Your home is your castle, not an ATM machine!

By
Real Estate Broker/Owner with Bryant Tutas-Tutas Towne Realty, Inc BK607690

Tomorrow, I'm placing a home on the market, that is going to require a short sale. Seems like I'm getting an awful lot of these lately. This is one where I just don't understand what some folks are thinking. Nice young family, who were first time homebuyers just about 2 years ago. They bought a great little house, new construction, and they only paid $135,000 for it in November of 2004. This was right before our big increase in prices that happened in Poinciana in early 2005. So when I made my appointment with them, earlier this week, I assumed they would be in a pretty good equity position. Even if they had purchased with 100% financing, which they did, they would still be able to receive a sizeable amount of money at closing. Based on my preliminary analysis, the property is worth between $225,000 and $235,000. That's some real good appreciation for 25 months of ownership. After expenses they should be looking at around $70,000 to $75,000 in their pockets. That's a lot of money for a young family.

Well, when I met with them, I was shocked to find out they currently owe $225,000 on this house! How the heck did that happen? From what they told me, when they moved into the house they wanted to fix it up and furnish it real nice, so about six months after moving in, they refinanced and pulled out the equity that had built up when prices started skyrocketing. They used this money to purchase the things they wanted. New furniture, TVs and all the other items that a young family think they need. What they didn't count on was hitting a financial bump in the road about 9 months later. But they weren't too concerned since they kept getting all these mailers from mortgage companies in the mail promising them more money.

The temptation, being too much, they decided to call one of the mortgage companies and have a salesman came out to see how he could "help" them. They said he was a real nice guy and he told them they could put a second mortgage on their house for $65,000. He was also nice enough to let them know, that the way houses are appreciating, that after a few months, they could refinance again and get rid of the second mortgage. He said "Don't worry about the high rate, once you refinance the payments will come back down to what you can afford. You can use the $65,000 to make payments in the meantime."

What a great guy! They can now get that new car they want and buy more nice things for their three young children. They told themselves, "It's not a big deal. We know we will get jobs real soon and then we can just refinance like the nice man said. This homeownership is really awesome! It's like having our very own ATM machine."

Fast forward to this week. I met with them and they are in dire straights. Husband just started work a couple of months ago and the wife has still not been able to find work, since she is too busy, taking care of three small children. They have enough money to make two more mortgage payments and then they are done.

So, tomorrow, I am placing the house on the market at $225,000 and I will be trying to negotiate a short sale.

These folks are in their late twenties. Instead of selling the house and using their, what would have been, $70,000 equity to purchase a better and bigger home for their children, they are now looking at possibly being foreclosed on and in the best case scenario, ruining their credit for years to come. 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.

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

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Rainmaker
877,081
Jeff Turner
RealSatisfied - Santa Clarita, CA
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.
Dec 17, 2006 10:29 AM #82
Rainer
5,404
Shane Dollman
Bay Area Home Inspections LLC - Tampa, FL

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.

Dec 17, 2006 02:33 PM #83
Rainer
7,770
David Jones
Equity Bank - Destin, FL

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.

Dec 18, 2006 08:32 AM #84
Ambassador
508,819
Jason Sardi
Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC
Your Agent for Life
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....
Dec 18, 2006 09:09 AM #85
Rainer
188,436
Laurie Manny
Long Beach CA Real Estate - Long Beach, CA

 

I linked this to my other blog, incredible piece.

http://lauriemanny.blogspot.com/

Dec 20, 2006 05:08 AM #86
Anonymous
Randy

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.

Jan 20, 2007 05:35 PM #87
Anonymous
Carl Casey
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.
Jan 21, 2007 10:38 AM #88
Anonymous
Jackie

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.

 

 

Jan 21, 2007 01:29 PM #89
Rainer
53,549
Art Blanchet
On the Outside Lookin' In - Sebastian, FL
Stranger in a Warm Land
It's been 3 and a half months - how'd they do?
Mar 31, 2007 11:34 PM #90
Rainmaker
1,092,032
Bryant Tutas
Bryant Tutas-Tutas Towne Realty, Inc - Poinciana, FL
Broker/REALTOR, Tutas Towne Realty, Inc

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.

Apr 01, 2007 07:39 AM #91
Rainer
53,549
Art Blanchet
On the Outside Lookin' In - Sebastian, FL
Stranger in a Warm Land

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. 

Apr 02, 2007 11:09 AM #92
Rainer
41,914
Victoria Frieberg
Rush Point Realty LLC, Victoria Frieberg, broker - Rush City, MN
Realtor, Broker,CDPE, SFR,TRC
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.
May 19, 2007 09:12 AM #93
Rainmaker
1,092,032
Bryant Tutas
Bryant Tutas-Tutas Towne Realty, Inc - Poinciana, FL
Broker/REALTOR, Tutas Towne Realty, Inc
That's a terrible story Victoria. I truly hope you are able to help these folks in some way.
May 19, 2007 09:24 AM #94
Rainer
105,010
Mike Norvell Sr
Morris Williams Realty - Leesburg, FL
Norvell Consulting Group
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!!
Dec 06, 2007 02:37 PM #95
Rainer
13,763
Dawn Strait
DYNAMIC REALTY, INC. - Greenville, SC
REALTOR

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!

Feb 23, 2008 08:32 AM #96
Rainmaker
1,092,032
Bryant Tutas
Bryant Tutas-Tutas Towne Realty, Inc - Poinciana, FL
Broker/REALTOR, Tutas Towne Realty, Inc
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.
Feb 23, 2008 11:39 AM #97
Rainer
27,414
yanni raz
hml investments - Sherman Oaks, CA

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

Sep 09, 2008 12:37 PM #98
Rainmaker
1,092,032
Bryant Tutas
Bryant Tutas-Tutas Towne Realty, Inc - Poinciana, FL
Broker/REALTOR, Tutas Towne Realty, Inc

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

Sep 09, 2008 03:19 PM #100
Rainmaker
230,425
Marjorie Taylor
Landon Homes - Saint Augustine, FL
New Homes in St. Augustine Florida

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

Dec 08, 2008 01:14 PM #101
Ambassador
551,432
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

Marjorie...

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

TLW...ROAR!

Dec 08, 2008 03:11 PM #102
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Rainmaker
1,092,032

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