Q: Back in 2005, I bought a condo with inherited cash for my disabled son to live in. I used an inheritance to buy the condominium. The condo was ridiculously high priced for a tiny one bedroom.
I questioned the Realtor on the pricing, especially since the selling price was $15,000 more than what the seller had paid only a year before. The agent said this is what was happening all over the neighborhood.
I am not allowed to rent the condo per the association rules. I feel so stuck and angry and victimized. Do you have any suggestions for me?
I know now that a mortgage is best since you then share some responsibility with someone. The loss is huge -- more than 50 percent. I'm so angry that no one can be held accountable to me for this financial disaster. Your thoughts?
A: During the late 1990s, thousands of investors flocked and purchased Internet stocks with the hopes of profiting quickly with rising prices. The Internet bubble burst and investors lost much of their money with these stocks. If these investors purchased their stock with borrowed money, they would still have been held responsible to repay the money, even when the stock purchased became worthless.
You can say that a similar thing happened to you. You purchased a condominium during the real estate boom. While it appeared to you and many others that real estate values would go up forever, the economy turned, most of the buyers dropped out of the marketplace, and home values ended up crashing. Who would you want to blame or hold accountable for the precipitous drop in real estate values in your area?
In your letter, you recognized that your seller had purchased the condominium a year earlier and was making money on the sale. It's not natural in most real estate markets to make money so quickly. Something inside of you told you this wasn't right, but you went ahead anyway and bought the condo.
We feel for you and can appreciate your loss. It certainly is a hard loss to take. But blaming others won't make the loss any better. And your statement that you wish that you had obtained a mortgage on the property to let the bank take the loss doesn't necessarily help. You should know that in some states banks have the right after foreclosure or a short sale to pursue their borrowers for more money. In your case, depending on where you live, the bank could sue you to recover the loss.
Furthermore, if you'd used a lender to buy the condominium and then went through a foreclosure or short sale, your credit history and credit score would take a huge hit. Not only that, but it would have been unlikely that you would have purchased it with only lender funds. You probably would have put down $30,000 or so to buy the condominium. So, you'd still have had a financial loss.
Values in the condominium project are about half of where they were when you purchased it. However, you indicated that this value is based on bank-owned properties. You might find out that once all of the housing crisis sales have been finalized and the market in your complex stabilizes, values may come up a bit. Home values may not return to the level that you paid, but they could come up a bit. And if values do increase, whatever you get from the sale will be yours to keep.
Placing blame isn't the right thing to do. No one forced you to buy this condo. There were millions of Americans who got caught up in the housing boom and suffered in the bust.
What you should do is focus on the future. If your son can live in the unit, he should. And he should enjoy it. You won't technically lose any money until it's time to sell, and by that time, perhaps either the building will permit rentals or you will be able to sell and recoup some of the cash.
Real estate agents are a great source of information, but the ultimate decision-making power is with the buyer. So if you insist on assigning blame, you should start with yourself.
(Ilyce R. Glink is the author of many books on real estate and host of "Real Estate Minute" on her YouTube.com/expertrealestatetips channel. Samuel J. Tamkin is a Chicago-based real estate attorney. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. Contact Ilyce through her Web site, http://www.thinkglink.com.)