patrick.net

Besides my son-in-law is just getting a sense of his place in the world and establishing his identity and purpose.

Um, isn't that something you do in college?

DinOR - you could always withdraw your offer? Or is there something else going on? (Arm twisted behind back?)

eburbed - ditto with the muttering - $2400 for 3 bed 2 bath, not great condition!!!!

DinOR - I would think that your offer will be accepted - from your account it seems it's over "true" market value.

Claire,

No arm twisting here. My wife was actually a little miffed I even dignified this whole process by responding with an offer at all!

Oh, and before all the RE perma-trolls start coming out of the woodwork with their schaudenfraude, we've bought places that had really great neighbors to begin with only to have them slowly replaced by real sh*theads. So your points about "being at the whim of your LL" or it being worth paying the premium for the "stability" of "ownership" will fall on deaf ears.

This is a pure case of "weak hands", an inability to negotiate for higher rents b/c of a WEAK rental market and just a spiteful move in general in retaliation for a low-ball offer. Cut and dried.

Family deals are bad news in this market. My aunt tried to sell me my grandmother's old place in the country for $180K, and she was sure that was a fair price. I wasn't so sure, so I let her put it on MLS. They've had two offers around $120K, and just accepted the second one.

It's a shame the place had to go out of the family, but what could I do? It's difficult to underbid your grandma's house without looking as though you are trying to steal from family, and if I'd paid $180K, that would've been family stealing from me. Bleh.

DinOR - have you checked the tax assesments for your condo - is your landlord uptodate with his payments? Has he got other offers - or is he getting behind on his payments? It maybe his other offer is the one from the mortgage company - sell or else? I can hope can't I?

DinOR,

I hope he refuses your offer. And when he does, counter with 180k, open for 6 months, and tell him you'll do it with a RE attorney once his listing agreement has expired. That'll save him 12k right there! If he can't move the condo, you might get it for an almost reasonable price.

As for your daughter, man, I feel for you. My parent-in-laws are in a tight bind of housing. They're in the worst situation possible. They own high-end furniture stores and bought their 'dream' house on the bay in early 2005. Right when property peaked, the helocs slowed, and spending has slowed. Since they sell stuff considrably better than IKEA, they start hurting first in their industry.

To top it off... the guy who sold them the property didn't disclose problems with the drainage, and half the cliff fell out from under the house. Now they're in litigation trying to get back enough of the house payment to fix the cliff before the house goes in the drink.

At this point, I think their only viable option is to mail in the keys. The house cost seveal million dollars, the repair work needed is near on another million, and because of the problems, they can't sell the house until litigation is done OR for anything close to what they paid for it, or probably even enough to get out from being underwater, and since it's a high end market, even if they could sell, it takes a LONG time to move houses in the several mill range. No matter what happens, they're going to be out several hundered thousand in legal fees, and if they do Deed-in-Lieu, they'll be out probably a million.

They could have handled one problem or the other (business slowdown or massive repairs and litigation), but both at the same time is about to break them.

At least they aren't trying to sell the house to us! :D

Claire,

Now that is... something I hadn't considered? My guess is that the guy is WAY over extended. He bought several homes in each of the new subdivisions in town (we're right outside of Salem, OR) and THEY are also morphing into rentals. Since (admittedly) these units do have a "water feature" they are among the few he CAN convert to cash on such a short notice. His other homes are "For Sale/For Rent" (and are mostly empty).

I don't care how deep your pockets were when you started, everyone has a 'threshold of pain'. I happen to think the guy (given his circumstances) IS doing the right thing. P_r_o_b_a_b_l_y would've worked a little better LAST YEAR but... better late than never. This is just another affirmation of all our theories. He HAS to do something. Myself OTOH only need to move a few blocks. If it weren't for the wedding I really couldn't care less.

