Q: We paid our landlord a security deposit when we moved in four years ago and currently live in our house on a month-to-month lease.

Our landlord is losing the house and is in default with his lender -- it's public information that we accessed online. My wife told our landlord that since we would not be getting our deposit back from him, he should use the deposit as our last month's rent and we would be leaving at the end of the month. We tried to contact the mortgage company about possibly staying in the house until they sold it, but they would not even talk to us.

My landlord came over today and asked us if we were moving out or paying rent for another month. We told him that we had agreed on him keeping the deposit and that should have us covered until we do move at the end of the month.

He said that he was going to file a five-day eviction notice with the courts tomorrow. We are planning on going down to fight it because he is not following what we agreed to with the deposit.

At what point does the landlord lose his right to the house and the right to demand payment from us?

A: As a tenant, you're between a rock and a hard place. Your landlord remains your landlord and is entitled to collect rent from you. He continues to own the property, has all the rights any owner of property would have, and can continue to collect rent until the bank has foreclosed on the property or the bank has filed suit against the owner and the court has given the lender the right to manage the property.

But you're right to be concerned that the landlord will end up losing the property and won't have the money to return your security deposit. That's a legitimate worry.

The landlord also has a legitimate concern in having you pay your rent and return the home to him without damage. As you're planning on moving out of the home by the end of the month (which is only a couple of weeks away), your landlord may give you a five-day notice and can even file to evict you. But if he does file, you'll already be out of the home.

The landlord has rights under the lease and could sue you for the failure to pay rent, but if you leave the home in good shape, the landlord may decide to let it go. After all, he has bigger fish to fry at the moment.

One thought you should consider, if you obtained information about the foreclosure of the home on the Web, you might not have learned everything about the case and your landlord's true financial position.

Your landlord may have failed to pay the loan back in time, but has perhaps been able to refinance the home with another lender. If he is successful in refinancing, he'd continue to expect rent from you. You've made an assumption that your landlord is in financial difficulty on the basis of the filing of the foreclosure case against him.

Given the current economic environment, your assumption that the owner is in trouble might be correct. But in some cities, there are rules a landlord must follow to protect a tenant. For example, in some places, a landlord is required to place the security deposit for a lease in an escrow account. The funds in that escrow account can't be commingled with other money, and the funds must be accounted for and paid back to the tenant within a certain number of days after the tenant moves out of the home.

If you live in a city or state with certain tenant protections, you might have shortchanged your landlord the rent that he was entitled to and your security deposit should have been protected and returned to you after you moved out of the home. On the other hand, if you live in a city or state without those tenant protections, your security deposit might have been at risk, leaving you with the unpleasant and time-intensive task of suing your landlord.

Finally, if your landlord never agreed to apply the security deposit as your last month's rent, you probably had no right under the lease to stop paying your rent. Your landlord is probably entitled to enforce the terms of the lease up until the time that his ownership right in the property is terminated.

***

Copyright 2009 Ilyce R. Glink and Samuel J. Tamkin

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The Senate has unanimously approved a $15,000 tax credit for individuals who purchase a home in the next year.

The tax credit was added as an amendment to the economic stimulus package now under debate. Senate Republicans are pushing for more tax cuts to be added to the package. The Senate approved the housing credit, which was introduced by Johnny Isakson, R-Ga., on Wednesday.

Isakson’s amendment would provide a direct tax credit of $15,000, or 10 percent of the purchase price, whichever is less, to any homebuyer. Purchases must be made within one year of the legislation’s enactment, and the tax credit would not have to be repaid.

“It is time to fix America’s problem, not throw money at the symptoms,” said Isakson (pictured) in a statement. “It is time to fix housing first. It is rare that we have a road map to success in times of difficulty, but this country has once before realized a housing crisis every bit as bad as the one we have today and economic troubles every bit as dangerous.”

Isakson, a former real estate agent, pointed out that in the mid-1970s, America faced a similar housing crisis when a period of easy credit and loose underwriting flooded the market with new construction. Congress responded by passing a $2,000 tax credit for anyone purchasing a new home for their principal residence. Isakson said that home values quickly stabilized, housing inventory dropped and the market recovered.

His amendment would allow taxpayers to claim the credit on their 2008 income tax returns. It also seeks to prevent misuse by only allowing purchases of a principal residence and by recapturing the credit if the home is sold within two years of purchase. The amendment would sunset the current $7,500 housing tax credit on the date of enactment.

On Tuesday, the Senate approved another amendment that provides a tax incentive for car buyers. The amendment, introduced by Barbara Mikulski, D-Md., makes interest payments on car loans and state sales or excise tax deductible for new cars purchased between Nov. 12, 2008 and Dec. 31, 2009.

