That's the situation faced by Robert Fidler, a farmer who lost a High Court bid Wednesday to protect the once-secret castle he built 40 miles (65 kilometers) south of London and kept hidden from planning authorities.

The adverse decision means Fidler's roof must come down. He has one year to comply unless an appeal is successful.

To keep prying eyes from noticing his unauthorized abode, Fidler placed bales of hay and tarpaulin around his dream home in Salfords, Surrey, authorities said. The court ruled he could not benefit from his deception.

Mike Miller, a chief planner with the Reigate and Banstead Borough Council, said the council was delighted with the decision, which it viewed as a vindication of the decision to challenge Fidler in court.

"This was a blatant attempt at deception to circumvent the planning process," he said, adding that Fidler now has one year to destroy the castle, remove the ruins and return the property to its original state.

The unusual castle, complete with cannon, ramparts and stained glass, was completed in 2002 and Fidler lived there with family for more than four years before the authorities started legal action against him.

Fidler, who has had disagreements with planning authorities before, anticipated that his request for permission to build the castle would be denied, so he tried to take advantage of a rule that allows a structure to be legalized if it has been lived in for four years.

Fidler's lawyer, Pritpal Singh Swarn, said the decision will go to the Court of Appeal because it raised important planning issues. A further appeal to European courts is possible if British courts again reject Fidler's bid to legitimize his castle.

He said Fidler was extremely disappointed with the ruling and no local residents had complained about the castle.

"It has been pursued at the expense of the taxpayer which we find deeply regrettable — but Mr. Fidler will continue to fight for the right to live in his home," the lawyer said.

Authorities said he incorporated two grain silos into the design, covering them with material to give them a castellated appearance.

"Mr. Fidler made it quite clear that the construction of his house was undertaken in a clandestine fashion," the court ruled.

The percentage of Americans who owned their homes fell at the end of 2009 to the lowest point in nearly a decade, a reflection of continuing troubles in the housing market even as the sector showed signs of stabilizing.

In one upbeat sign, an index of pending sales of previously owned homes increased 1.0% to 96.6 in December, the National Association of Realtors said Tuesday, suggesting the housing market is steadying after sharp swings caused by the uncertain fate of a government tax credit.

Yet home ownership is sliding. Some 67.3% of Americans owned their homes in the fourth quarter of last year, based on seasonally adjusted data, the Commerce Department said Tuesday. That is the lowest percentage since the second quarter of 2000, when the same share of Americans owned homes.

"The home-ownership data I think really just underscores how this country as a whole became obsessed with getting people into homes," said Mike Larson, real-estate and interest-rate analyst at Weiss Research Inc., an investment-research firm. "You can do all kinds of things to get people into a house, which we did; the real problem is making it so they can stay there."

The home-ownership rate reached a high of 69% in 2004 as low interest rates and easy credit prompted large numbers of families to stop renting and purchase homes. But the rate began to fall two years later as some homeowners struggled to make their mortgage payments and eventually lost their homes to foreclosure. Between 2007 to 2009, nearly four million homes were lost to foreclosure. And home ownership rates are now moving closer to the level that was common in the 1990s.

Still, some economists had expected the home-ownership rate to stabilize or even rise slightly in the fourth quarter, because of the Obama administration's tax credit for first-time home buyers. The tax credit fueled a home-sales jump in September, October and November. But economists now believe that the number of foreclosures during the quarter overwhelmed rising home sales. "Had it not been for the tax credit, the home-ownership rate would have fallen even further," said Thomas Lawler, an independent housing economist.

The decline in home ownership reached all regions of the U.S. but was most pronounced in the South, where the level fell to 69.1% from 69.8% a year ago.

Meanwhile, the pending home sales index in December was 10.9% higher than its level of 87.1 in December 2008. Pending sales of existing homes include single-family homes and condominiums. A home sale is pending when the contract has been signed but the transaction hasn't closed. Pending sales typically close within one or two months of signing.

