A friend of mine recently went through a divorce. Among the marital estate's community property assets (and liabilities) divided by Court, was the Stone Oak home she and her husband purchased together when the marriage was sailing on smooth waters. However, when it was decided that they could no longer live together, and that divorce was imminent, the not-so-happy couple had to make the tough decision of who would keep the home and who would move on.
Because the soon-to-be-batechelor's job requires frequent travel, it was decided that my friend (the wife) would continue to occupy the home, and assume all liabilities for the purchase price. These liabilities included a six figure mortgage loan (including a home equity loan used to buy furniture and take a vacation) that she and her husband had taken out together. The couple's agreement was soon reduced to writing and incorporated into the Final Decree of Divorce entered by the Bexar County District Court. As is frequently the case, the Court ORDERED that the wife re-finance the home so that a new mortgage loan would issue in her name, and the husband would be free of any liability associated with the home.
Because her credit is good, and she maintains a good job as in-house counsel at a large San Antonio company, my friend assumed she'd have no problem obtaining financing on the home. She couldn't have been more wrong!
My friend quickly contacted a mortgage broker, and was directed to several lending institutions offering mortgage loans in today's tough credit market. She found a lender offering acceptable terms, and was promptly approved for a mortgage loan. All she'd have to do was provide a survey, title poicly and appraisal. That's where the problems began.
When she contacted the appraiser, and told him that the home was in one of Stone Oak's many hidden, hard-to-find, gated communities, he advised that he knew just how to get to the home because he'd performed several appraisals "in that subdivision where every house is on the market." Because my friend wasn't actually selling her home, she didn't immediately realize the implications of that statement. After all, she had noticed that FIVE homes on her street had FOR SALE signs in the lawn, with three more around the corener, but what did that have to do with her? Turns out, it had plenty to do with her ability to re-finance.
The availability (supply) of homes in the neighborhood had caused a curious effect on the price (value) of homes located there. That is, supply far exceeded demand, which resulted in a significant decrease in price. Basic economics resulted in desperate Sellers in the neighborhood selling their homes for far less than what they had paid for them. For example, a 2,000 square foot home which had been purchased for $141.00/square foot ($282,000.00) five years ago had recently sold for $89.00/square foot ($178,000.00). Desperate times call for desparate measures, and San Antonio's loss of AT&T, Washington Mutual and the jobs those firms offered have sent shockwaves of desparation coursing through Stone Oak. This creates a climate of decreased values and surprisingly low appraisals. Wall Street and the stock market are not the only losers when economic times turn tough.
Because the average sales price for a home in her neighborhood during the past 18 months had been $102.00/square foot, the appraisal for my friend's home was based upon that unit value. At the end of the day, the appraiser certified a fair market value of $229,500.00 (2250 square feet x $102/sq. ft.). Too bad the total outstanding amount she and her husband owed on the mortgage and home equity loans they had taken out was $263,000.00!!!!! They weren't nearly so concerned about that amount when they thought the home was worth $310,500.00 (or $138.00/square foot).
In the end, the mortgage company DENIED the re-finance. Turns out my friend and her ex-husband traded blows over who would keep an asset which is today worth NEGATIVE $33,500.00 to them. That is, if the home were sold today according to market trends, she would walk away with a deficiency to the mortgage lenders in the amount of $33,500!
She's looking for another solution, but the picture isn't a rosy one. Americans hold $10.6 trillion in mortgage debt. So far in the current mortgage meltdown, $1.8 trillion or more of that debt is for mortgages that are underwater – loans that are higher than the value of the property. Much like my friend's.
In the 1980s, residential property values plunged in Texas. Since then, abundant land and loads of builders have resulted in enough houses on the San Antonio market to slow home appreciation. When considering buying, selling or re-financing a home, you chould consider the long-term implications of your decision in our uncertain economic climate.
Attorney Trey Wilson - RL Wilson Law
Trey Wilson --Named By Scene in SA Magazine As One of San Antonio's Best Real Estate Litigation Attorneys -- September 2008 -- As voted on by peers