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Is buying a repossession capitalising on someone else’s misfortune?


As you know, FruGuy and I have recently begun saving for a deposit to buy a home. We aren’t in any rush, but seeing as we’d like to buy somewhere eventually (as in, maybe 3-4 years from now), we decided to start saving now, so we can do it gradually.

But of course, that doesn’t mean I’m not totally obsessed with stopping at every single real estate office I pass to check out what’s available now, and get completely psyched when I see something nice within our (currently non-existent) price-range. You know how it is.

And of course, prices are getting visibly lower in London, thanks to the credit crunch. See? My mum was right: every cloud does have its silver lining.  In our neighbourhood, right now, for a 2 bed flat with private outdoor space, you’d be looking at about £280,000-£320,000.  I’m not sure how much lower they will get in our neighbourhood, but you do get the odd little gem that is going for an absolute song.  And they’ve got repossession written all over them.

I was reading an article in The Times a couple of days ago, about the associated guilt of buying a home at a knock-down price after or just prior to repossession. The author, Tom Ford, was lucky enough to purchase a beautiful home in his and his wife’s dream neighbourhood that was originally on the market for just under £700,000. They ended up buying it for £460,000.  Um, bargain much?

When they went to view the house for the first time, they found the entire thing to have been gutted. Everything of any value had been removed by bailiffs, from the hot tub and fridges, to the wardrobes and even the £15 electrical extractor fans had been pulled from the roof. Of the guilt, he said,

Buying a repossession comes with a bit of irksome moral baggage. There’s a sadness to a house that’s been repossessed, mainly because you can’t help but imagine you’re somehow capitalising on someone else’s misfortune – that you have displaced a family just like your own, turning into a vulture feasting on the carcass of the financially fallen.  We shouldn’t beat ourselves up too much, though. After all, we didn’t cause the situation the unfortunate owners found themselves in. Nor did we buy the house to turn a quick buck – for us, it is somewhere to raise our family. There’s still a lingering worry that the house’s troubled financial history could adversely affect future credit ratings in some way, but any feeling of guilt we might have had has been assuaged by the thought that if we hadn’t done it, someone else certainly would have.

I have to say that I’m totally with him on this. I don’t think I would have any problems buying a home at a rock-bottom price, if it meant that I was buying my dream home. The only thing I would hesitate on would be to buy in an area where a large proportion of houses were being sold after repossession. What do you think? Would you be OK with it?


21 Responses

  1. Miss Thrifty

    We bought a repossessed house! Well, sort of: it was repossessed and bought by a smalltime property developer, who replaced the (smashed) kitchen, the (smashed) bathroom and the (smashed) windows, slapped some up blown vinyl paper over the (cratered) walls and sold it to us. The funny thing is, you wouldn’t have known our house had a turbulent history: when we walked through the front door for the first time, what immediately struck us was how nice and peaceful the atmosphere was!

    I don’t feel guilty at all. Perhaps because I’m one stop removed from the repossession; perhaps because the family that used to live here were, by all accounts, the ASBO neighbours from hell. When they finally left the council had to send round skips to clear out the garden, which the family had used as their dustbin for 10 years. This isn’t even a council house – which gives you some idea as to how bad it must have been!

  2. Quarterlife girl

    I had this argument with my BF a while ago. He said it would be wrong….I dont’ think so. I’d actually feel better that someone was buying it as their first home (me) as opposed to it being picked up by some “investor” that would try to flip it when things get a little better. (Which you can’t deny would happen.) With home prices at the same level as they were a year or two ago, there’s no way I would ever be able to afford anything.

  3. paranoidasteroid

    I’m not sure I understand feeling bad about buying a house that was foreclosed. The family is gone – no matter what, they’ve lost the home already. And while obviously some people lost their house due to unforeseeable layoffs or medical emergencies, most people simply got a loan they didn’t understand & couldn’t really afford.

    Really, by buying a repossessed home, you’re helping people. The market won’t recover until people get over the fear that the home value will continue to fall, until enough people start buying in instead of getting out.

  4. MoneyMateKate

    I think you need to get in the right headspace about buying a repossessed home BEFORE you buy it.

