I often wonder what makes people tick.....
My wife had a conversation with our neighbor a couple of weeks ago, as we found out the neighbors were moving as the house was being foreclosed upon. Huh? The house next door with all the bells and whistles is going into foreclosure? We'll go back to this later in the story.
The tenants moved into the area because of the excellent school district, paid $2500 monthly rent, first and last month up front, while they saved additional money for a down payment to be able to move into the neighborhood. This was April of 2007.
Let's follow the clock backward.
Sale went through March of 2007 for $699K with 100% financing. The kids (our former neighbors) bought out their parents who were the original owners dating back to 2004 when we moved in to the new community. Oh, but the parents never lived there...it was just a paper transaction.
Essentially, nine months later, the property hasn't had any payments made, and the sheriff puts up a notice announcing the bank is foreclosing, and the current tenants have 40 days to move out from the date of the sale. This will be yet another post, as this is opening a cottage industry of tenants who lack any protections from shady homeowners going into foreclosure.
You have to wonder that something tragic must have happened to the family that purchased the home, and was never able to make the payments.
You know what happened? Two people saw an opportunity to capitalize on the business of walking away. This will be a completely separate post.
The Mortgage Debt and Forgiveness Act of 2007, HR 3648, allowed homeowners to walk away, eliminating the federal taxable liability of the loss that they would've received a 1099 for. Ahhh....bet the politicians didn't see that unintended consequence occurring, did they?
You see the former owners (Mom and Dad) bought the property in 2004 for $450K, and ‘sold it' (to the kids) for $699K in 2007. Can you say non arms-length transaction?
Or maybe, we should call it what it is? Equity stripping? You see, the kids have been in finance and mortgage for 10 and 20 years respectively. Can you imagine $249K in gross profits, less transaction costs, going to the parents (or should we call it like it is....going to the kids through the parents?). Do you think they knew what they were doing? Should I mention that they walked away from 2 homes, not just 1. Total losses to the bank? $1.3 million dollars. And this is but one of countless stories playing out across America.
Either way, I believe that we should love thy neighbor....until they show their true colors, at which time karma will deliver what they so rightfully deserve. I will not be the one to judge them, but I certainly will not be making an effort to make ourselves available for the next birthday party or special event.
I think the apple doesn't fall far from the tree, and the last thing I want is to have my kids playing with their kids. I'm funny like that.
Bill Nazur has an extensive background in finance & mortgage lending who gets to serve as an author, speaker, and consultant to the real estate industry, as well as a featured regular guest on FoxBusiness, MSNBC, and Univision. Bill also hosts a new radio show at http://www.realcoachingradio.com/, along with a thriving (yes, its thriving, not just surviving!) mortgage business, powered at Bank of America Mortgage. Bill's experience in calling the current foreclosure crisis, along with many of the real causes, along with the taboos in dealing with such a sensitive subject, led to the publishing of Finding Foreclosures, published by Entrepreneur Press. Allow my team to help you, as we can also lend in all 50 states. While Real Estate is local, knowledge is universal. We hope to help you soon.
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