Interesting Article - House Is Gone but Debt Lives On

[Bestwifeever]

I'm not saying it's the banks fault. It just annoys me when everyone assumes that it's the kid's fault for trying to make a bundle off the market, which was not the case. These kids did the responsible thing. They went to college, worked hard and bought a small home. Then the market tanked. They didn't default, they didn't walk away, they and their parents, who are retirement age, did the right thing and paid off the debt. ChrisC's response just made me .

They were just trying to live the american dream of owning a home. For what it's worth, my kids, both PhD's, have no plans of home ownership in the near future. Both think it's a suckers game.

I most definitely have a lot of sympathy for people in that subset of underwaterness, sinjin.

 

[arebelspy]

They got the property and could sell it to cover most of what was owed. Plus the bank thought they could get more for it than they actually got. Perhaps in this case, the bank was misled. Still, 80-90% recovery of the loan is doing pretty good in this environment.

If that's the case (the bank is recovering the majority of the loan, such at they'd be willing to "buy" it from the borrower for a dollar), then likely the amount they were short when selling it may not be worth going after the borrower later for anyways. I'd suspect the vast majority of people having to short sell or foreclose (that the banks would go after later, as in this article) are not in a position where the bank would accept paying $1 to own the property.

Then again, I may be wrong, as I've heard stories of the banks paying a homeowner to move out.

 

[REWahoo]

What incentive is there for the bank to agree to that?

Not having to go through the expense, prolonged delay, and likely property deterioration resulting from a foreclosure?

 

[arebelspy]

Not having to go through the expense, prolonged delay, and likely property deterioration resulting from a foreclosure?

Well yeah, sure, there's that.

In the case of "strategic defaults" though, where the borrower can pay, but chooses to walk away, and where going after them for the balance would be most successful, I'd imagine a bank wouldn't want to accept a sale of the place to them for $1. Then again, maybe they would.

The problem is, that wouldn't hurt the borrower's credit rating at all (aside from the potential late payments during negotiating this, as a tactic by the buyer), unless they specifically couched it as a short sale to themselves, but as a seller, why accept that? And foreclosure hurting one's credit rating one of the major pieces of leverage the bank has - if they started accepting the house as a sale for $1, and people knew it and knew going that route wouldn't hurt their credit rating nearly as much, if at all, many more people would strategically default, I'd bet.

 

[Texas Proud]

Not having to go through the expense, prolonged delay, and likely property deterioration resulting from a foreclosure?

Or having the owner tear everything out of the house, kitchen cabinets, counter top, doors etc. etc.... including the flooring... like the guy did across the street from my sister....

 

[REWahoo]

Or having the owner tear everything out of the house, kitchen cabinets, counter top, doors etc. etc.... including the flooring... like the guy did across the street from my sister....

Yep, that was the "property deterioration" I was referring to.

 

[RetirementColdHardTruth]

I have one case in point of people being responsible and being screwed by the market. Friend's kid and hubby, both college grads who both worked full time while in college and after. They graduated before the peak of the housing bubble. Saved for a couple of years to get a down payment, and then bought a modest house <125k with 20% down.

A couple of years pass and the market goes to ****. They are transferred for work and must sell. One year, while paying for two residences, and 100 showings later they sell their first house after borrowing an additional 25k from their parental units to bring to the closing. They lost 50k in less than 5 years.

These kids are screwed. They did nothing wrong. They went to college, studied and worked hard, worked hard after graduation and are still burdened by debt created by the stupid housing market. What do you have to say to them besides, sucks to be you.

They shouldn't have moved. Makes no financial sence to me. $50k takes $100k in income to save? How long will it take them to earn that? The move was bd judgement on their part.

 

[Free To Canoe]

I have one case in point of people being responsible and being screwed by the market. Friend's kid and hubby, both college grads who both worked full time while in college and after. They graduated before the peak of the housing bubble. Saved for a couple of years to get a down payment, and then bought a modest house <125k with 20% down.

A couple of years pass and the market goes to ****. They are transferred for work and must sell. One year, while paying for two residences, and 100 showings later they sell their first house after borrowing an additional 25k from their parental units to bring to the closing. They lost 50k in less than 5 years.

These kids are screwed. They did nothing wrong. They went to college, studied and worked hard, worked hard after graduation and are still burdened by debt created by the stupid housing market. What do you have to say to them besides, sucks to be you.