    The things you really need to keep reminding yourself…

    - Who benefits from you NOT buying a foreclosed home? Anyone???
    - Doesn’t matter how much or how little you pay for the house, nothing was ever going to end up in the pockets of the original owners anyway. Getting it on the cheap doesn’t even shaft the bank – as I understand it they already got the foreclosure insurance money based on the inflated purchase price/remaining mortgage. Grr.
    - In time, the previous owners will have only bad memories of that home and wouldn’t want it back anyway.

    There are lots of other reasons, but those are the first three points I’d work on instilling in my slightly-guilty brain.

  5. Recessionista

    I don’t think it would be a problem, if there is any equity on the property the previous owners would be glad of a sale as they would still get this back, after the mortgage company/bank had taken the original amount borrowed to purchase the property, so the longer it hangs around on the market, the longer the previous owners would wait for any profit they may have made during their time owning the property.
    I would think seriously about buying now, do you really think prices will get much lower? and with rates being so low, you could be sure of a good deal and perhaps even a fixed rate for longer term security. Renting is just lining someone elses pocket and provides no security for your future as a family. In 3 or 4 years time, when you plan to buy, prices could be sky high again!

  6. TeacHer

    Hi FruGal! I’ve been reading your blog for a while now but haven’t commented until now! I’ve been thinking about this a lot recently because housing prices in the US have gotten so low. In the area that I teach they actually have bus tours that you can take of foreclosed homes in the area. They’re for potential buyers to scope our what’s available. I fully understand that the bank is taking the house from the owner and I would be buying the house from the bank – not snatching it out right from under anyone, exactly – I just wouldn’t feel right about buying a foreclosed home. I would feel like I’m using someone else for my own financial benefit.

    I told my dad that this is the way I feel and he laughed. He told me I’m being too much of a softy and that it’s actually better for everyone involved, financially, if the house gets sold at a reasonable price. I understand that, but I view a house a more than an investment. To me a house is a place to live, and I wouldn’t want to live in a house that a bank had foreclosed on. I wouldn’t be able to stop thinking about the people that lived there before me and the trauma they probably went through, having their house foreclosed on.

    That’s just tree-hugging me, though. I wouldn’t look down on anyone who did buy a foreclosed house, by any means.

  7. Abigail

    I have to agree with the others. I do think it’s understandable to feel guilty, but at least you’re not flipping the house for a profit. The point is, though, that you don’t know what happened. These people could have gotten in over their heads out of pure greed. Would that make it better?

    I think so long as you remember that, even in good times, houses get foreclosed on. It’s not your doing that these people are out of the house. Just love the place you choose, take care of it, and I think you’ll be morally okay.

  8. Miss M

    I wouldn’t feel guilty at all, I was not the one who caused the family to lose the house. Plus you don’t really know the whole story, your guilt may be for nothing. Maybe the house was owned by a speculator and not even lived in. Maybe the family were a bunch of criminals and the neighborhood is better off without them. I’m considering buying the house across the street to rent out, it is now a foreclosure. I even knew the man who used to own it. I wouldn’t feel one bit guilty, he was an a-hole.

  9. Kristy @ Master Your Card

    I’m with paranoidasteriod on this one. The family isn’t going to be coming back for that house and you didn’t personally evict them, so there’s not much in the way of guilt. It’s a terrible thing that people are losing their homes and I do feel bad for that to an extent; however, their choices are not my responsibility and I can’t expend the energy worrying about how my buying decisions may effect others.

    As p.a. said, buying the foreclosed property actually helps. You’re doing the neighborhood a favor because it helps stabilize the prices in that area when the home is purchased – as opposed to leaving it vacant with the foreclosed stigma attached to it. Secondly, vacant houses tend to attract crime. So, by purchasing the home, you would be helping to prevent that moving into the neighborhood.

    I really don’t see it as a moral dilemma at all.

  10. FruGal

    @ Recessionista, while it would be great to be able to buy while prices are low, we’re more interested in saving a big deposit than rushing into something just because houses are cheap right now. Plus, we don’t even know where we want to buy, if we want to stay in this area, or even this city. I don’t buy into the idea that ‘Renting is just lining someone elses pocket’ AT ALL, but that’s a whole other story..

