Buying again, 2 years after Short Sale – questions for you pros

[SD Realtor]

Vety good point eavesdropper. If you are going to purchase a home and are counting on appreciation then you should reconsider making the purchase.

[SellingMyHome]

Thanks to some for answering my question.

Is dirthead always such an AHole?

This wasn’t meant to be an indictment on my decisions, I wanted to know about what is going on in the lending area with people like me.

[svelte]

We were in Vegas a few weeks ago. Dealer at the blackjack table told us she lost her home to foreclosure last year. Then she said she was considering buying a house for $250k in the next few months for all cash. She was serious. No joke.

[SellingMyHome]

[quote=dirthead451]You are an idiot in my eyes. You think it’s acceptable to let someone else take the fall for your poor financial sense? You are an idiot and a scumbag.[/quote]

Who took the fall for my strategic default?

[SellingMyHome]

[quote=eavesdropper][quote=SellingMyHome]…I bought in 2003 (halfway up the price rises), and thought it was going to be a starter home, one to live in for a few years, and then upgrade when we had kids. Well, the kids came along, but the market crashed. For several reasons, we decided to get rid of the house. It was a strategic move on our part, as there was no way the house was going to sell for a profit in the next 10-15 years.

So, now we are capable of buying again. To me it looks like the market is about near its lowest, maybe another year or so more still. I don’t mind renting a house, actually like not worrying about fixing things. BUT, my wife likes the idea of owning, and in the end, so do I.[/quote]

I won’t comment on whether you should or shouldn’t. I may have an opinion, but I’ll assume that my opinion is irrelevant to your decision.

However, I did notice that you cited your inability to sell the house at a profit in the next 10-15 years was the trigger for your self-described strategic default.

If that is, indeed, the case, I’d say that you probably shouldn’t get back into home ownership until there is clear-cut evidence of a sustainable housing recovery. You stated, “To me it looks like the market is about near its lowest, maybe another year or so more still.” I’m curious to know why it is that you feel that way; have you identified any economic indicators that would influence your thinking in that direction? I’m not being smartass here – I really do want to know.

Also, WHY do you and your wife “like the idea of owning”? I understand the whole “wanting my own roof over my head” thing, but there is a genuine risk involved with a transaction like this. If you are troubled enough by the changes in the housing values that you proactively sell a house to avoid the fallout, it would appear that this is something to consider before jumping back in the pool.

A belief that you would be unable to sell for a profit in a decade is what caused you to take a very risky financial step a couple years back (the short sale decision), and that’s not exactly compatible with the whole American Dream thing. Essentially, what I’m saying is that you have to decide what’s important: home ownership or profit (and, what’s more, how much profit). Otherwise, you may well come up against the same issues in a couple years if the market isn’t showing signs of recovery, or not recovering at a pace with which you feel comfortable.

I’m not saying that you shouldn’t be prudent in this decision. Of course, investing money wisely is always a good and important thing. But if you are unable to deal with the economic vagaries of the real estate market (i.e., your overwhelming concern about selling for a profit in 10-15 years was what caused you to short-sell, not financial hardship), housing may not be the place for you to sink a very significant portion of your money.

Best of luck in coming to a decision.[/quote]

We bought in 2003 hoping to own it for about 10 years , and then move up. I was pretty bitter that by the time we had kids and wanted a bigger house in a good school district, we couldn’t sell our house. So, we dumped it onto a bank that was the cause of the mess this country is in now.

We rent now, but while it is nice to not have to worry about maintenance, etc., it is a bit unnerving knowing we could be out on the street if the landlord wanted to.

So, with two young kids, we would like some stability in owning our own house.

Was I really that dumb when I bought my first house in 2003? I didn’t get an exotic loan, had, still have, good income, etc. How many of you knew the market was going to crash in 5 years? Really? Honestly? Maybe a few of you.

I am now a lot more informed about the market , and won’t forget the bubble. My kids will probably not remember, and their generation will make the same mistakes. To answer your question, from what I’ve seen and read, it looks like the market is about at the bottom, plus or minus 5%.

[scaredyclassic]

Oh I knew. I have live witnesses who thought I was a nut in 03.

