Market Conditions: Short Sales Soar as More Underwater
There’s an interesting article in the Chicago Tribune about homeowners who are underwater.
Suburbanites are struggling as prices decline. According to a Baird and Warner agent in the article, 7% of all sales in six suburbs on the North Shore have been short sales.
Facing debilitating health problems, Goldner refinanced his Highland Park home repeatedly only to wind up with a $729,000 mortgage on a house that eventually sold for $450,000.
“I kept refinancing it to pay the mortgage,” he said. “I kept hoping the market would level off. I never imagined this would happen.”
Goldner walked away from his three-bedroom home once he could no longer make the mortgage payments. A friend who is a real-estate broker was able to arrange what’s called a short sale—the home was sold for less than Goldner owed, all the proceeds went to the bank and the remainder of Goldner’s mortgage debt was forgiven.
“I feel very fortunate to be out of that place and moving forward, unlike a lot of people in this kind of situation,” Goldner said. “That’s one big debt off my shoulders.”
And all of those 20 and 30-somethings who bought those condos on the North Side of the city only to want to move in 2 or 3 years when they have babies- they’re in for a world of pain.
Matt Bender and Susan Flynn of Chicago’s West Ridge neighborhood are among those who, all of a sudden, are staring down a financial hit.
The couple are expecting a baby in January, but Bender’s nicely rehabbed third-floor condo is too small and the stairs are too numerous to regularly cart a newborn—and the equipment he or she will require—up and down.
They need a house, desperately, but to get one they must first sell the condo. It has been on the market for a while at $6,000 less than what Bender paid for it three years ago. They’ve had nary a nibble.
The couple are now forced to hold their breath and go underwater. If and when they sell the place, Bender will have to tap into his savings to pay off the rest of his mortgage.
“You’ve got to feel lucky to have a place to live and a job, I suppose,” said Bender, a grade-school teacher. “But this is pretty humbling. And we’re kind of stuck.”
Mortgage crisis has turned homeownership upside down [Chicago Tribune, Oct 13, 2008]
“And all of those 20 and 30-somethings who bought those condos on the North Side of the city only to want to move in 2 or 3 years when they have babies- they’re in for a world of pain.”
Parents probably recommended they do so. Also, these 20-30 somethings are the future of the City of Chicago. If you say it is a bad investment for 20-30 year olds to own a condo, who will fill those units going forward? One could argue that they units will be purchased when prices fall drastically. All I will say is be careful what you wish for.
I really feel bad for the guy with health problems who is underwater. Its hard to feel contrite towards him.
That young couple though, I am gleeful at their financial missteps. Did they not know that you should not buy if your time horizon is short? Did they not want to “live the dream” in the city? Is it our fault they grossly overpaid?
JL people will fill the condos going forward, likely neighborhood locals and they will afford them at affordable prices in line with what rents are. Notice how now there are lots of stories of owners in financial hardship, but I don’t remember reading about gleeful owners during the boom who made ponzi money hand over fist with their artificial appreciation.
Ha. My parents bought a third-floor 3-bed walkup condo of about 1600sq ft in the late-70s condo boom, then had me … and somehow, we all survived (my sister too!) just fine.
I’m just not sympathetic with this couple – they do not qualified as distressed sellers, and to the next they have any problem at all, it is completely self-inflicted: not even by their short-term horizon purchasing the place, but by imposing the stupid notion that they absolutely have to sell because Junior is on the way. You can raise kids in a walk-up apartment just fine. If it’s just that awful to sell for below what you paid for a place, sit tight for a while.
er, next = extent
“That young couple though, I am gleeful at their financial missteps.”
It’s one thing to say you don’t feel bad for people who purchased in the last couple years and are now in a bind, but to be gleeful about their mistakes?
I agree with David – the young couple just needs to sit tight.
I hope Mr Goldner has set aside money to pay the taxes he owes on his $279,000 windfall.
His relief should be matched by the indignation of responsible citizens who will end up losing value in their portfolios.
Our whole system is re-gearing to reward the gamblers and punish savers. I suppose the lesson is that if everyone is doing something stupid the sensible thing is to join in and milk it for all it’s worth.
If Mr Goldner had significant out of pocket medical expenses he can use those to offset his gain. Also the first 250k of gain on the sale of a primary residence is tax free.
Bob wrote: “Its hard to feel contrite towards him.” – Sorry, but just had to point out that you are using “contrite” incorrectly.
From the young couple in the article: “We just never thought we’d be faced with this,” Flynn said. “Real estate was supposed to be the one investment you could really count on.” – When stupid buyers stop talking like this we will have our bottom.
From the writer in the article: “Home equity lines of credit—even for people who pay their mortgages faithfully—will be harder to come by. And woe to those who lose a job or get sick.” – I hope people stop taking like home equity lines of credit are a God-given right. This is one of the recent financial inventions along with Alt-A, Option-ARMs, etc. that have all been terrible for increasing debt and fueling the bubble. But sadly, no one is bashing HELOCs in the same manner. This needs to change.