The tax credit helped sales last year, as did low prices and mortgage rates. The tax credit was due to run out Nov. 30 but was extended and expanded, through April 2010. But the market is still facing the problems of high unemployment and the difficulty many borrowers are having obtaining loans. While a Federal Reserve survey of senior loan officers Monday showed that banks had largely stopped tightening loan standards, residential mortgages were an exception. Some 17% of banks said they were making mortgage-approval standards tougher even for borrowers with high credit scores and well documented credit histories.

By region, pending sales in the Northeast rose 2.3% in December and were 14.9% higher than a year earlier. The Midwest rose 5.2% in December and was 8.7% higher than a year earlier. The South climbed 2.2% in December and was 5.5% higher than December 2008. The West fell 3.8% in December but was 18.6% above a year earlier.

A top House Democrat on Friday said his committee was preparing to recommend "abolishing" mortgage-finance giants Fannie Mae and Freddie Mac and rebuilding the U.S. housing-finance system from scratch.

Barney Frank

"The remedy here is...as I believe this committee will be recommending, abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance," said Rep. Barney Frank (D., Mass.), the chairman of the House Financial Services Committee.

His comments initially rippled through bond markets on concerns that the government might pull away from the mortgage market. Many believe that's unlikely and that any revamp would include continued government involvement. The government took over the companies in September 2008 as loan losses mounted.

Some Republicans have argued that the companies should ultimately be reduced in size and privatized, while at other end of the spectrum, some analysts have recommended turning the companies into government agencies. But several industry groups and academics have suggested that the government is likely to continue playing at least some role in the future of the companies.

One such report came from analysts at Standard & Poor's this past week. "It's hard for us to imagine" how enough capital could be attracted to replace Fannie and Freddie with stand-alone private companies that would be able to offer low-cost funding for 30-year fixed-rate mortgages, the analysts wrote.

Some analysts have argued that starting from scratch could create more problems than they would solve, in part because Fannie and Freddie own or guarantee around half of the nation's $11 trillion in home mortgages. "Blue sky ideas are great, but they take a long time to happen," said Mahesh Swaminathan, senior mortgage strategist at Credit Suisse, at a conference last month. "When you have $5 trillion of agency mortgages, you can't really orphan them."

Mr. Frank, who didn't elaborate on forthcoming recommendations, said last month that one possible revamp could merge some functions of Fannie and Freddie that overlap with the Federal Housing Administration into the government mortgage-insurance agency.

The Obama administration said it will weigh in on how to revamp the companies—and the entire housing-finance system—when it releases its budget next month. Republicans have increasingly criticized the administration for moving to overhaul the financial sector without spelling out plans for Fannie and Freddie.

In a PBS interview on Thursday, Treasury Secretary Timothy Geithner said the legislative process to overhaul Fannie, Freddie and the housing-finance system was unlikely to begin this year. "It's just a complicated thing to get right," he said. "But we are completely supportive and agree completely with the need to make sure that we take a cold, hard look at what the future of those institutions should be in our country."

Eugene Dumais noticed a large crack in the side of his house as he was leaving for church around 9:45 a.m. When he returned, a 10-foot-wide section of retaining wall had slid away. Elsewhere in the 80-home Rivermist subdivision, soil gave way and left crevices up to 15 feet deep and eight feet wide.

Associated Press

Crevices, some 15 feet deep, are shown outside three homes at the Rivermist subdivision in San Antonio on Monday.

"It's bad, and it has gotten a lot worse," Mr. Dumais said. He was among dozens of homeowners evacuated over the weekend from the neighborhood—a freshly built enclave where home prices range from $170,000 to $250,000.

Centex Homes, a unit of Pulte Homes Inc., told about 250 residents who crowded into a hastily called meeting at a local hotel Monday evening that it had yet to determine what caused the mishap, though it said the soil weakness occurred in a relatively isolated area. An executive said the company planned to start "forensic" work Tuesday, a process expected to take a couple of days.