[SellingMyHome]

[quote=walterwhite]Oh I knew. I have live witnesses who thought I was a nut in 03.[/quote]

I’m sure a few people knew, not doubting that. You’re not the one calling people idiots though either…

[eavesdropper]

[quote=walterwhite]We shouldn’t call each other idiots or scumbargs as most people are just doing the best they can and aren’t idiots and svcumbags. Occasionally you will meet a true idiot, or scumbag, but they will be rare.[/quote]

Scaredy, I can appreciate your attempts at restraint, but you may be treading on some toes here.

I, myself, double-majored in idiocy and scumbaggery, and continue to work very hard to keep up my credentials. I’ve always felt pretty good about my qualifications, but I have to admit that, living in such close proximity to the nation’s capital, it’s a never-ending struggle to stay at the top of the bottom-feeder list. Frankly, I’ve never recovered from the DeLay years.

[eavesdropper]

[quote=SellingMyHome] We bought in 2003 hoping to own it for about 10 years , and then move up. I was pretty bitter that by the time we had kids and wanted a bigger house in a good school district, we couldn’t sell our house….[/quote]

SMH, I’m not judging you, honestly. I’m not walking in your shoes, and I don’t know what kind of load you’re carrying. But based on what you’ve written here, I’m not sure that home ownership is ever going to bring the rewards you anticipate.

You sound like you’re in your 20s or 30s. If so, you need to know that what happened to real estate in the aughts was a fluke. In fact, the incredibly rapid increase in RE values throughout the US over a several-year period should have been an unmistakeable warning sign that something was amiss, and that the rise would be matched by a similarly spectacular fall at some point.

There’s nothing wrong with wanting your house to maintain its value. But if you purchase your primary shelter with the idea that it should go up 10 or 20 percent a year, you’re going to be disappointed. However, if you do your research, choose your neighborhood carefully, bargain aggressively, avoid buying more house than you can afford, and work hard at keeping your house well-maintained and cared-for, you shouldn’t lose money on it over a 15-year period. But it’s not going to do double-duty as an ATM, or as a source of payment for future additions and upgrades. Nor do you want it to, since this is the kind of credit policy that contributed to the implosion.

[quote=SellingMyHome] …..So, we dumped it onto a bank that was the cause of the mess this country is in now. [/quote]

I’m no fan of the megabanks, but to believe that they are solely responsible for current conditions is naive, self-serving, and dangerous. I am convinced that they carry a very large chunk of responsibility, but they had plenty of cooperation from investment firms desperate for more product they could sell equally-desperate investors, politicians who pushed the “homeowner” fantasy while stuffing their pockets with campaign contributions, to the public-at-large who expected the lenders to parent them, and tell them what they couldn’t afford.

It is true that, after the fact, the average guy on the street is getting hit a lot harder by the circumstances of this debacle. But make no mistake: by strategically defaulting on your home, you are adding to his burden and pain. You hold an extremely narrow-minded opinion of the cause of the financial crisis, and, in keeping with that, you’ve convinced yourself that you are “sticking it to the bankers” and that they are the only ones affected. In reality, they are simply passing the effects of their risk-taking onto their poor and middle-class customers.

There are many reasons why homeowners are defaulting, but, no matter what the reason, the effects are the same: continuing reductions in housing values in neighborhoods everywhere, and resulting instability in the RE markets. Strategic defaulting exacerbates this, which is why I’m strongly advising you to look at whether your reasons for buying, and your expectations from home ownership are appropriate and realistic. If you’re looking at this purchase as a way to invest your income, I urge you to back away. I don’t know what happened the first time, but you’ve made it clear that no one is pressuring you to sign on to another mortgage (aka, an obligation to pay money back to an individual/entity who lent it to you), and that your family has a roof over their heads.

[quote=SellingMyHome] Was I really that dumb when I bought my first house in 2003? I didn’t get an exotic loan, had, still have, good income, etc. How many of you knew the market was going to crash in 5 years? Really? Honestly? Maybe a few of you.

