I have two anecdotes tonight. Both are from friends of mine.
I am positive that similar stories are being played out tens of thousands of times across the country. The implications should be obvious.
The first anecdote is a further continuation of the “Saga of Sonnypage”, an Atlanta area real estate broker who posts on my investment board the Motley FOOL.
Previous Sonnypage highlights include:
Sonypage – 2006-09-15
My wife and I had a closing yesterday. Unfortunately, only the twelfth this year, and we are running out of year. The story of this transaction tells much about what is happening in Atlanta real estate. We have known Paul and Denise for years. They called us in late April to come list their home. The market in April here had really just started to cool. We did our market analysis and recommended they list at $550,000, which they did. By June we had no offers and reduced to $$535,000. By now our market was cooling and everyone even here was starting to become aware of the very big price drops taking place in the hot markets elsewhere. We reduced once more to $525,000 in early August and took our first offer a week later for $490,000. We countered at $512,000, trying to meet them in the middle. They held firm at $490,000. We countered at $499,000 but still no deal. We went under contract at $490,000, the buyer’s original offer price. If you have your calculator out, that’s 11% below the original list price. Paul and Denise’s home was in perfect condition in a sought after neighborhood. It’s been that kind of year. Our best listings sell while the rest do not.
Anyway, so there we are at the closing table. The closing attorney hands out the HUD-1 closing statements. She starts at the top on the seller’s side with the $490,000 contract price. Then the attorney starts down the page deducting the first mortgage, a small second, the real estate commission, pro-rated taxes and all the rest. There, at the bottom, the amount due the seller. Only this time, surprise, the seller owes $1,040. Paul laughs and says, “Is this a great country or what? You sell a house and owe money.” Everyone laughs. Paul and Denise have done well over the years. I doubt if this really hurt them, but I do think they sold for less than they would have thought just a few months ago. In a year like this, there are most likely many sellers bringing checks to the closing.
So what kind of year have we had? Using the past five years as a benchmark, my wife and I have averaged 24.8 transactions per year. Yesterday’s transaction, as I said, was only number twelve for this year. So what happened, where are the missing twelve or fourteen deals or so? You have only to look at our listing inventory to find your answer. We have eight listings, soon to be nine listings, which may be a record for us for this time of year. So that’s great, right? Well, no, not really. Seven of those listings are four or more months old, carryovers from the spring/summer market that did not sell. In a normal year, six or so of them would have sold plus six or so buyers would have materialized to give us 25 transactions. Our business was cut in half this year. Do I believe residential real estate has bottomed? I really have no idea, but I will say what I have said before. The winter market is always very slow even in a good year. We will not have an answer until next spring.
Everyone have a great weekend.
The second anecdote is from David Donhoff, a straight shooter from No Bull Mortgage who also posts on my board on the Motley Fool. This anecdote is called “San Diego Townhome SOS”. Here goes from David Donhoff.
Real world… in my inbox…
I would like to refinance my mortgage. The balance on the 1st mortgage is $356,000 and the balance on the 2nd is $28,000. My home has been appraising at $360,000. My interest rate is due to adjust 10/1/06. My middle credit score is 620. Can you help me?
No Bull Mortgage:
It MIGHT be possible to get you approved for a 125% financing program, but it is highly unlikely to solve your dilemma.
A) The rates are likely to be higher (QUITE higher) than what you have now
B) Payments will likely increase substantially
C) The ONLY way to qualify for these 125% programs is W2 income, Full Doc.
If any of the above reasons kill the deal we may be able to help negotiate a resolution with your lender if that’s something you’d be interested in exploring.
If we could renegotiate the terms that would be great!
No Bull Mortgage:
I got her on the phone, and there wasn’t really even a need for a “come to Jesus” conversation. The owner was pretty lucid to her realities, and (so far) willing to help me build out a file to attempt a ‘work-out restructuring’ with her current loan servicing companies.
I explained that while it may be possible to get a workout and keep her in the home, that it’s a long shot, and the overwhelming odds are that she’ll have to vacate the home and let it go. I further explained that in the case we can not get a restructuring for her, we’ll drop down to the next option of negotiating a short-sale. The good news (if it can be called that) would be that we’d block a foreclosure from her credit records, secure a forgiveness of the defaulted loan balance from the lenders (which would convert to taxable income at the IRS… but least of her worries at this point,) and prevent a slipping-down-the-slope toward bankruptcy to avoid garnishment to collect on the default judgments.
Strategic Equity & Mortgage Planner
Thanks once again to Sonnypage and also thanks to Dave Donhoff at NoBullMortgage.
Occasionally someone asks why I have a link to NoBullMortgage on my blog. Certainly it might seem out of place given my beliefs about the housing bubble. Perhaps the above post explains it. Donhoff could have tried to steer that person into a lucrative pay option arm and probably for a tasty fee. But in the end, you know and I know and Donhoff knows that person is extremely likely to lose her house regardless of what she does.
I do not know the restructuring or short sale business very well but I suspect Donhoff will make nothing from it. For the record, I have not made dime one off that ad sitting in the right hand column of this blog either. However, I do not mind promoting people like Dave Donhoff or Mike Morgan whether I make anything off of it or not. Down the road, I know not when, I believe there will be a payback for fair and honest dealing. That is what Donhoff and Morgan believe and that is what I believe as well.
Mike Shedlock / Mish/