“Its hard to feel contrite towards him.”
I think you left out “not”.
I’m still not quite understanding this sentence;
““I kept refinancing it to pay the mortgage,” ”
Hello???? he kept borrowing more money to pay off the mortgage? Cash out re-fi’s on a mortgage he couldn’t pay as it was? There seems to be some confusion with the mortgage concept there…
How about he should have simply re-fi’ed at a LOWER interest rate and maybe a longer term to have a lower monthly payment? Illness or not, I’m completely boggled by the fact that anyone would think his plan was a good idea…
It’s like using one credit card to pay off another. Completely idiotic.
It sounds like the guy with the medical problems did a ‘cash out refi’ which is a non-taxable event.
“It sounds like the guy with the medical problems did a ‘cash out refi’ which is a non-taxable event.”
It’s pretty clear that he has $279k in “forgiveness of debt” income; that may or may not (haven’t read the legislation or the rules promulgated from the legislation) have been exempted from taxation for the current tax year (and perhaps next one, too–anyone up on the tax laws on this?). So, perhaps he has a $90k tax bill coming, but I think he’ll probably fit within the (temporary) exemption.
We’re due for another large of ARM mortgage resets too, even larger than the previous ones. Things dont drastically level off until 2011.
*another large amount
There are half a trillion dollars of option ARMs out there I read on doctorhousingbubble.com. Its my guess the government will wind up buying a significant portion of them to stave off financial collapse. What a freaking disaster for responsible, prudent taxpayers.
Yeah but $300 billion of the $500 billion of option arms are in Cali. Illinois has some but not much. I’m more worried about the Alt-A’s and prime’s defaulting as a result of lower home prices and job losses.
Bob on October 13th, 2008 at 8:08 am
I really feel bad for the guy with health problems who is underwater. Its hard to feel contrite towards him.
– Not me, I’m not falling for that pity party, period. It doesn’t matter WHY you took out money from your home, the guy should have had savings, insurance and other financial planning for this type of thing, responsible people do! Surely the guy bought an expensive house…where is his insurance? It’s like those people that buy multiple cars and then don’t have money for car insurance, give me a break, grow up, and be a responsible adult and buy insurance! What exactly was his “ebilitating health problems” and if he had them before buying the house what was he thinking. We need to STOP falling for these pity parties. You can plan for most financial risks and if you live paycheck to paycheck (no matter what your income is) and don’t save, then you put yourself at risk. I really have little sympathy for people who don’t save for a rainy day. Everyone can come up with some reason to withdraw money from their house, sick aunt, college tuition, car repairs, whatever. So what.
It is like this, in some small towns each home owner can pay for fire protection. Those that do pay the small fire department will show up and put out the fire in your house, those don’t pay the fire department will show up and protect your neighbors house from burning down because they did pay and watch yours burn. Sounds harsh? Not really, they could have paid but choose not to and spent their money elsewhere.
Same goes for the 20 somethings without health insurance but have a cell phone bill 3-4 times the cost of health insurance…give me a break.
20-somethings without health insurance? Hey now. My cell phone bill is only $40/month.
And if I get sick I goto the clinic. If I incur serious medical bills I declare BK because my total network is negative anyway 🙂
I used to have medical insurance for a number of years..then one day I added it up that I had spent over 8k over the years for it and had gotten a very very poor return. Until I have tangible assets to defend, it makes little sense as society picks up the tab 😀
err tangible should’ve read sizeable.
With the demise of easy credit where one company can extend easy credit to an unworthy debtor knowing that the debt will just refi’d onto another company later as the refi madness continued. Now each company can only extend credit to the extent that person can pay it back without borrowing from another source to pay it back. The consumer spending cuts will be deep!
Many people spend a signficant portion of their budget on food, gas, car payments and housing. A large percentage of people would be in much better financial shape if they cut down on the food intake, cooked more meals instead of eating out, got rid of the comcast triple play (at $200 a month or more with movie channels), keep 1 cell phone instead of a family plan AND a landline; cut gas usage by using the CTA or heaven forbid walking, STOP USING CREDIT CARDS. They also need to get a cheaper car. For some people a car is a status symbol and how much you spend on the vehicle is misguided sign of wealth (i.e. debt=wealth).
The problem is that people refuse to make any lifestyle changes. Inflation, stagnant wages and a stubborn resistence to change has been driving record numbers of people into financial turmoil and/or bankrtupcy. Sure we’re allegedly seeing deflation but it has yet to be reflected in consumer prices. Everyday life is still getting more and more expensive while the luxuries are getting cheaper. Expect the current trend to continue as more homeowners go underwater.