I am now a lot more informed about the market , and won’t forget the bubble. My kids will probably not remember, and their generation will make the same mistakes. To answer your question, from what I’ve seen and read, it looks like the market is about at the bottom, plus or minus 5%.[/quote]

Of course you weren’t “dumb” when you bought the house in 2003. But you did willingly sign on to an obligation to pay a very large debt, and you haven’t mentioned anything that indicates that fraudulent activity on the part of the lender. Again, there may have been mitigating circumstances surrounding your decision that you’ve chosen not to reveal here. But since you are choosing to pursue home ownership again, in what can in no way be described as a stable or visibly recovering market, you need to take that obligation very seriously.

You say that your kids won’t remember, and that they’ll probably make the same mistakes. Kids see, and remember, a lot more than we ever give them credit for. And it’s up to you, as their parents, to ensure that they don’t make the same mistakes by teaching them to be self-sufficient and responsible, and by providing them with an education in the basics of personal finance. You didn’t learn it along the way, so where will they get it from? Use this rotten experience for something that will help the most important people in the world to you and your wife.

As for being a lot more informed about the market (” from what I’ve seen and read, it looks like the market is about at the bottom, plus or minus 5%”), I’d slow down a bit. You weren’t dumb during the boom. There simply wasn’t any contradictory information out there that was readily available. I was very concerned by what was going on (like Scaredy, I, too, had a reputation for being “off my rocker” among friends and neighbors because I kept insisting that the rapidly increasing RE values WEREN’T a good thing), but I would scour the newspapers, magazines, and internet for some evidence that the economists and the financial analysts – the “smart guys” – were seeing what was going on and were doing something about it. I never found them.

It was an education for me. I realized that a good many of the “experts” in all different fields weren’t experts at all. In fact, many of them aren’t even competent in their fields.

You can’t simply read something and believe it. You have to see what the writer is basing his claims on. Is there actual evidence, or is it really just his opinion? Obviously, you can’t know everything. But if you’re going to be jumping into the deep end again, you need to be basing that decision on something solid. Like where is the actual evidence that clearly demonstrates why this is the bottom of the market. Let’s see: huge inventory of homes, backlog of foreclosures, mortgages in default, record numbers of homeowners in upside-down mortgages. Throw in a steadily rising unemployment rate, and increase in offshoring of jobs.

C’mon, SMH, use your common sense here, and your gut instinct. Does this honestly sound like the “bottom” of the market? You’re a smart guy, and because you got caught once (like millions of other homeowners from all educational and economic levels), doesn’t mean you have to again. I’m willing to bet that the first homebuying experience was a very emotional experience. Here’s a handy tip: Keep the emotion out of the process. Take your time, use your brain, and listen to your instincts.

Time is on your side here. The bargains won’t go away; in fact, there’ll be even more of them. You’ll be able to gather more information about neighborhoods and school districts. And you’ll be able to stabilize your financial matters, and put yourself in a more advantageous bargaining position.

[jstoesz]

great post eaves. You have eloquently stated what I was thinking.

There is a certain lack of introspection, and learning from past mistakes in SMH’s posts that makes one a bit frustrated. Makes me think that we are doomed to repeat past indulgences if this is the attitude of most.

With that said, SMH, I am sympathetic to your points. Strategic default seems smart to me in general, and if I were caught in the trap of owing 6 figures, I would default too. My credit isn’t worth that much. You were operating as a rational being. You were still honoring the terms of your previous contract. You are not breaking the law, and if some lender is so stupid as to give you more money…well we are really screwed.

I, and probably many others here, are just really frustrated with the view many Californians (who are not alone) hold regarding home appreciation. I guess I can not blame them. This game of insane housing appreciation in CA has been going for a very long time. It didn’t start at the turn of the 21st century.

It is that irrational exuberance that is so stupid…that housing will make you money. And sadly this view point did not die in CA with the last bust. Only productive assets should make you money.

[patientrenter]

[quote=jstoesz]

……..It is that irrational exuberance that is so stupid…that housing will make you money. And sadly this view point did not die in CA with the last bust. Only productive assets should make you money.[/quote]

Well said. Except that the US population has become addicted to the dream that they will ultimately (when they eventually sell) get paid to sit on a couch in their home, as long as they arrange to pay a monthly mortgage instead of monthly rent.

