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from Local Attorney, Michael H. Wasserman

Sunday, March 9, 2014

Say it Ain't So: Low (No) Down Payment Real Estate Investing Making a Comeback ?

by Michael H. Wasserman

Apparently, we have learned nothing over the last 8 years. Folks are actually starting to tout no and low down payment loans again. Worse yet, many consumers seem ready to follow their suggestions.

Back before the bubble burst, the markets were giddy with buyers purchasing homes and investment properties with no (or next to no) down payments. Conventional wisdom at that time held that property values could only go. up. Huge equity gains were inevitable. Profits would flow to anyone smart enough to buy a home - even more so for those who bought without actually paying anything out of pocket.

Then the market collapsed in 2007 and the fallacy of that theory became painfully apparent. Property values plummeted. Owners went from no equity to negative equity. Severely. HELOCS were frozen or worse yet, called due by lenders. Properties became unsalable - sellers could not afford to pay out the shortages. You remember, don't you?

The after-effects from all of the resulting delinquencies, defaults and foreclosures are still with us. Thousands of families displaced by the loss of their homes. Countless others still cannot move, or have become "accidental" landlords renting out properties they cannot sell, owing more to their mortgage lenders than their homes are worth. Many have sold short. Some lenders forgave that debt, triggering huge income tax liabilities for borrowers. Others sold their homes but still retain repayment obligations (deficiencies) to their lenders. Many, many have - or will - file for bankruptcy too.

Things are getting better to be sure, but I still see more than my share of short sales, REOs, and sellers forced to write checks at their closings to cover their sales. As optimistic as I am for the spring and summer markets before us, no reason to believe that the distress sales are now all behind us. Would anyone who lived through this once buy a no down payment home again?