Central Florida Short Sales: Your home is your castle, not an ATM machine!

Reserved Parking For #1 "The Lovely Wife"...TLW...ROAR!

Darlin' (Broker Bryant) Hubba! Bubba! Wink! Wink!

I just don't get this. What's the point in buying a house and pulling out the equity?

It makes me sad to hear these stories. I know this young couple have really screwed up on this house.

I hope Consumers who are reading this take it to heart. 

No. Your home is not an ATM Machine. It's your future.

Don't pull the equity out of your house if all you're going to do is use the cash to accessorize the house. :)

TLW "The Lovely Wife"...From Homeowners To Renters With A Swipe Of The ATM House Card...ROAR!  

Hey Broker Bryant,

Unfortunately this story is all too common where I live. My wife and I thankfully didn't fall into this trap, but we honestly can't think of a friend who hasn't taken the bait, more than once! Like I said my wife is an escrow officer and they have been getting so many short sales they had to do some more escrow training to make sure they were handling things right. 

We have some friends who bought their home in 1999 for $120,000. At it's peak it was "worth" $340,000. They have refinanced 3 times, and at very high rates because they have poor credit. This last time they wanted to refinance before prices dropped here in Bakersfield so they actually took an $11,000 prepayment penalty. Can you believe that!? They knowingly refinanced to a level that  the house wouldn't be worth in a year and also lost $11,000 in the deal not to mention other fees!!

Seems like people just can't help themselves. They want to live beyond their means. It is going to get ugly I think. Anyway, hope all is well.

 Ryan from Bakersfield, Ca.

 

 

 

Thought you might like to know what they spent all that money on. New boobs, new time share in Vegas (already turned over to builder), 2 new cars, new furniture, new television, hosting blowout parties (enjoyed those), and traveling.

Scary, all that money is already gone. Two young kids with no help for college in the future, no new businesses or investments. Crazy.

Ryan, those are some pretty expensive boobs! I hope they are real nice:) It really is sad. I hear this story at least once a week. As soon as they close on these houses the solicitations start pouring in and in my market, where most folks are buying with 100% mortgages and have no money to begin with, it is just too tempting. It's an easy trap to fall into it. I hate seeing it. Thanks for reading and commenting.

You know, escrow officers can join ActiveRain if your wife is interested.

Yep, this story is starting to sound like a broken record.  Sad part is some of the people get mad that they are "losing money".  "No, Mr. and Mrs. Seller, you aren't losing money, you already spent the profit!"

Hey Broker Bryant, good luck with this one. Somehow I have a feeling you'll be their savior. Best of luck!!

Jay 

It is sad to see this kind of thing happening, but I can't say it surprises me.  Much of the television that we watch in Canada comes from the US and I've always been amazed at the very aggressive re-finance market down there.  It seems like every commercial break includes a message to "cash in your equity."

There's very little of this in Canada.  Banks are certainly happy to help homeowners tap their equity but there's very little promotion going on about it.  However, zero down mortgages and 40 year ammortizations are starting to be introduced to our markets.  Up until this year, a 25 year mortgage was the most you could get.

These schemes must be very attractive, especially to young people who have no money but have been raised to believe that they shouldn't have to wait for "things." 

I have to wonder what kind of shape some of these people are in if they did the re-fi at the top of the market now that things have cooled off some.  There must be lots of owners who couldn't sell if they wanted to.

BB,

Some people think their home is a Slot machine....

It reminds me of the barrage of TV commercials and mailings from mortgage companies that compelled nice people to take advantage of the all time low interest rates and to live the life you should be having.  Unfortunately they don't stress the downside; it's not in their(banks) interest.

I think the local housing initiatives have a good idea by educating homebuyers; they require those looking for financial help to take a class about money management, before buying a house.

The "House as a bank" metaphor USED to mean you saved money while making payments on your house and therefore you had this equity cushion in case of bad times.

Now "House as a bank" means something completely different. Things have been far too goo for too long for people ever to think it could be bad. If we ever get hit by a real recession its effects will be magnafied by the excesses of the last few years.

In my local market here in Cali I see this stuff all the time. One house came on the market in a relatively nice area about 2 weeks ago saying it required a short sale. Look at the purchase history it was purchased in 1992 for 190k and the list price today was 695k (!!!), negative equity in 14 years?? A foreclosure right down the street came on the market, I looked at its purchase history, it was purchased in 2004 for 415k and was foreclosed on halloween this year for 782k so those people milked out 367k out of the house in 2 years and walked away. The lender put the house up for 669k so after realtor fees and any property tax liens, they probably will be out  150k or more.

With slower RE times upon us the lenders are going to rapidly remember exactly why underwriting standards were the way they were. And if underwriting standards even tighten to 90% of what they were, while it will mean a much more stable RE industry and US economy, it'll be quite a painful adjustment.

Linda, You're right about that. Not only do do they spend all their equity but they still think they can pull out enough to buy another home.

Jay, not much to save on this one. They get nothing whether I sell it or not. Maybe I can keep them from getting foreclosed on but their credit will be shot anyway.

Norm, the banks are very very aggressive here. Maybe it will change once they start dealing with all the short sales and foreclosures that will be happening over the next few years.

Scott, I like that one. "slot machine" they are definitely taking a gamble and in this case they got lemons.

Peter, the classes they are doing here can be done over the phone in about 15 minutes. Not quite sure they are much of a help.

Hey Mikey good to see you. Lenders are going to be owning a lot of houses real soon. Loans are already starting to be more difficult. Underwriters are being tougher. A little late in my opinion. I really appreciate you reading and commenting on my blog. 