Bob,
Your plan works out well because you’re young and healthy. Until you break your leg and need surgery. Of course you can show up to the emergency room for treatment. But trying to get a follow-up appointment, rehab, or physical therapy without health insurance. It’s nearly impossible because no doctor will see you. You would be a lot better off if you had a health insurance plan with an extremely high deductible like $5k or something, i think it’s called catastrophic insurance.
And about your $40 cell phone bill. That’s extremely low. You must not use your phone. Many, many people get higher monthly plans, text alot more, have the internet, ring backs, ringtones, etc.
homedelete – People living large on credit will soon have their day of reckoning, second federal stimulus package or not. All the consumption that was pulled forward by easy credit is going to see a consumer spending bubble burst. Look at autos….from 17M to 12-13M??? Times are changing and 21 y.o. will have to wait to buy a house….
They’ll have to wait to buy a car too….
HD,
Good point on the HDHP, I will sign up for one if my current employer offers a good one.
As far as Americans cutting their consumption or lifestyle: this is why I think the coming recession will be so painful. Asking Americans to cut back on their consumption is like asking a dog not to eat a steak. Its just not what Americans that have been born since the 1940s are used to. Its a pretty alien concept.
So our government turns on the printing presses and is throwing everything they can at the problem in a feeble attempt to stave off collapse of our financial system, which would force real change. I expect many years or zero or stagnant growth as a result. Its going to be painful either way.
The massive debt fueled consumer spending binge is over. Specialty retail companies will be going under big time. Bye bye K-Mart…maybe it will take down Sears too the CIO just resigned???? Big changes are coming and real estate will overcorrect on the downside. Cash is king!
I meant CFO.
HD-
“got rid of the comcast triple play (at $200 a month or more with movie channels)”
Not sure what Comcast you call, but i have the 3play for $98/month: fastest internet w/ wireless stuff, HD Programming with 1 DVR receiver, free year of HBO, and a phone that i never use.
And my ATT bill is $38/month with unlimited texting and 400 minutes + free nights and weekends. No internet, though.
And health insurance is $25/month (granted i have no dependents).
You guys need to re-evaluate what you’re paying…
ChiGuy,
Not everyone works for the government and is elgible for $25/month health insurance.
The guy being interviewed on CNBC (Robertson) just said, taking your home out of the equation, 80%-85% of Americans are broke. Too much spending. And fed govt wants to spend more? Unreal!
“They need a house, desperately, but to get one they must first sell the condo. It has been on the market for a while at $6,000 less than what Bender paid for it three years ago. They’ve had nary a nibble.
The couple are now forced to hold their breath and go underwater. ”
Sorry I’m back to this. It’s just really irritating. No one is FORCING them to do anything. Centuries of families have survived successfully raising a family on something other than the first or even second floor. This is insane – our society is apparently so spoiled that their position doesn’t seem patently ridiculous.
Now, let’s say not only is Junior on the way, but grandpa died and grandma has to move in. The Misses is getting laid off, and Mister is recovering from knee surgery. Maybe then, they would feel FORCED to move and eat the unplanned loss on their home, but these jokers need to get over their pity party and grow up.
Butttttt, but but David (the first one), what about the STAIRS! My gawd, don’t you know about the STAIRS! When you’re young you don’t want to have to go up stairs, that’s what the gym and stairmaster are for you silly coot!
Consumer debt has peaked….meanwhile Odumbo proposes allowing people to take their money out of their 401K tax-free soooo now that the consumer has taken out all of their home equity (and then some!) he proposes people raid their retirement funds so that Americans will be completely broke and dependent on the federal government and govt programs for every aspect of their lives. My god, what is going on here??? We need less frivolous spending, less debt, and more savings!
I haven’t read that position from that presidential candidate but I think its great. My parents were diligent savers and they would be well served getting access to their 401k nest egg without taxes. Of course they wouldn’t spend it but rather just avoid the tax bite.
Its everyone else I’d be worried about if that scenario came true.
Bob – He just proposed it today….and the focus isn’t on people in retirement…..Let’s just put everyone on federal foodstamps and Sec 8 by putting them all into debt without savings…then let’s put the fed govt in more debt too!
The irony is prominent econ democrates had recently been on TV berating the 401K debit card…….
John,
I’ve never been pro-early withdraw penalty anyway. If people want to tap into their retirement savings let them at their normal tax rate. Why should the government get an extra 10% excise tax on top of normal income tax rates?
I think with this whole 401k/IRA early withdraw penalty again the government is trying to hard to be nanny and financial advisor. Get out of people’s lives. If someone wants to cash out their savings let them.
“Asking Americans to cut back on their consumption is like asking a dog not to eat a steak. Its just not what Americans that have been born since the 1940s are used to. Its a pretty alien concept.”
God you’re a baby (as in young, young, not wah, wah).
