Musical Houses

Musical Houses Part 1
    More and more these days it seems we hear on the news about the housing “crisis”, while it is a crisis for so many, for some it is a way to become richer and richer. At the end of this correction, I believe we will see that once again, the losers are the tax payers, and our future generations, who will have to pick up the pieces.
Let’s analyze how this situation plays out. Through a little game I like to call “Musical Houses”.
    How can you play the game so that you can become richer, and hopefully pass some of it down to your descendants? Like it or not, future generations will be holding the bag of debt created by the crooks. I firmly believe that unless the banks and politicians take an active role in creating good will towards the people, (make no mistake there were a lot of crooked things that brought on the housing crisis of 2009 that are still lingering today, barring the illusive individuals that would be impossible to track down, the Banks and the Government had equally guilty roles) I believe the following series is how the next 5-10 years will play out. Investors will become richer, people will rebuild their financial situation, and the banks, being “too big to fail” will continue to get bail outs from our bankrupt government, and future generations will ultimately inherit this debt, because our generation will not live long enough to pay it back.
Let’s make believe were playing this game in Southern California. And we have 50,000 people playing, and there’s only 49,999 “Chairs”.
    Clarence and Julie are our homeowners that bought their house in 2008, life was good and they could easily afford the payments for the house that they bought for 399,000. In fact they paid 80,000.00 down, and their house was worth, according to the banks appraiser, it was worth 415,000. They thought they did really well because after all they had no knowledge of Real Estate, and the professionals all said it was a good deal. Even Barney Franks was on tv saying that Fannie and Freddie were doing just fine. Even Clarence and Julie knew Fannie and Freddie were major players in the Real Estate lending business, and after all they were guaranteed by the US Federal government, so who’s more credible than that?

    Fast forward to 2012: The southern California market has taken a beating for over three years now, unemployment is way up, and Clarence and Julie’s house is only worth 165,000. Clarence has recently been laid off and Julie had to take a job that pays way less than before. Clarence and Julie have contacted the mortgage company and explained that they cannot make the monthly payments, and that they’ve been responsible and listed their house for sale over a year and a half ago, but the only offers have been for 150-170,000.00 and they do not have the means to bring 145,000.00 plus Realtors fees to closing in order to take 2012 market value for their home. In the beginning the bank told them that they could not do anything for them because they were not behind on payments.Next their savings was depleted, and they could not make the payments. After being a couple months behind the bank decides now is the time to hear them, and maybe squeeze some more money out of them before the inevitable. The bank offers to allow Clarence and Julie to continue to make their payments at a slightly lower amount and make a second payment for the arrears, and they will put the remaining deficiency back on the principal at the end of the loan. Julie explains that they cannot make the payment as is, and certainly not make two payments that equal the original payment and more. The banks answer is that they will extend and olive branch to help them through their tough period, the bank will re-amortize their loan to 40 years and lower their payment, even though it isn’t much it will be more affordable than before, but that’s “all” they can do.
    Later, Clarence confides in a long time friend about how he feels cheated and that his “back is against the wall” even though he wants to honor his obligations, as he has always done. Clarence’s friend tells him about how another friend named James had been in his situation and what his friend, James finally did.
James did the math and considering this whole market and job situation was not totally his fault, and while being willing to come to a reasonable agreement with the bank, who should’ve seen the writing on the wall, and put the brakes on before the bubble popped, the bank was much more reluctant to admit any guilt whatsoever, and would hear of no such compromise.
    This had an effect on James’ outlook and attitude about right and wrong, and while he is a moral man and believes in following through with any obligation he has agreed to, he also knows that this whole situation he’s in, isn’t all his fault, and that causes him to lose any incentive to continue in this relationship, so he decides to “play the game”.
James had heard that there was a glut of foreclosures at the bank, and if he stopped making payments he would have a minimum of one year and possibly up to 48 months before the bank would even attempt to foreclose, so he began to play his game.
    Immediately James stopped making payments to the bank, and instead he began putting the same amount away for a “rainy day”. James continued to gather knowledge about “the game” and 13 months after his last payment to the bank, they sent him a “notice of acceleration” and that he had 60 days to catch up his payments, or his house would be foreclosed upon and he and his family would be evicted. The day came and passed, and the house was foreclosed, but the bank still had to evict them. By this time James knew that evictions were backed up 8 months, so he continued to play the game. He waited for his eviction letter, and 9 months later, that letter came in the mail. Continuing his next move, he goes to the court and prays for a stay, based on hardship, after all, his family has no place to go. The court obliged and gave him a 60 day stay, and by this time James already knew where he could get in to a nice owner financed house, it was priced a little higher than market but, he didn’t need a bank, and it was certainly a much better value than the house he currently resided in. Down payment was not a problem either, because he had been saving his house payments up for 24 months and still had 60 days to make a move. By this time he had saved up around 50,000.00, his game was looking to be in his favor at this point.
    With the knowledge of James’ story, Clarence and Julie decide to play the game of ”Musical Houses”, with the additional money they begin to accumulate due to their new free living arrangement, the clock is ticking, and they begin to create their strategy by learning the right questions to ask their attorney, and their CPA. They want the knowledge required to navigate the waters that lie ahead in this game. Knowing they are over 150,000 underwater on their house, so there is much to be gained by playing this game correctly.
…….
To be continued…

As the situation currently sits, there is a tremendous opportunity for investors at all levels to make lots of money, while homeowners, banks, and taxpayers get the short end.
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    The reason for my blog is simple, to help as many people as I can. Ultimately by the end of this series, I will be engaged with the right people at the mortgage companies, where I will be able to bring back information to help solve some of the issues we face in the housing market, and hopefully some information that will actually help people that are underwater on their houses. Right now, the main real options are 1. Walk away and get foreclosed on, and Short sale, neither of which are ideal for the homeowner, or the bank.
Ideally, many opportunities will continue forward for investors, but homeowners will have more options and banks will be able to salvage much more of their shareholders money, which in turn will reduce the tax burden passed on to future generations.
If I get enough requests to continue this story, I will continue this series.
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P.J. Henry -Next Door Real Estate Mentor