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| Tuesday, July 29, 2008 |
| Extreme Foreclosure: Harper Family of Georgia |
 The Washington Post article: The Extreme Reality Makeover Show reports that the Harper family, who received their four bedroom home, free of any mortgage, along with enough money to pay the homes real estate taxes for 25 years as well as full college funds for their three children - in 2005. For the past three years, the family appears to have taken out a $450,000 home equity line on the home, which they now can't seem to keep up with the payments. The home is in foreclosure and is expected to be auctioned off on August 5.
You could (and will) say the Harpers had it coming, but really, we all had this coming. One thing we'll always remember about this decade was the constant home do-over fetish, in real life and in the reality of reality TV -- the constant warping of the consumer's sense of entitlement, the fairy-dust economics, the MasterCard reminder that the experience is priceless. We'll look back and think of all the time we spent watching shows where people flipped houses for easy profit, or traded spaces, or designed it to sell, or were led into rooms blindfolded to experience the paroxysms that came with new paint, new furniture, new life.
All the crying people did for the camera: They cried when television's magic wand touched them, and the hosts always cried, too, while telling the camera how good they felt making the dreams of the sick and wretched owners of substandard tract houses come true. Think of the many tears that were shed on American television over organized closets and new kitchen countertops.
Now comes a long period of tsk-tsk, and tut-tut. The schadenfreude potential is everywhere now in these newly sobered times, and it would be something if the Harpers would make themselves available for an entirely other kind of documented extreme makeover, penny by penny. - AccessAtlanta: 'Extreme Makeover' home in Atlanta in foreclosure knocked on their door Friday, told WSB-TV they got the loan for a construction business that failed.
Failure seemed an impossibility in February 2005, when ABC TV viewers got a look at the stunning home constructed in a subdivision three miles east of I-75. Painted dark olive and covered with specialty shingles, the home's domed door opened into a structure that featured four fireplaces, a solarium, music room and a porte-cochere that connected to Milton Harper's new office. The yard was a study in landscape art, with young magnolias, fieldstone and a Leyland cypress hugging one corner. A black metal fence ringed it.
It had taken shape in six intense days in January 2005, when Atlanta-based Beazer Homes USA and "Extreme Makeover" demolished the Harpers' old home, plagued by a faulty septic system. Professionals and volunteers came together to erect the largest home that the "Extreme" team had ever built.
Materials and labor were donated, but the home would have cost about $450,000 to construct. When they were done, the home dwarfed all the ranch and split-level structures in neighboring lots.
That was not all. Beazer Homes' employees and company partners raised a quarter-million dollars in contributions for the family. The sum included scholarships for the three Harper children and a home maintenance fund.
The Harpers, whom ABC chose from among 15,000 "Extreme Makeover" applicants, spent the week in Disneyland while 1,800 people swarmed about the site. The family returned to a new home, plus contributions worth about $200,000. Wow, I can't imagine running through $650,000 in three years. But then, I also can't imagine owning a home with four fireplaces - in the south - in Atlanta. What the heck were the Extreme Makeover people thinking when they built that monstrosity? What was the Harper family thinking when they started running through that money? I just hope the kids college funds did not get raided as well... |
| posted by Boston Gal @ 4:41 PM *
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| 14 Comments: |
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Just goes to show you that anyone who gets something for free does not appreciate it.
I guarantee you if they had worked hard for years and paid off that home in their own right, opposed to getting it handed to them, they would not be in the same situation.
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Wow. That's just--beyond shocking.
I can't help but resent the reporter's line that "You could (and will) say the Harpers had it coming, but really, we all had this coming." Well, okay, maybe I personally would have had it coming, in my old spendthrift ways, but there are hundreds of thousands of people who weren't seduced by the get-rich, cash-in hysteria.
And anyway, $650,000 is not "oops, we made some tactical errors" mistake; it's crazy, profligate "what the hell did you spend that on?!" mistake.