Anyone who lived through the 70s w/o being rich knows about cutting back. And middle-class american families in the 70s (i.e., lots of people born in the 50s) are certainly familiar with the concept. Reluctance (understandable, I think) does not equal inability.
And there are millions of Americans living the cutback lifestyle over the past decade–what do you think those million-plus frontline Wal-Mart employees are doing, or don’t they count?
Bob – The point of it is to SAVE for retirement and those that participate receive HUGE tax benefits…HUGE, so if they don’t want to play by the important rules, then there is a disincentive of 10%! My goodness, if you want access to your money then DON’T put it into a tax favored account! Come on, you have to understand that….don’t you?
“Not sure what Comcast you call, but i have the 3play for $98/month: fastest internet w/ wireless stuff, HD Programming with 1 DVR receiver, free year of HBO, and a phone that i never use.
And my ATT bill is $38/month with unlimited texting and 400 minutes + free nights and weekends.”
Your, like, triple pay for $98 dollars a month is an introductory offer, dude. It goes way up after like months, like of like an ARM:
Triple Play Offer: Only available in participating Comcast systems (and may not be transferred) and is limited to new residential customers, located in Comcast Cable wired and serviceable areas. Additional eligibility criteria and restrictions may apply, based on local Comcast system requirements. Offer limited to Comcast Digital Starter Service (or Comcast Enhanced Cable in some participating systems), 6.0 Mbps High-Speed Internet Service and Comcast Digital Voice Service. Advertised prices only available with subscription to all 3 services. If any service is cancelled or downgraded during the promotional period, Comcast’s regular charges apply for any remaining services. AFTER THE PROMOTIONAL PERIOD, COMCAST’S REGULAR CHARGES APPLY UNLESS SERVICE IS CANCELLED. YOU MAY CANCEL SERVICE BY CALLING 1-800-COMCAST. Comcast’s current monthly service charge for all three services ranges from $117.90 to $142.90, depending on area). (http://www.comcast.com/Corporate/legal/TriplePlay.html)
Now add taxes and extras and you’re at almost $200 bucks a month for the full service package.
Secondly, your phone is really cheap. 400 minutes is the cheapest plan AT&T has, and many people use more than 400 minutes a month, hence, they’re paying $59.99 for 900 minutes, which is the next cheapest plan. Add $22.00 a month for texting and taes and the bill jumps to $80 a month. But thats my whole point, people are living way beyond what they can afford…what’ the saying, champagne taste but a beer’s budget?
John,
I completely understand it and wouldn’t touch my money before retirement due to the penalty. But I know plenty of people who wind up in situations where they need to touch that money. I don’t think they should be taxed to death for doing so.
In other words the excise tax is not an effective deterrent to touching the money to most Americans. So why should the government gain? Anything that helps people save is welcomed. This includes favorable tax treatment. The excise tax is one of the reasons I don’t recommend people to invest more than the employer’s match (the other being limited selection).
It’s unwise to withdraw the money early because it’s protected in bankruptcy. Go ahead and withdraw the money early to pay credit card bills or make the car payment. Yeah, all it’s doing is delaying the inevitable insolvency.
Bob said: “But I know plenty of people who wind up in situations where they need to touch that money. I don’t think they should be taxed to death for doing so.”
That is because they have a SPENDING problem and didn’t have savings in a rainy day fund. A car repair isn’t something you go to your 401K for! You’re also forgetting that the gains remain tax free too and the withdrawals are usually only the amount that was paid in which are taxed, so the 10% is necessary to prevent people from gaming the system and to use the retirement accounts for….well, retirement!!! Come on. The 10% is not at all unfair esp. when you have to realize we’re all going to have to bailout these people with tax payer money when they have no money upon retirement because they spent it all! That is assuming USA still isn’t bankrupted by then.
“why should the government gain”
Uh, we’re all the government, bob. Right now, the government could shut down completely except for some people to manage the collection and use of tax revenue to pay of *our* debt (no military, no courts, nothing except Social Security and Medicare, cut loose into self-funding entities) and it would take over three years to pay off the non-social security national debt. Not that that will (or should) happen, but an additional dollar coming to the government as a penalty for doing something dumb, I’m all for that, as it reduces my family’s share of the debt burden.
Since the tax deferral was a carrot to save, and we all agree that saving is good, we want a stick to discourage withdrawal–what other than a %age penalty would you suggest?
I suppose there are strong feelings to keep the stick in place to balance out the carrot. I disagree but it does deter some from accessing their retirement savings ahead of time, unfortunately its only the prudent like me and most on this board.
