To Foreclose or Not to Foreclose… June 30, 2007
I had dinner the other night with someone who is in a pretty tough situation (can you say “rock and a hard place”?). I walked away from the conversation with no good advice for him, so I’m hoping someone at RCG can help guide some next steps he might take…
About three years ago, he purchased a home for his young family in the Bay Area. He’s a life-long resident of the San Jose area, but couldn’t afford anything local to his job, so he, like many other people, bought a property WAY out (about an hour and half commute each way…). Because the home was so far out, he got a “good deal” back when the market was very hot (he paid about $450K for a brand-new home in a prime location within a new development).
However, the situation quickly started to melt… The commute was so painful for both him and his wife, that they started staying with family members in the San Jose area on a regular basis. Until finally, they give up living “out there”, put the house on the market and start renting a MUCH smaller place with another family member.
Due to some unfortunate decisions (like buying the home in the first place with almost no money down), they “need” to sell the place for about $480K in order to “break even” (after sale fees) as they do not have any saving to speak of. However, after a year on the market, their home is simply not selling and he is tired of paying $3,500 per month for a home that his family no longer needs. I should also note that the builders in the area don’t face the same fiscal constraints and have begun to lower their prices considerably, so he is now doubting if it was priced at $450K.
So he asked me, should I just stop paying the mortgage and let the house go into foreclosure?
My first suggestion was to have him call up the bank and try to restructure the payments. But even restructured payments would not make “keeping the house” more desirable to him as monthly rent for his home would go for approximately $1,500/month and wouldn’t cover half the mortgage payments.
What should he do? What are the long-term ramifications of being someone who went into foreclosure? Are there ramifications of going into foreclosure beyond bad credit?
Note I don’t want this conversation to turn into how stupid he was in the first place because I can assure you he already feels dumb enough and I’m simply looking for a way to help him with some pretty tough decisions. I probably wouldn’t even bring it up on RCG, except I’m pretty sure there are more than a few people around the country who face a similar situation and are unclear on their options…
Sphere: Related ContentWho buys the house you left behind?
A few times, and for some reason most, most recently, we have had to walk away after a home inspection. Every time this happens, the buyer wants to do something to warn the buyer behind them. Every time this happens, the buyer wants to stand outside with a big red flag saying, “Don’t buy this one unless you know about X”! And every time the buyer is amazed that the house sells, often within a few days, at full price or close to it.
One: house with rotted rafters
After all new energy efficient windows and brand new siding with lots of insulation the house could no longer “breathe”. All of the moisture in the air, being trapped up in the attic, caused all of the wood to be thick black mold and rot. Worst thing was, there was a brand new roof, a second shingle placed on top of the first and on top of the rotted rafters.
From the seller’s perspective it was “NEW ROOF”; from our perspective it was “ROTTED RAFTER HOUSE”.
Since the agent and seller just kept answering the rotted rafter question with “It’s a new roof”, we just walked away.
Two: rain water IN the house
We had been questioning the method of water drainage since before the offer was written. Driveway slopes down. Standing water in the drain at the bottom near the garage door. Seller working to unclog it was the answer.
Home Inspection comes and we go inside and there is water in the house. Now water in the house is HUGE here, as the big two car garage has to fill to 2-3 inches, before the water can make it into the living areas.
Many inappropriate responses. When the seller answers inappropriately, there is almost no way to resolve an issue as the seller doesn’t agree that it IS an issue. When the agent simply acts as a courier pigeon, and keeps repeating the unsatisfactory response as if saying it ten times will make it sink in, we just have to walk away.
Saying “It doesn’t usually rain this much” ten times is NOT the answer to there is water in the house.
Three: House falling down cliff
I love this one. Foundation shows ten patches to keep the house from falling down into Lake Sammamish. Seller knows nothing about foundation problems so we look at the Form 17. Nothing about the foundation patches. Seller says someone must have patched it ten times while he lived there, without his knowledge. Not a problem. Never was a problem. Has no idea who might have applied the band-aid fixes to the “not problem” LOL
Four: LaBrea Tar Pit house
Another foundation issue. This one over in Queen Anne, but much like the roof problem in number one, new stacked on top of problem. The entire main and second floor were spectacular. Massive remodel. Well over $100,000 in improvements. This is definitely the best house until we go to the basement. My God, I felt like I as visiting the LaBrea Tar Pits. I had never seen a basement floor with so many cracks and rises and falls. It looked like an earthquake aftermath down there. Scared me, and I don’t scare easily.
