How are you affording 350-500k home? (short sales, foreclosures)

[Ultrarunner]

Originally Posted by brightdoglover

I wonder if there's a way to break out how many people are walking away because of their "loss" on paper? I know there is "strategic default," but how many of those people bought in the bubble as speculation/delusion?

I don't know... guess one would have to research the deed for every transaction...

I do know several in my neighborhood that bought in the late 90's and as recent as 2003... pre-bubble. They walked because they continued to re-finance and the debt far exceeded the value after the crash.

One neighbor bought for 200k in 1999 and reified 5 times before walking away leaving $765k owing... some even joked he must have a money tree somewhere... no shortage of new German Cars, Cabin Cruiser and lavish vacations... Bank sold the home for $430k a few years ago and today it is probably around $385k...

The other factor is many would love to re-finance at today's lower rates and don't have a prayer because the value does not support the new underwriting standards... this is another reason people walk.

Then there is the traditional reason of financial ruin... job loss, major medical, etc...

I work with a guy that paid 1.1 million for his house in 2005 with a first of $700k and a second of $300k, both with Wells Fargo... he stopped making payments last October. He did get the Tax Assessor to lower his assessment from a high of 1.3M to $700K and thinks Wells Fargo should forgive the second... I'm waiting to see what, if anything happens...

[Bideshi]

Allow me to pose a question, disregarding for the moment the arguments for/against cash vs financing a house: In the 100k <> price range, should a cash buyer expect a significant discount over a mortgage buyer, or is he just competing against other cash buyers (which seem to be the most common sales these days)? To add understanding to the question, I'm not really looking to buy a house, but rather to steal one, as was done to me not so very long ago. As they say in Texas: "The worm is now on the other foot".

[Ultrarunner]

When I've bought for cash AS-IS it has always been at significant discount...

One home had been in Escrow several times... once with a city first time buyer program and two more times with more traditional loans...

My agent called me to say the property was again available and asked if I would be interested. I told her no only because of price.

She then said for me to give her my best CASH offer with 10 day close for an AS-IS sale... I discounted 27% from the last escrow price and the seller accepted... The agent that had brought in the last failed escrow was livid... he said he had another buyer willing to put down 20%...

The seller stood by my offer and 10 days later it was mine.

Cash, AS-IS offers reduce the buying process to a yes on no transaction... it eliminates all the weasel clauses and the unknowns...

My best all cash was for a home facing condemnation... I offered 35% of list price and got it... very unusual.

I hit the ground running on the day escrow closed... had the dumpsters delivered and started filling them...

Dad always said, "Cash is King"... very true in a down market.

[CosmicWizard]

Ultrarunner wrote:

Dad always said, "Cash is King"... very true in a down market.

Are you trying to tell us that Elvis is no longer the king? Heresy!

[Bob from down south]

Originally Posted by Bideshi

Allow me to pose a question, disregarding for the moment the arguments for/against cash vs financing a house: In the 100k <> price range, should a cash buyer expect a significant discount over a mortgage buyer, or is he just competing against other cash buyers (which seem to be the most common sales these days)? To add understanding to the question, I'm not really looking to buy a house, but rather to steal one, as was done to me not so very long ago. As they say in Texas: "The worm is now on the other foot".

It's really going to depend. Cash will likely get you a discount, as mentioned above, if it's an as-in offer on a house with known problems...especially the kinds of problems that would cause a lender to think twice about financing the house (but then maybe you might want to think twice as well). If the seller has had problems with previous offers falling through due to loan problems, cash becomes attractive, especially to non-institutional sellers. Also, cash is an advantage if time is of the essence to the seller--cash transactions can close in a week if needed, whereas most mortgage transactions take 6-8 weeks.

However, if the house is owned by an institution that has the means to provide its own buyer financing despite known problems, cash may not carry the day. One example would be HUD foreclosures, where they can and do provide down payment assistance, their own self-serving appraisals, and incentives (with taxpayer money) to put buyers into one of their foreclosed train wrecks.

I would also surmise that cash offers in the $100K range would be less of a trump card than for higher-end properties, because the number of people that could reasonably be expected to qualify for loans in that range would be considerably higher, and the number of private investors with that kind of cash available is also higher.

[smdensbcs]

Originally Posted by Ultrarunner

One neighbor bought for 200k in 1999 and reified 5 times before walking away leaving $765k owing... some even joked he must have a money tree somewhere... no shortage of new German Cars, Cabin Cruiser and lavish vacations... Bank sold the home for $430k a few years ago and today it is probably around $385k...