Generally speaking I’m against the 401k as it seems its the retirement plan that the government just keeps taking from. I really hope Roth 401ks (combined with Roth IRAs) take over as the retirement vehicle of choice as its a good feeling knowing that your money can never be touched or meddled with by the government again if you don’t touch it until you retire.
income resulting from debt forgiveness (from any source, credit cards medical, etc etc) is taxable – but only to the extend that the amount exceeds your net worth. your CPA will have to do a quick one page estimate of your net worth (realistic of course) and include it with your return. Assuming the gentleman in this article has other remaining debts from his medical conditions he may be able to avoid paying taxes on this forgiveness. This is separate from any reduction in tax liability provided by the Mortgage Debt Relief Act. These two relief options may be stacked. a very good tax CPA is in order.
taxing forgiven debt is bad idea imho, and exists primarily as a complement to the write off to the companies forgiving the debt get to take. when the government giveth to one (tax deduction to companies) it must taketh from another (taxing the individual). To me it just seems like kicking a man when he is down.
The real problem, as i see it, is when poeple get behind on consumer debt and the like the scenario most often looks like this: – a borrower falls behind, then huge late fees and interest starts racking up. often debts almost double from the original amount before the credit card companies are will to settle. No companies i know will settle a debt less than 6 months behind and a year is most common. most settlements are around 40cents on the dollar, (give or take 20cents). The debtor often ends up paying an amount equal to the original debt, and then gets taxed on the remaining total. The credit card company gets most if not all of the actual money that the consumer charged, plus a huge tax write off for a paper loss.
I do feel sorry for the gentleman in the article. Medical problems can be very trying for families. To those rugged individualists who are blaming this guy for taking on more debt to pay his mortgage, medical bills, whatnot,… you try making good decisions when you are battling a life threatening or debilitating problem. Often the nature of our system leave people with very few choices.
As i am self-employed my medical insurance is almost 500/month. I know families paying many times that. Calling the current system insurance is really a misnomer – insurance is about pooled risk, the current system is about capitation of benefits. We would all be better off with everyone receiving health care and a system incentivised to provide preventative care and general health and wellness
Hi, everyone
Real estate is not my game, so I’ve been greatly benefitting from the chatter on this site. Healthcare is, and I’d like to return the favor to all of you.
You can buy individual health insurance plans for a very reasonable price. I’m young, healthy and opted for a $5,000 deductible from Humana. My monthly premium is ~$70. Less than my cable bill.
I don’t want to trip another off-topic debate (a la Comcast Triple Play :)), but seriously, get some insurance. FYI, I don’t work for Humana. I would just like to rein in your risk and our national $2 trillion in healthcare expenditures.
“its a good feeling knowing that your money can never be touched or meddled with by the government again if you don’t touch it until you retire.”
Why on earth would you believe that? If they can change the rules on one kind of account, they can change the rules on another. How can you think that at a time when a republican administration is pouring billions into saving private companies from their own greed?
“That young couple though, I am gleeful at their financial missteps.”
Gleeful? Wow, that’s harsh. What did they do to you that you should derive pleasure from their troubles?
The basically priced prudent people like me out of the market with their failed paradigm that real estate always goes up. Thats what they did, I’d always be willing to guess that they did not have 20% down on their condo.
I’m no teacher like one of them but I’d be willing to bet that I make more than a teacher. But silly me believing that I should come to the table with 20% down and not participating in the boom and its toxic financing.
More reasons to be gleeful: they “desperately need a house”, and they only bought the house three years ago. They’re not even willing to take much of a hit on it probably because they have no savings other than that 6k.
Hey stupid is as stupid does RunnerRunner. Lets call a Forrest Gump a Forrest Gump.
I’m sticking by my guns on the no pity party for the guy with medical problems. First, I don’t know what those medical problems. Second, that’s the price for not have at least a cheap high deductible health insurance plan. My goodness, buying insurance is part of being an adult, I don’t like have to have so much insurance and paying all those premiums, but what is worse is paying all those premiums AND paying taxes for the deadbeats that don’t! WAKE UP PEOPLE. The pity parties are self created and avoidable. It is time for the responsible people to stand up and say ENOUGH!!! We’re tied of enabling all these people. Boo hoo these people have to climb up a few stairs….what a joke! Planning on owning a home for only three years isn’t smart either…so they even planned on being stupid.
We need to start calling the boomerage kinds for what they are….deadbeats who lived it up on credit and “education” loans and can’t afford an apartment, shared or otherwise. These same able-bodied adult dependents will continue living off others until the parent or government teat runs dry.
kids, not kinds.
Its not exactly easy to get affordable medical coverage if you don’t work for a big employer and have a pre-existing medical condition is my understanding. We really don’t know the specifics of his situation. But its hard for me to hold people like him in the same contempt that I do otherwise healthy but stupid people like the underwater couple (of which I imagine there are tens of thousands).
I’d imagine with serious medical problems his finances might be a secondary consideration in life. And it sounds like he may have real problems as opposed to having to take a few flights of stairs but I digress.