Agent response: New foundation poured all the way around existing foundation and remodeled main and second floors laid on top of NEW foundation. OK. Call inspector. ONLY ONE CORNER of foundation is new and the rest was a bunch of band aids about to pop off. Call agent and tell him only one corner is new. Oddly enough, he is not at all surprised. I ask if he has the paperwork from when the new foundation was poured. Once in a while an inspector is incorrect. Answer: “the seller’s attorney advised them not to release the engineers report regarding the foundation.” Yikes! Run!
Important to note, agent’s demeanor throughout and up to that point was “Seller wants NO contingencies. Seller wants loan contingency to expire in 10 days. Seller wants this and that. Yes the sale fell apart once already, BUT it fell apart on financing (right…best lie in the business. Pulling out on the finance contingency might have been the METHOD of cancel, but not the reason. Watch that one.) Big agent, very busy, very hoighty toighty. Pushing everything through in command mode LOL. Command mode is fun to encounter. Makes you look even harder for why he’s pushing everything in the wrong direction in such an aggressive manner.
So Who Buys The Houses We Leave Behind? The buyers always want to know how the house sells at full price or almost full price behind them when they leave. They want to go find the new buyer and tell them what they found out about the house.
I don’t have an answer for that one. Maybe someone else does. Oh, Craig will say “Give me the addresses so I can help the new owner sue”. Or maybe we should go write it on Zillow pointing out that someone got taken. Morally it may seem appropriate to warn the next buyer, but that is up to the seller and the seller’s agent. That brings up the subject of another topic: WHY is the inspection report not required, and almost always not given, to the seller if the sale falls apart on inspection. Seems like it is so that the seller can click off “Don’t Know” on the Seller Disclosure Form.
If we are really focusing on getting real estate transactions lifted above the status quo, the contract should REQUIRE that the buyer give the seller the FULL inspection when it is available. In fact why don’t inspectors automatically give a copy of the report to ALL parties? Shouldn’t the seller be fully advised of what is wrong with the house when the buyer cancels on inspection? Seems the form favors sellers vs. the next buyer coming down the pike.
Sphere: Related ContentGirls’ Night Out - Boys Can Come :) June 29, 2007
Don’t forget, June 30 at 7 p.m.is Welcome Karen to Seattle Night at:
Roanoke Park Place Tavern
2409 10th Ave. E
Capitol Hill
Kim has some funny stories about when he lived nearby. Karen, Rhonda, Jillayne, Kim and I will be there. Not sure who all else. Post a comment if you know you are coming and we’ll keep an eye out for you. It’s not a big place. Not a fancy place. A neighborhood place. Just my kind of place. Seattle attire required…no fancy-shmansy garb 
See you there.
Sphere: Related Content
Friday’s Rate Sheet
Rates are improved over last week based on stronger than expected economic reports that were released this morning following yesterday’s decision from the FOMC to keep the Prime Rate unchanged at 5.25%. The Core PCE and Chicago PMI came in better than anticipated indicating that inflation may calming down a bit. Inflation has a negative impact on bonds so the mellow reports translates to improved mortgage rates for you and me.
Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties). Conforming rate quote below based on owner occupied with minimum credit scores of 680 with an 80% loan to value or lower. Rates quoted are priced based on a 45 day lock with 1 point and there are no prepayment penalties on any of the rates quoted below. I’m including how much rates have changed since last Friday’s rate post (in parenthesis).
30 Year Fixed: 6.375% (APR 6.533%). Payment per $1000 = $6.24 (improved 0.250%).
30 Year Fixed with 10 Year Interest Only: 6.500% (APR 6.667%). Payment per $1000 = $5.42 (improved 0.250%).
40 Year Fixed: 6.625% (APR 6.789%). Payment per $1000 = $5.94 (improved 0.125%).
7/1 ARM: 6.125%% (APR 6.281%). Payment per $1000 = $6.08 (improved 0.125%).
5/1 ARM: 6.000% (APR 6.144%). Payment per $1000 = $6.00 (no change).
5/1 ARM with 10 Year Interest Only: 6.125% (APR 6.270%). Payment per $1000 = $5.10 (no change).
JUMBO (Non-Conforming) Rates. Pricing is based on the same criteria above, with the exception that the loan amount is $417,001-$650,000 (20% down).
30 Year Fixed: 6.500% (APR 6.669%). Payment per $1000 = $6.32. (improved 0.125%).
30 Year Fixed with interest only payments: 6.625% (APR 6.779% ). Payment per $1000 = $5.52. (improved 0.125%).
40 Year Fixed: 6.625% (APR 6.781 %). Payment per $1000 = $5.94 (improved 0.125%).
5/1 ARM: 6.000% (APR 6.155%). Payment per $1000 = $6.00. (improved 0.125%)..
5/1 ARM with 10 Year interest only payments: 6.000% (APR 6.155%). Payment per $1000 = $5.00. (improved 0.125%)..
