In 2006 we went looking for new opportunities and left Colorado Springs for Seattle. My friends, coworkers, and I packed everything my family owned into a rented van and hustled across country with an old dog and three cats in tow. The job opportunity I had waiting for me was easily the most lucrative of my career so things looked good, despite it being the wettest winter on record (which is saying something for Seattle). The next year we bought a house in a nice neighborhood in town at the peak of the housing bubble -- despite a few doubts -- and today we're ready to hand this place back to the lender.
We weren't overly-naïve or greedy homeowners, if it matters. This is the third home we've owned since 1998. The first doubled in value by the time we left DC for Colorado Springs and the second turned a surprising (if modest) profit, even after only two years of ownership. Both of those were purchased with 10-20% down payments and old-fashioned, fixed-rate loans. When we purchased in Seattle, the mortgage/escrow payment remained roughly a third of our (higher) income, even with a 100% loan and high-triple-digit increase in monthly outlay over our previous rent (did I mention we purchased the house from our landlord at the time?).
See, we're a single income household (mine) with two children, one with special educational needs. With these in mind we've at least tried to take the cost-of-living formula seriously: A fixed housing expense much above a third of our income (at least in this town) and we'd simply die working and broke.
That said, everything ran off the rails with remarkable ease.
- In mid-2008, the company I worked for went out of business. I didn't realize it at the time, but that year's taxable income would be a third less than the year before, bumping our mortgage payments past 40% of our income.
- After going on unemployment and motoring through our savings (for longer than I'd care to admit) I found good contract work, but without medical benefits.
- Gambling on a contact-to-hire possibility, we stuck with this for a year, running headlong into thousands of dollars in out-of-pocket prescriptions, a pair of E.R. visits for the kids, and other unremarkable costs of living.
- By mid-2009 we were surviving with installment plans from every medical provider and eating a lot of beans and ramen, yet hadn't missed a single mortgage payment. We'd never missed one before when times were even leaner, so why give in then?
- Starting in July, however, we timidly asked our lender for help. Seeing as we hadn't missed any payments, however, we were at most allowed to submit a hardship affidavit, tax returns and statements, and pretty much get ignored for the next two months, despite regular pestering by phone.
- By September, however, both of our vehicles -- a '98 Saturn and '95 Ford van -- developed expensive problems which ended ambitions of keeping current with the mortgage. We canceled our twice-monthly, automatic "Equity Accelerator" debit and waited for the bank to call us.
- Come early October, the bank had a crisp information packet on the Federal Home Affordable Modification Program (HAMP) to send us, complete with a much improved version of the affidavit and other materials we'd filled out earlier in the summer.
- We filled all this out hopefully and FedEx-ed it back within a few days, then followed up by phone several times a week over the next month. More thoughtfully than with our unofficial attempt earlier, the lender apologized for mail room/processing delays and this/that but still left us in the dark.
- At the end of November, just as we were losing hope, we were sent a concise HAMP "trial period plan," scheduling three monthly payments roughly 8% less than before (a difference in the low triple digits, to be specific), to be followed by a genuinely modified loan.
- This didn't improve the bottom line and we lost hope again. After consulting with the lender, however, we returned the agreement unsigned with (as directed by them) a letter explaining why we couldn't make it with this plan and asking for a better deal. They suggested we try and it couldn't hurt, right?
- About this time, however, I secured a full-time position with benefits, though with slightly less actual income. Things were looking up, at least in a personal sense. If we got sick, we'd get cured, and we could finally get current with our doctors, the hospital, etc.
- We heard nothing further through the end of the year, however, and by mid-January we'd been notified a foreclosure sale was set for the end of May (yeah, this month). By the end of January, we were actively looking for an apartment and considering a deed-in-lieu-of-trust (in English, that's "giving the house back to the bank", which is less convenient than it sounds).
- The very Friday we were about to write a check for a rental deposit, however, we received a new deal from the lender. Word for word the same sort of trial period plan, except now they wanted a little bit less than a third of our (newly reduced) income. Hot dog, we thought: We're back in business.
- We made all three payments on time -- from March through May -- checking two, sometimes three times a week by phone for updates on (a) a final loan agreement and (b) cancellation of the foreclosure sale, seeing as we were pouring much of our income back into the house and couldn't leave on a moment's notice.
Along comes the week before the foreclosure sale (that'd be last week) and we get the final loan agreement, and what...a...surprise. We were denied for HAMP due to reason #11 on a long-ish list of possible ones -- "insufficient documentation before the deadline," more or less. This seemed nuts, considering how obsessively we'd worked the phones to prevent such an outcome, the lender assuring us repeatedly that our paperwork was in order and a final modification in the bag.