Bob wrote:
“They basically priced prudent people like me out of the market…”
So you blame others because you don’t live in the kind of place you think you deserve and seeing them suffer somehow makes you feel better.
Obviously they don’t deserve to live there if they are having trouble servicing their mortgage, donchathink? ;D
I blame them for being a party to this huge misallocation of capital, the wreck of our economy and the near meltdown of our financial system. I also blame them for their entitlement attitude.
My entitlement attitude is the context of what I can reasonably hope to afford given my income and fair assumptions about ability to repay. Their entitlement attitude seems to be they get what they want when they want it, as evidenced by the fact that they need to sell their place “desperately” because they have to walk up more stairs.
You’re damn right watching them ‘suffer’ makes me feel better. If by suffer it means they can’t get out of their idiot financial blunder & are forced to adapt their lifestyle to their situation they got themselves into. I know how unAmerican is that! Isn’t there a constitutional amendment providing for consumerism and guaranteeing the right to not walk up stairs?
That couple is indeed laughable. How did my parents manage with our third floor walk-up apartment?? These sellers are among the lucky ones – they don’t need to sell…They should grow up.
Bob – If it wasn’t the medical, I’d bet it would have been something else. That is a heck of a lot equity to withdraw! Moreover, every state has a program to provide affordable health insurance should the private market not provide one. Speak to a health insurance agent that does only health insurance and they will tell about all the options available. My agent, as a self-employed person myself, told me all about what is out there and that there is no excuse for anyone not having coverage other than a spending priority issue. Moreover, if this guy with $800K house was employed (and I imagine he was to afford this house) then I bet he had had coverage and could have done COBRA, etc. If you look into the details of this story my experience tells me you’d less sympathetic when the whole story comes out. Just another case of people that drained as much equity out their house and now we get a pity party story….whether medical costs, laid off, gambling problem, etc. They should have had savings for such issues, period instead of buying a $500K house!!! House rich, cash poor, boo hoo….
Medical bills usually means a failure to pay co-pays or the laziness to trudge through the red tape to submit bills to the health insurance company. Maybe the guy has health probs because he’s 150 lbs overweight and smokes a pack a day. There is obviously more to the story I’d like to know.
Some folks need a bit of empathy. Being gleeful because of someone else’s misery is right up there with Scrooge. Hopefully all authors of gleeful postings get a midnight visit, soon.
Bob, heed the good advice from hd concerning health insurance. I know someone who just recently went to the ER and ended up with a bill for over $900 (that was with the uninsured discount). Unexpected health events can have a huge effect.
As for Comcast Triple Play, it is over after one year, but if AT&T is in your area, chances are you can request that the special be extended or sigh up with AT&T.
dd – I understand people who are “gleeful” toward the plight of arrogant buyers who borrowed why beyond reason to live a fantasy lifestyle… I am not one who is gleeful, it just shows justice in the end….but now we, the responsible ones, are going to have to pay for it. With regard to the medical expense situation, I need a lot more facts before feeling sorrow for someone who mortgaged and HELOC’d their home for something like $800K. Come on, if they were having big problems they should have sold and moved into an apartment and had had insurance instead of stiffing others for $400K in losses instead of buying insurance. Come on, this is a tragedy of their own creation, they are not “victims” in need of sympathy at this point….they are debtor deadbeats just like everyone else. We need to stop the PC nonsense and call people out when they are irresponsible.
At first blush, you could feel sorry for the guy with the severe medical problems, except that he bit off more than he could chew even paying $400K.
The sensible, prudent thing to do when the bills came would have been to just sell the house. It is NEVER sensible to tap your house to that extent to pay your bills-you effectively do not own the house anymore.
The only reasonable way to get the good of your house equity for other purposes is to just sell the place and move into something cheaper, and in the distant past, that is exactly what you did.
However, you would then have tax consequences, whereas the easy lending climate, that inveigled so many in to borrowing far over their heads, allowed people to pull vast amounts of cash out of houses with no immediate tax consequences or even higher immediate payments, the idea being to defer paying the piper until your house appreciated more- never mind that if the price runups of recent years were to continue unabated for much longer, you’d have to be Bill Gates to afford a studio condo in Rogers Park.
The worst injury of the speculative rampage is that it influenced people to think of their houses as something that made them a living rather than as something they could have for security in housing as they paid for it.
“I kept refinancing it to pay the mortgage,” he said. “I kept hoping the market would level off. I never imagined this would happen.”
– Well it did and everyone was talking about the housing bubble, but then again maybe you were in a coma? That would explain it.
“That’s one big debt off my shoulders.”
– I bet it is and thanks for passing on the debt to someone else, we taxpayers love footing these types of bills. Maybe we can buy you a Mercedes while we’re at it too? Don’t bother with buying insurance, we’ll step in and cover everything for you at no charge to you. Heck, we’ll even through in a “free” scooter chair at no cost to you either.
