Mortgage And Real Estate News

Monday, January 16, 2012

Trade-in program ads get scrutiny - USATODAY.com

A Queen Creek couple looking to get out of an upside-down mortgage and into a brand-new home thought that a "trade-in" program promoted by Fulton Homes could be the answer.

On billboards, radio and Internet advertisements, Fulton Homes offers prospective customers a chance to trade existing homes for new ones.

"Why stay in an old home when you can trade up to an energy efficient Fulton Home?" the company's website asks in a prominently displayed promotion.

But after making inquiries and listening to pitches, Stanell and Jonathan Fylling said the trade-in program appeared to be more of a marketing gimmick that seemed to offer little help to homeowners.

Instead of trading their home for a new one, the Fyllings said they would have been left holding two mortgages for a couple of years and then faced with the possibility of letting their old house go into foreclosure.

"I don't see how they can get away with saying it is a trade-in program," Stanell Fylling said.

Executives with Tempe-based Fulton Homes defend the program, saying it has helped dozens of homeowners get out of old homes and into new ones.

"We've never tried to mislead anybody," said Dennis Webb, Fulton vice president of operations. "What we are trying to do is just make friends."

Many of the Phoenix area's biggest homebuilders participate in the program, which targets potential customers' inability to sell their homes, often because they owe much more on their mortgages than their homes are worth. They can get help with leasing or selling their existing homes and are offered reduced management fees or real-estate commissions. But reporters for The Arizona Republic and 12 News' "Call 12 for Action" found that few builders have created marketing campaigns around it because of concerns that consumers might get the wrong impression.

"We don't market it heavily for the very reason that Fulton is getting pushback," said Pierrette Tierney, vice president of sales and marketing for Taylor Morrison Homes. "For us, it is more of an extra tool in our belt."

Tierney said her company's sales staff has been trained on the program. She said they advise customers on an individual basis "as opposed to putting it up on a billboard."

Locally and nationally, the housing market has cratered in the past few years, leaving homebuilders searching for innovative ways to find buyers. Homebuilders went from selling 60,000 homes a year in the Greater Phoenix market five years ago to about 7,200 this year.

Despite a Chapter 11 bankruptcy reorganization, Fulton Homes has been one of the most successful homebuilders in metro Phoenix in 2011, averaging 4.8 sales per subdivision per month, compared with the local industry average of about 1.5 sales.

Webb said that through the trade-in program, Fulton has bought homes outright from customers, leased out their existing homes for up to three years with no management fees and offered steep discounts on real-estate agent commissions.

Fulton Homes representative John Mecham of Knoodle Public Relations said the program works in similar fashion to trading in a used car.

But unlike with used-car trade-ins, where customers often owe more on their cars than they are worth, old-home mortgages cannot be rolled into new-home loans.

"You can't roll a deficit loan amount into a new home loan. Real-estate laws prohibit that," Webb said, adding that underwriters typically can't approve mortgage loans that are greater than the home's appraisal value.

Old for new?

A used-car trade-in was the scenario that the Fyllings said they envisioned when they heard Fulton's radio ads about the trade-in program. They said they grew hopeful about getting out of their 2,200-square-foot home and moving to a larger Fulton home in Gilbert.

Stanell, 28, a hairstylist, and Jonathan, a pipe fitter, said they owe about $33,000 more than their home's current value.

Stanell said she went on Fulton's website, began looking at different communities and floor plans and then called. She said a Fulton representative immediately transferred her to an independent real-estate agent who provided very little information on the trade-in program.

Stanell said she was questioned about her home's value, condition, size and mortgage. Before talking about trades, the agent insisted on sending someone to their home.

About five minutes after the agent arrived, Stanell said, she began thinking that she had been misled about the trade-in program. Her first surprise was that the agent wasn't exclusively representing Fulton Homes and showed her listings for homes both old and new in communities throughout the Valley. Then came the options.

According to Stanell, the agent suggested leasing their existing house. He said the company could guarantee a lease for up to five years with a reduced management fee.

Stanell acknowledged that leasing might allow them to qualify for a second mortgage, but then she and her husband would have two homes to worry about. And what happens when the lease ends, she asked: A short sale? Foreclosure?

Stanell said she felt as if neither Fulton Homes nor the agent seemed concerned so long as they sold a home. She said the agent offered nothing that she couldn't do on her own. After a back-and-forth exchange, Stanell said, the agent acknowledged that the trade-in program was "a marketing tool."

Fulton Homes officials deny the program is any kind of marketing ploy. The agent, who works with Keller Williams and Rider Elite, denied to Fulton that he made such a claim to the Fyllings.

On its website, Rider Elite promotes the trade-in program and lists 19 builders that participate. The website offers answers to questions about foreclosures, short sales and negative equity.

"We can help you trade-in your home," an advertisement on the site states.

Brent Anderson, vice president of investor relations at Meritage Homes Corp., said his company has never marketed the program.

"We don't call it, in any of our communities that use it … a trade-in program," he said. "That could be misleading."

Anderson said the program offers little that a traditional real-estate agent doesn't offer, although Meritage has referred customers to it on certain occasions.

"It is more of a listing service," he said of the program. "That is the way it is referred to."

A common approach

Although Fulton just recently built a marketing campaign around the trade-in program, Webb said the trade-in program has existed for several years. Webb said the involvement of other builders gives customers flexibility, so they aren't locked into a single builder's offerings.

Chandler homeowner Jason Crespo said he is a satisfied customer of the Fulton Homes trade-in program.

Crespo, 43, an insurance agent, said he and his wife used the program to move out of their home in Chandler Heights and help his mother sell her home in Sun Lakes. He said that they all were able to move into a 4,167-square-foot Fulton Home that is bigger than their two older homes combined.

"It was our dream to build our new house, the way we wanted," he said. "But I never thought I was going to hand them the keys to my old house and they were going to hand me the keys to a new one."

Crespo said his mother, who owed nothing on her home, was able to sell it outright using an agent who worked on a reduced commission. For his home, Fulton agreed to a guaranteed two-year lease with no management fee.

Crespo described himself as a cautious consumer who looked carefully at the possibilities before agreeing to become involved. He said that he never expected the program to work like buying a new car.

"I think (Fulton) tries to help you buy a house," he said. "I do feel like we get a good deal. There were many advantages that I saw."

But Crespo also acknowledged that his deal doesn't fit the typical definition of trade.

"Did I do anything to trade? Probably not," he said. "Would I have bought a home from Fulton if they didn't have (the trade-in) program? Probably."

By Robert Anglen, The Arizona RepublicPosted 12/20/2011 04:11:14 AM


Trade-in program ads get scrutiny - USATODAY.com

Reuters: Business News

National Commercial Real Estate News From CoStar Group

Latest stock market news from Wall Street - CNNMoney.com

Archive

Recent Comments