We do not see this often in this market as jobs are hard to come by here. People tend to be more conservative, have family support, and such. It still happens and I wonder what people think or wonder where they were educated in finances. Before I was in real estate long, I decided to pay off my mortgage because I was worried about the business not being there forever. Possessions mean less for whatever reasons. I think the area is so much poorer, many people never have a chance to buy a home with out the family help. They still fear the backlash from families if they fail. I see this a lot so I know its not isolated.

Bryant,

I do this at least once a week.

Please, please, please let them know the danger of a short sale.

If the lender approves the short sale, and it goes through.  The lender can legally 1099 them on their taxes for the difference in what the family owes and what the lender made from the sale.

This is possible and this is happening.

Countrywide is in a 3-4 month hold on short sale approvals.  So how much money do you think Countrywide is  willing to lose?  The lose none when the 1099 the homeowner.

Please let them know this.  You don't legally (I always do in my foreclosures) but you will soon enough.

Great job on the blog.  :) 

so, do we need to govt to step in and protect the sheeple from themselves?

i see these stories too. and they are indeed unfortunate. then i hear the story where the widow does a cash-out refinance to consolidate debt.... and NOT lose the house.

here in texas, we cap the equity loans at 80% LTV..... while i think it is ridiculous for the state to tell me what i can and cannot do with MY OWN MONEY..... i know it has saved some stupid people from foreclosure.

what if:

say that i have a hot idea for a new business and i need $20K to get it up and running..... but i cannot tap the equity in my home to do so?

ridiculous, RIDICULOUS, RIDUCULOUS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

 

next, we will have to take an intelligence test to buy a house.

pffffftttt

it is MY HOME..... MY MONEY.... MY INVESTMENT.....

whether it is stock in IBM or a pile of sticks and bricks

 

I am happy to see that someone has taken the gun away from TLW - did not see a single reference to shooting in her comment.  Perhaps just out of ammo?

I have been an agent since 2004 and I have seen this several times.  Sometimes clients get so upset when I advise them that they may get only $500 tops back beause they have already enjoyed their equity.  Talk about adding stress to a transaction.

Man, I love that word Tom used:  sheeple.  Great!

I feel your pain, we've been dealing with these deals for several years now as people took out the loans that made my stomach hurt-the ones at 125% of value.  Mostly in flatlined neighborhoods anyway.  What can you do?  Everyone wants the easy road, the easy money, the newest toys.  Why save and pay cash when you can spend spend spend?

I think we will be seeing more and more of this type of situation.  I sincerely hope you can assist them, so sad.

I say this all the time but I will say it again, It used to be banks wouldn't let you hang yourself (financially speaking), now they will not only let you hang yourself they will lend you the money to buy the rope.

It will soon come to pass where these people will realize why taking advantage of their clients is not a LONG TERM good business strategy.

For those calling these people Sheeple, I think it is dangerous to think that way. While I am all about personal responsibility, I am also about corporate and fiduciary responsibility as well. When you start looking around for blame in these situation, EVERYONE has blood on their hands. So I wouldn't get too high on the horse because it is going to hurt when you get bucked off.

Bryan- I enjoy your blog, I read it often. Blogs like yours gives me hope of finding a good realtor in my area. So far I've only found the "chaff", but in a state with 500k realtors it'll be awhile sorting through the stalks to get to the wheat.

Here on Long Island, the classes are mandatory Physical attendence. I can't see much help also with a 15 minute telephone consultation.

I had a similar instance this summer.  Thought I was going in with a slam dunk- bought 2002 for 200K, worth 480K.  Pulled up to the property.  Lovely brand new cars.  Well manicured front lawn.  Lovely backyard that they sunk $90K into.  Lots of great furniture and collectibles.  When we got down to the nitty gritty they wanted to list for $540K (60K overpriced) plus I needed to give them a discount because of the fact that they had $470K in loans (eeks!) so they could make a "little profit".

Please!  I have neither the time or inclination to discount a listing so I could get my butt reamed left and right on why they have no showings.

Thanks for all the comments everyone.

Christopher, I have already had them connect with an attorney. I did mention to them the 1099 and the possibility of still being held responsible for the short. I've covered all my bases. I am working on several short sales right now and expect to have more after the New Year.

Mikey, I agree with you that it is not all their fault. These refinance companies are very very good at separating folks from their equity. They prey on desperate people. They actually have another company right now willing to finance them again. The one on the table would reduce their payment by $50 with them getting no money at closing! The loan would take another $8,000 in closing costs, built into the loan of course. I actually had a hard time explaining to them that they were being taken advantage of. It really is sad to see such nice young people under so much stress and desperation. All over furniture and big screen TVs. BTW thanks for the compliment 

Hi Bryant,

I recently listed a similar property.  Sellers had re-fied about $85k from the home a little over a year ago.  They went ahead and paid off about $40k in credit card bills (a result of binge spending on luxury items they could not otherwise afford) a few other assorted bills and purchased a brand new luxury car.  Wife found out husband was having an affair and divorce was in the air necessitating the sale of the home. 

The market said, we may just break even if we list and sell it right away.  We didn't, the house was a mess; 2 of the 3 children had the mumps and the wife was packing up to move.  It took almost a month to get the house on the market.  During that month the market started tanking.  When we finally received an offer the lender refused to accept it.   We were short over $20k, which was really not all that bad in the over $500k range.

