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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Comments 100 New Comment

Rainmaker
1,080,190
Bryant Tutas
Broker/REALTOR, Tutas Towne Realty, Inc
Bryant Tutas-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.
February 23, 2008 11:39 AM
Rainer
27,414
yanni raz
hml investments

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

September 09, 2008 12:37 PM
Rainmaker
1,080,190
Bryant Tutas
Broker/REALTOR, Tutas Towne Realty, Inc
Bryant Tutas-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

September 09, 2008 03:19 PM
Rainmaker
220,083
Marjorie Taylor
New Homes in St. Augustine Florida
Landon Homes

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

December 08, 2008 01:14 PM
Ambassador
550,981
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc.

Marjorie...

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

TLW...ROAR!

December 08, 2008 03:11 PM
Rainmaker
1,080,190

Bryant Tutas

Broker/REALTOR, Tutas Towne Realty, Inc
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