The good news in the same FedEx (from their standpoint) was our investor (Fannie Mae) had a a whiz-bang alternative program we were a shoo-in for, (a) minus borrower incentives (cash, which we didn't need), but (b) with very different details. Specifically, a return to the original mortgage terms after a five-year ramp-up from the trial period payment and (apparently) late fees and penalties from the last few months tacked onto the end of the loan, extending it another three years after restarting the clock (yes, 33 years from now).
Ugh, we thought: Any chance after five years -- when our children are in their teens and we're even closer to being unable to earn income -- we'll actually need less money? Kinda doubt it. And with this house now valued at roughly 60% our purchase price, we estimate it would take ten years to return to where we could consider selling it. This would be taking food from our children's mouths for the rest of their young lives, pure and simple. I do not expect a lender to casually surrender an asset's value, but I also don't expect them to play every angle to keep marginally-informed borrowers in over their heads.
I needed to know what we'd missed, regardless, or might otherwise bite us in the ass if we talked ourselves into this new solution after all. Fortunately, having called our lender's loss mitigation department so much I'd dealt with the same, specific people several times, to the point they acknowledged this whenever I bumped into them. On my next call with one of these regulars I picked at the reason for denial and learned that "everyone is getting that" -- reason #11 -- and "they're all printed that way," and further that our file did not appear incomplete. There was also no apparent reason we could be denied for either program, certainly nothing in the lender's own records.
Huh...Well, since we're such good friends after all this time: Screw them.
Hazarding a guess, I'd say the HAMP program tastes bad to the lender, probably due to restrictions on modified loan terms, upcoming imposed principal reductions, or some such. Much better to lever desperate/credit-obsessed borrowers back into their original terms, it seems, complete with heaped-up penalties on the back of the loan, shaking everyone else loose to trim losses. I think this noise is shady, but I don't care any more, and I should think the lender doesn't either. These kinds of deals are for people fixated on keeping a house, who'll kill themselves to meet the terms they signed for, even when their investment will no longer do them any good.
This is also a speculation game we're sure to lose, so now is the time to cash out.
What else have I learned? Well, I came of age just as mortgages became the only loans with deductible interest and home values soared (in the 80's), when the common wisdom was that buying a home was integral to a civilized future. That's an extinct notion, I can see that now. I'm not terribly bitter, however, even though I'm leaving a nice neighborhood where we've made good friends. I've lived in (a) some nice homes, including (b) this one, (c) rent free for much of the last year, even if the lender still has their hooks in me for a huge amount of money. Home buying and selling for the amateur (meaning me), however, is for the birds.
We probably will get to live on and live well, thankfully, and provide a good future for our children. That's what matters, no matter where we hang our hats.
- - - -
Addendum: So, over the last year or so we've been scraping together what we could to build out a rental unit in our finished basement, perhaps ~700ft2 (nothing extravagant). Renting this out would've made the trial period payment doable over the long term.
Anyway, after getting permitting/plans like the city wanted, craigslisting a fridge, building a sink/flooring from Ikea, and a new dish washer/garbage disposal we're considering calling the plumber who connected everything last month to see what he'd give us for the stuff :(
(Wondering if it'd be too over the top to take back the new 30yr roof we put on the place two years ago...)
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Lucy Simpson
Kerry Lauerman
Joan Walsh
Salon.com
Comments
http://open.salon.com/blog/xylocopa/2009/09/27/goodbye_to_all_that
You all have great courage to face this as you say you have. I think I'd have crumbled somewhere along the way.
Bless you and your family.
If you haven't seen this article, you might be reassured: "It’s OK to Walk Away, A Law Professor Argues" from the WSJ:
http://blogs.wsj.com/developments/2009/10/30/its-ok-to-walk-away-a-law-professor-argues/
or the full paper here:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1494467
We keep holding on - our credit scores are great! They love us. We are their indentured servants. Anyway, I'm tired of pretending it hasn't happened to my family. It can happen to anyone. Best wishes to you and your family, and thank you for sharing your story.
The banks aren't trying to screw people, they just have unintelligent people running things. We have some of these places hiring for these re-modification people. Low income, untrained, no motivation or guidance. I feel sorry for the ones doing the actual work.
The bank said your house or your childrens lives. I think you made the right choice and be very proud to value your family so much. I'm sorry you had to be brutalized by vermin.
I.e., if the banks don't believe modifications are productive, they leave them in place for compliance reasons and the house-obsessed, but otherwise make them disagreeable.