The lender wants;

#1) a really good reason for the sale, sickness, divorce, etc...  for the lender to even be remotely interested;

#2) lenders generally get very pissed off when the borrowed equity that is driving the short sale was pretty much pissed away on frivolous spending.  They are not interested in funding peoples manic spending habits. 

Of course they were constantly reminded that the sellers only had one more month of payments in them before it went to foreclosure and that they would take a much larger hit if that happened.  Did not care.  Got some B.S. about the stockholders of the bank.

Oh and by the way, be prepared for this statement from the lender, "Agent, throw your commission into the pot to reduce the amount of the short sale".  My commission is not, was not and never will be, on the table.  The appropriate response is: "In regard to the comission arangement between Mr. & Mrs. John Doe and myself, their listing agent, this is a binding contract.  Any tortitious interference with this contract will be strongly frowned upon."

Bottom line, property had to be sold or credit destroyed.  Grandma kicked in $5k, an auto loan on the new luxury vehicle was provided by the lender and the balance went onto the freshly emptied credit cards, no short sale.  Lender said, Seller ante up.

While I was P.O'd at the lender during the process, I really do understand their position.

How about it?  Want to lend some money to a friend or family member, watch them piss it away on luxury items and then say OOPS sorry cant pay you back???  Oh and by the way, I get to keep the toys!!!  My Bad.  Not so cute is it?

Sorry just had to throw this post in, never hurts to see things from the other side of the fence.

In every case of this that I have come across it is always the homeowners fault. These people are adults and should know better. I keep hearing about predatory lending. I read an article the other day talking about some group claiming that poor neighborhoods are being targeted with a huge amount of sub-prime lending advertisement so it's not entirely their fault. Funny thing is, I throw away about 3 offers a day! If you aren't smart enough to handle owning a home then you will lose that home. Simple as that. Now, if these people were straight up lied to that is one thing, but if they didn't ask the right questions then it is their fault.

I really liked the post earlier that said "you already ENJOYED your equity". What a great way to put it. it's is hard to feel sorry for the people who lose their house when you see a new toy of the week sitting in their driveway.

Oh and by the way, the lender never should have given them the refi loan in the first place.  I hold them responsible.  I thought they had to qualify these people better.

Ryan while I agree it is their fault, for spending what they don't have, the banks really do not help matters by continuing to loan folks like this money. The mortgage company, they were just getting ready to refinance again with, just appraised their house for $255,000. $225,000 is pushing it. Go figure.      

Pueblo has one of the highest forclosure rates in Colorado. And Colorado is one of the highest in the country. This a story we hear way to often. The hardest part is having the 'conversation' about how an appraisal for refi is not the same as a regular appraisal or market value. Those refi's for 125% are tempting. Potiential sellers get glazed looks in their eyes and know that you are fibbing to them. When they really figure out the truth it's to late.

Bryant, I just had someone this week who wanted to refinance a house they have owned for three years.  They presently have a CHFA mortgage, which is a below market rate loan for first time homebuyers, their rate is 4.99% on a 30 year fixed. CHFA does not do refinances, so they would have to refinance into a FHA or conventional loan at around 6% to 6.25% if they stayed with a 30 year fixed. After talking to him for a few minutes he tells me that they don't really need to refinance but want to be able to do some extra things around the house. I took me about a half hour to get him to understand, that unless they have fallen on hard times or really need the extra things, that he needs to leave the mortgage alone.

The funny thing is it took me longer to get him to leave it alone then it would have to get him to refinance. People want instant gratification, so they leave themselves wide open for someone to take advantage of them. I would like to see all the predators out of business, but at the same time people have to take responsibility for their actions also.  I feel sorry for people who are truly cheated out of their money, but more often then not I think that a lot of people are very willing targets. 

The theme we are all running on here is personal responsibility.

Some people cannot be told anything.  They have to learn for themselves.

You tell a drug addict no.

You tell and alcoholic no.

You tell a child no.

But if an otherwise mentally fit individual just will not understand no, well at least you tried.

Remember the phrase "A fool and his money are soon parted."

Just make sure you're not the one to enable that parting - and you can sleep at night. :) 

Debt:  The ultimate drug.  Get high today (the furniture, the ATV, the boat)...pay (the piper) tomorrow.

Most of the people where I live, Northern California, have fallen into this trap. I try and try and try to advise them, DON'T DO IT!!!  I guess we all have to take our lumps.

Bryant, I would have to agree with what George said.  Sometimes you just have to tell the people "no" and talk them out of it.  There are companies and mortgage originators (they do not deserve the title of professionals) that simply take advantage of people that are in similar positions.  I used to work for a company that encouraged its loan officers to milk as much equity as possible to build up the loan amount.  I did not agree with that "to be the best" attitude.  I was the best by doing right by the customer.  I would love to say that I could help your clients stay in their home.  I probably could, but I would not be doing them a justice.  Sometimes you need to take a couple steps back to move forward in life.  This is one of those times for them.  I hate to see it happen to people, but they put themselves in that position.  Now they will be better people because of it.

PS. I love the pic.  I actually got to visit that castle about 10 years ago in Germany.  In English, the name of the castle translates into "Swan."  It is that castle that Disney used as a model to create Cinderella's castle.  You should take TLW there one day.

Who is doing these "high re-fi" appraisals?  An appraisal is an appraisal is an appraisal.....isn't it?

Stan,

In a word, no. 

those inflated appraisals will land an appraiser in jail if he is not careful.

at the very least, he will get blackballed by lenders.

the lenders are addressing the issue i am sure, but i would love to see the appraisal factor dealt with.