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again the banks are really at fault here --- clearly somebody who was living in a shed w/ a bad septic system probably does not have much insight into the business world, and furthermore, would need a VERY good business plan and evidence of experience to convince anybody for even a 100k loan.... I have a business degree, a professional degree, w/ income >400k and the banks gave me 150k to start even though i had more collateral... so why didn't their bank do due diligence!!! of course the family looks bad now, but this would never have had happened if a nice loan officer had counseled them properly.
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I am utterly and extremely disgusted when I see an article like this. There are 3 reasons. One, the bank had no reason to give a family that could in no way fix their old house, should have qualified for 70% of a homes value and a payment of around $2700 (interest alone on a home equity loan) if they could not afford $2700 to fix a bad septic tank before. Two, How irresponsible of the show to give a family that cannot afford all of that a huge amount of cash and tax liability, without any help from a CPA or something. Third, the second paragraph gets my goat as a pet peeve about today's home buyers. I will take on each now.
First off, if you look at the income of the family, no bank should ever give a loan (mortgage, taxes, insurance, etc.) that should be more than 33% of your monthly income. So you are telling me that for a 450k loan, the family should be making about $97,200 a year for that contract to just be signed. If they were making that to begin with, I would seriously wonder if they would have picked that family as a candidate that needed a new home. Anyways .. shame on the bank.
Alright - I can see based on the prize winnings (as this will be taxed as a prize by our glorious government) and will be about 1 million dollars (650k for the house, 125k for property taxes approx(5k @ 25 years), 75k per child for college). So that is about 250k to 400k in taxes the Harper's owed right out of the shoot for "winning" this prize. That, I bet, is the reason for the home equity loan. If you don't have that kind of money lying around, then how are you going to pay for the inevitable tax man coming to the door. That was why I begrudged the show for giving something this "extravagant" away to this family.
Finally my last comment has to do with the second paragraph. Having two houses right now - and trying to sell my old one is giving me tons of insight into the mind of the modern buyer. I cannot believe the expectations that modern buyers have for homes. These shows and expos have shown how every house should have modern upgrades and to expect if for below the cost of these upgrades. The purpose of a house price, is not to make money, but to pay for the replacement cost of the domicile should a house burn down. That is simple. If you put in upgrades, then the cost of the house goes up due to the increased cost of replacing the house. My old house, if it burned down to the ground, would cost $175 to replace it, as it was. I have it list for $170k, which for my area is a great price for a mid sized home. Every person that goes through the house has commented that it looks like it is from the 80's due to the cabinets and counter tops. Okay, they are in perfect condition, but yes, they are from 1986 when the house was built. I had one person place an offer that said if I replaced the counter tops, tore up all the carpeting (2 years old, and I have not lived there in a year) and replaced with hard wood floors, they would consider it at a discounted price. I did some checking and they were asking me to do about 10k in upgrades just so they could get the house on the cheap. They could easily flip it and sell it for 200k as anything 80's in it would be gone. I have considered it myself, but really don't want to bother as I would be the most expensive house in the neighborhood by 25k, and be the only one with "modern" upgrades, and no way I would ever get that money out of it. My point by this rant is that the frustration I see in this second paragraph just is something I am passionate about because I think these kind of stupid shows makes people unrealistic about the purpose of a home. If you really want a home that is mid sized, and has all the amenities (modern cabinets, granite counter tops, hardwood floors throughout) then you will pay an arm and a leg for a new house. Don't expect a reasonably priced older home to make all the changes for you and expect the older priced home.
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I find this to be such a sad story. This family is almost destined to a life of poverty or financial illiteracy because of a pattern of poor decisions. They had an opportunity, just like winning the lottery, that could have turned it all around for themselves, and they blew big time. They will find it difficult to get help from friends/family because they are officially a bad risk/investment.
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Perhaps in addition to making over the house, the show should take the responsibility of educating the family about how to manage the new resources. Or, appoint an advisor to manage the tax fund/college fund/house loans. Not entirely the family's fault in this one.
If you gave a handful of diamonds to toddlers, WHAT would you expect them to do with it? Why are you so shocked and upset that this was squandered. Really...
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b.g.:
i assume they did not have a medical or some other emergency.
wouldn't it be nice to put an mp dunleavy spin to this story? the family could still make millions off of movie rights for their exclusive story on what not to do!
