You've probably seen a house or two for sale by a self-described "motivated seller." In this post, I'll take a closer look at one of those sellers to see what led to them being motivated. Here's what the current ad looks like (note that it's been listed for several months with no changes):



The current owner purchased this Laurel house in 2003, taking out $105,000 in loans. Had the owner simply continued to pay on his original mortgage, his loan balance today would be approximately $95,000.

And yet, he claims it is “REDUCED TO ROCK BOTTOM!” at $150,000. How can that be?



Welcome to the wonderful world of refinancing. This owner refinanced 4 times between 2004 and 2007. The latest refi from Avanta brought his loan amount to $151,650, or $56,650 higher than the initial loan. This resulted in a monthly payment of at least $1,300.

We don’t know whether the owner used the extra refinance cash to pay other debts, spent it on toys, medical bills, or something else. But in any case, he’s taken out $50,000+ of home equity during the course of 4 years of homeownership.

Increased debts come at a price. Unfortunately, the latest loan appears to be a bit much for the homeowner. Wherever the $50,000 went, it doesn’t appear to have helped his ability to make the new payments. He defaulted on the loan in February 2009, but was able to catch up on payments this past summer.



Now instead of having a $50,000+ cushion to lower the price and still have plenty left over, the owner is just trying to get out alive and has priced his house at what is now “ROCK BOTTOM.” The age-old advice still holds: Buy a modest house you can afford, pay it off quickly, and don’t take on new debts. It’s tempting to toss this advice out during the euphoria of a housing gold rush, but the consequences of doing so can be dire.