Not pursuing a McMansion in foreclosure killing me....(long)

[wildmonkeys]

Okay. I used to spend a bunch of time on this board and haven't been on in awhile and I thought you all would be the audience who would understand a decision dh and I made that is driving me bonkers....

We live in the Washington, DC suburbs with expensive real estate and live in a small house with a small mortgage we bought in 2001 before the market went up....we don't like a number of things about the house (neighborhood could be kept up better, on a busy road, 3 kids in a two bedroom house, etc.)

We have been looking for foreclosures as a chance to get more space and a more secluded lot and nearly got a nice 4 bedroom house for about 25% of the list price back in March at a foreclosure auction....it would have been a nicer house and actually lowered our mortgage but we didn't get it. Well we just stumbled across a McMansion in foreclosure on an acre that would add 1/2 hour onto dh's commute each way. The house is being sold for $410K though it is listed at about $950K We would make good money on this house if we sold it (if we could in this market!) but it would still be a stretch to finance that mortgage esp with property taxes of $10k a year and higher utility and commuting costs. We would also be the poorest people for 20 minutes in any direction which would up my kids list of desires. That being said - we would have picked up more than $400k in equity in a flash and be in a lovely home, but it weirded us out so we aren't doing it. I mean the house is amazing (in a sort of disgusting McMansion way ) The auction is in the morning and we did not pull our money together to get a cashiers check and I am having not-buying remorse.

What do you frugal mama's think? Would you get overextended for a chance to make money or were we nuts to consider a McMansion (our current home is 896 sq feet and this one is 4,000 plus the basement

[SAHDS]

The house was already in foreclosure once because someone made a bad choice. Sounds to me as though you'd be making one too. I think you were right to not buy it. Sure, it's probably beautiful, large and lush but will that matter if you can't pay for it and/or puts you into financial hardship? The extra mortgage cost, higher utilities, the extra gas for your DH's commute, the kids' want list, the furniture you'll need to fill it (trust me), the 'sprucing' up (people who go into foreclosure usually do not leave the most well kept home behind), etc.

With the way the economy is, I wouldn't chance it.

Also, I wouldn't count on selling it and making any money. Houses don't automatically go to auction. The bank (or loan holder) attempts to sell it first. If they can't find any buyers, it goes to auction. So, it didn't sell and that's why it went to auction.

Everything happens for a reason, I bet you'll find something that is perfect for your family

[josybear]

think about it this way:

• your furniture would fill less than 1/4 the new house, so you'd need more furniture
• your window coverings wouldn't fit the new windows
• your utility bills would skyrocket
• you'd be mowing a LOT of lawn
• gas is going up and you were going to increase your commute?
• property taxes, baby!
• you'd end up with 'keeping up with the joneses' sneaking into your life. right now your neighbours are probably not much richer than you, if at all. but what's the point of the big yard if you don't have a bbq? and what about how the huge living room makes your little tv look so much smaller? and...
• your mortgage payment would be insane.

feel better yet?

[shelbean91]

Everything happens for a reason. Keep looking and you'll find something even better that fits w/o stretching your budget so tight.

Josybear has a great list that should help you feel better. (it made ME feel better and I'm not even in your shoes!)

[kirstenb]

I agree that it was wise to pass on it. The bank will want to sell any foreclosed property for as much as they can to minimize their loss. The fact that it couldn't be sold for more should tell you a lot. The housing market hasn't hit the bottom yet- if in 6 months you decide to sell because all the extra costs are becoming too much, there's a chance you couldn't sell it for what you paid for it. Way to risky, imho.

[MamaMonica]

It sounds like this one wasn't exactly what you were looking for-- hang in there. I hope you find your perfect house (or close to it) soon.

[wildmonkeys]

Thanks all. I think we were probably right to hold back. DH and I did joke about our furniture when we were deciding -- we said we would put one yoga mat in a room and call it the exercise room....certainly we could have spread the kids toys out to create a science room, an art room, a costume room, etc. The long commute would kill us both financially and in terms of quality of life.