They're being squeezed from both sides, FWIW -- pressure to lend to get the economy moving, pressure to tighten lending to prevent losses, pressure from investors not to write-down assets, etc. Not a good time for anyone.
Great writing. Very clear. very heartfelt. Clean response to a vicious muse. Thank you.
I once stood on the edge of losing my home too, but for a much different reason: b/c of a sadistic boss!
Long story short, he was w/holding my PAY such that I never knew how much $$ was coming in--even though I had actually worked all those hours! I think it came as a result of my blowing the whistle on him for stealing $$ (d'ya think?).
I got a 14-day suspension that'll stay on my record forever after never blemishing it (after 20+ yrs on the job), but HE lost his job--and in my circles (as a union official), that's a badge of honor for having kept my job. Still, I had many, many sleepless nites of wondering how to make my house payment, keep the lites on, and eat a little something for myself and my pets.
Times are slightly better, though a series of major car and home repairs forced me into Consumer Credit Counseling--which was the best thing I ever did. My $$ situation is very slowly improving, but that's life the in big city, I guess.
Still, you're a better man than I, and I commend you on the courage you show in placing more value on your family than in your house. It is, after all, just a place to live; it's only your loved ones that make it a home, wherever that may be. You're working again, and you and your family will overcome this obstacle too. Hang tough.
With some caveats, the Mortgage Debt Forgiveness Act of 2007 allows homeowners/borrowers who have lost their property to foreclosure to be absolved of the responsibilty for paying taxes on the deficiency, i.e. the difference between what they owe and the low ball price the bank will sell the house for once they get it back. That's right. TAXES.
Had you taken the "in-lieu" fix, simply by definition you would not have experienced a foreclosure, and therefore would have exposed your family to Federal taxes which are reported to the IRS on a 1099-C.
State taxes differ in "forgiveness" scenarios and you may still find yourself being hounded to pony up to the locals.
Good luck.
"...The Mortgage Forgiveness Debt Relief Act of 2007 addresses the issue of the tax implications of a deed in lieu of foreclosure. Through 2012, the act provides that you do not have to pay federal taxes on the deficiency amount if:
- The deed in lieu of foreclosure is for your primary residence;
- The original loan was used to purchase, build or improve the primary residence; and
- The original loan is secured by your primary residence.
You also may avoid tax liabilities if:
- You are insolvent (have more debt than assets) at the time the deed in lieu of foreclosure was facilitated; and
- You filed for bankruptcy prior to the closing on your home..."
...and, with respect to foreclosure (from http://www.foreclosure.com/statelaw_WA.html):
"...Are deficiency judgments permitted in Washington?
Generally, adeficiency judgment may be not obtained using thenon-judicial foreclosure process when a property in foreclosure is sold at a public sale for less than the loan amount that the underlying mortgage or deed of trust secures. A deficiency judgment can be obtained injudicial foreclosure sale, unless the property had been abandoned for the preceding six (6) months prior to the foreclosure judgment or decree that would preclude any deficiency..."
Sooo...yeah. Sounds like a zero-sum until I talk to the lender again (we were in non-judicial foreclosure, IIRC).
All of the bullets in your post are also in mine, probably just a different bank. They have been utterly impossible and have done everything possible to string me along -- until I finally made an unemotional business decision and stopped paying. I'm doing a strategic default, cutting my losses and getting out from under this burden of home ownership. My credit is going to be ruined, but I don't care. At 65, I don't need any more credit, I don't want to ever own a house again and I'm looking forward to letting someone else worry about the leak in THEIR roof. Best of luck to you and your family, Michael.
Lezlie
- a house is NOT an investment, it is a place to live at a deductible price
Investment means buying a physical good, whose use increases one's income; said increase is the Return on Real Capital (that's Econ 101 speak). There is no return on housing. The "profit" which accrues to Banksters comes not as Return on Real Capital, but from wage inflation. Since there hasn't been any of that since Reagan (if you check, you'll see that median income is the same as it was then), we've wasted billions, if not trillions, of GDP on houses with nothing to show for it. How foolish.
I was raised by my grandfather who was born in 1910, BTW, and in his day home ownership was an entirely different animal. Before easy 30yr loans buying a home was rightfully seen as a losing proposition and a pain in the ass, pretty much.
I get both the social control and community-building aspects of home ownership, however. It helps people feel invested in their neighborhoods, but also has us fixated on those payments and land values above all else.
I'd wager I'll care about my neighbors a little more, however, when I have the time to notice them.
As for you and your family I wish you nothing but peace and a wonderful landlord to keep you all safe. I am so very sorry you were caught up in this...