Oh, and everyone that lives in a $729K house can’t afford health insurance, don’t you realize only people living in a $1M+ home should have health insurance?
Why feel mad at him? From all the information he had he probably just thought he was screwing the bank. I can’t blame these people for screwing the bank. Really the bank _should have known_ this could’ve happened.
Maybe they did. Maybe they also knew something we didn’t know, via their strong lobby: if this _could’ve happened_, they might’ve known they could get bailed out.
I harbor far less animosity toward the deadbeats than I do our government and the banks. Lets put blame where blame is due: had the banks been doing their job these deadbeats would’ve never been enabled in this irresponsible behavior.
Bob – You are simply wrong. Anyone that takes money under a contract and then does not repay is a deadbeat, period. Banks are owned by you and I. They are not some magical entity to screw over. Moreover, the banks more or less charged reasonable interest rates, it isn’t like they were charging 25% n a 6.5% mortgage world. Moreover, WE are the government and WE will be paying for this guy who chose to borrow money, bought good and services to consume such money, then did what he could to get out of his obligation to pay. We would not be having a financial crisis right now if people honored their commitment to repay their debts. The irresponsibility of the guy is harming you and I and I for one do not like nor is it fair since I didn’t borrow the money nor did I loan it to him. The mentality of some people to screw over the bank instead of working off one’s debt is mind boggling. I can tell you story after story of people hiding assets to get a bank to do a short sale, it is sad and disgusting. Banks should not have continued to loan money, but this guy shouldn’t have taken it either. In this case I blame the guy way more than the bank since he was completely irresponsible for buying so much house and not having the proper insurance in place….I’d love to see what this guy bought and “owned” which I am 99% sure would appall everyone since that is usually the case. I just don’t see what the excuse is for this guy to not plan for insurance and the like….but then again maybe you feel everyone should be living in half million dollar homes, that that is a “right”?
John,
RFLMAO. For starters banks will screw you in a second if the writing on a contract is their way. Done ennough very large structured deals with some to know this very well. If someone writes me a contract and since I have never heard of anyone modifying a mortgage contract you are signing THEIR contract. If someone spends gajillions on legal and still writes me a free put one is entitled to exercise it. The walk aways are the ones I technically can’t find fault with in this whole thing.
Bob… They were all about loosening standards to write more paper and post more profits. On the bigger banking side I assure you it was said at least once somewhere “We need 2 cents to make earnings, lets do some more of those ??? thingies you can buy for 85 cents on the dollar and mark it at par so we can make earnings”
Now the taxpayer will pay for that.
“If someone spends gajillions on legal and still writes me a free put one is entitled to exercise it.”
Well put.
Here a link that should make some of you feel very gleelful
http://andrewsullivan.theatlantic.com/the_daily_dish/2008/10/memories.html
Just imagine how happy you could be if Chicago was like Riverside, CA!
If the US had universal health insurance….
“If the US had universal health insurance….”
We’d all be treating at Stroger Hospital.
Blah, Blah, Blah. I have been looking the past four weeks to buy a place in cash between $200-$250K anywhere from the South Loop up to Wrigleyville and I have found people that are in trouble just not willing to accept the inevitable. Either people in Chicago have not been hit that hard by this mess yet, they are hiding under a rock, or they are waiting for a rude awakening, but I have put in some reasonable offers to people based on comps in their buildings and they just are not willing to budge on their price. Can somebody please help me unload this money and find a place; preferably with a lakeview and parking spot in this price range.
To add to the discussion something other than my rant, can we please discuss the withdrawal restrictions that both Obama and McCain are proposing for retirement accounts? This is a completly insane bandade to put on the problem and will only delay the inevitable even further. That is if any of these deadbeats actually saved a dime in their retirement accounts.
To John – Frankly speaking California and any other state ( i am not sure if their are any) that are non-recourse; i.e. somebody can simply mail in their keys without penalty are probably 60% of this problem. People keep blaming the mortgage brokers due have their reasons but lets explore or dig into the issue why a state would have such poor regulation. Perhaps the Dike grandma Pelosi can explain to me why citizens of her state could simply pull money out of thier homes, go buy homes in AZ and Vegas with Cash and then foreclose on their piggy bank in CA?
My apologies, I meant to say the withdrawal restrictions that they propose to lift.
shiphouse,
Follow short sales and the REO/foreclosure market. You will definitely be able to find a bank willing to negotiate price with you on many properties as a cash buyer.
The reason the people all over the city aren’t willing to negotiate on price are twofold: 1) they aren’t truly pinched to move in a hurry and believe its their god given right to experience as much appreciation people that sold in 2006 did or the much more common 2) they are underwater on their mortgage and are unable to bring any sort of sizeable sum to closing to seal the deal.
Scenario 1 is anybody who bought roughly 2003 and earlier. Scenario 2 is most people who bought 2004 and later.