Residents of more than 60 of the 80 homes vacated under a mandatory evacuation order by the city have been told they can return. Still, many at Monday night's meeting weren't anxious to return without a better explanation from Centex.

"The biggest concern is marketability and safety," Mr. Davis said. "Why would someone buy a house that is in the pathway of damage, and may continue to be?"

What  Exactly is Owner Financing?

When part or all of the purchase price, less the buyer's down payment, is carried by the seller, the seller is providing owner financing. It doesn't matter if the property has an existing loan, except to the extent that the existing lender might accelerate the loan upon sale due to an alienation clause. Instead of going to the bank, the buyer gives a financing instrument to the seller as evidence of the loan and makes payments to the seller.

If the property is free and clear, meaning the seller has clear title without any loans, the seller might agree to carry all the financing. In that instance, the buyer and seller agree upon an interest rate, monthly payment amount and term of the loan, and the buyer pays the seller for the seller's equity on an installment basis.

The security instrument is generally recorded in the public records, which protects both parties.

Different Types of Owner Financing

Most purchase-money transactions are negotiable. Sellers and buyers are free to negotiate the terms of the owner financing, subject to usury laws and other state-specific regulations.

While there is no standard down payment required, many sellers want a sufficient down payment to protect their equity. Down payments can vary from little to 30% or more. Sellers feel their equity is safeguarded by the buyer's down payment because buyers are less likely to go into foreclosure if they've invested a lot of money upfront.

Some variations of owner financing include but not limited to:

• Land Contracts.

  Land contracts do not pass legal title to the buyer, but give the buyer equitable title. The buyer makes payments to the seller for a certain period. Upon final payment or a refinance, the buyer receives the deed.

   

• Promissory Notes and Mortgages.

  Sellers can carry the mortgage for the entire balance of the purchase price (less the down payment), which may include an underlying loan. This type of financing is called an "all-inclusive mortgage" or "all-inclusive trust deed" (AITD). The seller receives an override of interest on the underlying loan.

  A seller may also carry a junior mortgage, in which case, the buyer would take title subject to the existing loan or obtain a new first mortgage. The buyer receives a deed and gives the seller a second mortgage for the balance of the purchase price, less the down payment and first mortgage amount.

   

• Lease Purchase Agreements.

  Selling on a lease purchase agreement means the seller is giving the buyer equitable title and leasing the property to the buyer. Upon fulfillment of the lease purchase agreement, the buyer receives title and typically obtains a loan to pay the seller, after receiving credit for all or part of the rental payments toward the purchase price.

 Benefits to Home Buyers

• Little or No Qualifying.

  Even if the seller demands a credit report on the buyer, the seller's interpretation of buyer qualifications are typically less stringent and more flexible than those imposed by conventional lenders.

   

• Tailored Financing.

  Unlike conventional loans, sellers and buyers can choose from a variety of payment options such as interest only, fixed-rate amortization, less-than-interest or a balloon payment. Payments can mix and match. Interest rates can adjust periodically or remain at one rate for the term of the loan.

   

• Down Payment Flexibility.

  Down payments are negotiable. If a seller wants a larger down payment than the buyer possesses, sometimes sellers will let a buyer make lump-sum payments toward a down payment.

   

• Lower Closing Costs.

  Without an institutional lender, there are no loan or discount points to pay. No origination fees, processing fees, administration fees or any of the other assorted miscellaneous fees that lenders routinely charge, which automatically saves money on buyer closing costs.

   

• Faster Possession.

  Because buyers and sellers aren't waiting on a lender to process the financing, buyers can close faster and get buyer possession earlier over a conventional loan transaction.

 Benefits to Home Sellers

• Higher Sales Price.

  Because the seller is offering owner financing, the seller may be in a position to ask for full list price or higher.

   

• Tax Breaks.

  The seller might pay less in taxes on an installment sale, reporting only the income received each year.

   

• Monthly Income.

