- Wow. New contender for best listing photo ever. http://tinyurl.com/ybehsgr Nice find, mukoh! #
- Lengthy post about McMansions over on the P-I Bellevue blog: "Are McMansions going out of style?" http://is.gd/5wyrW #
- Hmm, Washington State not looking so great in the latest Philly Fed State Coincident Indicators. http://is.gd/5xA5K #
- $1million plus homes: Lots on the market (http://is.gd/5xEcD) and lots of "owners" defaulting (http://is.gd/5xE8W). #
- New top dog at troubled City Bank in Lynnwood: http://is.gd/5yiVc #
- Is Google going to buy listing-scraper Trulia? http://is.gd/5z10s #
- Free commercial rent for start-up retail in Tacoma? http://is.gd/5z5fj #
- Another installment from @KirstenGrind on the seedy back-room dealings that took down WaMu: http://is.gd/5Bgqy #
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I’m a habitual follower of this blog, ever since I stumbled across it just after I had a bid accepted on a downtown condo about 2 years ago. Want to thank everyone here, especially The Tim, for providing me the data to make a more informed decision – which was to pull out of the sale and save more money for a down payment while waiting for home prices to match the value I saw in owning.
My dad, however, had already bought an investment SFH in a pretty nice neighborhood using a negative amortization loan. It has been rented since he bought it, but after taxes, insurance, and maintenance, he has eaten away the small amount of equity he had and is now looking at negative cash flow affecting his fixed income. He does not have the savings to take a significant cash loss. The home has been listed for some time now, with no offers that would cover the cost of the mortgage let alone the cost of the realtor’s commission. The realtor he is working with is recommending a short sale instead of just walking away. I would guess (am i wrong?) that the realtor gets a commission in a short sale, but not in a foreclosure.
If it was your father in this situation, what kind of advice would you offer? Are there any professionals you would recommend he consult with to really help him with the pros and cons of short sale vs foreclosure (will any real estate attorney do? is there someone considered the best who could provide more exceptional insight?)? I’d like to hear as many points of view as offered. On a side note, he does have another investment property with positive cash flow and significant equity, but that income is part of his retirement plan. How will short sales or foreclosure affect his other income property? Would insurance costs go up?
Thank you for your input, and hope everyone has had a joyous and safe holiday.
Wow, plenty of vitriol on the McMansions thread. Sounds like Bellevue isn’t always happy with itself. I grew up in Beaux Arts, and still have connections there. Many of the same changes have been controversial in what was once a very laid back community but is now very expensive and status conscious.
I generally stay out of discussions regarding McMansions, because exactly what is considered a McMansion varies from person to person.
RE: Kary L. Krismer @ 2 – Maybe we could establish a definition. In most cases, McMansion is a home that is much larger than the given family needs, in terms of square feet per person.
We can start with a fixed quantity, like 700 square feet, and then add 200 per person. These number probably need a bit of adjustment, but when two people live in a 2,500 square foot home, I’d call it a McMansion.
I suppose we could also consider cost per square foot too.
I don’t see how the definition can vary depending on who lives in it. It either is or is not a McMansion.
To me it’s more a very large house (>3300 sq. ft.), in not necessarily an upscale neighborhood or area (or possibly in a rural area), that is not something that would be considered luxury construction. Two story, but not a box.
From the McMansion article:
“Most of the character (of the 1950’s rambler neighborhoods) has been replaced with soul-less mega homes that all look the same. They have a cookie cutter quality to them…”
Ah yes, that great beacon of Rugged American individualism; the 50’s era rambler.
By Kary L. Krismer @ 2:
I think it’s like Gore Vidal’s definition of a narcissist*. A McMansion is a home that is larger than your own.
*”A narcissist is someone better looking than you are.”
That McMansion thread is hilarious.
Best comment:
RE: Scotsman @ 1 –
Most of Bellevue was Originally Built For Lower Middle Class
That’s why there’s so many 1950s flats and small ramblers out there, albeit the prices for these old money pits today is off the Richtor Scale.
The water supply is cheap and old too….meaning rusty water and leaks in the streets.
McMansion: a faux-high quality, excessively large home on a very small lot (generally barely bigger than the home itself), adorned inside with the latest in 2006 bubble decorations such as granite, stainless steel, bowl sink bathrooms and cheap wood flooring. It used to be these homes were mostly in older neighborhoods where they tore something down to build them, but during the bubble many neighborhoods exclusively of McMansions were built everywhere in the suburbs.
