When a house becomes a prison!

 Today was one of those days that reminds me of why I do what I do. I am in Real Estate to help people. Sometimes I can and sometimes I can’t, but I can never stop trying. This is a true real life example of some of the problems our elderly have in this country. The names have been changed to protect my Sellers. So I’ll just call them, The Lovelys. Why? Because they are. They are lovely folks who will be turning 80 in January.

The Lovelys sold their house in NY and moved to Florida about 12 years ago. From what I understand everything was going pretty well until they got a big tax bill from the IRS for the sale of their house in NY. It seems they had hired an attorney to handle all of this for them and for some reason a mistake was made and they ended up owing the IRS $50,000. This came up about 1 year after having bought their new house, they were planning to retire in. They didn’t have much money to begin with but were able to put down a good chunk as a down payment on their new home and only had to finance about $70,000. This gave them a manageable monthly payment that they could afford on their fixed incomes. Well, when they got slapped with this big IRS bill they had to refinance their mortgage to pay if off. This made keeping up with the payments more difficult, so at the age of 70, Mr. Lovely had to go back to work.

Well, life being the way is it they encountered several more of life’s difficulties and had to start borrowing money on their credit cards to be able to meet their monthly bills. This went like this for quite a few years until eventually the payments became to much for them and they refinanced their house again to pay off the consumer debt.

Again, life being unpredictable, threw a few more challenges at them and the credit card debt accumulated once more. Let’s fast forward to the boom market of 2004.

Property values increased drastically and their house built up quite a bit of equity. They met with a Realtor in late’04 to put their home on the market. Their plan was sell their home, payoff their debt again and have some money left over to move up to Georgia and pay cash for a place in an adult community. Ahh, paradise! No more bills and Mr. Lovely could finally stop working, since he was then 78 years old. The only problem was they decided to go with Buy Owner instead. This company is not a Real Estate company but a marketing company. For $2,600 they will give you a yard sign, a stack of blank contracts and place your property on their web site. That’s it. They are not licensed and cannot perform the duties of Real Estate. This includes, not being able to give you an opinion on the value of your house. But hey, the consumer doesn’t know this. So The Lovelys, ask them if they think we can get $375,000 for their house and of course the company representative says, “Sure, sounds great. Give me $2,600 right now and I will go get a sign out of my trunk and get you on the web site later this week.” This company is so nice they even mention that if your home doesn’t sell in 12 months they will reimburse your money IF you list with their affiliated Real Estate Company. Ok, so I’m going to jump ahead 12 months.

The house didn’t sell. Big surprise. Even in the boom market a house valued at $269,000 will not sell at $375,000. Anyway, The Lovelys decided, they best get their $2,600 back, so they decide to list with the affiliated Real Estate Company. The Realtor comes over and explains to them, that no, you must have misunderstood, we don’t refund the $2,600 you paid. What we do is reduce the commission to make up the difference. So instead of charging you 7% we will only charge you 6%. And by the way, we think you need to reduce the price to $345,000. Well, The Lovelys, are a little hesitant but really need to sell. That have wasted a year already, with nobody even looking at they house, so they agree. A couple of months into this new agreement they contact me desperate to sell their home and cannot understand why their house has not sold. After a little research, I explain to them that they are overpriced by about $80,000. The Lovelys are devastated. They still have 4 months to go on their listing agreement and if they cancel they have to pay a $2,000 cancellation fee. They have no money. The initial $2,600 was placed on a credit card and they have been using them to supplement their income for several years now.

This is getting really long now, so lets just say after another 4 months they have listed with me at $259,000. Unfortunately, the boom period is over and was way before I took the listing. I have had it now for 60 days and this brings us up to today. Mrs Lovely has been very depressed so I suggested we meet today and let me look at their finances, to see if I can, maybe, come up with an idea, that they have not thought of.

Folks, I must say this was a very emotional day for me. Remember these folks are almost 80. When I first starting going through their debt, I had to fight back tears, then I got angry at the credit card companies and the banks for giving these folks so much credit. Then I got mad at the Marketing Company that took their money. Then I got mad at the Realtor who priced their house $80,000 over market value and caused them to miss the boom period, when they could have sold. Then I got mad at me for not being able to help them out of this mess.

So here’s the situation, in all it’s ugliness. They owe $175,000 on the house. They owe $55,000 in consumer debt. This totals $230,000 debt. Their fixed income is less than $3,000 a month. The house has 2 mortgages on it. The first is a ARM and in March ’07 will adjust from 6.95% to 9.95%. The second is at 13%. Since the Real Estate market has changed, their house right now, max, is worth maybe $235,000. Do the math. Even if we get lucky and sell the house for top dollar, it is not even enough to pay off their debt. Where are they going to live? What are they going to eat? They have no children. They are alone. They are screwed. They are almost 80, with no hope showing.

I was honest with them. I told them they need to meet with a bankruptcy Attorney to see about getting rid of the consumer debt. Then we need to concentrate on selling the house. I will work for free, if need be, to make sure they get as much money as possible from the sale. Maybe they can get out of this with $50,000. Then, they need to move to Georgia and find a nice rental in a retirement community and enjoy what life they have left. They still have each other and that is what is important.

This story is actually a lot more complicated and a lot more disturbing than this but I’ve run out of space. But please, keep these folks in your prayers.

When a house becomes a prison!

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