Thursday, May 3, 2012

A Sad State of Affairs

You voted, and here it is! I waste no time! (& I knew this would win out. You guys are so predictable!)

This is what happens with me: I love to blog and I love to be completely honest about what's going on with me. I don't like to hold back much, especially with big stuff. So, when there is big stuff going on in my life I naturally want to share it here with you. But, say big stuff is probably best left as a private matter and shouldn't be broadcast for the world to see. Well, then I subconsciously start posting way less, because the big thing is on my mind and since I can't/shouldn't talk about it here I have a hard time forming coherent thoughts about other topics. Make sense?

No, I'm not pregnant. But the same thing happened last year when I was pregnant and I wasn't sharing it yet. I just couldn't blog as often because the pregnancy was in the forefront of my mind and putting together a complete thought about anything else was just impossible.

So, wanna know what I'm talking about? Because ultimately, I'm going to share it anyways since I can't keep secrets about myself. I pretty much told you already anyways.

We're building a new house. Exciting right? Why wouldn't I want to share that? Well, because there is a lot of back story to why we are building now and what led us to this point. But, I'd rather people know the truth than assume things. People are going to do that anyways, but at least I can put the truth out there and then people can judge if they wanna. Which, I guarantee I will get judged for this...

So, it's the year 2007. John and I are happily dating and living in our third apartment in the three years we've been living together. My sister casually mentions to us that she is going to be selling her townhome that she has been renting out to a friend. We think, hey, maybe we can buy it. We have no savings or anything and only plan on this being a temporary home as it's only a two bedroom townhome. John ends up buying it (in only his name since we weren't married yet) and we move in. Basically, we now have an apartment we "own" and we start fixing it up real fancylike and making it ours. John's super handy and I'm super decoratory. We make a good team.

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Again, the housing market is pretty great still, and John and I really plan on this being temporary. We tend to trade in cars pretty often, so we were sort of thinking it would be more of the same for this house. Live in it a bit, and then sell in a few years and get a real house. (Not a townhouse) And then, as we all know, the housing market went to crap about 6 months after we moved in. But, the optimist I am knew that it would come back soon and we'd be able to sell for at least what we paid. I was sure of it.

& then, over the next 4.5 years, I became less sure of it. I am still very optimistic about most anything in life though. I know we won't be able to sell it for what we owe any longer, but everything always works out in the end so I don't stress about it because eventually we'll figure something out.

So then, at some point earlier this year we got one of those stupid spammy junk mail things in the mail offering a really low interest rate to refinance your home. We knew that the current interest rate was a lot lower than what we were paying because we (well John) bought back when the market was good. The flyer just gave us an estimated monthly payment on what we still owed, and it was $250 or $300 less a month. I don't think we realized how much less the payments could be with a refinance. We've both always had great credit so we knew we could get approved for the lowest rate so we decided to look into it with our current lender instead of spammy junk maily lender.

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The bank says of course you may refinance! You qualify for the lowest rate and your new payment will be $250 less a month. We are thrilled. This was our answer....get a lower mortgage payment so even if we can't sell when it comes time to do so, we will now be able to rent it out at a reasonable payment until we are able to sell one day. I make amortization charts and spreadsheets to make sure the additional fees tacked on to the loan (for the refinance) aren't going to extend the loan out much longer. I figure out we can catch back up to where we would have been had we not refinanced in 19 months, so it's a go. The bank starts the refinance for us and we get our townhouse appraised.

We are supposed to close on a Friday. On Wednesday the bank calls and tells us that they can't do the refinance. The loan got denied in underwriting. Basically, the townhouse appraised for about HALF of what we owed. The last 10 sales in our neighborhood had been foreclosures making the value of our home next to nothing so the bank said the value was less than the threshold where they would approve a refinance for this particular type of loan. Basically, it was worth too little. But wait! There is some new "Obama-fix-it-all-crap" that is out now that supposedly has no threshold restrictions and we should be able to refinance with one of those types of loans. So we start to go that route instead. Only, one of the rules of this loan is that you must stay with your same mortgage lender, and our lender then informed us that sorry! We don't do those types of loans. Crapola. We've run out of options.

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If you got through all that mumbo jumbo, great, If not, this is where we are now: We can't refinance through our bank. If we were to sell right now, we'd owe the bank nearly half of what we paid for the house just to get out of the house. Let me just give numbers. Because even though the cost of living is different throughout the U.S., I'm pretty sure that most people would have a hard time coming up with $55,000 to just hand over to the bank to get out of their current house. Not to mention then you would need a new place to live, so if anything was left over after writing a $55K check (Ha!), that would then need to go to a new house.