SFBB,

Ouch! My "problems" pale in comparison. That IS the worst possible situation! From their trade to their entry point (2005 peak) and now the repairs! I feel for them. What I'm going through is just an inconvenience and it really has zero financial impact on me, short OR long term. Since we just had the movers take "the big stuff" it only cost $300 (and lunch, great guys).

And I WILL counter w/180k open for 6 mos. (when the listing expires!) LOL!

My wife feels horrible for her parents. There's not a dang thing we can do for them, really. I've even volunteered to be a sign spinner for them on weekend furniture sales. :D But nothing we can do can begin to deal with the ouch they're getting.

The only good thing from it is as a very good lesson on why not to buy too close to your 'edge' of affordability for me and my wife.

As bad as your Monday was, at least you didn't wake up to find that your $525,000 house which had a basement wall made out of Frosted Flakes boxes collapsed.

http://www.burbed.com/2007/05/07/149-mangels-had-frosted-flakes-boxes-as-a-wall/

or even worse - your house is now what's propping up your neighbor's $525,000 house that had a basement wall made out of Frosted Flakes boxes...

My wife feels horrible for her parents. There’s not a dang thing we can do for them, really. I’ve even volunteered to be a sign spinner for them on weekend furniture sales.

Any good deals? My 2nd hand sofa is a real mess.

SFBB,

Wow, is it a situation where they might not be able to even LIVE there? Is that the pits or what? Come home from a busy day or rearranging inventory (and selling very little) to find your home has slid another few centimeters. That has GOT to suck.

I spoke with the property manager and he said even if they close tomorrow (which he doubted) the buyer would have to establish ownership and THEN serve us a 30 day notice. He was a little miffed that he was in no way in the loop and "I" wouldn't have found out about this shifty little stunt had I not been friends with the realtor. (She and her husband used to own the local golf course so cool it all right!)

As bad as your Monday was, at least you didn’t wake up to find that your $525,000 house which had a basement wall made out of Frosted Flakes boxes collapsed.

Frosted Flakes walls - They're GRRRRRRREAT!

DinOR,

They had to get studies done to see if they could stay in the house. Nobody is happy with the situation right now, city/inspectors/parents/previous owner getting sued/etc. I just hope they get it worked out soon, whichever way it works out. No matter what happends, they'll feel better having the issue resolved.

eBurbed,

The best thing is there will be no insurance payoff for that. The guy lifted the house himself off the foundation and the braces buckled. If he'd hired guys to do the foundation work, they might be 'okay' financially.

The best thing is there will be no insurance payoff for that. The guy lifted the house himself off the foundation and the braces buckled.

Well, there is some speculation on Socketsite that this was much easier than trying to get a demolition permit from the city. ;-)

EBGuy,

True... that might be the case. However, the lawsuit from the neighbor who had his house damaged will probably make it more expensive.

DinOr

Long letter, but this moved me and hope it helps. I'm getting married also, and can think of nothing that could create resentment more than being enslaved/ indebted to by/to my in-laws. This has reminded me how fortunate I am, which I sometimes forget in spite of my beautifully perfect fiance. Sometime it bothers me because my in-laws are "financially retarded". However, my future father in-law is SO sketchy with such a track record of failure that the thought of participating in any of his schemes (which of course now involve real estate), is beyond the pale for either of us, especially my fiance.

First a scenario regarding doing business with a friend, which hopefully illustrates a point. I am a recovering rehabber and have a current hard money loan to a borrower who is a friend/ worked on another project. I told him to go out to other lenders, gave him the names, and beat their "market" offer for a loan. But he just doesn't have his act together and has managed to eat (or rather drink) away at his substantial equity. He understands that I did him a favor lending the money, but it will be awkward because he is old enough to be my father and this project was a ticket to a secure retirement for him. For me, it is sad to watch him squander a great deal he put together, but it's ultimately not my problem and a loss would make some difference to me and my future wife.