“President Obama said the goal for the economic recovery program is to create jobs and save jobs,” said Mikulski in a statement. “That’s exactly what my amendment does. It’s targeted at saving American jobs and helping families buy the cars they need to get to work and take their kids to school.”

However, Obama indicated Wednesday that he does not want the stimulus bill to become overly tilted toward tax cuts, despite the demands of Republicans to reduce the spending component.

“I’ve heard criticisms of this plan that echo the very same failed theories that helped lead us into this crisis, the notion that tax cuts alone will solve all our problems, that we can ignore the fundamental challenges like energy independence and the high cost of health care and still expect our economy and our country to thrive,” he said, according to The New York Times. “I reject that theory and so did the American people when they went to the polls in November and voted resoundingly for change. So I urge members of Congress to act without delay.”

The Senate may vote as soon as Thursday night on the bill, but if it is approved, it will need to be reconciled with the House version.

Republicans are pushing for a much less expensive version with more tax cuts, including halving the 10 percent tax rate on married couples with incomes up to $16,700, and cutting the rate from 15 to 10 percent on couples earning between $16,700 and $67,900.

Senate Democrats pushed back against many of the amendments offered by Republicans on Wednesday evening, prompting Senate Minority Leader Mitch McConnell, R-Ky., to complain Thursday that Democrats were ignoring President Obama’s call for Congress to “trim out things that are not relevant to putting people back to work right now.”

“This week, Republicans have tried to improve this bill in a number of ways,” said McConnell. “One goal was to cut out the waste and bring down the total cost. So far, Democrats have rejected those efforts.”

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For Gail Robinson, a real estate agent in Connecticut who has seen her business limp along since the stock market plummeted last year, it was the best news in ages.

With Congress considering a new tax credit intended to turn around the battered housing market, she hopes lawmakers have found the long-awaited silver bullet. She was busy Thursday sending out about 200 e-mails to potential clients about federal plans to give buyers a subsidy of up to $15,000 for all home purchases.

"My whole firm is excited about it," Robinson said. "It could bring in a whole new set of buyers."

The new credit, approved by the Senate Wednesday night, works like this: Buyers would get 10 percent of the purchase price of any home, up to $15,000, applied to their tax bill.

Consumers would be allowed to spread out the credit over two years, making it possible for those who pay less than $15,000 in taxes to benefit. Anyone who buys a home within a year of the bill's signature would qualify. To deter speculators, buyers must occupy the house as their main residence for at least two years.

But the tax incentive is likely to be more helpful to buyers in less expensive markets, said Christopher Thornberg, a principal with Beacon Economics in Los Angeles. "Unfortunately, in the places that are most hard-hit, like California, it's going to have less of an impact," he said.

Sen. Johnny Isakson, a Georgia Republican and former real estate agent, introduced the new tax credit that's estimated to cost the government nearly $19 billion as part of President Barack Obama's economic stimulus package. It's modeled after a similar measure in the mid-1970s.

A tax break passed last summer provides a $7,500 credit to first-time homebuyers. But that must be repaid over 15 years, and the impact on home sales has been negligible.

Homebuilders and Realtors argue that dramatic steps are needed to boost the shellshocked housing market. While sales of existing homes rose unexpectedly in December, prices are still falling rapidly. The nationwide median sales price plunged to $175,400 in December, down 15.3 percent from $207,000 a year ago, and the lowest since May 2003. Sales of new homes, meanwhile, fell in December to the slowest pace on records dating to 1963.

Lawmakers, at least in the Senate, appear to be falling in line, even as moderates from both political parties worked Thursday to trim as much as $100 billion from the stimulus legislation and clear the way for its passage as soon as Friday.

With the economy showing fresh signs of weakness Thursday, Obama said: "The time for talk is over. The time for action is now."

But lawmakers faced criticism about aiding homebuyers — and not renters or those made homeless — as the recession worsens.

Sheila Crowley, president of the National Low Income Housing Coalition, questioned the decision to subsidize home purchases when housing prices still remain out of the reach for much of the working class.

"Why would we do something like this now?" Crowley said. "Really, only well-off people are in a position to buy a house."

Buyers will still face tight lending standards, and mortgage rates have climbed since hitting a record low of 4.96 percent last month. The average rate on a 30-year fixed mortgage rose to 5.25 percent this week from 5.1 percent last week, mortgage finance company Freddie Mac said Thursday.

Still, the mood was ebullient at the National Association of Realtors' headquarters in Washington.

"I'm thrilled. It's almost like you asked for the stars and you hit the moon," Charles McMillan, a Texas-based Realtor and the group's president, told reporters. "This is going to be great for the American homebuyer."

Jerry Howard, chief executive of the National Association of Home Builders, which lobbied hard for the tax credit, said it "will put the floor on the downward spiral" in home prices.

Real estate lobbyists are still pressing the government to spend billions to temporarily subsidize lower mortgage rates. They were looking optimistically to Treasury Secretary Timothy Geithner's planned announcement Monday of a new effort to prop up the banking industry and prevent foreclosures.