  Payments from a buyer increase the seller's monthly cash flow, resulting in more spendable income.

   

• Higher Interest Rate.

  Owner financing can carry a higher rate of interest than a seller might receive in a money market account or other low-risk types of investments.

   

• Shorter Listing Term.

  Owner financing attracts a different set of buyers. If a property is not selling under conventional methods, offering owner financing is one way to stand out from the sea of inventory and move a hard-to-sell property that otherwise might not sell.

As buyers ease back into the battered real-estate market, they're often hitting a stumbling block: fibbing by home sellers.

Eager to unload their abodes, some sellers exaggerate the size of their lots or their houses. Others minimize their property-tax or utility bills, conveniently forget about pests, or downplay flooding problems or noise.

Real-estate experts say that while such misrepresentations aren't new, the tough market of the past few years has made buyers more wary, partly because they can't expect rising home prices to bail them out of costly mistakes. As a result, deals are taking longer, and more of them are falling apart as buyers find properties sometimes aren't all they're supposed to be.

More than 30 states have disclosure laws requiring sellers to tell prospective buyers and agents about leaky roofs and other problems, according to the National Association of Realtors. But there's often a gray area involving the disclosure of problems the seller may not know about, such as a long-ago flood or hidden mold.

States are also increasingly passing laws requiring homeowners to disclose environmental issues, such as the presence of radon gas, a contaminant linked to lung cancer, and underground fuel tanks. In California, the checklist of required disclosures is so long that a cottage industry has sprung up of firms that help sellers prepare the forms.

Given the complexity of disclosure laws, it's not surprising that potential buyers don't hear about every problem in a house. Besides the issue of fibbing, sellers may genuinely not know about problems. And even if they do, the laws generally don't apply to bank-owned homes transferred in foreclosures, which now constitute a larger share of sales.

Buyers need to do their own due diligence and not rely exclusively on what sellers and agents say. They should hire an independent home inspector or home-inspection engineer, one not referred by the seller—and be aware that real-estate agents typically represent the seller.

Here are some of the common misrepresentations and white lies that buyers may hear as they shop for a house, according to real-estate experts and state regulators:

• "This house is on two acres." Disputes about property dimensions—how many square feet in a house or condo, or its exact boundaries—are common. Sometimes buyers don't learn the exact dimensions until the lender's appraisal.

Listing agents usually accept a seller's word on property dimensions, says Diane Saatchi, a senior vice president at Saunders & Associates, a real-estate firm in Bridgehampton, N.Y. "We tell everyone to verify," she says. Smaller dimensions also can cause an appraisal to come in lower than the agreed-upon purchase price. Low appraisals are a leading cause of ruined deals in today's market. A properly worded appraisal contingency in the purchase contract would allow you to scuttle the deal or find other financing if the appraisal comes in low, says New York real-estate attorney Michael Xylas.

• "We don't have pests." A basic home inspection generally doesn't include a peek inside walls or underground for termites and mold, which are among the top complaints. Inspections for mold and radon gas also generally aren't included; usually buyers must order these inspections separately. Other inside-the-wall problems include faulty wiring and old plumbing, which also may require specialists.

James Holtzman, a financial adviser at Legend Financial Advisors Inc. in Pittsburgh, says sellers of the 1901 house he bought in August 2006 said its electrical wiring was completely upgraded, yet an electrical inspection revealed only one of three floors had been totally upgraded. The seller then knocked $6,000 off the sales price before they went to contract so Mr. Holtzman, 35 years old, could pay for the necessary work.

• "This place never floods." Even arid states such as Arizona and New Mexico have occasional flash floods, and water and drainage problems aren't always obvious. June Walbert, 52, a certified financial planner at USAA, a financial-services company, says her San Antonio house received a clean bill of health from a home inspector before she bought it six years ago. But 10 days after she moved in, the sewer backed up, flooding the house, and she had to fork over $2,800 for repairs. "It was a rude surprise," says Ms. Walbert, who adds she asked her home inspector and the seller for compensation, but didn't get it.