Please do not select your Mortgage Professional by interest rates alone and do not shop rates by APR. This is just a small sample available of rates and products. For loan amounts over $650,000, please contact me.
Note: Ardell suggested that we close comments on Friday’s Rates…and so I am giving it a whirl. The rates are being posted in order to provide information and to give you an idea of the direction mortgage interest rates are going. By closing the comments, the rates are effectively becoming a memo or “rate sheet”. So if you do have a comment for me regarding rates or mortgage questions simply contact me by visiting another one of my post or send me an email.
Sphere: Related ContentReal Estately on Rails
Looks like our friend Galen has been busy….
In case you haven’t heard, ShackPrices has been rebranded Estately. With a new name, a new logo and a more publicized business model, it appears this old Shack has been retired. Here’s what the ole RE.net blog-o-rama has posted thus far…
- Bloodhound Blog
- The Real Estate Bloggers
- John Cook’s Venture Blog
- The blog formerly known as ShackPrices Blog
Before you all say HouseValues 2.0 or HomeGain SP1, I think the Estately business model seems pretty sound (for a lead generation / referral model).
Galen, correct me if I’m wrong, but I assume by taking a 12% cut of the agent’s commission, Estately only gets revenue if a closed transaction occurs (and the agent gets revenue from your referral)? Also, Estately doesn’t ask you for personal information unless you are actually looking for agent, so you are giving your customers a high quality lead (unlike some other companies that sell leads that resemble a Bart Simpson crank call to Moe’s Tavern). What’s really interesting is that they match agents to potential clients using Wetware (a/k/a humans) and not just some tricked out SQL statement, in order to help guarantee that consumers and agents will have a pleasant and successful transaction.
Galen, couple questions for ya…
- Who does your creative work (coming up with name, the logos)? Whoever it is, buy them a beer! A good one like Pyramid or Redhook!
- Has anybody submitted any good tag lines yet? (”We put the e in stately”)
- How long did it take to change the site name/images/documentation/branding from ShackPrices to Estately? (I remember being a part of product/feature renaming issues in my Microsoft days and it’s surprising how much work a single name change can take…)
- What are your expansion plans (I assume dominate the NWMLS service area, go where the winds of the marketplace take you?)
- When are you going public again? I think it’s finally time to buy some House Values PUTS…
Anyway, I wanted to congratulate Galen and Doug on their hard work and success to date, and wish them well on their future adventures.
Sphere: Related ContentIs this what I’ll encounter working in the Bible Belt? June 28, 2007
My talented transaction coordinator, Dawn Andvik, sent me an email today to share a link she thought was outrageous in nature. After viewing it, I agree. The comments that have come in from online viewers have been scathing for the most part. Take a quick look and see if where it hits you. Personally, I can think of several things that an agent could do to improve their business although I realize we in Puget Sound aren’t experiencing the same kind of market drop that these folks are, for sure. To each his own. I do feel for people that are being impacted by a downturn in the market but considering the massive gains some of these areas have had over the past 5 years it was about time many of them had a correction. Anyhow, here for your reading pleasure….
The article by Florida Freedom Newspapers is entitled: Realtors attend worship service to pray for better market
What’s wrong with calling lenders for rates?
Besides the fact that rates change constantly and you’re not guaranteed the rate unless you’re locking in at that 
moment? You, my dear, are an “up-call”. You will be transferred to the next available Loan Originator.
Calling mortgage companies (including banks, credit unions and any mortgage source) for a random Loan Originator means you’re playing roulette with the person you’ll be receiving the quote from. You are complete strangers. You have no idea about the how capable, experienced, skilled or service-oriented the LO is. The LO just needs to be able to read a rate sheet and talk on the phone!
LOs are typically assigned a specific day to be catch calls from people who are blindly calling around for mortgage rates. Most LOs love up-calls. They’re fed leads that day and offer rate quotes, answer questions…spend a little time with the caller and if they don’t secure that transaction, it’s no sweat. The phone will ring with another shopper soon.
Up-calls are not attached to a source of repeat business, such as a past client, real estate agent or financial planner. Up-calls have “no-strings-attached” and are a “cold lead” for business. Don’t get me wrong. I’m sure that most LOs would love to develop a relationship with whoever is calling on the other end of the line. It’s great to have clients who return to you when they or someone they know need mortgage help. Referrals from past clients, real estate agents, financial planners and blogging are my only source of business.
We have up-calls at our company (I’m sure every company does) and I have elected to not be in the rotation. It’s just not how I practice my business. If you want to talk with me, you’re going to have to ask for me or contact me directly. You will not find me by calling my office and merely asking what rates are today. You’ll be on hold until the next LO is free to talk with you.