Clearly, only productive assets should be expected to boost one’s income over the long run. One’s own house is not a productive asset in this sense. A good education is, as are great work tools, etc, but not one’s own home (unless you are renting out part of it).

So how do Americans deal with the economic unsustainability of this dream of getting paid to sit on a couch? Well, we arrange for government intervention to make it true. We transfer wealth from taxpayers and savers to homeowners. That’s what the Congress, Federal Reserve and the US Treasury have made their number 1 priority. We have government financing for 90% of home purchases, and vast printing of new currency to prevent home prices coming all the way back down to their open market economic levels. We provide one-way tickets to buyers, with the ability to walk away when prices go down, as the OP did here, or keep the gains if prices go up. All this gets paid for by someone – ultimately taxpayers and savers.

[bearishgurl]

SMH, for a more complete understanding of your situation, I’ve taken the liberty of placing your earlier original post and thread re: this issue here.

http://piggington.com/new_when_does_it_make_financial_sense_to_dump_my_house

Submitted by SellingMyHome on November 20, 2009 – 12:17pm

. . .

My story:

Bought a house in Lakeside (92040 zip) in 2003 for a little over $400,000. Since then in 2006 or so, I did a refi with about $15,000 cash out (all of which went in to fixing up the house, not for new BMW’s). So, that means we have a recourse loan. Actually got out of an 80/20 in 2005, then refi’d in 2006. Closing costs were always rolled in, so total owed got higher! Can you believe the banks do that? My house actually appraised for over $600K during my last refi!

We currently owe about $450K, can get about $350K after realtor fees. That means we are hoping for a $100K forgiveness.

Current mortgage and Property tax add up to $3,300/month. Total household income is about $120K, and I estimate we save about $900 month with the interest deductions, so would need to rent for less than $2,300 to make it work. We could easily find a place for less than that that suites our needs.

Why do we want out? Like 23109VC, we need a bigger place, and hate to see houses going so cheaply. We could easily buy a bigger and newer house for the same as we owe, or a little more. Also, a neighbor recently converted their house into a nursing home. This has upset my wife a lot! We’re not sure if it will just be the infirm elderly, or worse, halfway house type folks.

Can we afford what we have? Yes, but with two kids under four, we have saved absolutley nothing in the last four years, and have actually been dipping further into our credit cards. I have a great pension at work, and wife contributes to her 401K. Sadly though, we have no savings in case of emergency.

SO, my questions is: Is it financially smart to get out, rent, wait out the hit to the credit for the short sale, and buy in a few years? Should be able to save enough for a 10% down then. Also, will have more money each month with higher income, school loan paid off, and one less car payment. . .

SMH, From what I’m seeing here and from subsequent posts on the same thread is that, while a “homeowner,” you refied at least twice, the 2nd refi reconveying a 1st TD and also a non-purchase-money 2nd TD (ostensibly spent on property improvements only). Please correct me if I have this wrong.

I have few questions here for you … to gain a complete understanding of your then-situation …

1) What what the total amount forgiven in your (2010) “short sale?” Did you only have ONE lender at the time of closing your “short sale?”

2) Did you purchase the “shorted” property in 2003 with one mortgage only or two mortgages?

3) What was the percentage of your downpayment in 2003?

4) Was your purchase-money mtg (orig 2003 mtg) a VA, FHA or conventional mtg?

5) Was your “shorted” mtg a VA, FHA or conventional mtg?

6) How many actual times did you refi this property? Do those times include the time you took out the $15K 2nd TD which you state you used for improvements to the property?

7) What was your FICO score at the time you purchased the property you sold short?

8) Since you state your (current?) FICO score is in the “low 700’s,” what (fixed) rate and terms do you think you can expect to obtain today if you were to try to obtain another purchase-money mtg?

9) What is your current price range for a new home?

10) What type of mtg do you now hope to qualify for to purchase a property today (ie VA/FHA/Conv)?

11) What is the percentage of downpayment you now plan to use if you are able to purchase?