Bill Richardson, outgoing president of the American Society of Home Inspectors, says a general home inspection wouldn't catch that unless the sewer line was visible from the basement or water backed up into sinks and tubs or toilets.

• "Taxes and maintenance costs are low." Home buyers often gripe about tax and utilities bills that are higher than sellers said they were. Homeowner association and condo dues and assessments are also common complaints. Sometimes sellers simply underestimate the bills, or forget to include recent or expected increases, agents and brokers say. Taxes can also be deceptively low because of unrecorded improvements like decks and finished basements. Ask to see recent bills, and check with the tax assessor's office for up-to-date information.

• "This is a quiet neighborhood." Sellers may play down distractions that could drive you crazy, such as barking dogs or idling buses. A charming park by day could be a teen hangout at night. Your best bet is to view a property at different times of the day. "I can't tell you how many times in my career buyers didn't go there in the night time, even though I told them to. You spend more time in the house at night than during the day," says Ms. Saatchi, the New York real-estate agent. Talk to neighbors and peruse the local newspapers and blogs to get a feel for a place, and check with police for crime.

• "There's going to be a golf course, a pool and a party room." Builders of many developments that broke ground during the housing boom ran out of money before the project was completed. Many homeowner and condo associations also are strapped because of delinquencies and defaults. Some states require upfront disclosures about this, but you should also ask neighbors, not just sellers, about any promised facilities. Also, check titles to be sure that specific parking spaces, storage units or other facilities are included in a property sale.

Hundreds of thousands of troubled homeowners who are making lower mortgage payments on a trial basis are at risk of being kicked out of President Obama's foreclosure-prevention program.

Companies that service the mortgages have until Jan. 31 to review all trial modifications that have been underway for several months under the Home Affordable Modification Program (HAMP), according to a Treasury Department guideline issued late last month. The Treasury Dept. said it would issue new guidelines next week, but wouldn't give details.

During the review period, servicers must determine whether borrowers have made all their payments and have handed in all the necessary paperwork. Those who haven't will get letters giving them 30 days to comply.

The goal is to clear up the backlog of borrowers stuck in trial modifications, in which a homeowner's monthly payments are lowered to no more than 31% of pre-tax income.

Some homeowners have spent seven or eight months waiting to hear if they qualify for a permanent adjustment to their mortgages.

This directive, however, has some bank regulators concerned.

"About 450,000 homeowners currently have HAMP trial modifications and have demonstrated a willingness and ability to make timely payments for at least three months," said Richard Neiman, superintendent of the New York State Banking Department.

"Now, unfortunately and very alarmingly, these same homeowners face the prospect of foreclosure strictly on account of documentation issues," he said.

Paperwork has proved a major stumbling block for the president's foreclosure-prevention program. Homeowners complain that their servicers continuously lose the documents they send in, while financial institutions argue that borrowers have not been sending in their paperwork.

Aware of the problem, Treasury officials said they plan to issue new guidance to servicers next week that will help expedite the conversion of borrowers in the trial period to permanent modification. It may also lighten the documentation requirements.

Converting to permanent modifications

Under fire for the low number of people receiving long-term help, the Treasury Department in late November ramped up pressure on servicers to convert borrowers to permanent modifications.

Some 66,500 people have received permanent adjustments, with another 787,200 homeowners in trial modifications.

Under the president's plan, delinquent borrowers are put into trial modifications for several months to make sure they can handle the new payments and to give them time to submit their financial paperwork.

Once the modification becomes permanent, servicers, investors and homeowners are eligible to receive thousands of dollars in incentive payments.

Overall, about three-quarters of people are making their payments on time, according to the Treasury Department.

Treasury officials already lightened the documentation requirements in the fall in hopes of speeding up the conversion process. But more needs to be done, Neiman said.