RE: Kary L. Krismer @ 4 – I’d suggest a family of 12 “needs” more space than a single person.
At the risk of alienating the suburban environmental movement (is that an oximoron?) I’m not real concerned about spoiling the aesthetic integrity (or the claim to environmental superiority) of a neighborhood full of ’50’s ramblers or one full of modern day McMansions. They deserve each other, and in fact probably share the same social lineage. 50’s ramblers and modern day McMansions can both be more than a little ticky tacky. And IMHO, being “ticky tacky” is less about physical dimension than it is about narrow idealogical mind set, whether it’s Daly City or Bellevue.
http://web2.wku.edu/~smithch/MALVINA/mr094.htm
http://en.wikipedia.org/wiki/Little_Boxes
Caveat: I don’t mean to sound holier than thou if you have a 50’s rambler or a McMansion. I grew up in an east side ’60’s rambler and I currently live in a 4000 sq ft home in Maple Valley.
I consider a “McMansion” a home bigger than the folks who live there need to have, PLUS has a lot of wasted ugly space: like a high-ceilinged hardly-used foyer, FORMAL dining room, and so on. To each his own, I suppose.
Believe it or not, the first “McMansions” were Victorians. At the turn of the 1900’s, wealthy homeowners had expensive, handcrafted mouldings and adornements in their homes. Mass production techniques were born at this time, and allowed mass-production of intricate mouldings possible. Newer homes were crammed with these false signs of wealth.
The arts and crafts (aka craftsman) movement was born in rebuttal to the gaudy mass produced Victorians.
Today’s McMansions are also characterized as an attempt to create perceived wealth accessible to commoners. Today it is the vaulted foyer, double height windows, columns, mega square footage, and granite. But unlike when those features are found in an actual Georgian mansion, these features are shoddy reproductions and hopelessly out of scale with the other features (like the “grounds”). Many can see these tradeoffs and recognize the lack of quality and wealth, but for quite a few, especially newly arrived types, are blinded to it.
People who buy McMansions generally lack the taste and refinement to recognize what’s wrong with them. I suspect that any time the middle class feels like it’s time to move up (eg late 90’s till now) builders will cater to this.
By S. Marty Pantz @ 13:
The problem with your definition, and the one that just depends on size, is that you have to have something to distinguish the McMansion from the Mansion.
RE: Kary L. Krismer @ 15 – McMansion = Cheap Mansion.
RE: Son of bubble buyer @ 1 –
Talk to a lawyer- a lot depends on how the note is written, etc. The agent’s only interest is the commission.
RE: Son of bubble buyer @ 1 –
Some people feel that they have more control when they do a short sale rather than a foreclosure because they can hire their own agent, but that’s mostly illusory. In a short sale, your father’s credit rating might be less affected, but simply agreeing to do a short sale doesn’t mean that it won’t end up as a foreclosure anyway.
If the house forecloses, there would be no real estate commission if the house sold at the foreclosure auction, but many of the homes at the foreclosure auction end up going back to the lender. At some point the lender will put the property up for sale, and often will hire an agent to list it, and that agent will get a commission.
Yeah, I’d consult an attorney as well. What might be easiest would be ” jingle mail” or deed in lieu of foreclosure, although if an attorney has been retained, he or she may have a boat payment to make , and may recommend going through the foreclosure process.
It’s not like using an attorney means that you are going to get clear, unbiased advice. Everybody’s got their agenda.
RE: Son of bubble buyer @ 1 –
The negative amortization loan is a problem that the bank would probably want to fix. It depends on his income, it depends on the bank.
Everybody thinks banks won’t play ball if there is a deal there to be made. The truth is that the only your dad can make that deal. Banks don’t like attorneys, no body likes attorneys, but if, and when a deal does get put in place it would be best to have an attorney review and amend the contract, loan documents.
An attorney can only do what you tell them to do. They only advise on the law. If you start a negotiation with an attorney you will be paying them to talk. The deal, the terms, will be left up to you. Remember the deal can only be in writing anyway.