This is why I constantly stress that the best way to select your mortgage is to get referrals from people you respect and trust. Don’t want to let your friends or family know you’re thinking about getting a new mortgage? Consider finding a Mortgage Professional who blogs (don’t worry, I’m not the only one who does!). This is a great way to learn more about that individual, their business beliefs and how they practice their business. It’s definitely better than calling a stranger for one of your largest financial investments.
My next contribution to RCG is about some clients who first went to the big-daddy of internet rate shopping. With all those banks competing for your business, you win…or at least that’s what their commercial says.
Sphere: Related ContentFICO Algorithm says “Don’t Consolidate!”
I found this great chart over at Christine’s Active Rain Blog. 30% of your credit score requires you to have 70% or more of available credit on your credit cards! WOW! That’s important to know! In other words, credit limit $9,000? Then available credit should be $6,300 or more.
Coming from a poor family, we learned about credit issues from my really smart Mom. She said, if we don’t have enough money to pay ALL the bills, then pay the mortgage first, and then pay the car payment and pay the phone last. Back then, phone bills and utilities didn’t show on a credit report. Today we need to know different things, but the same concept that our choices affect how lenders view us, is still just as important, and this graph gives a great visual we can learn from.
Today most things DO show on a credit report, but still, we all make choices that can affect our credit. Like consolidating three credit cards and thinking one at full credit limit is better…it is NOT!!! I actually didn’t realize how heavily this section was weighted until I saw this pie chart, so I ran over here to post it after I stole it from Christine :) This is VERY important to know!
High balance. - “Johnson estimates that you lose 1 point for every percent of your credit limit that you use. So if you have a total credit limit of $10,000 and have an outstanding balance of $4,000 (40%), your score would be 40 points lower than if you had a $0 balance. Ideally, credit experts say, you never want your balance to exceed 30 percent of your credit limit.” (MSN.Com)
I don’t like the idea that it is better to have $1,000 on three cards with a credit limit of $5,000 each, than it is to have one card with $3,000 and a credit limit of $5,000. In fact it’s pretty sad that you have to have more than 3X the available credit you need in order to keep your credit score high. It is particularly sad that you need to make three minimum payments, instead of one consolidated payment, in order to be viewed favorably by an algorithm. But good to know that is how we’re expected to handle our finances to please the almighty FICO algorithm.
Technology impacts our lives, and whether some of these changes make good sense or not, they are a fact of life. Those who fight these changes and wish they would just go away, are only hurting themselves. Since your score can affect your interest rate, and cost you many thousands of dollars over the life of your mortgage, better to grin and bear it and handle your finances “as expected” by the algorithm.
When it comes to managing your credit score, you have to ”see the forest for the trees” That graph is a fabulous “aerial view” of the credit score “forest”.
We all wish for the good old days when paying our bills on time meant good credit. But now that paying your bills on time is only 35% of what matters, we need to pay closer attention to the algorithm that SO impacts us when buying a house. So let’s all shake our fists up to the sky and complain that 30% of our score is impacted if we consolidate. Then we need to resolve ourselves to the fact that we must buckle under and spread out the debt, so that no credit card has less than 70% of available credit. It sucks…but whatcha gonna do…
Sphere: Related ContentKevin Tomlinson of South Beach WINS Project Blogger Competition June 27, 2007
The poor guy’s gotta live with it day in-day out
This is just too funny not to share. My Broker SPEAKS! And what does he choose to say in his first ever blog interaction, when he commented on Teresa Boardman’s “Ode to ARDELL”?
Teresa,
Yes I do believe you do “get” her. Try living and working 24/7 with a Blogging Queen.
Sometimes manhood, even parts of sanity, seem to fall through the cracks.
Ardell is the brightest, caring, loving and stubbornly honest woman I have ever met. What you feel in her writings is who she truely is in the flesh.
When I read your blogs, the same feeling shines itself on each sentence.
It will be great to meet you at Connect as well as some other Superstars of the Blogging World.
And yes I love your humor.
Kim Harris…Owner/Broker…Sound Realty
Totally cracked me up! His sanity? His “manhood”? LOL Now I feel sorry for my ex-husband who had to live with me for almost 20 years. I’m sending him a link to this post. Sorry Doug…I never knew. Way too funny for words. Let’s post Doug’s likely comment FOR him: “Better you than me, pal”. HA!
I just had to post this so I could send a link to our clients. Sometimes we’re like the Sonny and Cher act. The other night one of our clients said, “I wish I had my video camera with me. I’d record this.” That would be a funny Podcast The client asked if $500 was enough for an increment of escalation. Kim says “yeah”, I turn and say have you EVER!?!? He says…”no…I’m leaving now”…LOL…and so it goes.
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