It is hard for young people. You have to be able to judge the real estate markets, the job and it's duration and where the next job will come from locally. Then decide if you want to rent or buy. One needs to be circumspect about all of these things in a good economic climate. In this climate?
I guess I wouldn't say "it sucks to be you". My brother and sister in-laws went under water on their home in Houston. Had to chip in on their mortgage for what the rental (later - out of state rental) didn't cover. Others in the same situation "walked" on their homes. They worked for 10 years to get out from under it. They were young and unlucky.
A few years later the saved enough for a downpayment on a house. Sold the house at the top of the CA real estate bubble and came back east to retire. The went to cash just before the stock market really tanked.
The were older and circumspect.
No parental unit bailouts here. I would like to think that their bad luck earlier taught them habits that in later years served them well but I will let you be the judge.

 

[arebelspy]

They shouldn't have moved. Makes no financial sence to me. $50k takes $100k in income to save? How long will it take them to earn that? The move was bd judgement on their part.

Did you miss the line that said "They are transferred for work and must sell"?

It's not always one's first choice. Many military people are stuck in this situation - underwater on a home, but forced to move/transfer.

You could argue they shouldn't have bought in the first place, but arguing the move itself is a bad idea, when they are (essentially) forced to move is silly.

 

[ChrisC]

Sympathy doesn't have to be a line in the sand nor does it have to be all-or-none.

Nor does it have to be cast to a sea of people who take on the mantle of being victims for rather unfortunate events in which they should be fully aware of the risks of the "investment" they made. The original post that prompted my comments appeared to suggest to me that this young couple were the "victims" of the market downturn (as the OP stated, they were "screwed"). I don't consider that to be the case at all. Maybe, as others suggest, I'm out of touch with reality or my heart just isn't big enough. Yet, I wouldn't say "sucks to you" but I also wouldn't say this is unfair either. It just happens every once in a while in life that you lose money for financial decisions!

 

[rescueme]

But you are implying that if someone puts 20% down on a house, there should be some 'guarantee' that the resale value will not drop below that.

There is no guarantee. It's not about it being someones 'fault', or feeling sorry for anyone, it's life.

I agree.

DW/I had little starting out. Heck, we bought a used trailer (mobile home) since it was cheaper to live in that then what an apartment would cost. Forget about a "stick built" home - that would not come for many years later.

Food, shelter, clothing (and enough income to cover those basics). Anything else is just gravy...

 

[ChiliPepr]

Saved for a couple of years to get a down payment, and then bought a modest house <125k with 20% down.

It took them a couple years to save $25k. So, it should only take a couple more to repay their parents.

A couple of years pass and the market goes to ****. They are transferred for work and must sell.

Their company transferred them and offered them zero assistance on selling their home? Very unusual.

One year, while paying for two residences, and 100 showings later they sell their first house after borrowing an additional 25k from their parental units to bring to the closing. They lost 50k in less than 5 years.

$50K on a $125k investment over 5 years -40% or a loss of about 8% a year.

These kids are screwed. They did nothing wrong. They went to college, studied and worked hard, worked hard after graduation and are still burdened by debt created by the stupid housing market. What do you have to say to them besides, sucks to be you.

I do feel sorry for them, but I also would ask them a couple questions....
Did they know that they had a chance of being transferred when they bout the home?
Did they have to accept the transfer?
What was their reasoning to buy the place in the first place?

Back around 2000, people always said "housing always goes up", unfortunately, that is not always the case.

 

[haha]

I do feel sorry for them, but I also would ask them a couple questions....
Did they know that they had a chance of being transferred when they bout the home?
Did they have to accept the transfer?
What was their reasoning to buy the place in the first place?

Back around 2000, people always said "housing always goes up", unfortunately, that is not always the case.

This is just a lot of Monday morning quarterbacking. If people were as risk averse as you seem to want, we would have no housing industry at all.

 

[FUEGO]

Nor does it have to be cast to a sea of people who take on the mantle of being victims for rather unfortunate events in which they should be fully aware of the risks of the "investment" they made. The original post that prompted my comments appeared to suggest to me that this young couple were the "victims" of the market downturn (as the OP stated, they were "screwed"). I don't consider that to be the case at all. Maybe, as others suggest, I'm out of touch with reality or my heart just isn't big enough. Yet, I wouldn't say "sucks to you" but I also wouldn't say this is unfair either. It just happens every once in a while in life that you lose money for financial decisions!

