Drawing the Line
Unless you have been living in the batcave, you know that foreclosures are nothing new. Foreclosure rates are up all over the county for a variety of reasons: true hardships, subprime borrowers, and those trying to Keep up with the Joneses.
I was recently in the outside blogosphere and came across this interesting discussion on Kathy Neilsen’s blog about home buyers who KNOW they are going to go into foreclosure. These home buyers know they are going to stop making payments on the house, but still have good credit. So using their good credit they purchase another home. They move into the other home, which is usually less expensive, and then let the first home go into foreclosure.
Since they are in a new home, they don’t worry about their credit as much.
On her blog Kathy states ” This practice of letting a home go into foreclosure
after buying another is not new. Every major downswing in the real estate market
has experienced this situation and this practice. It’s not against the law to
let your home go into foreclosure and the consequences are high…ruined credit
and limited buying power, not to mention the stigma attached to foreclosure.
Despite the pitfalls some people will choose this path. I help people navigate
this complicated process. “
Needless to say the comments on the blog range from support for her helping people get into a new affordable home, to calling her stupid, unethical, and encouraging irresponsibility, since in her last comment she appears to be condoning the practice by offering to help navigate that process.
I understand Kathy’s position that she just helps people buy homes, but I think it is that exact position that has propagated some of our current mess. Real estate agents should be more than just the holder of the house key. We should be able to explain the basics of home ownership and help our clients budget for their first house. We should be able to explain the basics of mortgages and encourage our clients about pitfalls that may occur with their chosen plan. We should be helping our clients to think through the entire process and sometimes that means encouraging them to not go for the McMansion. I think as real estate agents we are part educator, and I think encouraging this tactic, while not illegal, does nothing to help elevate real estate agents level of professionalism.
I have to say that at first I was surprised by this practice. My belief that humanity always strives to do the right thing is constantly being challenged. I not sure what I find more difficult in this situation, that a person is willing to manipulate their agreed upon obligations, or that an agent is willing to help them do just that.
Because of the nature of credit, you have to be incredibly naive to think that the banks aren’t going to make up for the lost profits for this. Each foreclosure means lost home equity lines for another home owner, higher credit card interest rates for consumers, and possibly higher fees on home purchases. These actions impact us all.
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