It may sound nice to short sale the property, or send it back to the bank, but the reality is your dad has other assets. If he would like to do a bankruptcy that would be fine, but just going ahead, and doing something that sounds easy usually isn’t.
It would be best to refinance or pay off the second property. Have your dad go to the bank, and you go with him, and hammer out a deal. Explain the situation. Say you were stupid, say you were doing it for the children, and you want to do the right thing. Ask for their help in finding a solution. If you have to, you buy it, get a group to buy it in an LLC and attach it to a money making venture.
For sure stop whining about it and get to a solution with the bank.
The Tim- When you unscreen a post, the indexing in the current threads might not hold. I know you have a long list of things to fix, but it does make it difficult to track the thread… (See #9 above for an example (reference to #1, which is no longer #1), which might not be #9 soon…)
RE: Son of bubble buyer @ 1 – Other than lawyers, guns, and money, I don’t think I’d offer any advice at this point.
“On a side note, he does have another investment property with positive cash flow and significant equity, but that income is part of his retirement plan.”
Maybe he could sell the positive equity property first, and then he’d have the cash to sell the negative equity property. I don’t know of anyone who has negative cash flow as part of their retirement plan.
RE: Son of bubble buyer @ 1 – The specific answer would depend on what state your father is located in, but the general answer is he should see an attorney. There are all sorts of issues that can arise in this type of situation. For example:
1. In Washington if your father has an 80/20 (first/second) loan package, then chances are he’d still be liable on the second after a foreclosure. That could very well affect what advice the attorney might give.
2. If your father does have an 80/20, it’s possible he might be able to entirely wipe out the 20 in a Chapter 13 bankruptcy, depending on the value of the property and your father’s income.
3. While tax implications are relatively rare on these situations, they are possible.
4. While buying another home on credit might not be in your father’s future depending on his age and expected income, a short sale would most likely implicate that less than a foreclosure. The exact effect of this cannot be determined today, because your dad would need to qualify under whatever rules exist in the future, and thus this is probably an area where the attorney cannot offer much advice.
5. Assuming the worst case scenario, in Washington one of the greatest rights your father has is being able to live in the property without making payments for a period of at least 6 months (assuming the first default is a payment default). Here the attorney might be able to help your father maximize that time period.
6. Your father probably has financial issues beyond that of home ownership. The attorney can review all of those issues and come up with a solution that best fits your father’s specifics.
I’m sure there are other things that could pop up, so the bottom line is your father needs to see an attorney–preferably one that does both bankruptcy and workouts, or at least is familiar with both.
RE: Kary L. Krismer @ 22 – “5. Assuming the worst case scenario, in Washington one of the greatest rights your father has is being able to live in the property without making payments for a period of at least 6 months (assuming the first default is a payment default). Here the attorney might be able to help your father maximize that time period.”
Since it’s a rental, he’s not living in the home.
“6. Your father probably has financial issues beyond that of home ownership. The attorney can review all of those issues and come up with a solution that best fits your father’s specifics.”
Many lawyers are not so good with basic economics and finance.
By AMS @ 21:
He should see an attorney prior to doing any such thing. It’s entirely possible that the equity in that other asset could be protected in some manner, and thus it many not be necessary to sell the asset.
RE: AMS @ 23 – I missed the fact that it was a rental. In that case though he would still get the rental income for those months–but that does raise additional issues where an attorney should be consulted. Also, depending on the facts, the loan might be able to be modified in Chapter 13 even if it’s not an 80/20 or if it is, the 20 not completely unsecured.
As to the second comment, I wasn’t suggesting that the attorney give investment advice, but that they come up with a solution for the financial issues faced. Foreclosure before or after chapter 7 or chapter 13 for example. If you add in no bankruptcy at all, then there are at least 7 choices there for the attorney to pick from. Left to their own thought processes people tend to make a lot of really bad moves, like further encumbering their homestead, using retirement assets to pay debt or even getting family members involved in transactions.
By Ira Sacharoff @ 18:
What’s wrong with you Ira? Don’t you know the only time someone has a conflict of interest is when they work on a commission? ;-)
As to your comment, the idea of “jingle mail” is just something pushed by news-people and layman who don’t know what they’re talking about. I don’t know that any attorney would ever suggest that for real property (as opposed to say returning a car–and even then it wouldn’t be by mail). Mailing the keys is stupid (the bank doesn’t need them) and it doesn’t accomplish anything legally. At best it just wastes the right to live in the property as long as possible. A deed in lieu is the viable option, where available, but there are many situations where the bank wouldn’t accept a deed in lieu. An 80/20 loan or an intervening judgment are perhaps the most common situations where a deedin lieu simply wouldn’t work. In any case, jingle mail is not a shortcut to a deed in lieu.
