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Sunday, February 10, 2008

How not to buy a house...

There was an article on the front page of today’s Oakland Press about an unfortunate woman in Lyon Township, Michigan, who is about to lose her house. She is a single mom with two teenagers and an Iraq war vet, so it was initially easy to feel sympathy for her, because one sensed that she might have just gotten caught up and swept away in the current sub-prime mortgage mess.

As I read further, it became obvious that this woman could be the poster child about how not to buy a house. It was obvious that she did not use a Realtor in the process. She says that she realizes now that she should have read the contract she was signing for the mortgage and that she should have had a home inspection done before buying the place. Well, duh! Any Realtor would have been able to steer her better than she did on her own, so perhaps the first thing she should have done was to get a buyer agent.

She ended up with a house that had major problems. “It started raining in the living room”, she said, the first time it rained outside. There were also problems with a furnace, drafty windows, sinking floors in the living room and bathroom, a deteriorating front porch and problems with the electrical and plumbing systems. It almost sounds like she bought the house without ever going inside.

And, her mortgage contained terms that she admits not even reading that allowed the company to reset the interest rate every few months with a 20% cap. Her payments quickly went from $1,000 a month to $3,000 a month now and she slipped into default and has been foreclosed. She is now in the 6 month redemption period and will likely lose the house.

She said “I was a first-time home buyer and thought my interests were taken care of, but I went into this alone and did not know what questions to ask or what to expect.” When you feel like that, get help. Get someone working for you in the deal. Get a Realtor as your Buyer Agent. If you don't have a buyer agent, then assume that no one is looking out for your interests, because everyone else in the deal is working for someone else or for themselves.

It’s hard not to empathize with someone who is about to lose their house; however, there is also a part of me that says that there has to be some sense of personal responsibility here. If she was flim-flamed by some fast talking sleazy mortgage guy, then that company and agent should be exposed and maybe prosecuted. If she was duped into buying a lemon by some dishonest real estate listing agent who told her that an inspection wasn’t required, then that should be investigated and that agent disciplined. It doesn’t say in the article whether or not she ever saw a Seller’s Disclosure on the house; but if she did and it was falsified, then the previous owner should be sued.

If, however, she was given all of the information that is normally required by law and practice in both the real estate and the mortgage transactions and she made the decision not to read anything and not to get an inspection and not to understand what she was committing to in the transaction, then she is getting just what she signed up for. There really is no excuse, other than ignorance, in the highly regulated world that we live in for anyone to get themselves in her position.

Many of the people who are in foreclosure today got themselves into that mess by conscientiously overreaching on houses that they could ill afford. That’s different. Each and every mistake that she made could have been (and likely would have been) avoided, if she had been represented by a competent buyer agent. At a minimum, the agent would have advised her to get the house inspected and to have the purchase documents reviewed by a lawyer (we’re required by real estate law to advice the legal review). The agent would have also asked questions about the mortgage and talked to the mortgage agent. Likely the agent would have asked to see a Good Faith Estimate from the mortgage agent, to see what charges were likelyto show up at closing (and perhaps advise the client on whether the charges and mortgage terms seemed OK).

The lady in the story might still have ended up with an ARM mortgage that blew up on her and caused a default (especially since she also lost her job during the time covered by the story); but at least she would have had a saleable house to try to market. As it is, she has a house that nobody would buy and no way out of her mortgage mess. I’m sure that she did not set out to become an object lesson in the Sunday newspaper, but that’s what has resulted. The headline over the story was “DASHED DREAMS”; however it could just as well have been “DON”T DO THIS”.

So, learn from her misfortune; especially if you are a first-time buyer, and get a good buyer agent to help you through the process. Shop around and get more than one mortgage proposal and ask for and READ the Good Faith Estimates from each company and the details of the type of mortgage that they are proposing. Buying your first home should be, and can be, a very happy time. Don’t be a headline in some future paper, unless they want to write an article about happy homeowners. Go to my Web site - and read the information that is there for first-time buyers. You'll be glad you did.

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