12) At the time you decided to “walk” on your old property, did you think that “Lakeside 92040” was somehow a bad place to raise a family or had “bad schools?” And, if so, if you planned on having kids when you bought the Lakeside property, why did you even buy there in the first place?

13) You state the house was too small. If you knew you were planning on raising a family there, then why didn’t you purchase something bigger (or use your “cash-out” equity to add more square footage)?

14) What was the lot size of the property you sold short? If over 10K sf, do you think you can now afford to purchase a property with that size lot?

15) Hypothetically, had you NEVER refied and/or took “cash out” and kept making payments and DID NOT sell short, do you think you will still be underwater today? If so, by how much?

16) Are you aware that permits for “board and care” and “group homes” of every kind are obtained by owners in EVERY part of the SD County (even areas encumbered by HOAs) and in areas of ALL price levels?

17) In hindsight, if your FICO score dropped at least 150 points by selling short, do you now think it was “worth it” to do so, given the much tougher lending standards of today?

****************************************

SMH, it just seems a little odd to me that you should have been as “underwater” as you have stated from a 2003 purchase unless . . .

-you put little to nothing down when purchasing it;

-you paid far MORE for it than the nearby “sold comps” at the time you purchased;

-you had an interest rate above 7% on your purchase-money note (and possibly subsequent notes encumbered by 1st TDs) or were paying I/O on one or more mtgs encumbering this property;

-you repeatedly refied “cash out” along the way (whether thru refi, 2nd TD or HELOC);

-you signed up for points and a lot of junk fees with each “refi”;

I understand you decided to exercise your legal right to walk away and that you are not alone.

If there is any more light you can shed on your “story,” it would be very instructive and informative for the Piggs.

And no, I didn’t post this to try to solicit biz…

[Coronita]

[quote=SellingMyHome]Ahhh, I forgot that by admitting to a short sale, I was showing myself to some posters as an idiot. Sorry for forgetting that!

I bought in 2003 (halfway up the price rises), and thought it was going to be a starter home, one to live in for a few years, and then upgrade when we had kids. Well, the kids came along, but the market crashed. For several reasons, we decided to get rid of the house. It was a strategic move on our part, as there was no way the house was going to sell for a profit in the next 10-15 years.

So, now we are capable of buying again. To me it looks like the market is about near its lowest, maybe another year or so more still. I don’t mind renting a house, actually like not worrying about fixing things. BUT, my wife likes the idea of owning, and in the end, so do I.

So, my question to the pros here (even the jerks with opinions most don’t like to hear), is: Are short-sellers getting back in the market, and what are some of their experiences?[/quote]

Here’s the part if you really want us to offer an opinion, you need to tell us more details. What exactly do you mean by “now we are capable of buying again”…

It means a lot of different things to different people. If you’re planning to do something like a < 20% down, and for example have very little to budget in for unexpected, well then I think personally you aren't in a position to buy even if you qualify. Afterall, I don't think you want this to end up being Financial Trainwreck 2.0 At $3300/month from your last purchase, you clearly could not afford the mortgage, because you weren't saving anything as you admitted and had to tap your CC as you said to meet ends meet.

[briansd1]

[quote=eavesdropper]
Time is on your side here. The bargains won’t go away; in fact, there’ll be even more of them. You’ll be able to gather more information about neighborhoods and school districts. And you’ll be able to stabilize your financial matters, and put yourself in a more advantageous bargaining position.[/quote]

Good posts as always, eaves.

There will be no shortage of inventory:

More than one in three homes with a mortgage in San Diego County are underwater, based on a recent estimate from local real-estate tracker DataQuick.
http://www.signonsandiego.com/news/2011/nov/03/search-your-zip-underwater-homes/

Plus I heard somewhere that, nationally, the banks are holding 6 million houses they have not yet put them up for sale.

People now expect house appreciation almost as a birthright. What’s wrong with “buy what you can afford, and don’t expect appreciation to bail you out.”

[scaredyclassic]

Ok here’s my advice;

wait a bit.

I raised three kids in various rentals till they were 15 11 and 7.

They are fine.

Save like crazy. Shop Doggedly for a great deal.

Buy in 2014.

[Author]

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