One of the perks of writing this blog is that I get called by business reporters from around the country who think I know a thing or two about real estate law. While that proposition is certainly debatable, this week I was contacted by a very nice reporter from the Wall Street Journal who was doing a story about luxury homeowners falling into foreclosure. Here is a link to the article (in which I was quoted).
Naturally, I related this situation back to one of my mother’s favorite reality TV series: The Real Housewives of Orange County. The “Wives” of Orange County have been particularly affected by the real estate collapse. Apparently, Tamra, Alexis and Lynne’s enhanced beauty and vapid personalities were not enough to avoid foreclosure, eviction and short sales of their multi-million dollar mansions. But for “normal” millionaires like you and me, lenders may be more willing to work with high income borrowers, according to the Journal.
WSJ reporter, Annamaria Andriotis, found some data supporting her theory that due to the unique economics involved with the luxury home market (i.e., less buyers, more expensive to maintain), lenders are less likely to foreclose upon properties over $1 Million.
Lenders can be more willing to craft a new payment plan to make high-dollar homes more affordable. Paperwork and procedures are also often delayed, keeping homeowners in some states in their homes for two or more years after they’ve stopped making mortgage payments. And in some cases, lenders are offering homeowners tens of thousands of dollars in cash in exchange for their agreeing to a short sale, in which a home is sold for less than the borrower owes on the mortgage.
Repossession rates show the difference. Last year, roughly 85% of homes worth up to $1 million that received default notices were eventually repossessed, according to RealtyTrac, which tracks real-estate data. For homes worth more than $1 million, about 28%, or around 1,400 homes, were repossessed.
I have to assume that Massachusetts is not unique in this respect. Realtor John McGeough of McGeough & LaMacchia says he’s seen an increased in short sale activity for million-plus dollar homes in towns like Weston, Wellesley, Brookline, Newton, Gloucester, North Andover, South Natick, Sudbury, Concord, Sherborn, and Needham. McGeough reports that JP Morgan Chase paid one of his distressed clients $30,000 to do a short sale. Talk about cash for keys!
I don’t think there is any class warfare or real discrimination going on here. It’s simply dollars and sense. It’s more expensive for banks to foreclose and hold onto a million dollar property as opposed to working out a better deal with the borrower.
And by the way, I cannot stand those Housewives!