Friday, October 14, 2011


I recently was watching a show concerning real estate foreclosure. Lawyers were advising people of all their options in order to prevent the bank from foreclosing on their house. It seems there are government programs available to allow one to alter their home loans and even lower their interest rate. Some even allow the mortgagee to re-finance a lesser balance because their home has “lost value.”  Please notice I put lost value in quotation marks. As I go further into this matter that will become clearer.

By way of identification, I have in my working life been a real estate lender as well as a real estate appraiser. I also had to collect back the money I loaned. In some cases I had to foreclose on real estate in order to collect.

As I listened to the lawyers explaining how to prevent foreclosure, I never once heard the phrase, “Just make your house payment and make it on time as you agreed to in the contract you signed.”  I assure you if you make your payment, the lender has absolutely no desire to kick you out of your house. The last thing a banker wants or needs is a bunch of empty houses in his inventory.

I have heard the complaint that real estate has lost value and many who owe money on their houses are “under water.” What do you suppose happens when you finance a car for, let’s say, seven years. You don’t seriously think a car is going to increase in value, do you? Usually before you make your first payment, your car is worth far less than you paid for it. It is not the bank’s fault or responsibility to insure the value of your home grows or even remains the same. These things happen.

I am convinced our current real estate problem is the fault of the US Congress and Freddie Mac and Fanny Mae. They required lenders to finance homes for unqualified borrowers and to loan more than the appraised value. Real estate appraisers also are to blame for their phony appraisals.

What we have now is not the end of the world. We have a temporary glitch and we will look back on this and wonder why we didn’t buy up all the cheap houses that were available. We still have 330 million people who must have a place to live and that number is growing every day. They are not going to live in tents or caves. They are going to be in the market for homes for many years to come. In other words, this too shall pass.

Many years ago I met a man in Seattle. I sold him a very expensive car and he paid cash for it. As I got to know him I learned he lived through the big downturn in Seattle when so many people were leaving there was even a sign heading out of town that said, “Will the last person leaving please turn out the lights.” He told me that he started buying up empty houses for a song. In just a very short time, the whole situation turned around and he began selling those homes. When I met him, he was a very wealthy man. That same situation is happening now. If I was a much younger man, I would buy as many houses as I could.

Here’s the rule. If you don’t want to have your home foreclosed on, pay your payment. If you don’t want your car repossessed, pay your car payment. And finally, if you want to get very rich, start buying all the empty houses you can afford and get ready for the turn around. It will happen.

Ron Scarbro October 13, 2011

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