by Victor M Adamus
Well it had to happen sooner or later that I would run into the “new math” game sweeping the nation of owners of property going the “short sale”route. But some of these folks are smart money people who figured out how to top end the foreclosure game. I had heard about people not getting foreclosed on for more than two years. The couple I worked with went out 33 months before they agreed to sign the deed over with the lenders permission to sell the property for less than what was owed.
When they found out that the first property was worth $98,000 less than what they bought it for in 2005, they stopped making payments to the lender and instead, put the monthly mortgage in a savings account. They made the same payment to their savings that would have gone to pay down the mortgage. Both have good jobs, both make a high incomes, and they could have continued to pay the mortgage but could not compromise living in a large house when their upcoming needs in retirement would mean less house to care for.
They put it up for sale at the market rate of 35% less than what they paid for it and it sold on terms the bank approved, giving them no money at settlement but a “paid as agreed” legal instrument with the bank agreeing not to send them a 1099c form as income for what was not recovered.
They bought my listing in a gated community with half the square footage that the first house had. They paid cash from holding back the money owed the lender of the first property. So with no mortgage on the second purchase they only owe a small homeowners association fee for pool maintenance and grounds keeping. The community also has jogging trails, a picnic area, two pools, and is located a few minutes from major shopping and 15 minutes to two different hospitals. So in six years when they retire, they will already be where they want to be.
With no mortgage to pay and only an association fee of $225 a month, which includes water and sewer, the only other cost is electricity. Six years of banking more money will put them ahead again and quite possibly their short sale investment will be worth more than what they paid. It had sold in the boom days for $155,000.
It wasn’t my place to ask them if they had a retirement plan, 401k or other company benefit, because too many people have lost most of their contributions when the stock market crashed. But even so, if they both take Social Security and use the savings over the six years they will invest, they should have a nice chunk of money to draw down from in an emergency. I mean who wouldn’t want to live in a nice place for $225 a month?
It’s called the “new math” in Real Estate and it had to happen sooner or later. People beating Wall Street at their own game.
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