Now I am not much of a property rights fundamentalist, and I do get annoyed by people who let their grass grow so high you need a pith helmet and a walking stick to navigate it, throw trash in their yards, have cars on blocks etc etc. There are some health and safety issues that have to be appropriately addressed for everyone's well being. But to have to get approval on your home's paint color? And landscaping? And to have a playscape for your kids in the backyard? Oh and here where I live you can get your home foreclosed on if you don't pay your association's due, even if your mortage and taxes are up to date.
I have heard too many horror stories about HOAs . One of my former coworkers was cited by his because they deemed that his lawn wasn't cut as short as proscribed. Yep, fined because a handful of grass blades were 1/4" too high! Then there is the story of a current coworker of mine whose first choice of exterior paint colors were rejected by the HOA. And no, they were not anything too odd or bright etc. Then there is the story I saw on the news about a couple who fell behind on their dues. The HOA was kind enough to give payment plans, oh and an additional 25% in interest tacked on to the balance. My philosophy is: I pay the mortgage. I pay the maintenance. I pay the taxes. You, HOA, don't. So if I want to paint my house heliotrope with neon orange trim and plant Venus Flytraps in my yard, that's my business.
Whereas, being a renter, I don't have to deal with the issues involved in home ownership. As long as I pay my rent on time, keep my place clean, don't trash the place and don't annoy or disturb my neighbors, I get left alone. Plus my kid and I get to use a rather nice swimming pool without having dues to use it. Plus all I have to pay as far as utilities go is my electricity.
Still, a part of me would like a house if only for my daughter. But until it becomes a lot less complicated and usurious, I will rent.
If you are making it now and have a job or source of income, you can pay your bills, and you have your health then you should count your blessings. Because as you all just read, even a highly employable person like Michael can suffer major life changing setbacks. Most people will never read or know Michael’s story and yet everyday, thousands of more lives will change on a dime often with much more tragic results than Michael’s family.
Many of you feel some empathy for what I, Michael and 10’s of millions of Americans are enduring. Others feel sympathy. However, most Americans are neither sympathetic or compassionate. Most people are selfish and focused on their own needs. Most, but not all, embrace conservative ideology. The party that is responsible for systematically destroying the country, also sponsors and promotes divisiveness and openly promotes elitism. Conservatives openly and overtly want this government to fail. The preamble to the Constitution: “We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.” How many conservatives, especially conservative provocateurs support the Constitution in actions, deeds and words? Maybe they don’t know the meaning of the words justice, tranquility, common defense, general welfare or liberty.
As a country, as a civilization, we are teetering on the edge of economic collapse and yet seemingly most people are acting like ostrich’s with their heads stuck in the ground oblivious or ignorant to what is clearly happening to this country. The plutocrats have taken control of all three branches of government, they control the content of the mainstream media and they spend billions annually influencing and deflecting public opinion in order to further their greedy nefarious practices. Our country has been systematically raped, pillaged and plundered by the wealthy elite and yet that is not enough to pacify their insatiable greed! In capitalism, all things are defined, measured and evaluated by money. Those who have the money have the power. In America, less than 5% of the population has over 90% of the wealth. When a government completely kowtows to the plutocrats, the greed becomes reckless and out of control. Everyone is seeing and experiencing the effects of a failed democracy in collusion with the out of control plutocrats.
So I say to you Michael and for anyone reading, hopefully you understand that you are nothing more than an insignificant pawn in the eyes of the plutocrats. You are allowed to exist to work and to create money (more profits) and any discretionary dollars you have, you are expected to spend them. If it is possible to find someone, anyone, anywhere that will do your job for less, then they will be hired and you fired. In America, if you don‘t make money or spend it, you are literally expendable. According to conservatives, if you don’t have a job, it’s your fault and it’s your problem. Why should we pay for your irresponsibility?
Given what has happened in just the past two years, the evidence is overwhelming - the plutocrats and their proxies in government have taken over control of the country. I am here today because I think Michael’s story is the perfect example of a good person doing all he can to secure a decent life for himself and his family and at every turn his efforts were stymied by the powers to be. There is good news. He isn’t going to join the more than 3 million people living homeless in America, his child will not likely be among the 17 or more million children who are hungry and/or malnourished in America and apparently he won’t soon be joining the 10’s of millions of Americans who are without or cannot afford health insurance today and the many thousands that will die prematurely for lack of health care. I guess that’s something we can all can feel good about. I just wish I could.
I gave up my "I'm never going to move, I'm here and keeping this place forever and ever" house just over 2 years ago. It was a very hard decision, but once made I came to peace.... I fought the bank, and the bank won.
My youngest is leaving the nest, so it's just my eldest and I.... I'm looking at it as a freedom to move where I want, when I want....