  11. FruGal

    I’m with you all on the no-guilt here. While it’s sure sad that other families are losing their homes, it’s no reason to not take advantage of a great deal if you’ve been responsible with your finances! :)

  12. Shoestring

    I think it is terribly sad when someone loses their home but it wouldn’t stop me buying a reposessed house. Life for the previous owners won’t be any easier if their old home stands empty, even though it might feel a bit uncomfortable for the buyer. I really don’t think it is profiting from someone else’s misfortune unless you were actively involved in their fnancial mishaps!

  13. kosmo @ The Casual Observer

    In most states in the US, a homeowner is responsible for any shortfall after a foreclosure sale. That is, if you owe $200,000 and the bank forecloses and sells the home for $150,000, you still owe the bank $50,000.

    Because of this, it actually HELPS the previous homeowner to have more people bidding on the house, as it decreases the amount of shortfall (assuming that they haven’t been forced into bankruptcy).

    Regarding the damage done by previous owners – in the US, some lenders are offered a bribe to homeowners. The gist is this – if you move out without damaging the house, we’ll give you $5000 in cash. Not the best public policy in the world, as it gives the owners an incentive the threaten damage in order to extort money, but sometimes it is a choice between a $5000 bribe and $20,000+ in possible damage. It really doesn’t take long to inflict tens of thousands of dollars in damage to a house. Take a sledge hammer to the fridge, stove, furnace, AC unit, and you’re well on your way …

  14. Amanda is a Traveling Photographer

    I did it in 2007 and was VERY much ok with it. I think my situation is different though because I actually knew the person ( friend of friend ) and her home was in short sale. She felt that she just couldn’t do the payments anymore and a short sale actually helped her ( it worse on the person credit if it get repoed and then sold ) .

  15. Andrew Peffer

    I had 3 properties repossessed in the space of 2 weeks during April and May 2008. The properties were my bungalow and shop with a flat above.

    Anybody that purchases a repossessed property should never feel guilty, the ones that should feel the guilt are, the valuation companies who are employed to value the property (bearing in mind there is a value for private sale, a value for re-mortgage and a value for repossessed), the Mortgage Company for allowing the property to be sold off cheap, the Managing Agents who are miles from the property in question and last but not least the Estate Agents who are given Cart Blanche by the Mortgage Company to do just as they please as they are not policed.

    If a person has the opportunity to purchase a property cheap, good luck to them, hey give the repossessed a chance, they have done nothing illegal, fraudulent or wrong, most importantly they should not feel ashamed, it is due to circumstance. Lets face it where would dear Sir Fred, Adam Applegarth and the rest of the Financial Industry be if it were not for the Tax Payer, in a complete 2 & 8, yet they still want to use their Terms and Conditions.

    I realise the whole infrastructure of the Country works on money and if there is a problem something has to be sorted, it does not give the Banks/Mortgage Companies the right to walk all over the hand that feeds them (the Tax Payer)

    Lynn states on March 23rd, 2009 at 8:45 pm, if there is any equity on the property the previous owners would be glad of a sale as they would still get this back. I am in the position where my shop which had an offer on it 3 weeks after the shambolic marketing started (which is still taking place to this day) was turned down by Commercial First, I would have come out with £60,000.00. Subsequently I am now out of pocket to the tune of over £1,000.00 per week (you cannot blame this on the person that purchases my property).

    Commercial First admitted in writing, they realised the marketing of my property was not what they would accept and offered me £250.00 compensation (which I turned down), they dropped the value of the building by £50,000.00 after only 3 days of actual marketing, the endless amount of negligence goes on and on.

    I have the Financial Ombudsman Service and my Member of Paliament not interested, they are employed by the Tax Payer through the Government.

    I approached the press and the Mail on Sunday ran an article on Sunday 12 April 2009 under the heading “Razzmatazz on Desolation Row”. I am not after anybody feeling sorry for me and I will always defend myself if any person has a slate at my wife and I, but I am determined to fight the Banks/Mortgage Companies for the repossessed after the Court Stages of Repossession.