Scenarios for lending money to a friend:
1) foreclose on him in 3 months and recover fully w/ a little equity for him 2) foreclose on him in 9 months, recover fully with 6 more months of 1x% interest and take even more of his equity or
3) extend him a longer term loan and risk loss AND tie up money for 10-15 years at a relatively low rate and have to hassle him every month to pay me.
4) Give him ~ $250k and be happy for him

As unattractive as these options are, can you imagine how unnattractive the would be if he was family (except maybe #4)? For one, my friend/ borrower doesn't expect anything of me other than to act in my own interest (unlike family). Secondly, if he harbors a resentment, we don't need to see each other and revisit it for the next 30 years. Now that would be hell, especially if it were my in-laws and we were starting a new life together.

So reversing the scenarios, this is even worse because of the likeliehood of a lose/lose situation. If they want to give a gift, sell the f'ing place and give cash. There are no childhood memories or sentimental attachments if they bought it in 05! If they want to sell the place for top $, let them put it on the market, or at least expose them for trying to give a "negative wedding gift". Let the market determine the price!

Scenarios for buying a house from your soon-to-be inlaws:

1- it is a reasonable deal in the current market and your in-laws will lord their "gift" over you for the rest of your life, especially when they inevitably overextend themselves and need more money. My grandmother still reminds my parents of groceries she bought them back in the 70's (neither of my parents are amused by this and produced checks showing that in fact, they reimbursed my grandmother for the groceries). Older people have a tendency to overestimate their magnanimity and the value of even smallest gifts.

2- it is a bad deal, but the parents delude themselves into thinking it's good and will continue to lord it over the kids even while the kids are struggling to keep themselves above water. Parents probably have no empathy because of financial irresponsibility themselves. Kids are also resentful, especially daughter.

Resentment is a terrible thing that gnaws at people's soul. Much bad behavior is a result of such resentments. Anything that could foster such a feeling is a terrible way to start a marriage. Good luck with the counsel!

DinOR: My sympathies on your daughter's ongoing saga. I hope she doesn't have to learn her lesson the hard way. However, advising her yourself will probably become an emotional father-daughter battle. She's right at the phase of leaving the nest (what with the wedding), so this could be a "carve out my own niche" sort of thing.

Perhaps you could refer her to one of your colleagues? A truly neutral financial advisor would underscore the point that you aren't being overly parental. They could run the numbers and then decide. And point her to all the housing doom and gloom in the Main "Street" Media like CNN Money. If you send her to patrick.net, we just look like a bunch of housing bears who love sushi (which kind of makes sense, particularly sake).

Just out of curiosity, how long have your daughter and her fiancee been completely free of parental funding? How long have they been doing their own finances and budgeting? Normally this kind of starry-eyed behavior comes from a dream of independence coupled with absolutely no clue how to run the books or a household.

My parents paid for everything for my sister--her rent, her utilities, her tuition, her car, her insurance, her medical bills... all until the age of 24 when she graduated college and got married that summer. If it weren't for her marrying a stingy business guy (hey, I like him), I doubt she'd have any idea how to budget or manage her finances (actually, I would bet dimes to dollars she has no idea where the money goes right now anyway).

But if you get two starry-eyed, inexperienced kids dreaming of independence and the adulthood that homeownership brings, then you could be in trouble.

Best of luck getting it all sorted out.

DinOR,

Although 220K doesn't sound like much money to a Clownifornian, I can certainly understand your caution. We're barely into the multi-year correction (which isn't happening) of the bubble (which never existed) and are already seeing significant price reductions (which cannot happen).

Just curious, have you tendered a formal offer, or was the $220K figure just a "trial balloon"? Are you using a RE attorney to write it up/review it as most of the experienced crew here have recommended?

2 quick notes -

1) I'm enjoying a movie from 1948 called Mr. Blandings builds his dream house. It's very interesting even though it's 60 years old.