Mark Zandi, chief economist with Moody's Economy.com, said the homebuyers' tax credit will help reduce a giant pileup of unsold homes that is wreaking havoc on the financial system and broader economy. Since the credit is temporary, it also should help break "the psychology pervading the housing market that it is best to wait to buy a home because its price will soon be lower," Zandi wrote in an e-mail.

By itself, the tax credit won't help prod reluctant buyers off the fence, said real estate broker James Joseph of Whittier, Calif., but it could prove to be the tipping point if combined with other incentives like government subsidies for lower mortgage rates.

"It's one more coin on the scale," he said. "Every bit helps."

Robinson was hoping the potential tax credit could boost attendance this weekend at an open house she's holding at a renovated property with an ocean view. She says it's a steal at $285,000.

Associated Press Writers Daniel Wagner and David Espo in Washington, and Alex Veiga in Los Angeles contributed to this report.

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WASHINGTON (AP) — The Senate voted Wednesday night to give a tax break of up to $15,000 to homebuyers in hopes of revitalizing the housing industry, a victory for Republicans eager to leave their mark on a mammoth economic stimulus bill at the heart of President Barack Obama's recovery plan. The tax break was adopted without dissent, and came on a day in which Obama pushed back pointedly against Republican critics of the legislation even as he reached across party lines to consider scaling back spending.

"Let's not make the perfect the enemy of the essential," Obama said as Senate Republicans stepped up their criticism of the bill's spending and pressed for additional tax cuts and relief for homeowners. He warned that failure to act quickly "will turn crisis into a catastrophe and guarantee a longer recession."

Democratic leaders have pledged to have legislation ready for Obama's signature by the end of next week, and they concede privately they will have to accept some spending reductions along the way.

Sen. Johnny Isakson, R-Ga., who advanced the homebuyers tax break, said it was intended to help revive the housing industry, which has virtually collapsed in the wake of a credit crisis that began last fall.

The proposal would allow a tax credit of 10 percent of the value of new or existing residences, up to a $15,000 limit. Current law provides for a $7,500 tax break for the purchase of new homes only.

Isakson's office said the proposal would cost the government an estimated $19 billion.

Democrats readily agreed to the proposal, although it may be changed or even deleted as the stimulus measure makes its way through Congress over the next 10 days or so.

"This bill needs to be cut down," Republican Mitch McConnell of Kentucky said on the Senate floor. He cited $524 million for a State Department program that he said envisions creating 388 jobs. "That comes to $1.35 million per job," he added.

Republicans readied numerous attempts to reduce the cost of the $900 billion measure, which includes tax cuts and new spending designed to ignite recovery from the worst economic crisis since the Great Depression.

But after days of absorbing rhetorical attacks, Obama and Senate Democrats mounted a counteroffensive against Republicans who say tax cuts alone can cure the economy.

Obama said the criticisms he has heard "echo the very same failed economic theories that led us into this crisis in the first place, the notion that tax cuts alone will solve all our problems."

"I reject those theories and so did the American people when they went to the polls in November and voted resoundingly for change," said the president, who was elected with an Electoral College landslide last fall and enjoys high public approval ratings at the outset of his term.

Obama did not mention any Republicans by name, and most have signaled their support for varying amounts of new spending.

Even so, the president repeated his retort word for word in late afternoon, yet softened the partisan impact of his comments by meeting at the White House with senators often willing to cross party lines.

His first visitor was Sen. Olympia Snowe, R-Maine, a moderate GOP lawmaker. Later he met with Sens. Susan Collins, R-Maine, and Ben Nelson, D-Neb.

"I gave him a list of provisions" for possible deletion from the bill, Collins told reporters outside the White House. Among them were $8 billion to upgrade facilities and information technology at the State Department and funds for combatting a possible outbreak of pandemic flu and promoting cyber-security. The latter two items, she said, are "near and dear to her," but belong in routine legislation and not an economic stimulus measure.

Collins and Nelson have been working on a list of possible spending cuts totaling roughly $50 billion, although they have yet to make details public.

The House approved its own version of the stimulus bill last week on a party line vote, but the political environment in the Senate is far different.

Democrats hold a comfortable 58-41 majority. But because the legislation would increase the federal deficit, any lawmaker can insist that 60 votes be required to add to its cost.

While the 60-vote threshold can impose a check on Democrats, it can also illuminate the cross-pressures at work on Republicans.

A Democratic attempt on Tuesday to add $25 billion for public works projects failed when it gained only 58 votes, two short of the total needed. But a few hours later, a proposed $11 billion tax break for new car buyers attracted 72 votes, including several from Republicans.

Associated Press writers Jennifer Loven and Andrew Taylor contributed to this story.

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