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So yeah, we're stuck in a two bedroom house: one bedroom for Charley and one for us. It's already super crowded and we personally wouldn't be able to have another baby in this house. Our family is on hold until we are able to move to a larger house.

Another issue we ran into was if we were to then do a short sale. The bank would have to approve it (which likely they wouldn't anyways) but, they only would even discuss options with us if we had a hardship or had trouble paying our bills. We don't. So as we're talking to the mortgage guy at our current bank, he gives us these exact words: "I hate situations like this where we really can't do anything for you. If I were you, I would stop paying my mortgage."

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What!? That's crazy talk. We talk to real estate attorneys. Brokers. Friends & family. We've never had any late payments, and I don't even wait until the 15th to pay. Our payment is always there on the first of the month. But he's put the idea in our heads. The more we talk to people, the more we hear this over and over: "You really have no choice."

And that is the sad state of affairs this country is in. It's pathetic really.

So we've decided. We stopped paying our mortgage in March. I got approved for a new loan for our new house (more on that later) by myself. John's credit is going to be ruined. Mine isn't going to be hurt at all because the house is only in his name. Thank goodness for that, or else we'd really be screwed. He's gotten some phone calls and letters from the bank, but not as much as you would think. Again, this is new territory for us. We have always been fortunate enough to be able to pay our bills timely. It's scary, really.

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Sure, we could stick it out 5 more years and hope things turn around. But, we would have to pay two mortgages each month because our family can't fit in our little house for five more years and I don't see that working with our income. We could rent it out, but like I said we'd still have to pay $300-$400/month out of our pockets to cover the mortgage based on what other townhouses in our neighborhood are renting for.

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Ultimately we had to make a decision for our family and this is what we decided. It's scary & we know that people will judge us without a doubt. But hopefully by putting our entire story out there it will be less judge-worthy. Or more? Who knows. I am actually fine with our decision now. At first I was so embarrassed that people would think we couldn't pay our bills and now? Now I'm at peace with it. We love our little house and I am actually sad to think that I won't be able to show it off at showings and open houses when we sell.

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So there. Ask questions. (Be nice to me.) I'll come back and answer anything I left out. Are you now blaming the continued failure of the housing market on me (and people like me)? I would too probably, if I were you. But, it is what it is.

& since this has gotten ridiculously long I'll write about the new house in the next post...and I won't take 2 weeks either, promise! That is, of course, if any of you stick around here with me after finding out we're house deadbeats. Can we still be friends?
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EDIT: Your questions...

Deborah asked:
How does foreclosing benefit you? Will the bank take on the entirety of the loan or will you guys still owe the difference between owed and appraised amounts?
Ahh yeah. Left this out. The foreclosure benefits us because we will no longer own the property, nor owe the mortgage. That's one of the things we talked about with the attorneys and brokers, and with NC laws and a bunch of other legal jargon that I can't remember right now, we were assured the bank could not come after us for any difference that there will be between the house and our the balance of our loan. We do pay PMI so the lender is protected. I may be explaining this one completely wrong and if you know about this stuff feel free to correct me. All I know is we are letting the bank have the house and all we are leaving with is a big hit to John's credit.


Haley asked:
You mentioned renting and the fact that you would still have had to front like $300 a month. Would it have been worth it to try and see if you could have gotten a tenant, even for just 1 year? 
We considered this, really. But, in the grand scheme of things renting for one year (plus paying the $365/month out of our own pockets) wouldn't put us in any different position than where we are right now. The housing market isn't going to rebound THAT much in one year (to make up for the $55K hole we are in) so in one year, we'd essentially be in the same position. Only, we may REALLY be in a pinch next year if we were to lose our tenant, and have our new mortgage to pay as well. We decided it wasn't worth it.


I want to add this too because I don't feel like I mentioned it. The reason we already stopped paying the mortgage is to prove "hardship" to the bank. They will not even consider hearing anything unless they think you need it. Once they come back to us in a few months with other offers (deed in lieu, short sale, etc) we will be more than willing to work with them. 


Trisha mentioned: 
I keep hearing on the radio a commercial for a lease program - they SAY they will lease out your home for up to six years even if they don't have a tenant, so you receive monthly rent payments regardless, AND this allows you to go ahead and buy yourself a new home. It's in the Raleigh area, but I'm not sure if they have it in Charlotte? Worth looking into maybe. Here's the site: http://marketplacehomes.com/ 


Thanks for letting me know! I went to the site to look at what they had to offer and it does sound promising. But, you HAVE to use one of their builders or buy one of their particular houses. Since we already have the land and builder for our new house, we wouldn't be able to use this program.



15 comments:

Trisha Newman said...

