Two Families, One Housing Market

I had an interesting Wednesday last week.  It began and ended in meetings with two different families.  Each family had a property to sell, each was in transition.  But that’s where the similarities ended.  One of these families is going through a very positive and exciting time in their life journey.  The other stands a real risk of being torn apart.  The following is based on two true stories. I’ve changed some details to maintain confidentiality.

8:30 am - An early morning meeting in Dr. Philips

The Smiths’ have always dreamed of living on the water, and know that current market conditions now give them that opportunity.  We’ve spent the past week looking at different homes and working with a lender to secure financing.

Today I’m meeting them at their home to accommodate their work schedule.  The newborn is still asleep while their two year old is running around clutching a fist full of cheerios in one hand, a beat up banana in the other.  Baby furniture, toys, and STUFF is packed into every corner of their modest 1100 SF house.  They are simply out of room and need a larger home.

This will be a positive move for the Smiths.  They have owned their home for 9 years and have a considerable amount of equity in it.  They have cash in the bank for a down payment on their next property, and they live in an established median range neighborhood with relatively healthy selling statistics.

They are realistic about what their current home will sell for, knowing it is worth less than it was a few years ago.  But they are eager to get it sold as they are about to get a great deal on something else.  That something else is a pre-foreclosure home, on a small lake, that will end up selling for about 60% of what it was worth at the height of the bubble.

Much of our conversation dealt with how to time the sale of their current home in the midst of the unpredictability of purchasing a pre-foreclosure / short sale property.  We came up with a strategy and began moving forward.

The Smith’s are happy and excited.  I try to prepare them for the work that will be involved in getting their home cleaned up and ready to market.  I do my best to assert that they really need to get a storage unit for all of their stuff to make the home show better, and tell them they will need to put their normal life on hold for the next 30 – 60 days until we can get the home sold.

I leave energized.

8:30 pm – An evening appointment at my office

Paul and Cindy Jones asked to meet in the evening, after their six year old’s dance class.  Still in her pink tutu, she sat with the three of us at my conference table while we talked boring adult stuff.  She lightened the mood by occasionally flashing me silly faces from behind her hands.

Paul and Cindy bought a lakefront home in Clermont in late ’05 and hired a general contractor (GC) to begin an extensive renovation and addition to the home.  They both earned six figure incomes.  Their daughter was two at the time.  They have video of her trying to hammer one of the first nails on their dream home project.  Four years later the dream had become nightmarish.

They took out an equity line on a rental home they own, in addition to the two mortgages they had on the lake property.  Values were rising and their bank gave them favorable terms.  They knew that this would be their home for years to come and was well worth the investment.

The Jones were living in their project at the time.  The inconvenience and dust seemed a worthy sacrifice at the time and added to the excitement.

Things soured quickly.  The contractor was hard to reach.  The housing boom had him dealing with more work than he was used to managing.  Work crews were hard to find and material costs kept coming in over budget.

Parts of the house were exposed to the elements.  Openings were often covered “temporarily” with plywood or tarps while they awaited the return of the crews to finish the next phase.

Things got worse.  Sub-contractors started to complain to the Jones’ that they were not getting paid.  Several filed liens on the property.  Their GC quit returning calls.

Fast forward to the present.  Their dream home is a moldy, half built shell.  They had to move out and rent an apartment over a year ago when they were all constantly getting sick.  The roof was not completed and three years of weather have ruined most of the exposed wood sheathing.  The house has a smell to it.  Ceilings have started to sag.  They have been told much of the completed construction was not performed properly.

The GC has gone bankrupt and closed his doors.  The house is uninhabitable.  The Jones owe approximately $500,000 on the property, about twice what it is currently worth.  It will take another $150,000 just to get the home finished, at which point I estimate it might be worth about $450,000.  The equity line they used on their rental property has placed that one in an upside down situation as well.

A construction attorney has estimated it could cost them $30,000 in legal fees to pursue the GC’s insurance company for recovery of damages, with no guarantees they will win anything. 

Paul was laid off 9 months ago and is seeking employment.  Cindy anticipates having to take a pay cut in order to keep her job with a local manufacturing firm.

Towards the end of our meeting Cindy breaks down and starts to cry.

In closing...

I went home that night emotionally drained.  I gave my kids and wife a big hug and tried to get my head around what’s going on out there right now.  It’s not easy. 

About a year ago I suggested in this column that a recession might be a good thing for this country.  Twelve months later I’m coming face to face with the impact these times are having on real families.  Some people are in an excellent position to benefit.  Others are getting ripped apart at the seams.

These two families and their situations – one full of opportunity, one full of pain - are a perfect microcosm of what our market is all about right now.  Some of the stories are truly inspiring, others are downright dreadful.  All of them are real.