OTH the auction tomorrow is the public auction of the balance of the loan from 2000 which the bank can not sell at a profit. Any public bidder can pick it up and if nobody does it will go back to the bank and then they can decide to try to sell it at a profit....the only other house in the neighborhood is going for 1.1 million (I am sure we would fit in great with them with our 19 inch tv with no cable and thrift store wardrobes ) so I am pretty sure if somebody doesn't pick it up for the balance then the bank will sell it at a profit.

Anyway, thanks for the pep talk ladies. DH and I have been back and forth on this for 3 weeks...I can't sleep it has me so worked up, but Monica is right, it was far from our perfect house for so many reasons. I just hate the idea that we will probably end up spending more for a smaller house in worse condition that is worth less money, but is more US (and not sure what it says about us that we almost felt like this house is too good for us, you know?)

[velochic]

Also, with a small family, would you really have really wanted such a large carbon footprint? That's more square footage PER PERSON than you have right now. You probably would have had buyer's remorse after you got it.

[berry987]

I think you made the right decision. The DC market is tanking - I just read that it doing the worst of like 12 metro areas because it got so inflated. So who knows how low it will go and how long you'll be stuck with your McMansion. Plus your kids will spend some amount of time thinking that a giant house with all the amenities is what they need and they'll get used to all that space, so if you decide to downsize after selling they'd have to re-adjust. And like the others said - more furniture, lots of mowing, high energy bills, long commute - yuck, yuck, yuck.

[p.s]

Originally Posted by josybear

think about it this way:

• your furniture would fill less than 1/4 the new house, so you'd need more furniture
  ...
• your utility bills would skyrocket
• you'd be mowing a LOT of lawn
• gas is going up and you were going to increase your commute?
• property taxes, baby!
  ...
• your mortgage payment would be insane.

joseybear has made some really good points, but just to clarify, if you bought this house you would have no mortgage. Houses like this are paid for in cash. Which means you would also have to pay insurance OOP (normally incorporated into a mortgage, since the bank is interested in keeping their equity). Which would be a good amount if you chose to insure for $1 mil or abouts.
This means, if you don't have $410 liquid, that you would owe someone very real (like friend? family?), the money. And these kind of transactions are what destroy relationships, etc.
Also, closing costs for a home $410k still would be in the thousands of dollars and would need to be paid in cash.

Originally Posted by wildmonkeys

OTH the auction tomorrow is the public auction of the balance of the loan from 2000 which the bank can not sell at a profit. Any public bidder can pick it up and if nobody does it will go back to the bank and then they can decide to try to sell it at a profit
.... I can't sleep it has me so worked up,
... I just hate the idea that we will probably end up spending more for a smaller house in worse condition that is worth less money, but is more US (and not sure what it says about us that we almost felt like this house is too good for us, you know?)

it sounds like ultimately, this is the troubling point... you lost out of an easy $600k, right?

but I would take a step back and look at this objectively....

let's say the house is assessed at the county office for $1,000,000.
And that only 1 person shows up to bid on the house at $410k.
Foreclosure is, next to bankruptcy, one the biggest marks on your financial face. So people allow themselves to be foreclosed as the absolute last option. All savings depleted, all routes of equity exhausted, etc.
So this means someone walked away from this house, and lost whatever equity they had in it.
So if they bought this house for $1 mil, then they would have $600k equity. So it wouldn't make sense that they would just walk away. They could sell the house for $600k, give $410k back to the bank and have only lost $190k instead of $600k.

So you can be pretty sure that what they are walking away from, is less than what would be left if the house could be sold, minus closing costs, minus the $410k that they would have to pay back to the bank.

so, let's say they got one of those ridiculous no money down, or even put $100k down. And lets just say closing costs are around $50k (just picking a random number which would dep. on tax rate, documenting etc). Just to avoid the huge stigma of foreclosure, wouldn't it make sense to just sell the house for $560k, even if the house next door is selling for $1.1 mil?

Then the additional 20 min drive. If it's 20 min on windy Kirby Rd, that's one thing. But if it's 20 of driving on I95 or I279, that's something totally different. And that would be your answer why it hadn't sold prior to foreclosure. 'cause be honest: if you had $1 mil to buy a house in the DC area, where would you live?