I'm more curious about the process. I don't know anyone else who's done this so I hope you keep us in the loop. It's becoming more and more common these days. We had to take a small loss when we sold our house in Wisconsin because the market sucks so much. Good luck, and again, let us know how it unfolds if you can. :)

Courtney Suits said...

I love your honesty! You guys know what's best for your family, so don't worry about anyone who'll judge you.

Courtney Suits said...

I love your honesty! You guys know what's best for your family, so don't worry about anyone who'll judge you.

~Paralegal Wisdoms said...
This comment has been removed by the author.
Shannon said...

I completely understand where you are coming from and we are in a very similar situation. Too small town house that we can't seem to get away from. We have even thought of doing something similar but we can't because Tims in the Navy, so they will eventually start taking it directly from his pay if we don't pay. Good luck with everything, and keep updating us on how it goes, I'm quiet curious just in case we ever have to go this route.

Heather said...

I could have written this post myself. We're internet twins again! (Except in this instance, it kind of sucks).

We did the same thing last summer (I bought a new, bigger house in my name because my husband was the one who "owned" our previous duplex) ... except we still own it. We opted for the "rent it and pay the additional $400/mo" option to make that mortgage payment PLUS continue renting the other two houses he owned before that. Whee! Real estate is fun, isn't it? GAHHHH.

Laura Diniwilk said...

It's really sad when foreclosing on a house is actually a GOOD business/life decision, but that's what it is in your situation. This is very interesting, I'm glad you decided to post it. I'm also interested in updates on the whole process, both with the foreclosure and the house building. I'm scarecited for you!

The Mrs./The Mom said...

No judgements here! I hope everything works out for you guys. Thanks for being so honest- I'm looking forward to reading all about your new house!

Deborah said...

All this is very interesting to me because Ive never heard of people doing it intentionally. My question, as I am unfamiliar with the foreclosure process, is how does foreclosing benefit you? Will the bank take on the entirety of the loan or will you guys still owe the difference between owed and appraised amounts? Good luck! Like the others said, you know what is best for your family. Who cares what others think. Do what ya do! :)

Missy said...

Wow Lacey, I am so sorry you are going through this! I worry about selling my townhome in a couple of years too because there have been several foreclosures and short sales in my neighborhood too. I wish you good luck and I hope that John is able to get his credit back to normal in a couple of years. I think it's lucky for you that both your names weren't on the townhome.

Jess said...

Wow, Lacey, what a stressful few months it's been for you guys! Sounds like you did a lot of research and soul searching to come to the right decision for your family. We've thought about refinancing our house too b/c interest rates are so low right now, but I know that the appraisal would not be high enough for the loan approval. I feel lucky that our house currently accommodates our needs (although I have daily dreams about finishing the basement, but that will have to wait until the kids are out of daycare). Can't wait to see the new house plans!

Haley said...

First off kudos to being so out in the open about something so personal and ...well... scary. Inth big scheme of things you have to do what you have to do. If the townhome meant putting your family on hold or screwing up Johns credit, well you have to make the best decision for your situation I suppose. I do hae one question for you though. You mentioned renting and the fact that you would still have had to front like $300 a month. Would it have been worth it to try and see if you could have gotten a tenant, even for just 1 year?

Trisha Newman said...

I keep hearing on the radio a commercial for a lease program - they SAY they will lease out your home for up to six years even if they don't have a tenant, so you receive monthly rent payments regardless, AND this allows you to go ahead and buy yourself a new home. It's in the Raleigh area, but I'm not sure if they have it in Charlotte? Worth looking into maybe. Here's the site: http://marketplacehomes.com/

JSitterBaum said...

I finally caught up with your blog and I say this with all seriousness as an attorney: you are doing the smartest thing possible, well done! I would have advised a client to do the same. Anyone who blames you doesn't understand real estate and the fact that banks took just as much of a gamble (if not more) on it, so I really don't feel bad for them, and I used to work for banks haha. Don't lose sleep over this, celebrate your new home and enjoy!

Shell said...

No judgement here, we faced a similar situation with different options about 3 yrs ago, right as then market was crashing. Our smaller home is in both our names, however we were able to refinance, which allowed us to be able to rent it out at a reasonable rate. We have wonderful tenants (you know them!). It did put our new home building plans on hold though. We weren't comfortable taking on the 2nd mortgage at that time bc we both work for a big bank who was going through a merger, so we've had to rent a bigger home for ourselves in the meantime. Next year we will be ready (and comfortable) taking on the new mortgage in addition to continuing to rent our old home. As for ultimately selling it vs. letting it go when our tenants move on...we'll cross that bridge when the time comes.
Hopefully we'll get to make that decision after obtaining our new home.