 

 

Wow Bryant - lots of comments from non-rainers, congratulations - this is a great example of what we want our blogs to do.  As for the short sale, it is happening way more often than we would like to see.  People are promised the world and have false expectations (and poor advice).  You should add this to the First Time Buyers group - it's a great example of what not to fall into.

Bryant - Good luck. Such a sad story, but I bet you will make this a success.

Christopher - You are so right. It is not a slam dunk by any means.

I think there is ore of this sort of thing going on than we all realize. And more to come.

Jeff

And where do people get ideas like this? In my opinion? The government. Call me crazy, but that's how they run their (our!) business. It makes me crazy; and I agree, sometimes people even seem to have the same drug crazed look in their eyes. I've come to recognize it as desperation but it took me a while to figure that out. I still don't know how we went from a generation of people who didn't even like to use credit, to one with an average debt of 30k. Mind bloggling. Great post.

Great first time buyer read. I'll definitely link to it in one of my pieces.

The banks and re-fi flyers may be the lure, but I truly hope people wake up and stop taking the bait!

I've taken five listings in the last three weeks and 4 are short sales. I hope these kids can pay the tax bill (1099) they will recieve the January after the sale closes. I could list more, but many folks cannot take the tax hit, so the let the home go to foreclosure. In California, in most cases, they do not have Tax liability if foreclosed. The other problem I see is one whole layer of Trade-up buyers are being wiped out. The process will leave a bad taste in their mouths or the embarrassment of it will keep them from re-entering the market. It's not just naive first time buyers. Lot's of folks have put themselves in this position. When the dust finally settles, look for a slough of Government regulation making it more diificult to get financing for those who need the most help. The ones with credit challenges. I welcome your comments.

 

David

David,

That is exactly what I've been saying for months.  In some of my recent posts I've listed the lenders that are closing up shop or shutting down their subprime departments.

Contraction is in the near future. 

And just like when expansion goes unchecked (in any industry), the playing field becomes level and some unethical behaviour sprouts up looking for easy money.  And then when expansion can go no further it snaps back like a rubber band - you have contraction.  If contraction lasts to long or is too severe (leaving too many people on the outside) the government steps in.

This is an excellent article on what COULD happen.  But it did happen once already.

http://www.milkeninstitute.org/publications/publications.taf?function=detail&ID=204&cat=Arts 

Sooooo many people are falling on these rocks. Financial Intelligence and Responsibility are not taught in the classroom, nor are they taught in the home, for the most part. It is so sad, because the minute most people are given the opportunity to SPEND, they DO ... with no foresight as to the ramifications down the road.

I guess that when WE (lenders and RE professionals) are given the opportunity to educate people, it is our DUTY to do so.

I wish you luck and a quick sale with your new clients. At least they have someone like you in their corner, now.

Bryant, another gold star and well deserved!

I have a young couple with 4 young kids that are in a similar situation. Their utilities were shut off and their income is too high to qualify for help. They have moved in with  other family members.  No fun for the holidays. I need to get their house sold and hopefully just get them to break even. This is so sad and they are wonderful people. Anybody want to invest in a small single family home in Baltimore? Under $160,000. I am showing it to an investor tomorrow.

Fingers crossed that I can get them out whole!

www.homerome.com

Baltimore,Md

BB, I'm not so sure you have to worry about your newest client reading this post -I'm sure their internet provider turned them off two months ago!  How sad.  Here's what's worse - as soon as they go totally under, even declare themselves BK, the day that clears court Capital One will send them three offers for new credit cards and car loans!

It makes me sick when I see the commercials telling people to pull equity out of their home to pay off their credits cards. Great idea, lets tap into the only saving people have so they can buy more junk. BTW, why is it that everyone thinks they need so much junk anyways? And do you really need to spend $50-100 a week on coffee? Sorry this is a subject I could rant about for hours as my background was accounting and financial planning.

Bryan,

Great blog, but some really strange short sighted comments.

Lets start with personal responsibility! It's easy for these people to blame the lender, but the home owners were adults who had acquired considerable property (It won't buy much here in Las Vegas or in CA, but $235,000 is considerable in most of the country) other than making fun of their use, noone seems offend by their lack of common sense.

Do we really want big brother limiting what we can do with our own property? Texas use to stickily limit seconds, it looks like now you can go to 80% LTV that's almost as stupid as the old law! Twenty some years ago when I studied Texas real estate law, people who needed money no matter how badly had two choices, sell the house or do with out! Do we really want some bureaucrat judging weather your need is sufficient?

Then you've got people talking about fraudulent lenders and appraisals, there is plenty of law to stop these people. Turn them in. You'll ruin the appraisers and the mortgage brokers lives, but if guilty they deprive it. But, your blog didn't suggest this.

You did say they called the mortgage company and that he came out to help. Well they also called you, you are going to help and sell them on listing, aren't you? Wouldn't the best advice be that they should keep making the payments, and stay put?

So much of this comes down to one's personal perspective. In one paragraph you suggest that they should have sold the property and bought "a better and bigger home" and then talk about "possibility being foreclosed," but wouldn't bigger and better mean a higher mortgage? Please forgive the observation but the difference seems to be two real estate commissions.

And then as always you turn brilliant stating:

"It is sad but it's largely self inflicted. They made a mistake and they know it. They're not bad people they were just weak in the face of easy money and instant gratification. Now they must pay the price. I hope I can get them through this with the least amount of stress possible. I hope they have learned a valuable lesson. I hope they move forward from this and are able to get it together. I hope all their new furniture looks good in their new apartment. I hope they don't read this post."

