mortgages for this?
How many people would do this?
How can this go wrong and not serve the purposes we are intending?