For instance, Treasury should accelerate its implementation of a standardized documentation form and the creation of a Web portal that will allow homeowners to track the receipt of the paperwork, he said. Also, it should allow servicers more flexibility in accepting alternative documents.

If this isn't done, a lot of homeowners could soon face foreclosure, he said.

"This is a real concern to borrowers, particularly borrowers who've continued to make payments for three, four, five, even seven months," Neiman said.

Apartment vacancies hit a 30-year high in the fourth quarter, and rents fell as landlords scrambled to retain existing tenants and attract new ones.

Seattle average rent: $937

The vacancy rate ended the year at 8%, the highest level since Reis Inc., a New York research firm that tracks vacancies and rents in the top 79 U.S. markets, began its tally in 1980.

Rents fell 3% last year, according to Reis, led by declines in San Jose, Calif., Seattle, San Francisco and other cities that had brisk growth until the recession.

In New York City, the vacancy rate improved by 0.1 percentage point for the second straight quarter, but around 60% of rental buildings dropped their rents in the fourth quarter from the previous quarter. Effective rents -- which include concessions such as one month of free rent -- fell 5.6% in New York last year, the worst since Reis began tracking the data in 1990.

Landlords now must entice tenants to renew leases. "We'll shampoo their carpets. We'll paint accent walls. We'll add Starbucks cards," said Richard Campo, chief executive of Camden Property Trust, a Houston-based real-estate investment trust that owns 63,000 units. He said the first half of 2010 should be "pretty ugly," but was optimistic the sector would pick up later in the year.

Few markets have been spared. During the fourth quarter, vacancies increased in 52 markets, while they improved in 17 and stayed flat in 10. Vacancies increased most sharply for the year in Tucson, Ariz.; Charlotte, N.C.; and Lexington, Ky.

Reuters

Miami average rent: $992

Vacancies are tied to unemployment, because many would-be renters move in with family members or double up during a downturn. Apartments have been squeezed because younger workers, who are more likely to rent, have experienced the brunt of job losses during the downturn.

Landlords were also hit last year by competition from a wave of new supply that hit the market. The 120,000 units that came onto the market last year, including some busted condo projects that had to be converted to rentals, represented the most new construction since 2003, according to Reis.

Many of those developments had secured financing before credit markets seized up. The credit crunch has frozen most new development, which means that new apartment completions should fall by half in 2011. That's one potential silver lining for apartment owners: The limited new supply should give them the ability to boost rents quickly whenever job growth returns.

 

New York average rent: $2,646

"If you are renting a place, now might be a good time to renegotiate that lease," said Victor Calanog, director of research for Reis, who added that the sector could see a recovery in the second half of the year, buoyed by either job growth or at least the perception that the economy was turning around.

Such oversupplied markets as Florida, Phoenix and Las Vegas are hurting, even though housing sales have picked up. "Landlords aren't benefiting because jobs aren't recovering," said Hessam Nadji, managing director at Marcus & Millichap, a real-estate firm.

Marcus & Millichap is to release a separate report on Friday that forecasts a further 2% to 3% drop in apartment rents over the next year, most of which will be concentrated over the next six months. The report forecasts Washington, D.C., will be the healthiest rental market in 2010 for the second straight year.

San Francisco average rent: $1,717

Government efforts to prop up the housing market also threaten the apartment sector by making it easier for some renters to buy homes. Some landlords have reported a slight uptick in renters moving out to buy homes. Around 13% of Camden Property's move-outs last summer left to buy homes, up from 11% at the beginning of the year. But that is still roughly half of the rate seen during the housing boom, when mortgage standards were much looser. "During the housing boom days, you had people who weren't qualified to rent but could buy a half-million-dollar home," said Alexander Goldfarb, an analyst at Sandler O'Neill & Partners LP.

Thanks to falling home prices and record low mortgage rates, it now costs less to own than it has in the past decade on a mortgage-payment-to-rent basis. But falling rents are expected to offset some of the recent improvement in affordability, making renting more attractive than owning in some markets.