Money Crunch Hits High-Dollar Houses
In Franklin's immaculately landscaped New Urbanism neighborhood, Westhaven, past a Greek-inspired fountain surrounded by blooming tulips, sits a looming brick edifice that once was a $1 million house.
The bank foreclosed on the couple that owned it, and new buyers put a contract on it for $699,900 — easily a 30 percent price drop.
Over in Magnolia Vale in Brentwood, a buyer last summer scooped up a Greek-columned, 7,000-square-foot home for $808,500. The previous owner had paid $1 million three years earlier.
Foreclosures generally are rare in the housing market above the $500,000 price point, but they do occur. And real estate agents say a faltering economy has led to more than ever in Middle Tennessee.
The reasons why luxury homes go back to lenders seem painfully similar to lower-priced properties: Homeowners, investors and homebuilders get overextended with debts, lose income and walk away from houses they can no longer afford. But there are some major differences with properties built for upper-income buyers. With only a few exceptions, most of the foreclosures advertised above $500,000 are brand-new homes that builders lost to the bank and that no one lived in. Developers convinced that a housing boom two years ago would never end built luxury homes for wealthy buyers who never materialized.
As real estate sales slumped, lenders began foreclosing on builders who could no longer pay their bills. The builders had relied on a steady flow of home sales to pay off their construction loans or buy land. But the good times didn't last.
The result has meant more bank-owned homes coming on the market in some of the newest, most-expensive neighborhoods in the Nashville area, many of those homes in Williamson County, the wealthiest county in the state.
Builders Ed and Rebecca Newsham built a house in Heathrow Hills in Brentwood in 2007 using a $1.4 million loan. It has a pool, cascading waterfalls and 2,100-bottle wine cellar, along with gorgeous hilltop views of the countryside. But after waiting for years for a sale at a price over of $2 million, the Newshams, who had a stellar reputation as builders, filed for bankruptcy protection.
Reliable data on foreclosures by price are hard to track. Many Realtors who list homes for sale don't put the word "foreclosure" on the multiple listing service information that real estate agents share. Some say marketing a luxury home as "foreclosed" would be a black mark against the property, and it would encourage low-ball offers from buyers.
"Whenever buyers smell blood, the offers come in a lot less,'' said Steve Fridrich, president and chief executive officer of Fridrich & Clark Realty. He specializes in high-end sales and is seeing more troubled properties in that market.
Fridrich said he handled no foreclosures or short sales two years ago. Today, he has six. Still, other well-heeled homeowners are managing to hang onto luxury homes even if their careers or annual incomes have taken a hit with the recession. People who own $500,000-and-up homes tend to have other assets or savings with which to make mortgage payments even when they lose money on investments or get axed from high-paying jobs.
Sometimes, though, homeowners just can't keep their homes no matter what. "More people at the higher end are losing their jobs, as well — the vice presidents, the CEOs.
Others may have borrowed too heavily to buy expensive homes in exclusive neighborhoods.
It can take three to five years before a borrower can get another mortgage after a foreclosure — two years or more after a short sale. A short sale is when the lender agrees to a sale for less than what's owed on the mortgage.
Such a nick on a person's credit report can make it harder to get a business loan or even another management job. More employers have started to check credit reports of job applicants before hiring someone.
Still, some people are deciding to walk away from their homes and stop paying mortgages as a business decision, even if they can afford the payments.
When they look at a return on their investment, and they are so 'upside down' in their mortgage, it would take them five or six years to get it back. They just think they're going to cut their losses.
Happenings in High-Dollar Homes
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