 

Followed by some of the best advice I've seen or this subject:

"Moral of the story: Your home is your castle, not an ATM machine."

(Kudos to Ken Smith. I totally agree with him.)

Bill

William J Archambault Jr

The Real Estate Investment Institute

http://www.reii.org

Tony. Guns are a hobby of mine. It's all in good fun. :) TLW...ROAR!

Wow. I wake up and my post grew legs! Excellent. Great comments everyone. Sorry I acn't address them all but I do want to answer a few.

Bill, My advice to these folks was to stay put and do whatever they can to make payments. Since they were adamant they won't be able to I then sent them to an Attorney. Listing the property was the last thing I wanted to do. I have enough listings already and really did not want to deal with another short sale. BUT these folks are sitting ducks and at this point according to the attorney their best bet is to try and sell. So I decided to take the listing. You had also mentioned selling and buying a bigger house. This comment in my post is relating what most young families are able to do after building up equity in their starter home and out growing the house. It is an example of what they could be doing as opposed to where they are at now. I don't work with buyers at all so two commissions would never come into play. You are however correct on the last part, the part where you said I was BRILLIANT:)   

Bill, one more thing. My business is based on people NOT money. I will be taking this listing at a very reduced commission because I know the bank will not approve my normal rate. I have done sales in the past and will do sales in the future where I make nothing. In this particular case it would make no difference since on a short sale the seller will have to zero out anyway. I am meeting with them this morning and before I place the home on the market will again be stressing to them how much better it would be to hang in there and make payments. I will be trying to convince them to sell some of their "stuff" to hold them over until their situation changes. If all else fails I will take the listing and move forward to try and salvage some of their credit. I DO NOT WANT THIS LISTING but will not leave them for the wolves.

Christopher your comment on CONTRACTION is awesome. It is exactly what the RE market is going to experience for years to come. This gravy train homeowners and investors have been on is coming to a screeching halt. It is going to have long term effects and is not going to be pretty. But the market needs a correction.

My market Poinciana Fl was raped by investors in 2005 and early 2006. The bulk of the homes sold were new construction for flipping purposes. There are now hundreds of these sitting on the market vacant that they can't or won't sell. Values have plummeted. Houses that could have sold for $200,000 in a week are not selling in the $170,000s. That's a 15% decrease in value and it's getting worse. The other side of that is that most owner occupant purchases are made with 100% loans with the closing costs being built into the deal. Now that these homes are depreciating the owners are stuck. No money and houses that are worth less than what's owed. If they have to sell for any reason they are screwed.

Stan, the problem with appraisals is that an appraisal and market value are 2 different animals. An appraisal is based on historical sales(comps) while market value also considers market conditions (actives) and other factors. If values are going down an appraisal can be way off.

   Ohhhh Broker Byrant...You are my Hero! (Thank you)

                                  Key words: Instant gratification.  Remember Wimpy?  "I will gladly pay you tomorrow for a Hamburger today?"  These young people will have no clue who Popeye is...or his side kick Wimpy, but Wimpy was the poster child for instant gratification 0ver 50 years ago. You are so right.

There is no EZ button in real life. Unfortunately. Too many young people live well beyond their means and have no ability for long term planning. Our grandparents lived through the depression, and as a result taught THEIR children how to save- they are our Baby boomers. The "Baby Boomers" conversely, having grown up with frugal parents created the "Me-Generation" remember them? The whiney, self indulgant bunch. They in turn, spawned the "I WANT IT NOW" generation, but was not imparted to them was the knowledge of "How to get it all".  Which brings us back to Wimpy-the cartoon character who wanted the Hamburger today and would "gladly pay you on Thursday."  and why our Grandparents saved money. 

 

Bryan,

Of course I was right you are BRILLIANT. Your responce to the client doesn't suprise me one bit.

You could represent me anytime.

Bill

You know, every once in a while I get upset with Texas and the restrictions it places on homeowners (we aren't able to borrow 100% equity, always have to have 20% equity in the house in a refi).  Then I hear stories like that....  Maybe I'm glad that big brother is watching us!  It sure saves some heartache in the end!

At times it is tragic. Youa re so right and I have these conversations with many of my clients. Are you sure you want to take allof the equity out of your home? Many do.

I have a couple who closed on a 0% down deal with a 5% seller conession. In late "04 when the real estate values would "never stop going up 5% per month" (this was a CPA and college professor).Remember the tech stock market? They are now splitting and have to get out at an inflated price just so they won't have top come out of pocket with cash. You think their relationship was stressed while together, how about apart and having to incvest into a transaction where they are selling the home. OUCH!!!

Many people are in the wrong product at dangerous LTV's and with the sub-prime market imploding there may not be a way out other than a short sale or to just "grin and rent it."

You hit all of the nails on the head, I'm sorry you had to. Great job Bryan.

Bryant,

You hit the nail right on. It is really sad to see consumers SPEND more than they make. It's a lifestyle of constantly wanting More NOW! It's not about learning to save until we have the money to purchase.

I'm sad for your Sellers. Gosh, it's truly heart-breaking.

did you know that there is a 125% LTV product out there?

i have been asked about it by clients.

crazy, crazy

 

while i stick to my guns.... people SHOULD be able to access this money. i mean, it is the cheapest money a person can get to consolidate bills or start a business.

if this equity was not in the home..... and was in the person's money market account..... would we be having this discussion?

and Chris is right.... the texas rules have saved a LOT or people(and their lenders) from default here.

