Thinking of tomorrow, Today...

Yet another article in the paper about the misuse of one of the government credit card programs by an employee. I was getting ready to type in that I don’t understand why it is that an employee would just abuse the government credit card by purchasing frivolous things that clearly don’t have anything to do with their job or responsibility. But is it really that different than one’s personal credit card? You whip out your credit card and make impulsive purchases that you clearly don’t really need, and can’t afford to pay for at the end of the billing month. Most people don’t think about the financial repercussions of their purchase until their bill comes in the mail. Even then, they don’t really have to think about it all that hard, because they have the option of making the minimum payment, which is much more affordable. They can just make that payment, file the bill away as being “paid”, charge up more items, and then start the whole cycle over again when the bill comes in the mail. It’s a great game of avoidance mixed with hide and seek. I don’t think those government employees thought that they’d get caught. I think they thought that their credit card bill was one of thousands, and they figured that they’d worry about it when the bill came at the end of the month.

Too bad credit card companies don’t send you daily statements by text-message or email that would remind you of where you stand today. If more people thought of their tomorrows… today… how different would their worlds be?

For these and other blog posts, as well as info on the 26 Things to Teach Your Parents book series, visit www.26thingstoteach.com

You're going to do what?

So, I have a friend who told me the other day that she has decided that she is going to do whatever it takes to move into a million dollar home within the next year and a half. She lives in the DC area, and so that’s not hard to have happen. So far, so good… if that’s her goal and wish, then fine. What I wasn’t prepared for though was her plan for reaching that goal. See, she bought a house a few years ago and rehabbed it.. a magnificent rehab I must say. But now that she has decided that she needs a bigger house with a bigger yard, she is planning on dumping that house. I know that this story is not a unique one, and as a real estate agent, I certainly hear this type of story all the time. The problem for me is HOW she’s going to dump that house. You see, in this market, there are tons of sellers who are dumping their houses by slashing the sales prices (largely because they can because of all of the equity that they can afford to walk away from in order to have the sale go through). This presents a problem for people like my friend, because those types of sellers who live near her house have now caused the appraised value of her house to decrease. And that means that she is now in a situation where she owes more on her house than her house is worth… she is “upside down”. But she’s not going to let that stand in her way of getting her dream house. Her solution? To short-sale the house in order to be released from that mortgage obligation, and then be free (theoretically) to buy the million-dollar home that she really wants. She asked my opinion, and I told her that I couldn’t believe that she was going to risk possibly damaging her credit with the short-sale in order to buy a house that was even more expensive. She said that she spoke to a representative at her current mortgage company, who assured her that since they have so many short-sales to deal with already, they were not going to go after her for the difference, and that she’d “be fine”.

So, for those who don’t really know what short-sales are, here ya go: Say you owe $500,000 on your house, but the house is now only worth $450,000, and a buyer offers you $440,000 for your house. Take $500,000 and subtract $440,000, and that difference of $60,000 is what the mortgage company is left holding, unless they can get the money from you.

So, nevermind my friend and her plans. What I want to know is, if there are mortgage companies out there telling people that they’re not going to go after you for that $60,000, and therefore you won’t have to pay it… then who is going to pay? Will it be future potential borrowers who will have to jump through hoops and pay in increased fees and rates? Or will it also be me, the day I decide to get a new mortgage?

For these and other blog posts, as well as info on the 26 Things to Teach Your Parents book series, visit www.26thingstoteach.com