2) I walked to a restaurant tonight and saw something unusual. On one of the condo buildings that usually has a for sale sign on it was a hand written sign saying "open house today." I walked over and read that there is a 4 bedroom 3 bath with 3 bed rooms available for rent at $750 each. WOW! We're back to taking in borders!!! The times they are a changing.

astrid Says:
May 7th, 2007 at 7:56 am
"But if we really want to talk about real welfare queens, let’s talk about farm subsidies and ethanol. "

I'll talk about it with you. I used to think farm subsidies were an open and shut case of unnecessary government interference, then when I took the GMAT one of the essay questions was based on a thesis supporting the concept. It was so well written, and made some really solid points in my opinion.

The gist in a nutshell is that the government earns more in tax revenue from a relatively small infusion of a subsidy than it would if farmers produced at maximum capacity and drove the commodity prices so low that the industry as a whole had losses instead of being profitable. It was a new angle I had never thought of.

OMG Harm, I was reading your post in disbelief, then I realized you were being sarcastic. Quite funny.

I'm a big believer in the ethanol/renewable fuels area, so if you want to hash that around a little, I'm up for it.

DinOR,
Sorry to hear about your monday.

Your daughter's inlaws seem like a real piece of work. It is a delicate situation, and I hope your kid and her fiance don't saddle themselves with a losing proposition. The situation calls for a great deal of tact, since you need to 'engineer' a preferred outcome without actually sticking your neck out.

On the landlord situation, the timing sounds fishy - he probably figured that with the wedding coming up, you may not want to deal with the hassle of moving - but if you can handle it, just finding another rental for the time being seems like the smart option.

SP

Hey here's an interesting new product:

http://online.wsj.com/article/SB117858692080995261.html?mod=todays_us_personal_journal

A small San Francisco investment company, backed by a subsidiary of insurer American International Group Inc., is rolling out a product that lets homeowners tap into their home equity without moving or taking out a loan.

The company, REX & Co., offers to pay homeowners cash now in exchange for a right to part of the proceeds when the home eventually is sold.

The owner of a home valued at $750,000 might obtain $100,000 in cash by giving REX a 50% share of the change in the home's value. If the home sold for $850,000, REX would receive $150,000 -- the original $100,000 invested plus half of the increase in value. If the home sold for $650,000, REX's share would be $50,000, half of what it had invested.

Thomas Sponholtz, a former executive at the investment arm of London's Barclays PLC who founded REX in 2004, describes the product as an alternative to debt-based methods of extracting cash from a home, such as home-equity loans or reverse mortgages.

REX has completed only "a handful" of transactions, he said. AIG's AIG Financial Products unit acquired a minority stake in REX in December, but hasn't disclosed the terms. Other investors include Mr. Sponholtz and several institutions. REX said its product is available in nine states -- California, New Jersey, Virginia, Florida, Illinois, Washington, Colorado, New York and North Carolina -- but the company aims to offer it nationwide within a couple of years.

Among potential users of REX contracts, Mr. Sponholtz said, are baby boomers who have most of their wealth tied up in a home and want to extract some of it for an annuity or other cash-generating investment.

REX aims to reach consumers through mortgage brokers, real-estate agents and financial planners, as well as through its Web site. Brokers and other intermediaries could charge fees as high as 2% of the cash obtained by the homeowner. People who sell the home in less than five years face an "early exit" fee ranging from 5% to 25% of Rex's initial payment.

Jack Guttentag, who operates a mortgage-advice Web site, said REX could be an attractive way for people with lots of home equity to put some of it to work in stocks or other types of investments, diversifying their risks. Deciding whether the cash payment is sufficient, though, would depend on estimates about the likely long-term appreciation of the home.

That's pretty interesting! I bet this will be pretty popular. It doesn't seem very evil.

Dinor,

I thought in-laws were supposed to wish a young couple WELL!