 

I'm with you on seeing this happen much more often.  It really is a shame.  I think the only thing we can do is try and continue to educate our clients and how things effect the value of there home.  Hard as it may be, we have to try and get them to see "the big picture".  We need them to feel as if they can call us with ANY questions regarding their property.  If this happens, maybe we can cut back on these types of situations.

This would give everyone a good reason to call all your past buyers, especially your younger first-time buyers.  Reemphasize the fact that you didn't stop being their agent the day their house closed.  Let them know that you are there as a resource for anything regarding their investment.  Talk about a great way to show that you care about them and their family.

Nice post and should be included on every one's web site.  I believe I'll add a link to this article from some of my mortgage pages.  I'll send the links. 

But, don't believe for one minute that this is a new phenomenon

I've seen this same financial fiasco with families for 30 years.  They either do the second mortgage or they do the third mortgage.  Or, they buy furniture, furnace, finance new roof, A/C with commercial paper which is ALSO a lien on the property. 

The public, by and large, have little understanding of equity, market value, cost of sale, etc.

And, of course, they do not plan for financial problems.

Bryant, Oh yes, this is the story of the 2000's. I see this quite a bit and it's very sad. I have used the analogy of an ATM machine so many times. I realize that we live in a free country and that lenders have the right to solicit homeowners by email, phone and mail but it is such a crime in my way of thinking that they realize this generation is a "I want it now" and they take advantage of them. Many do not realize that this is not free money, it comes with a hefty price tag and your sellers now know what that price tag is. Too bad.

By the way, any update on the Lovely Seniors...where are they now, in the process?

Bryant, Thanks for the post. Sad but true. We are seeing a lot more home buyer counseling on the front end of transactions where there is 100% financing or marginal credit. There actually needs to be some post closing counseling as well. Too many people do not know what they are doing!

You know, when I have a client that is in foreclosure and I am trying to refi them, my analogy is that their home is a bank.

And the bank is going to "loan" you some of "your own" money - but this a "loan" and bank it's going to want it back.

Soon.

And I've never had a problem with that one, they all get it.                                                            Actually, what I do is I have them start a separate checking account with their new "loan" and set up direct debit to their new lender.  I have about 12 other steps in the process but it fixes their credit and buys them time to get their lives in order.

Of course, you have to have the equity there first.  :)

And in defense of our foreclosure customers, I've never, never, never had one that was a difficult, demanding and downright uncooperative as a wealthy homeowner that's buying their second home.

That's not saying that this couldn't change on Monday.  But to date, when I tell my foreclosure customers they need to be at closing at three o'clock, or we need to set up a new account at a different bank so this doesn't happen again - they do it.

Enjoy, 

Bryant, here I am, a little late, buthere nonetheless. This story is so common that its sad. I get a lot of refinances here in South FL when I'm appraising. I understand the credit card trap and people maxing them out to buy cool stuff, like Tv's and boobs and stuff.. but come on folks! The trap that causes people live beyond their means is something that isn't taught to us... better said the consequences of doing it are not taught to us.  For some it's financial common sense, but then again we all know common sense isn't that common. Why pay off unsecured debt (credit cards) by leveraging off secured debt (line of credit on house)??
But since the damage has been done at least they have you on their side. Lucky for them, in that sense.

BTW, go ahead and refi.. I need work! :) But remember my motto, "It is what it is".

Bad things happen to go people. We can't judge unless we were in their situation. I wish the best of luck to your clients.

This story is repeating itself over and over again in many communities. It's sad but perhaps they will finally learn that money doesn't grow on trees, or in houses either.

Great post.  I see this way too often.  There are so many enablers looking to get rich quick off the financially unwise or inexperienced, and it is all too easy to end up losing everything.  So much for immediate gratification. 

100% financing + 'Buy now, no payments until 2010' + 0% intro rates on credit cards = Financial turmoil, short sales, and downward pressure on markets in 2007. It's time for us to increase our focus on counseling in real estate as opposed to selling. And what is one of our most powerful tools to do that? The blog.

Great discussion folks. A lot of comments about counseling before and after the sale. That is solid sound advice. If you are working with buyers let them know they can call you after the sale if these things come up BEFORE they refinance or do something stupid. Brett had mentioned this in his comment. It is a perfect way to create customers/clients for life. As Realtors we can make a difference.

John Novak mentioned the same thing, let's be counselors not just sales people out for the quick buck. If we do this properly we can be the ones that are helping these young families as they move up in life. It really is an awesome idea.

Most of my sellers move out of State but they still call me whenever they are making big financial statements. I get calls from Sellers whose homes I sold 6-7 years ago wanting advise on a new purchase or before they buy an investment property. Even though there is no monetary reward in it for me I always take the time to help them. It's the right thing to do and you never know when you will get a referral down the road from it.

COUNSELORS INSTEAD OF SALESPEOPLE, BEFORE AND AFTER THE SALE. I like it a lot.  

BTW I just got back from placing their home on the market. They have already spoken with the second lien holder and they seem to be very receptive to working with them. So we'll see.

 

I can't say any more than what's already been said. Great Blog, Great comments! Great lessons for the wise!

BB said: "Stan, the problem with appraisals is that an appraisal and market value are 2 different animals. An appraisal is based on historical sales(comps) while market value also considers market conditions (actives) and other factors. If values are going down an appraisal can be way off."

