Written by Craig D. Robins, Esq.Long Island first-time home buyers, hurt after following advice of so-called experts to stretch financially to buy their first house, are now getting out of bad situations with Chapter 7 bankruptcy
For ages, buyers of real estate were told that they should always stretch financially when buying their first home. However, the recent resettling of the real estate market has blasted that maxim out of the water. As a consequence of that good-natured, but ill-conceived advice, hundreds of thousands of Americans now have homes with no equity at all and are considering bankruptcy as a way out.
An article in the New York Times last week (Seven New Rules for the First-Time Home Buyer [1]) said that too many people bought too much house for too many years. Although our country’s financial system almost collapsed because of the sub-prime mortgage meltdown, the article suggested that consumers should share some of the responsibility.
Unfortunately, few home buyers anticipated such significant corrections with real estate values. They also were blinded to the excited sales pitches of mortgage brokers and real estate sales agents about exotic mortgages that reset to rates that can become unaffordable.
A very large number of Long Island home buyers fell victims to this home buying euphoria and are now paying the price — something I see daily in my Long Island bankruptcy law practice.
Now, financial planners and economists are rejecting the idea that first-time home buyers should get as much home as they can afford. The Times article spells out some new, common-sense guidelines that home buyers must consider, like placing a down payment of at least 20%, and not spending more than 35% of pre-tax income on the mortgage payment, including real estate tax and liability insurance.
The purchase of a home, once thought to be a no-brainer as far as being a safe investment, must now be approached cautiously.
For those home buyers that have found themselves in an untenable real estate situation, combined with excessive debt, bankruptcy can often provide a solution to getting out of a bad real estate home investment and getting a fresh new financial start. We have helped many Long Island homeowners do just that with Chapter 7 bankruptcy.