Maybe a dowry or a gift to help them on their way, and sound advice about not getting in over their heads at the start. My parents generation all started off with rental or very small houses from what they tell me, and slowly worked their way up. My parents are not wealthy and were unable to give much in the way of gifts to me and Mrs. V. But they did give a little something and they gave a good example of running a house in the black all their lives, which is worth a lot!

Not once did I hear a story about a relative "gifting" any child a mortgage debt-load. I'll be the bad guy, the one who says your in-laws sound like real inconsiderate jerks. One should not pussy-foot around on such weighty matters. This is a recipe for a quick failed "starter" marriage. If things are like this before the wedding they are assuredly going to get a lot worse. A prenup or a competent divorce lawyer on top of your Rolodex would be prudent preparedness.

American Dream Sours as Housing Market Collapses - CommonDreams.org - Breaking News & Views for the Progressive Community

Some sampled comments:

rosie1485 May 6th, 2007 4:32 pm
What should we expect from a unregulated, free market economy? Sounds a lot like the Building and Loan crisis of the Reagan era. Again, a few make millions at the expense of the working folks who want to own their own homes. Once again, the feds will have to bail out the program - while the free market goes merrily along.

Paul Bramscher May 6th, 2007 4:45 pm
A bailout so that we’re mandated, by law (taxes), to bail out the very industries that have caused the problem in the first place?!

The LAST thing we should do is throw good money after bad. Let the predatory lenders, investment groups, and land speculators eat the loss.

If the Dems toss billions at this I’ll be pretty irked. I borrowed responsibly, bought a fixer-upper, and have been living within my means. If there was a white-collar crime committed, toss the perpetrators into jail and re-regulate the various industries. But under no circumstances should we bail out poor consumer choices, by tossing money at the exploitative industries.

Let the market fall, let it collapse. When prices get reasonable again, people can buy back in at down-to-earth prices.

Gail May 6th, 2007 4:55 pm
“In February, HSBC issued the first profit warning in its 142-year history as a result of losses incurred by its American wing on subprime loans.”

“First” profit warning in 142 years! That simply indicates that their shareholders won’t be reaping the profits (predatory or otherwise) they’ve become accustomed to over the years. One must realize that if HSBC or any other lender had a profit margin of 50 billion last year and their profit margin this year is only 45 billion, they consider it a loss.

In reality, a loss is when an investor loses their initial investment, not the interest they’ve made or hope to make. And let’s not forget all the tax loopholes designed for those losses.

Frankly, I’m tired of hearing of how these lenders are taking a loss - it’s total BS. It’s the borrowers who make a down payment (principal investment) on a house that are taking a loss.

“The crisis will also play a role in the race for the White House as Democrats call for a federal bail-out plan while Republicans say that would be a waste of taxpayers’ money.”

If this is another bail-out like the one taxpayers picked-up with the “Savings and Loan” scandal to the tune of over $500 billion, we’re getting screwed again from a government willing to cover the asses of their corporate masters.

Dinor,

I thought in-laws were supposed to wish a young couple WELL!

Maybe a dowry or a gift to help them on their way, and sound advice about not getting in over their heads from day 1. My parents generation all started off with rental or very small houses from what they tell me, and slowly worked their way up. My parents are not wealthy and were unable to give much in the way of gifts to me and Senora V. But they did give a little something and they gave a good example of running a house in the black all their lives, which is worth a lot!

Not once did I hear a story about a relative "gifting" any child a mortgage debt-load. I'll be the bad guy, the one who says your in-laws sound like real inconsiderate jerks. One should not pussy-foot around on such weighty matters. This is a recipe for a quick failed "starter" marriage. If things are like this before the wedding they are assuredly going to get a lot worse. A prenup or a competent divorce lawyer on top of your Rolodex would be prudent preparedness.

Just to address Malcom's concern, I was under the impression that ethanol, while being the much-anticipated panacea of our current fuel and enivronmental crisis, actually relied on heavy fertilization of corn crops with oil-produced nitrogen fertilizers.

