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Bad Transactions Happen to Good People

When Bad Transactions Happen to Good People

When sellers insists that buyers are not represented, there's a reason why. Here's what happens when bad transactions happen to good people.

I received a call this weekend from a friend with whom I’ve done a lot of business. She was calling on behalf of a friend of hers who bought a home last year, and now through a series of unbelievable events, can no longer afford it. Proving once again the old adage, the only certainty in life, is uncertainty… and that bad transactions happen to good people.

This friend – we’ll call her Miranda – was renting a home in Memorial Parkway along with a couple of friends of hers who were engaged. They all got along so well that when the homeowner decided to sell the house, Miranda decided to buy the home herself. She figured that with her roommates paying two-thirds of the monthly till, the mortgage payments would be no problem.

Although I’d never met Miranda, she knew very well of ME. My friend is an outspoken advocate for my services, and is constantly recommending me to her friends. But when Miranda told her landlord that she wanted to use a Realtor, he told her that if she brought in a Realtor, he would not sell her the home.

Miranda really liked the home, and certainly didn’t want to have to move so she proceeded without the assistance or representation of a buyer’s agent. The sale closed last May for $160,000 and Miranda was officially a first time homeowner. But there’s always calm before the storm.

A Bad Transaction

About three months after closing on the home, Miranda’s roommates called off the engagement and went their separate ways. Miranda was now down to one roommate – and while she could still make her payment, her finances were hard squeezed. Shortly thereafter, the remaining roommate, no longer being tied to a potential spouse, or location, decided to take a job transfer to Chicago, leaving Miranda in a home she could no longer afford.

Miranda had been out of work for a bit, and was looking forward to working in the coffee shop that her roommate was planning on opening, prior to her separation. Now she had no job, no money, was behind on mortgage payments, and was getting ready to start a new job that wouldn’t pay her nearly enough to keep the house. She needed a way out, and quick.

Most Realtors will take on hardship cases when there is no other option. We certainly don’t advertise that we take them, but most have worked pro-bono in situations where homeowners simply had no way out. This certainly looked as if it was going to be one of those times. We met and I gathered the information that would be needed to make an honest assessment of her situation. As I sifted through the information, each new piece of it brought me closer and closer to the realization that Miranda had been taken, and taken hard.

A Deeper Dive

After my initial review of the comparable sales in her neighborhood, it appeared that she had over paid for the home, to the tune of about $20,000. No amount of free representation would be enough to overcome this deficit. We met again, and performed a quick inspection of the home to see if there was any way we could squeeze out a little more money from the house.

The landlord had painted over rotten wood and defective siding. The HVAC units were repainted to make them appear new, there were shoddy patch jobs on the roof that didn’t resolve a couple of leaks, and tears in the ductwork – she was air conditioning her attic! There were electrical outlets that simply didn’t work, bad paint jobs in loud colors, and outdated appliances that made the home seem even older than its age.

Doors that didn’t close properly, massively overgrown landscaping, and cracks in the ceilings all pointed to foundation problems as well. We never did get the foundation inspected, but the mere signs that there might be problems are enough to send potential buyers running. All of this, and I had to be the one to break the grim reality of her situation to her. This is the exact definition of when bad transactions happen to good people.

A Way Out?

The grim reality is that not only is she NOT going to get out of this unscathed, she’s also going to have to pay a price. At best, the lender will allow a short sale (accepting less than what is owed) and will not seek a deficiency judgement against her. At worst, they’ll refuse a short sale, foreclose and sell the property, then seek a deficiency judgement against her for the loss. Either way, it’s not a ride anyone would want to take.

The sad part about it is that it ALL could have been avoided had she only called for advice. Although I might not have represented her, I could have guided her along with some helpful advice that would have prevented her from making the purchase without some significant negotiations in terms.

Miranda figured that since the mortgage company was ordering an appraisal, she didn’t need to worry about overpaying for the property. Unfortunately, it is exactly these kinds of situations that are prompting federal investigators to keep a closer eye out for mortgage fraud.

To quickly recap what we should have learned here:

  • Do not make a purchase without representation or personal expertise.
  • Before making a purchase, view other homes for sale and compare value.
  • Always get a home inspection by a licensed, professional home inspector.
  • Be weary of homesellers or homebuilders that insist that you NOT be represented
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