Real Estate Investing

Remember my friend Mary?  Desperate to save her house, she’s been applying and interviewing for jobs.  Today she was offered one at a hospital in her town paying $10.50 per hour.  Overall, much better than minimum wage and she thought it would possibly be just to make a house payment.

However, as Mary crunched numbers, they just didn’t add up.  She would be able to keep WIC, but not other food assistance.  She would have to pay $150 every week in child care.  And to make matters worse, because insurance was available at the new job, she would lose the state healthcare coverage for her children (ages 1 and 7).   The cost of insuring her family through her potential new job?  About $500 a month.

Mary’s take home pay would be $60 a week - or $240 a month.  Not enough to make her house payment.  Not enough to pay utilities.  Not enough to pay for gas to get to work and daycare.  Maybe enough to feed a family of four.  Not enough to accept the job.

Meanwhile, the company holding her mortgage has definitely started the foreclosure process.

I don’t know how to comfort Mary.  But writer Jamie K. Wilson tells how to survive poverty.  Another friend of mine said she did this, too:

In the short term, sell plasma. This is for filling in those financial gaps - getting gas when you absolutely have to have it, paying for the kids’ medicine, or buying groceries when you’re in a crunch.

Meanwhile, there are some very good tips out there on how to survive a financial meltdown.  Bankrate tells people to not panic and outlines some steps people should take when facing a financial crisis.

Geraldetta Lovelace has survived three foreclosures, “Foreclosure put our credit in the tank which made it hard to find a place to rent. We have learned to be up front about our situation instead if being ashamed and quiet. There are so many people in our situation and worse that need help.”

I found an ABC News story from December about how more tent cities are springing up - fueled by people who’ve lost their homes.  Squatting in empty houses is also becoming an option for people.

I am wondering aloud whether Mary should consider a short sale of her home to get out from under it, take a deep breath, and move in with her mother-in-law for a year or so while they get back on their feet.  Charles Tharp, a Realtor from California, shares his experiences with foreclosure but is optimistic,

If you can’t refinance or your lender won’t negotiate the terms of your loan for a forbearance, modification of the terms of your loan, etc. (see my blog, “General Options to Avoid Foreclosure“) then the only way to get out of this situation may be to sell your home. If you can sell it before it is foreclosed upon then you can get back on track within a few years.

Mary will experience many difficulties before her finances heal.  I am saddened that she’s ready, willing and able to work, but can’t because there’s not a grace period for the public assistance she receives.  Mary has a long road in front of her that she and her family will walk.  I don’t know how to fix things for her.  All I can do is be there for my friend as she takes her steps and starts putting the miles behind her.

One of my best friends is facing foreclosure.  There…  I said it.  *Mary’s husband had surgery and his recovery took longer than expected.  When he returned to his job, he was forced to quit.  Now they struggle.   

Mary has been looking for a new job and had a second interview today.  She said the benefits would be great, but as long as the salary is enough for them to make their mortgage payment, she’ll take it.  Mary has already talked to her mother-in-law about babysitting her 1-year old and 7-year old.  If it gets too hectic, the 7-year old will be able to go with her father on his service calls since he’s self-employed now.

Meanwhile, they received their first notice this week that foreclosure proceedings are beginning.  They called their lender who enthusiastically told them he could help with a possible refinancing.  When he learned of their current salary (her job searching, him struggling to start a new business), he called back and said no help was available.

Mary’s story is just one of thousands and thousands of people facing the same situation.  In fact, in early June the Associated Press reported that foreclosures are reaching record levels.   

Nearly 1 percent, or roughly 447,723 loans, fell into foreclosure during the January-to-March period, the Mortgage Bankers Association said Thursday in its quarterly snapshot of the mortgage market. That surpassed the previous high of 0.83 percent over the last three months in 2007.

Yesterday another friend told me the sheriff pulled up to the house behind her.  A few hours later, I drove by and quietly took this photo:

This is the face of foreclosure.  The family was instructed to remove their belongings immediately.  They complied.  How could they not with the deputy sheriff standing there making sure they did.  Ivy wrote about this family.  And another that she ran into at the gas station later that night.

The man came up to me and said, “Could you possibly help us out? We were evicted today and we have nowhere to go.” I wanted to help, but had no cash on me. I told him “Sadly, no.” and he thanked me for my time and walked away.

The sad part of this was, these people were not my neighbors that had been evicted earlier that day. So there’s at least 2 families from my town out on the streets with nowhere to go. My heart breaks for them, yet I have to tamp down the hard, judgmental part of my heart that asks, “Why didn’t they make arrangements? It’s not like they didn’t know this was coming.”

How many of us know someone about to lose their home?  How long will this trend continue?  I’m afraid to ask.

*Mary is not my friend’s real name, though she is a real person. 

I’ve shown many homes listed by the Department of Housing and Urban Development (HUD) that have been foreclosed for non-payment of mortgage.  HUD homes in good shape are the rare birds and usually go quickly. 

If you’re thinking about buying a foreclosure, you might note that you may not be buying a complete home.  People tend to get angry when the bank is about to take a house back and they fall into the “I’ll get even” mindset.  Or their complete lack of money and/or ethics drive them to strip a house to sell the goods. 

Most of the foreclosures I’ve toured have something missing including, cabinet doors, lighting fixtures, stoves and dishwashers.  They have missing doors, missing light bulbs, missing mirrors.  And lots of holes in the walls.  And - shockingly - gaps in the plumbing and air conditioning where the previous owners have stripped the copper for resale*.

Even if you want to buy a foreclosure, it may take a lot of work to make it liveable again.  Before you write a contract, take copious notes and get estimates on what the actual cost to you will be to repair or replace missing pieces.  Go in with your eyes wide open because you can quickly add up a bill for tens of thousands of dollars more than you expected.

An article in the Nashville Scene further explains why you should think hard before buying a foreclosure,

But if you’re thinking about buying a foreclosure house, there are some things that you need to keep in mind. First, consider that folks who couldn’t keep up their mortgage payments might have had problems keeping up their house.

For instance, they might have let a roof leak go without repair, they might have postponed maintenance on their heat-and-air systems, or they might have turned the heat-and-air systems off. Believe me when I tell you, a house with no A/C can go bad in just one hot, humid summer.

I added the bold for emphasis.  Foreclosure is not an option for my home, but I do need new gutters and need to paint the trim.  If it’s taking me an extra few months to get this done, imagine how difficult it would be for someone to find the money to do it when they can’t even find the money for a house payment.

But as we talk about homes that have been stripped of their mechanicals, sellers should be aware of the legal ramifications of what they’re doing.  Larry Cragun of Real Estate Undressed compares this to monopoly: Lose The House, Strip It, It’s Not A Game: Go Directly To Jail.  He linked to this article in the Pocono (Pennsylvania) Record about a man who went to jail,

A former Mercer County mortgage broker who gutted his $1.2 million home before a sheriff’s sale has been sentenced to three to 15 months in jail and must pay more than $174,000 to an insurance company.

The seller’s excuse?  He didn’t know he couldn’t take the items.  I’d think that common sense would dictate that indeed toilets and garage doors are a necessary part of a home and they should be permanently attached.

May the buyer beware.

*I’m now seeing outside heat/air units wrapped in CHAINS to prevent them from being stolen.

Photo from the Boston Herald.