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The easiest way to avoid foreclosure in 2009-2010?

Make sure you didn’t buy a house in the Phoenix area in 2005-2006.

Ok, so maybe that is over-simplifying it a bit, but my eighty-two-year-old Grandfather has taught me that if you live long enough, you will see it all.

And I can now say with some degree of wisdom:

If you find yourself entering a lottery with a builder to buy a home, chances are you are going to experience a great deal of financial pain in the event that you “win” the lottery.

I hear from people who sit in our local “lottery winner” support groups who find themselves having to deal with difficult choices regarding the home they “won” now being worth less than half of what they paid.

Back in 2005, it wasn’t all that uncommon for builders to take peoples names who wanted to buy a house and then pick a few each month who could have the privilege of buying one of their homes.

Our builder had the same problem other builders had – too many people wanting to buy a house and he wasn’t able to build them fast enough. So the builder set up a lottery and within 2 weeks, the builder had a list of 150 people who put down $5,000 to enter the lottery.

And each month, the plan was that he was going to “release” 3 available lots and pick 3 winners who could then vie for one of the three lots to build a home on.

The first month went by and my name didn’t get drawn.

“Oh no! This meant that next month, he was going to raise the price by at least $5,000!  What was I going to do if I didn’t win the next month or the month after that?”

Lucky for me, I didn’t have to wait long – somehow the magic ping-pong-ball-chute shot my lucky number out in month number two.

Sweet! Now all I had to do was plop down $75,000 as earnest money and a year later I could move into my new house.

And so it began.

I was in the process of short selling my house in 2010 and didn’t even see it coming.

I was excited!

I had just won the lottery.

Someone just failed to mention that winning that lottery meant you were going to be a winner — a winner in the biggest loser.

In hindsight, I have to kind of chuckle at the concept of entering a lottery to buy a home – but at the time, it seemed like something perfectly educated, sane people did. Heck, quite a few smart people I knew would just refinance their primary residence take the cash and enter a lottery for an investment property. Those people essentially just doubled-down on a pair of eights in blackjack – forget entering the lottery.

But now I know.

And if I live long enough to see another home builder hold a lottery for the chance to buy a home, you won’t find me standing in line buying a ticket.

Or anyone else who has lived long enough to have seen what happens to past lottery winners.

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About the Author:Justin McHood calls himself a “Mortgage Commentator” and works for Academy Mortgage Corporation. You can find his loan officers at Ten Day Close and read more of his thoughts on the mortgage business on Zillow’s Mortgages Unzipped Blog. You can also find him at most East Valley Friday Nights gatherings. He’s the one in the blue shirt.

 

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