I personally witnessed enough of this "gaming the system" (while spouse and I were weathering the storm of 2002-2008 in a dumpy little paid-off townhouse driving used cars saving cash) that ANY time I hear of a new govt or other program to write down or adjust these loans it triggers extreme loathing and anger. People who over-reached and spent $$ like drunken sailors must reap what they sowed. I'm fully prepared for whatever downward adjustments I need to absorb in the price of our house (we paid $70/sq ft in 2008 in top school district in CO and have it 75% paid-off), but DO NOT BAIL OUT the grasshoppers. If they're rewarded for their bad behavior/stupidity, why should I continue to behave with rational restraint? It's like giving everybody in a difficult class an A, regardless of whether they studied or not. I could care less if they "walk away" and go move into their grandma's basement or rent an apartment, I just don't want the banks to ever allow that to happen again. It was ridiculous and painfully, obviously grotesque as it happened and I'm deeply thankful that era in our nation's history is blessedly over.

So, um, I echo those who say education, hard work, thrift, self-restraint, and all those old-fashioned values is the way to get ahead in life, not taking out a second/third b/c the appraisers/banks have lost their collective minds and sense of decency. There will always be those who win the lottery or inherit money, but that is not how the large majority of us who get there got there.

[Ultrarunner]

Originally Posted by smdensbcs

I personally witnessed enough of this "gaming the system" (while spouse and I were weathering the storm of 2002-2008 in a dumpy little paid-off townhouse driving used cars saving cash) that ANY time I hear of a new govt or other program to write down or adjust these loans it triggers extreme loathing and anger. People who over-reached and spent $$ like drunken sailors must reap what they sowed. I'm fully prepared for whatever downward adjustments I need to absorb in the price of our house (we paid $70/sq ft in 2008 in top school district in CO and have it 75% paid-off), but DO NOT BAIL OUT the grasshoppers. If they're rewarded for their bad behavior/stupidity, why should I continue to behave with rational restraint? It's like giving everybody in a difficult class an A, regardless of whether they studied or not. I could care less if they "walk away" and go move into their grandma's basement or rent an apartment, I just don't want the banks to ever allow that to happen again. It was ridiculous and painfully, obviously grotesque as it happened and I'm deeply thankful that era in our nation's history is blessedly over.

So, um, I echo those who say education, hard work, thrift, self-restraint, and all those old-fashioned values is the way to get ahead in life, not taking out a second/third b/c the appraisers/banks have lost their collective minds and sense of decency. There will always be those who win the lottery or inherit money, but that is not how the large majority of us who get there got there.

I just wish the actions of the reckless wouldn't have such far reaching ramifications for the rest of us...

[Juliemac]

As a full time HUD housing counselor for the past 18 yrs, I would like to share a little insight...Not just anyone can 'walk away' or short sell. You first need to prove to the lender that there's no way your current income can support the existing mortgage debt, even with a favorable modification. If you can still afford the payment, you still have to pay in full at your current terms. The federal programs are for consumers whose income is reduced to the point where the mortgage is now a significant hardship. (PITI is more than 31% of the household monthly gross income). In most cases, these are NOT predatory high risk loans or 'drunken sailors'..... these are middle class folks who lost a decent job and cannot replace the income. So they get 2 part time jobs and the lender is willing to modify terms to a payment they can manage, rather than take the house back. In my experience over the past 3 to 4 years doing non-stop foreclosure counseling, this is the typical homeowner who applies for the federal modification. Unless you pay cash for your home, everyone who relies on a paycheck to support their basic needs is a risk of finding themselves in this boat. Be thankful your income is secure and be gracious to those who have not been as fortunate.

[Ultrarunner]

Originally Posted by Juliemac

As a full time HUD housing counselor for the past 18 yrs, I would like to share a little insight...Not just anyone can 'walk away' or short sell. You first need to prove to the lender that there's no way your current income can support the existing mortgage debt, even with a favorable modification. If you can still afford the payment, you still have to pay in full at your current terms. The federal programs are for consumers whose income is reduced to the point where the mortgage is now a significant hardship. (PITI is more than 31% of the household monthly gross income). In most cases, these are NOT predatory high risk loans or 'drunken sailors'..... these are middle class folks who lost a decent job and cannot replace the income. So they get 2 part time jobs and the lender is willing to modify terms to a payment they can manage, rather than take the house back. In my experience over the past 3 to 4 years doing non-stop foreclosure counseling, this is the typical homeowner who applies for the federal modification. Unless you pay cash for your home, everyone who relies on a paycheck to support their basic needs is a risk of finding themselves in this boat. Be thankful your income is secure and be gracious to those who have not been as fortunate.

What's to prevent someone from just getting the U-Haul and leaving the key on the counter?

[Juliemac]

"What's to prevent someone from just getting the U-Haul and leaving the key on the counter?
".... anyone could do that, but they would then be liable for any deficit balance once the bank sells the house. If the bank agrees to short sale (once you prove you truly cannot afford the house), they also agree NOT to collect the deficit, if any. This way the lender does not have to pay taxes, upkeep utilities, etc.. for months and months while they try to sell (for considerably less than owner occupied).. they basically agree to take the loss up front, rather than take the house back into their inventory and try to sell it.
You can also do a deed-in-lieu of foreclosure if you are not even able to get a short offer. you basically leave the keys and go, again without recourse on the deficit, if you have made a good faith effort to sell. You also have to leave the house in 'broom swept' condition. No trashing it and taking the copper piping!