- s.b.
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middle class hick:
"The purpose of a house price, is not to make money, but to pay for the replacement cost of the domicile should a house burn down."
you are kidding, aren't you? three-four years ago, when homes were selling before being listed, was your theory true then too?
"My old house, if it burned down to the ground, would cost $175 to replace it, as it was. I have it list for $170k, which for my area is a great price for a mid sized home."
at this rate, you will wait for a long time in the current market!! what have similar houses sold for recently? note that "similar" implies not just the square footage, but the age and features of the house as well. you cannot base the sale price of a five-year old house on that of a newly constructed house of similar square footage.
- s.b.
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Middle Class Hick,
They were given a home maintenance fund which included money to pay property tax.
I don't think the college funds will be taxed. It's probably a 529 fund which anybody can contribute to. Check out https://personal.vanguard.com/us/accounttypes/college/ATS529WhoContributeContent.jsp for instance. Anybody can contribute up to $60k per year to the fund. The recipient doesn't pay income tax on that.
I'm curious how they would tax the house. They weren't given a house, after all, their existing house was remodeled. The only thing that could be considered a "prize" is the labor and materials, not the market value of the house. How would that be calculated?
Also, is there a chance it wouldn't be considered a prize or award, so wouldn't be subject to tax? For instance, how is this different from when Habitat for Humanity goes somewhere and fixes the place up for free? Or builds a whole house at cost? There's no way the government is turning around and charging the beneficiaries (poor residents) 30% of the new market value! I'm genuinely curious how tax is avoided in that situation.
I suspect the TV show did some research and knew this wouldn't bankrupt the family.
Also, this all happened in January 2005. The tax issues are probably long over. I don't think they're responsible for this.
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@Middle Class Hick:
"I cannot believe the expectations that modern buyers have for homes. These shows and expos have shown how every house should have modern upgrades and to expect if for below the cost of these upgrades."
The problem is not with the home buyer, it's with the home seller. You're asking more for your home than it is worth. Sorry to say it, but maybe you need to lower your price.
You claim that with $10K in upgrades the buyer could "easily flip it for $200K", but then you commented that the only reason you don't do that is because there's no way you could get $200K for it.. Which is it?
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Obvioulsy there are potentially many groups to blame (the family, the show, the bank, etc) but what really stands out to me is that even given such great opportunities some people just can't seem to to take advantage of them. Maybe they don't know how, who knows. It's definitely disapointing though.
When it comes to finances and everyday decisions, some people just can't get ahead regardless of what they are given or born with.
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the price for a house has NOTHING to with construction cost or replacement cost.... it has EVERYTHING to with what people are willing to spend... if nobody wants to buy your house, then it is only worth what you THINK it is worth... if everybody wants your house, then it is worth as much as the highest bidder thinks it is worth...
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Followup comment on the tax issue...
I found this page that talks about this show and the tax treatment of the home renovations.
Basically, there is a provision in tax law that says you can rent out a home for up to two weeks per year and the income from that is tax free.
Furthermore, there's another provision about what's called leasehold improvements. If you rent out a property and the tenants improve it, you don't have to pay income tax on it.
So, the show has a contract to rent the house for a week or two (while the family is in Disneyworld or whatever). They "need" to rent it so that the construction crews have full access. They pay $50k for the rental.
However, they don't actually pay cash, they pay the rent by working on the home. The improvements are usually worth over $50k, so the rest of the value is excluded from tax by the leasehold improvement provision.
Now, this is a pretty transparent scheme and most likely the IRS could go after these homeowners, who, remember, are supposed to self report (it's not up to ABC or the volunteers). But, would they? So far they haven't and it's been several years.
I'm still curious how Habitat for Humanity gets away with it.
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So if the $$ wasn't for taxes, I wonder where it went. To support expansion of the husband's business?
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Just goes to show you that anyone who gets something for free does not appreciate it.
I guarantee you if they had worked hard for years and paid off that home in their own right, opposed to getting it handed to them, they would not be in the same situation.