RE: Kary L. Krismer @ 24 – “He should see an attorney prior to doing any such thing. It’s entirely possible that the equity in that other asset could be protected in some manner, and thus it many not be necessary to sell the asset.”
Are you working for a banker these days?
I hear it now, “Let’s legally eliminate the ‘toxic assets’ but keep all the good ones.”
Yes, it may be possible, and if it’s not, simply apply for some government bailout…
RE: AMS @ 27 – All I’m saying is he should try to maximize his bankruptcy exemptions. Assets with equity should not be disposed of prior to consulting with a bankruptcy attorney, because it might not be necessary to dispose of them. (Actually, an argument could be made that no assets should be disposed of prior to consulting an attorney, because other issues could arise.)
RE: Son of bubble buyer @ 1 – Question:
What’s the purchase price to annual rent ratio? I’m guessing it’s 20 or more. It’s going to be very difficult to make much operational cash when there’s only 5%, or less, to work with.
RE: AMS @ 29 – It might be better to ask that question as to current value, because of the possibility that the debt could be “crammed down” in a Chapter 13.
BTW, I should disclose that I never did that as an attorney. Non-occupied residences in Chapter 13 were rather rare, AND back when I practiced values were appreciating. There might be other issues I’m not thinking of that would prevent the “cramdown.”
RE: Kary L. Krismer @ 28 – Yes, you are correct regarding the strategy. I am pointing out, however, that as a society we seem to have taken the position that “toxic assets” should be eliminated while keeping the good ones.
I am not an attorney, and someone with multiple rentals in the situation described (#1) should consult with a bankruptcy attorney, among other professionals. I know a guy, about 60 years old, who consulted with a bankruptcy attorney, and next thing I know that’s the best solution ever. I am not suggesting that it’s not a good solution in this case, but as you point out, the financial issues extend beyond that of home ownership. The financial issues most likely extend beyond that of bankruptcy too.
RE: Kary L. Krismer @ 30 – The current value is clearly short of the debt, otherwise a short sale would not be necessary. You make a good point, however, regarding the possibility of a cramdown. I have not been following that issue that closely, but I did suggest to the 60 year old that he check out the current status and guess the direction of the Congressional winds before filing any bankruptcy. Yes, checking out the current status includes consultation with at least one attorney.
RE: AMS @ 32 – What I’m saying is that if this never was the father’s principal residence, then under current law he might be able to cramdown the debt. What the opponents of cramdown most often fail to realize is that owner occupied homes (present/past) are the only assets that are not subject to cramdown in a reorganization proceeding.
Of course, all this assumes that the father has other debt issues. If not then bankruptcy might not be a viable option at all.
Also I’d add that if he has other non-exempt assets (under state law) there might be additional concerns with letting the property go. And again there consulting an attorney would be the way to go.
The number of different scenarios, even within Washington state, makes this the type of situation that isn’t subject to resolution in a blog page.
RE: Kary L. Krismer @ 33 – “What I’m saying is that if this never was the father’s principal residence, then under current law he might be able to cramdown the debt.”
I understood that; however, he might be also able to benefit from owner occupied cramdowns, if the standards change.
Lenders take the position that their debt is “secured,” but as we both know, that’s limited by the market value of the property.
Maybe we need Ardell to come in here and suggest that he paid 0.25% too much in interest, so he should be able to walk without any problems?
RE: Kary L. Krismer @ 26 –
My intention wasn’t to suggest jingle mail without the co-operation of the lender, not just simply mailing the keys back to the lender, but getting them to agree to a deed in lieu of foreclosure. Mailing back the keys of course wouldn’t be necessary, but might give a slight degree of satisfaction.
By Hugh Dominic @ 14:
!!!! Don’t know where to begin! Tell a little more about about yourself and your refined tastes. Please also include your profession so I can better understand where you are coming from. I guess a carpenter would have finer tastes in terms what kind of molding is better than another.