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Fiscal Health of Area a New Home-Buyer Query : Real estate: Experts say O.C. crisis shows that the financial status of a community should be checked before purchase.


Lenders also seldom take into account a city or town's financial health when reviewing mortgage applications.

"There is really no review of a municipality. We're more concerned about the specific property and surrounding property values," explained Gay Greene, senior vice president for loan originations at Sibley Mortgage Corp. in Rochester, N.Y.

She says a lender's appraisal will sometimes take into account economic conditions, although it's impossible to predict their long-term effect on property values. "It could play a role at some point in time. . . . If there are major problems, property values go down," she said.

Financial problems--from budget shortfalls to business failures, even government fraud--can adversely impact a community's quality of life, and that in turn, could indirectly affect home values.

Several cities and towns in Iowa had to put off numerous public works projects and curtail services after a $75-million investment fraud at the Iowa Trust Fund several years ago. One hard-hit town, Marshalltown, was even forced to turn out half its street lights to conserve money.

The full ramifications of Orange County's investment portfolio loss have yet to be felt. So far, the county has instituted an emergency cost-cutting plan and announced recently it would eliminate 698 jobs.

A cutback in services could also occur since the county is prohibited by law from raising taxes to make up the investment fund shortfall.

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