I agree with your take here, ChrisC. This young couple just needs to buck up and move on with life. $50k in losses is chump change in the grand scheme of life. They could have just as easily made $50k in gains had the house appreciated to $175k before they were transferred. It is mere happenstance and/or bad luck that the house depreciated and they didn't sell it quicker (by pricing more aggressively). The transfer made them realize the loss, but regardless of whether they moved or not, they would have had the same $50k reduction in their net worth.

It is important to note that at some point they will have the opportunity to buy into a depressed housing market. If they want to take the risk that buying a house entails.

I guess I could bemoan my hundreds of thousands in phantom losses in the housing market, because my house never appreciated by 200-300% like in some of the bubble regions, hence I was never able to make an obscene profit by selling at the peak. But I'm wearing my big boy pants today, so I won't cry!

 

[RetirementColdHardTruth]

Did you miss the line that said "They are transferred for work and must sell"?

It's not always one's first choice. Many military people are stuck in this situation - underwater on a home, but forced to move/transfer.

You could argue they shouldn't have bought in the first place, but arguing the move itself is a bad idea, when they are (essentially) forced to move is silly.

Nobody is forced to move for a job. It is still a choice to move. I do understand that military is a unique situation, but in that case it is still a choice to buy or rent.

Choices make our beds, and we are forced to sleep in them. Ask yourself what ot would take for you to be forced to move? For me it would have to include somebody with a gun to my head. I can see that as force, but not a choice to move for the job. Just bad decision making on their part and nothing more.

 

[Olbidness]

I just sold my house 9/30/11 and was a little sad about how little I made on the deal. After owning the house for almost 20 years if I put a sharp pencil to it I might have lost money. Reading the horror stories here and elsewhere I think I will pick up my own troubles and quietly walk away feeling blessed.

 

[Andre1969]

There's one house in my neighborhood that's been bought and sold repeatedly over the decades, and I don't think anybody's ever made much money, with the exception of one guy. It's an old Sears and Roebuck home, similar to this one: http://www.searsarchives.com/homes/images/1927-1932/1927_p3202-p7009.jpg except that it was 24x36 plus the front porch, and no basement.

My great-aunt and uncle bought it for around $36,000 back in 1982 or so, from an elderly couple who wanted to leave the area and move back to a family farm. They put in a new septic tank, got it hooked up to city water (had been on a well) and did an extensive remodeling that included a 14x24 addition off the back. They also put on a sunroom off the side of the addition, which was maybe 12x14 feet.

My great-uncle died in 1989, and my aunt didn't want to live in it anymore, so she sold it for around $100K that year. Considering inflation, all the work that got put into it, etc, I doubt if she really came out much ahead.

The guy who bought it in 1989 didn't do much to it, although he put a fence around the whole yard (1/2 acre), and ended up selling in 1993, to a young married couple, for around $110K. Again, I'm sure inflation and closing costs ate up any "gain".

That young married couple had a daughter. Then another. By the time the wife got pregnant again, they realized they needed more space. This house only had two bedrooms and one bathroom, and with three young girls, that was gonna get really crowded, really fast, as they got older! They sold for $125K in 2000. Once again, over the course of 7 years, $15K of appreciation isn't much, plus factor in closing costs and such.

The next people who bought it trashed it and were gone by late 2002. The house sat over the winter, and went on the market in the spring of 2003. I looked up the records that said the bank "bought" it for $123K, but I'm sure that was some short-sale price or something, these people got nothing, other than the copper baseboard pipes, appliances, and other things that they ripped out of the house.

In 2003 the house went on the market for $143K. I looked at it with my real estate agent, and with a disgusted look on her face she said don't offer them more than $100K. Well, someone else offered them $145K, and got it in October of 2003. He put a LOT of work into the house and the detached 1-car garage. Took the big 14x24 room which had been a kitchen/family room, and turned it into a kitchen with a master bedroom off of it, and then what had been the sun room, was converted into a master bath and closet. He had trouble selling the place, but in October 2007, at the peak of the market around here, managed to get $375K for it.

Now, I'm sure THIS guy made out pretty good on it, even though it sat for four years, and he put all that money into it.

Alas, the people who moved in, an older couple with a disabled wife, ended up moving all sorts of kids and grandkids and other relatives in and out on a rotating basis, the place is getting trashed again, and it's currently on the market as a short sale for $149,900.

Maybe I should go and offer them $100K again, like I did 8 1/2 years ago? I'm tempted to get my real estate agent to go with me again to look at it, but I'm afraid to see how bad it's been trashed. Plus, I'm a bit leery of how the sun porch was converted into a bathroom/closet.