Okay, so that actually cancels out the savings in refined oil that is remaindered from ethanol-enhanced gas; and then what about all the fertilizer from this process that is washing into the lakes and streams from all these corn farms?

It's bad enough we put all this chemically processed corn syrup in everything we eat in this country, but now we have to subsidize even more corn production for the illusory benefits of energy production? I've only heard horror stories about what all this toxicity from corn production is doing to the surrounding wildlife and ecosystems in the midwest.

And if over production of any crop is going to drive down prices of a commodity without being subsidized, then so be it. We should have been on a real substitute for renewable resources long ago. That could have been our new economic growth instead of farm subsidies and specuvestment properties.

Much thanks to all for your support and suggestions! :)

As it turns out, my situation (which seemed the most urgent) was greatly hyped. When Mrs. D got home she grilled the "listing" realtor and it just so happens the properties were never actually listed. A casual comment by the owner that "he wouldn't mind selling" got misconstrued into "a listing". The more my wife roasted the realtor the less sure the realtor became. My wife politely told her she was talking out of turn and just trying to generate a transaction. She also reminded her that we had "first right of refusal" and that her (the realtor's) involvement was completely unnecessary and unwanted.

We then marched over directly to the owner (after calling) to verify everything that had been said that day and about 90% of it turned out to be untrue. The owner even reminded his preferred realtor that this was the understanding going in and did so on the phone as we sat in their living room! The owner immediately apologized for all the confusion and offered to do the transaction WITHOUT any realtors and WITHOUT a commission which he calculated at 6-7%. So at a minimum the sales price would be no more than $206,800. Our attorney lives next door to the owner so he (not the realtor) will write and handle the offer.

I just wish my daughter's issues were so easily resolved! Thanks again to all who contributed!

DinOR

Malcolm,

What phillistine just said + how US agricultural subsidies devastate 3rd world farmers. I don't particularly feel like debating this anymore. It's already established that we disagree on 90% of all topics that come up for discussion. Let's leave it at that.

Philistine,

That was my traditional view, so what the prices go down and that is good for the consumer. The problem for food supply though is a little more complicated. As a matter of public policy it is a larger detriment to a society to have it's farming industries collapse. We can comfortably debate this with refrigerators full of food, however you would be hating life if a pure failure in the market led to you having to pay many multiple more times the current cost of food. This can happen when in a year everyone at capacity produces a surplus crop which then makes prices crash. Now the industry is in ruin and farms are forced to close down. (this is a classic market failure where the more you produce the less you make.) The following years no one produces for the fear and risk of losing money so you end up with shortages. Now instead of a huge tax base from the farmers the government has a bunch of starving farmers on its hands.

DinOR,

Good to see you can now focus on one RE problem.

Jeebus, family pressure to set up an internal transfer based on a fairytale valuation. I've seen this (twice) within my own family as part of breakups, but never associated with a marriage. That's truly tough.

I suppose one factor here is the internal motivations of your In-Laws-To-Be. From what you have posted, I have the impression that you believe the wishing price for this McAlbatross is greater than the outstanding loan amount, which in turn is greater than its current value.

If that's correct, then I suppose I have 2 questions:
1. Where on the above continuum are your ILTB pitching their sale price to the kids?
2. What do they propose the kids do with their existing home?

(And in passing I hope your ILTB and daughter don't frequent this blog, or else you could really be in the deep doo-doo.)

Farmers are less than 5% of the population, and only a small proportion of that headcount gets money from the government to overplant. If they can't work their farm based on market price, they can get another job like the rest of us. And I don't really have time to get into water usage issues and their use of illegal migrant laborers, but I will if I have to.

A subsidy is money to underplant.

DinOR,

I don't want you to disclose too much information, but how does these people propose to have your daughter get loans for their McAlbotross? Based on your description, I don't think she can afford a conventional or even the less lunatic non-traditional loans.

That might be enough to blow up the whole deal.