Real Estate and Bankruptcies in Uncertain Markets

What I’m seeing in my practice is that as prices are dropping in real estate, especially in residential properties, people are extremely uncertain with respect to purchasing properties. Sellers still haven’t faced reality as to the drop in value of their properties and many don’t even realize that with the de-valuation of the U.S. dollar they have lost and additional 20 percent in the value of their properties.

Just this week we had a bizarre case, which I guess isn’t so bizarre in this topsy turvy economic world that we find ourselves in today. A client of mine was selling his house and the closing was meant to take place this week. At the last minute, the purchasers e-mailed my client directly to keep the $50,000.00 deposit as they decided to not go ahead with the deal. After speaking to the attorney representing the purchaser, it was clear to me that the purchasers did not only get cold feet, but wasn't willing to take the risk associated with this real estate market. They’d been advised that house prices were going to drop once again and they’d be better off losing $50,000.00 now than tying themselves into such a weak market. You can imagine what a catastrophe it would have been if my clients had been in contract to purchase another house. Luckily that was not the case. You must advise people when they are selling a property and are intending to purchase another property that they really need to consider the risks as to whether to enter a contract simply based on the fact that somebody made a decision to buy their existing house and that person has a commitment from a bank to buy their house. Clients can lose a lot of money if they cannot sell their house to raise the funds needed to purchase their new house.

Things are financially weak in the United States and loans are hard to come by. What we are seeing is that the banks are still lending but the practice of lending has changed. While the banks are willing to take applications and are willing to quote 3.5 to 4.5% on 30 year interest rates for residential loans, that is all theory! In practice, banks have become extremely conservative to whom they lend and the facts are that many applications never reach a commitment stage, the loan commitments have many conditions, some of which are almost impossible to meet.

Why would a financial institution want to make loans at 3.5 to 4 percent for 30 years when they expect massive inflation in the future and the expect interest rates to rise way above that.

People do not feel secure today, the markets are not secure today, and the banks have little security today. We are seeing this also in our leasing practice. Many clients who are leasing properties are requiring that the landlord provides in the lease a good guy guarantee which basically means that if the tenant cannot perform under the lease the guarantor would not be liable provided notice is given and provided the property is turned over to the landlord.

Bankruptcies are growing month by month and people are just giving up on their debt. Many properties are underwater and the amount of monies owing on property are much more than the property will ever be worth in future years.

Rather than make financial decisions on your own, allow us to assess your situation in a free consultation. My experience and my professional qualifications in real estate, tax, bankruptcy and finance allows me to see the big picture and I don't want you to make mistakes.