Good luck with the condo market kiddos. In every housing bust condos have always taken the biggest hit – falling first and recovering last. Where oh where will all the new buyers come from who will part with hundreds of thousands of dollars to support current prices? Condos, by nature, should be cheap – and they will be again.
Bob,
Thanks for the advice. I have followed the REO/Foreclosure market a bit and unfortunately the best deals seem to keep coming up in American Invesco Buildings; which from my research, the opinions on this website, and the opinions of my broker have made me shy away from these listings. However, I have to say that some of these buildings locations (3660 N. Lakeshore, 345 LaSalle, and 10E Ontario) are not bad at all and have some fairly good amentities, ecspecially for the price at which you could pick them up. I am not really worried much about price appreciation at all as we plan on holding on to this place until our newborn goes to college (it will be used as an in-town); however, what worries me about some of these buildings is potential special assesments.
shiphouse – I understood that California was a non-recourse mortgage loan state whereby the house is the only collateral without recourse to anything else, but ONLY the primary purchase mortgage is non-recourse, HELOC’s etc. are not. Having mortgage loans be non-recourse debt SHOULD have caused lenders to scrutinize the debtor more for the ability to repay, but apparently in this bubble that didn’t make a difference. That is, a non-recourse mortgage state should be more stingy when it comes to issuing mortgages.
Dear SHIpHOUSE,
Per your 7:17 post, the homophobic slurs are really unnecessary.
Shiphouse.. takes a while for people to adjust to go from “at least it’s not happening here” to “Oh, Sh*t”
Denial, blame, fear, and capitulation?
I’ve seen Denial, blame, fear, and capitulation.. then when you go to capitulate you cant and go into a second wave of Denial, blame, fear, and capitulation… It’s like Homer Simpson falling off the cliff scene. Oh.. Ahh.. Ouchh.. Oh.. Ahh… Ouch……..
What happened to our friend Anger?
Anger and panic appear intermittently.
HD… I think people are now too fat to do anything over their anger.
March up the capital stairs in D.C??? I don’t thing 40+% of the people can now make it up them without stopping 2 or 3 times to catch their breath. My conspiracy theory is that the gov’t keeps quietly subsidizing McDonalds to keep the Dollar menu at a dollar.
Well, 30 year fixed rate mortgages are skyrocketing! 7% by the end of the day? Mortgage rates will drive down prices during this quarter of capitulation.
ShipHouse,
When I moved to Chicago the last time (1999) people kept telling me to buy even though I was appalled by the prices. Time and again I was told “Chicago real estate never goes down”. I just laughed. It’s ingrained in people here. Do you have any idea how hard it is to abandon something you’ve believed your whole life?
Regarding your attempts to purchase a place for cash…would need a lot more information obviously (what’s your limit on assessments, how many bedrooms, etc..) Does your agent think your offers are reasonable? Occasionally you can find strange deals where you have to have cash to buy a place because no bank will loan money on it. That really lowers the price.
Update on Lincoln Park – Over the past 12 months inventory levels have held constant in Lincoln Park, while prices have remained relatively flat. Just over the past 3 months, the percentage of units listed to units pending closing has decreased from a level of 27% in April 2008 (normal levels), to 10% today. This represents a dramatic change in the equilibrium of supply and demand. What this means – The economic crisis has caused the real estate market to come to a halt and prices are set to contract in Lincoln Park across the board. The level of this contraction, and whether this is short-term or long-term issue, is dependant on credit markets and the economy in general.
Is it a good time to buy? That depends on how good of a deal you can get. The best indicator of pricing is to compare your overall housing expense as a purchase to what it would cost to rent. The problem is with a struggling economy we don’t know the direction of rents of the next few years. Will we recover in an inflationary environment where incomes/rents increase dramatically? Or will we face deflationary pressures sending rents lower? If we knew the answer we would all be rich but unfortunately even the brightest economists in the industry don’t know the answer to this question. Just remember that the masses are nearly 100% wrong in the longer term.
Awww, poor yuppie couple has to raise child on third floor, boo hoo, so sad. What whiners, I grew up on the third floor and so did a lot of people in my neighborhood – and even without cars!
The are going to be screwed when they have to send their brats (yuppie accessories) to the supposedly oh so bad CPS because their jobs are gone and they cannot afford private school. Awwwww.
All these people walking away from their properties are going to have credit trouble in the future. Nobody will give them home loans, probably poorer terms on automotive. If I were a landlord, I certainly wouldn’t rent to them. As foreclosure’s increase, there is going to be massive pressure on the rental market, since there is no new rental construction. As well as probable social unrest. I also suspect that condo’s won’t be an option for them in the future. In New York condominiums are already starting to have requirements much like cooperatives – this is at the high end, but I suspect it will trickle down as people get foreclosed upon.