Also, unless the windows are missing and you got a look inside, you don't know what condition the house is internally. It could be stripped of all floors, appliances, molding, doorknobs, who knows. So you could need another $50-100k just to make it habitable.

And ultimately, if you don't have $410k cash, do you really want to dump all your savings in 1 piece of real estate? Witha few kids, you always want a cushion. people who have a couple of million sitting around... let them have this headache and worry about it. I don't think you missed out on anything but a huge pot of worry and McMansion money sump. It's a law: you earn what you get, you get what you earn. And that's how you sleep well at night.

boy, I seem to have a problem with brevity lately.

[monkey's mom]

Yeah, don't discount the ugly underbelly of the neighbors there, either! Our friends live in perfectly nice townhouse in Centreville and a little girl from their kids' school came over and said, "Are you poor? My mother says that anyone who lives in a town house must be POOR!" Centreville for god's sake. Which ain't Great Falls, you know? You would probably run into a lot of that McMansion-neighborhood attitude. Blech.

Plus, think of it like that super discounted piece of designer clothing you stumble across at the thrift store every now and again. SUCH a great price, SUCH a great label........but, doesn't *quite* fit right. But it's such a good deal so you grab it up. And every time you try it on to go out, you realize how ill-fitting it is and you take it off and put it back in the closet--hoping it will somehow fit better next time. But it never does. So, really, not such a great deal, you know?

You would have had to acquire this new house before selling your old? How long could you have made it holding on to both properties? What if your old house didn't sell for 6 months? A year? Ack!! That would definitely have kept you up at nights!

You'll be OK. We cashed out of that market 2 years ago and I am so glad to be out of the traffic and the rat race. Whew. We'd been wanting to get out for a while. And then it just happened all at the right time for us. It'll work out just the way it's supposed to for you, too!!

[EFmom]

I think you were wise to pass. It sounds like you would be overextended. And you are assuming that you'd be able to sell the house and make a lot of money. If the house was going to be that easy to sell, it probably wouldn't be in foreclosure to begin with.

Be patient and keep looking. You'll find the right house.

I can understand the temptation, though. I'll never own a McMansion, but it doesn't stop me from being secretly envious of the McMansions where all my kids' friends live.

[A&A]

Utilities WILL go up. It will cost more and more and more to heat and cool (not to mention clean and furnish) that McMansion. STEP AWAY!!!

[A&A]

Originally Posted by EFmom

I can understand the temptation, though. I'll never own a McMansion, but it doesn't stop me from being secretly envious of the McMansions where all my kids' friends live.

:

My dd calls McMansion neighborhoods "Dursley neighborhoods." (reference to Harry Potter.)

[Savoir Faire]

No way. I think that this could get yourself into one heck of a financial mess. What if your husband loses his job? Think about the cost of gas (if he drives) that's going to add to the finances. What about heating/cooling/using electricity? That'll add up, too.I think, in these financial times, this is the exact situation you should be careful about getting yourself into.

[SleeplessMommy]

What PS said. What Josybear said.

If the house was worth $700K, someone would have bought it for $700K.

There is a huge risk of burst pipes, substandard construction, missing electric, mold damage etc if the house has been vacant. And didn't the electricity cost in MD increase by 50% last year? I have seen these houses built - I promise you many corners were cut on HVAC and insulation and construction quality.

Our house is much smaller than the mentioned 4000 sq feet... and still too big. We loose things easily (like the vacuum cleaner) and house cleaning is a nightmare.

[henhao]

Hi, I'm in the DC area, too.

CNN had an article recently that talked about how those McMansion neighborhoods will have one house with multiple families, and that it'll become like the inner city is today with drug problems, etc. It sound like those places won't remain the nice neighborhoods you see today.

[Jilian]

In this kind of market everyone is downsizing and looking to cut bills, so your odds of selling that mcmansion quickly for a profit are very low. You could have ended up stuck with it for a looong time and losing out in the end. I think it was a good idea to pass on it.

[A&A]

PS. The house is being sold at $410k. So no, you don't "immediately pick up equity" if it won't sell for more than that. If it could sell for more than that, it would, in fact, sell for more than that (as others have said, as well.)

[southhavenjen]

I am personally thankful we have our 900 square foot house right now, with energy prices skyrocketing.