Wink and a nod...... :o)

That's my point....  An appraisal should be what the house is worth NOW; taking into account special market circumstances.  Appraisal abuse is at the heart of mortgage fraud and until this aspect of the business is cleaned up, there's going to be "financial hell" to pay.  At some point, the "bill" comes due and somebody is going to have to pick up the tab for the drunken stupor of credit.  As long as it's the MBS market and Hedgefunds, I've got no problem.  You take the risk, you pay the price or gain the reward.  However, I believe the whining and crying will be so loud, our elected officials will try to find a way to bail out people who have no business buying a house.  There's so many people who can't pay attention, much less pay a mortgage.

As far as "counseling" goes.......

I would talk with a real good attorney before I started doing that.  Regardless of how much an agent wants to help or has the best intentions, people will sue, and sue often.  Remember, no good deed goes unpunished.  Anything past an arm's length status, make sure you have lots and lots of E and O insurance.

Stan, Appraisers are supposed to take into consideration any unusual market conditions whether positive or negative. When a bank is doing a refinancing, they WANT to do the loan. Recent sales could be in a large range of prices. For example they may find recent sales from $185,000 to $205,000 on the same house. An appraiser could use the $205,000 price when in reality the market value may be closer to the low price due to market trends. Hey at 12% they want to write the loan. The lenders make their money selling the loan off in the secondary market.  As long as the homeowner can make payments for 6 months or so the actual lender has made their money. They have already sold the loan and have their profit.

A part of counseling would be advising they speak with an Attorney. Sometimes this is all it takes for the consumer to see the light. The point is to get them to think real hard about what they are doing and to point out the negatives if there are any.

Hi folks.. maybe someone has been waiting for some appraiser to chime in? no? oh well, I will anyway while asking BB permission to skew this blog topic a little.

Without agreeing or disagreeing with anything said.. I just wanted to comment on this statement "Appraisal abuse is at the heart of mortgage fraud and until this aspect of the business is cleaned up, there's going to be "financial hell" to pay."

I like how it's stated. "Appraisal abuse",..(not "appraiser abuse") which in my eyes can be the cause of the apprasier or pressure from the mortgage broker. most likely, a little of both. there is also a client/consumer influencing here.

It takes two to tango. Not just an appraiser to push the value, but a mortgage broker to push the appraiser. I think that appr's are the first line of defense in preventing fraud.. but sorry to say, without offense to those who are ethical and do their job the right way.. There are a lot of crooked mortgage brokers out there pusing for higher values so they can close their loans. With that being said, there are also plenty of crooked appraisers out there pushing the numbers.

so maybe it takes three to tango.. because I have seen requests for an appraisal with an 'estimated' value at $600K let's say. Can't make it, not worth it, save your money. Then a request from another mortgage company for the same property comes in two days later.. now for $600K again. Guess what, the consumer is shopping and eventually will find their two other dirty counterparts.  Kudos to the first mortgage broker that told the consumer it couldn't be done, rather than try to find a dirty appraiser.

Hubba! Bubba! Here you go. I did manage to make it fun. :) TLW...ROAR! wink. wink.

I love those old actors on TV with dough in the bank that get paid to encourage the rest of us to siphon on the equity in our homes

man, that kind of appreciation is unheard of here in Indiana.

 

Let's see, buy a brand new home in Indianapolis for $150k.  5 years later it will probably be worth about what you paid for it, or it might be worth a little less even.

 

It's to bad I bought all my investment property over the past 10 years here in Indiana.  If I had purchased elsewhere, I would probably be worth $50 million, seriously!   Instead, they are all worth not a heck of a lot more then I paid for them:(.  The only appreciatin I have had has been by better management and the rehabs I did...

 

Try telling that to some of the guys that live in these 7 digit homes here in Fairfield County.  Some of them refinance their Jump Home Mortgages 2-3 times a year!  Just stating the facts.

All of the combined profound opinion, vision and dedication is so good to see!

There is hope!

What's that saying We live by borrowing from Peter to pay Paul. Unfortunately this is our society today

Phyllis pafumi

Wow, that is a huge lesson for this couple...Hopefully they will pull themselves up and learn from this.

By the way...I actually took that same photo of that exact castle when I visited Germany back in October...Check out my Blog....  I was standing on a bridge when I took the picture.

I would suggest for them to sell a car or other valuable items.  Unfortunately the truth is that most people in this situation are usually upside down on their cars also.

i have been saying for yrs that college students need a required course on credit & finance.

 

Tom I think these things need to be taught earlier than that. Kids need to learn this stuff from middle school on. Hey here's an idea, how about they learn from their parents?:)

Bryant, this is a disturbing trend, especially here in CA where the appreciation is simply grotesque. What is equally disturbing is the number of ARM, no money down, interest only and negative amortization loans that exist as a result of the craziness. If a crash occurs, these folks are toast. For many today, home ownership aint what it used to be.

Wow!! Well good luck on that quick sale and God bless that young family.  The younger generations are growing up with little responsiblitiy and no knowlege of the proper way to manage thier financial freedom.  It begins as a child who is given everything thier hearts desired then on the way to adult hood those children are never taught the value of money. 

Even worse on the other side are the slick brokers and mortgage people who are  out to pad thier pockets.

Unfortunately, this is happening to some degree to all generations.

A great post and a lot of comments. Most saying the same thing. Can we stop people from doing what they are with property.  Probably not.  We are in a cycle that will see a lot of problems because as a whole our country is greatly deficient in Financial Education.  Common sense is not a big part of most of the financial plans developed by salespeople.  

Most consumers are please to continue taking and listening to salespeople, (mortgage and real estate) that property will continue to go up.  Then the little guy gets hurt at the end of the cycle and two months after making his great deal it crashes around him.  

