Monday, 7th of July 2008 at 11:58:40 AMRecently I received a call from a client that I’ve worked with in the past and continue to provide support for today. A couple of years ago he bought a new home for his family on the outskirts of the West Valley, he bought it directly from the builder without representation in order to get a deal on the purchase. Well, that just came full circle…
The builder did work hard to get him and his family in a home, that was 30 miles each way for his wife and him to work, so think about it, each day they spend at least $20 in gas to get to and from work (not including time in traffic). The house is great, just too big, they spend too much of their weekend cleaning it. The house across the street just sold after foreclosure for $100k less than they bought theirs for. Oh, and the part that I love is the loan that they have has a balloon payment in less than 2 years. In less than 2 years they have to pay off the balance (or re-fi).
Do you own the house or does it own you?
This is one of those cases where you have to ask is it worth it, and that is what they did and they decided it wasn’t anymore. Their pride and joy has become their burden and nightmare. They’re looking for options and now that they are in a bind, they call me for help.
We sat down and looked at what they have going on and if they could tighten the budget and make it work for a bit. We did find some room that with giving up some stuff, they can continue to make payments on the home. Okay, so that’s good.
Do they really like their home, yes, they think it’s great, but the time in keeping it up isn’t, but we can manage that. Okay, that’s good, hopefully better times will come soon and they can higher someone to help with the cleaning.
Now the hard one to ignore, the value of the home is less than what they owe one it (more common today then it should be) and that can be okay, but in a couple of years they will have to refinance it or lose it (unless it can appreciate 100k, 25% in less than 2 years). This is where it becomes a problem. If the house was able to regain it’s value in one year we’re in another frenzy, which I hope won’t happen for the great good of the economy. So it’s time to decide what they should/could do. We talked about options and the one that they are settling in on is to talk to the bank that holds the mortgage about converting the loan to a conventional 30 year fixed with a back-up plan of short selling.
This is difficult, because I know that if that balloon-payment wasn’t fast approaching them, they could/would make it work and be happy with the home. But when you have a family to provide for and you need that security in your life, you have to know when to retreat and that is what they are preparing to do. I’ve encouraged them to work/talk with the bank and get to know each and every option that they can provide before getting in the middle of a difficult short sale.
My hope at this point is that the banks realize that working with the owners is far better than foreclosing on a property that they will lose more money on then working it out. Oh well, guess it is time to wake up from the dream and get back to reality.
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It is very scary for many when balloon payments come due. I think in 2011, we are expecting another surge in resets.