    Yes, if you do not pay the monthly contractual amount on the said date the Mortgage Company has the right to apply for a Possession Order.

    Once possession has been granted the Bank/Mortgage Company has a Legal/Moral obligation and a Duty of Care towards their repossessed client, this I have seen no evidence from either Commercial First, Topaz Finance PLC or Northern Rock Plc (can be proved)

    Any person that has not seen the article in the Mail on Sunday please go on the net, then hopefully I can get more people coming out of the wood work to fight these leeches, the Banks/Mortgage Companies. It also appears on This is Money by Richard Dyson, where comments have been added.

    With regard to charges, I was paying £80.38 buildings insurance per month, the Mortgage Company are charging my Mortgage Account £361.27 following the repossession date to cover THEIR insurance, this is the company that turned down the offer, COMMERCIAL FIRST.

    I left my building immaculate, they have let it go to rack and ruin, all the Estate Agents will say, the owner left it like it – TOTALLY UNTRUE.

    If anybody is reading this who has been repossessed please come forward, do not feel ashamed and hold your head high.

    I welcome any responses.

    Andrew Peffer

  16. Andrew Peffer

    Where I refer to Lynn, if this the incorrect person, I apologise as it is very misleading with the lines in between the responses.

    Andrew Peffer.

  17. Anon

    Public Liability Insurance cover is more expensive than normal building’s insurance. That is why it is so much more expensive.

  18. Benjamin Bankruptcy

    Hmmm seems like I’m comming late to this one but one doesn’t feel guilty if you pick up a discarded chair at the dump or restore a dumped car at the wreckers. It’s the efficiency of the system.

    For me there is no moral issue. The problem may be buying in an area with lots of reposessions indicates that the ecconomy in that area may be built of sandy foundations and it may end up being a ghost town after a gold rush

  19. Jaime

    Nope. If someone can’t be responsible for a home then they shouldn’t buy it no matter how badly a banker pushes, it was still that person’s responsibility for signing it.

    Besides even if they did foreclose they can always start over again, it sucks, but you can always get your finances in order and get a new house again.

    If I was that person that lost their home, I would learn from my lessons and then the next time I would buy my home and make sure that no one could take it away from me.

    I think people need to realize, that the banks, credit unions aren’t your friends, no one cares about your financial life like you do.

    Realtors, banks, credit unions, credit cards all care about their bottom line, and not your future. Its up to all of us to make sure to wait and buy things until we can afford them.

  20. Andrew Peffer

    Anon,

    With regard to charges where I was paying £80.38 buildings insurance per month, this included public liability, so if I can get it at that rate why can’t they.

    Jamie,

    In connection to somebody being responsible for their actions, this also applies to people having children. Ask anybody who has no children, all they are doing is subsidising those with them.

    Yes the buyer does sign the Terms and Conditions but it does not give the Banks the right to do just as they please “after the court stages of repossession” and remember, borrowers have to pass the correct criteria.

    You assume somebody wants to buy another property – why would they in this corrupt world we live in.

    How do you know somebody was not happy to let the property return to the lender but as already stated, it it does not give the Banks the right to do just as they please “after the court stages of repossession”.

    You state, no one cares about your financial life like you do, well you are wrong because the minute the system can see you have money they will pounce to give it to all those that do not want to work and pop out babies but you cannot blame those that take while they are allowed to get away with it.

    What you must realise, Banks are not a business they are Civil Servants but they control ALL Governments. They do not care about human life until it affects them (Adam Aplagarth).

    The problem we all have is as human beings we need a financial infrastructure to survive, and they know it, subsequently they will do just as they please with the knowledge protection is there for them and that it is the politest way I can put it.

    Who pays for these Financial Institutions bonuses, redundancy packages etc – The Tax Payer not the Institutions themselves who have all been bailed out no matter what they say.

    You have stated, its up to all of us to make sure to wait and buy things until we can afford them. This I agree but then this should also apply to those popping out babies as if there was no tomorrow, if they do why should my wife and I subsides them like all childless people.

    Without being rude, people need to get a reality check in life then they will realise life is more important than money.

    All responses are welcomed.

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