Like any investment a personal home, an investment home or commercial property is an investment.  For most it is the largest investment they will every make.  Emotions, staging, neighborhoods and stories of wild appreciation past helps to sell buyers and refinancing but it doesn't give an unwary homeowner the background to take on more than they can handle.

It is up to us.  A tough shovel to dig with but work for your clients not for commissions.

So very true and I have seen this time & time again.  I don't know how many times throughout the past 6 months that individuals have come to me wanting to refinance and low & behold they weren't in an equity position to do anything.  Again, one of our main responsibilities is to educate & inform people to make sure they are making the best decision for their particular needs.  While the dangling carrot of a potential deal may seem to good to pass up, it our moral obligation to work for their best interests....

 

I linked this to my other blog, incredible piece.

http://lauriemanny.blogspot.com/

The problem with financial education is who's doing the teaching?  Because even the self-proclaimed financial guru, Suzie Ormond, advocates homeownership over other investment vehicles. Now, given the carry costs of a home, esp in today's market, is that really such a wise idea.?

I'm lucky in the sense that my parents were foreclosed upon, when I was coming of age, so I don't have many lofty ideas about being a homeowner. I know that it's easy to fall behind in payments with a job loss or re-location and it's very hard to plan for it given the illiquidity of a home esp in a soft RE market.

The husband should go out and get two jobs and one on the weekend.  That way he will save his home and at the same time his self respect.

I say, rent until the average mortgage payment, with a more semi-traditional 15% downpayment, is within 25+% of equivalent rent. That's when the RE bubble is officially over and we're back to a situation where it makes sense to buy.

 

 

It's been 3 and a half months - how'd they do?

Art, I had their house on the market for 3 weeks. They called to say they found someone willing to refinance it again for them so we took it off the market. OK ready for this?

The refinance(they were told) was going to drop their monthly payment $40(FORTY). There was NO cash out. BUT the owners said by refinancing they would be able to skip ONE payment and then they would get a tax return in April to make another payment. So the refinancing was only to buy them another 90 days at which time they would be in a worse position by owing too much and eliminating the possibility of a short sale.  I explained all this to them and they said they understood but couldn't think about all that now. The just wanted to be able to skip a payment. They are in major denial. In the middle of this they are out looking at model homes. The wife thinks she can afford to buy another house while in the middle of an inevitable foreclosure.

Thanks Brian - I just forwarded this to Darren Kittleson's (Madison, Wisconsin) blog entitled Foreclosure's and the real estate agent.

Kinda sad there aren't any jobs in Florida for that couple. Sad indeed. 

While I am reading the comments, I don't see any on people who have just plain been put into positions that take them down quickly, without stupidity being tossed in.  I had clients who were pre-qualified for a new home at 350K.  Massive heart attack takes out this 40 year old, he survives, but is layed off upon trying to return to work.  Mrs. cannot make medical bills and house payment on one salary.  Mr. goes into deep depression and does not return to work on any level.  I cannot sell the house for what they need out, as the market tanks.  The worst part is watching the unethical brokerage show up at their door, with my sign in the yard, demanding that the seller allow them to walk through the house, take pictures and evaluate the condition, all before the sheriffs sale!!!!!  The agent indicated that her office had been chosen by the bank to sell their home, and I was not in the picture anymore!  Thankfully the agent was told to call the agent who had it listed (me).  Funny that not one person would return my call from their office.  Sheriffs sale done, this stellar office showed up again during the day when depressed dad is home with the kids, and tells them they will give them $1000.00 to turn over the keys now, before the deadline is hit, just be out in 5 days.  Minnesota Nice.  I told them to consult their attorney immediately, and am trying to find them a rent to own.

That's a terrible story Victoria. I truly hope you are able to help these folks in some way.

Your home is not your ATM....Your Home is NOt YOur ATM...I was at a seminar last week and all I heard was let us work with you to put your homes equtiy to work for you...They asked me if I thought it was a good idea, and I said absolutley not. There is no way we should ever put our home at risk. Buy a second, thrid or fourth home and risk them, but I will never do this to my  family, things can go bad. Fast..A home is not where I want to feel pressure.  I like the fact that our home is nearly paid for, and tear up the offers that come in the mail. Your home is not and ATM/......Great Post..wish I had seen it the first time!!

Hi Bryant,

I've read most of the responses here but don't have time at the moment to finish the rest so I wanted to ask you if it it your job to talk to the mortgage company (Wells Fargo) about the short sale for them or it's the job of the homeowner?  I have a client who is already received the foreclosure papers, how far along this process is confusing to me, however, his bank said that he should consider a short sale. We put his home on the market but I was wanting to know if we should have him tell Wells Fargo he has done this and then go from there?  Please advise.  Thanks so much!

Dawn, The first thing the seller should do is speak to an Attorney. Short sales can have negative ramifications for the seller is not handled properly. Click on my side bar over there under tags and scroll down down to short sales. It should help.

I think that everything you've said in this article is soooooooooooo true.

You have any more articles out there?, I would love to read some more.

Thank you and good Luck.

http://1atm.org

OK so I deleted your last comment because it was nothing ore than an advertisment for your business and had nothing to do with this post. Please read the AR guidelines. This is my blog not an ad space for you. Thanks

My goodness, you wrote this 2 years ago.  Bet you had no idea when you wrote this how common this issue would become.

Marjorie...

Actually, we did. We were watching the bubble slowly deflate :)

TLW...ROAR!