I used to think that walking away from the home and not making payments was wrong. Now I am not so sure.
There are so many stories out there about foreclosures and short sales. I have a front-row seat and I get to meet them in person.
There is the young man who bought a home with his fiancée in 2006 when prices in these parts peaked. The fiancée left him and walked away from the home.
He tried to refinance to get her off of the mortgage but he did not qualify for a loan of that size, and the home was already worth less than they owed on it.
He struggled to make his payments and he made one each month. He paid penalties when the payments were late. He found roommates. One got behind on the rent, packed up and left but stopped on the way out to steal the engagement ring his former fiancée had left.
The furnace broke and he could not afford to repair it. He fixed it himself but he didn’t get it right the first time. When the temperature dropped below zero the heating bill was almost as high as the mortgage payment. He got behind on the utility bills but kept up the mortgage payments. He fixed the furnace and found another roommate.
He talked to the bank about a loan modification, but they told him they could not help him because he was current with his payments and still had a job. He called the bank several times as it got harder and harder to make ends meet.
He managed to fix a leaky pipe himself, and I am not sure how he did it but when the refrigerator broke he bought another.
He bought the home for $120,000. Today I think it could be sold for $60,000 and that would be on the high end.
The neighborhood he lives in is one where home values dropped sharply and there are foreclosed and condemned homes on every block. They sit vacant with the blue placards on the front door that the city requires.
He got a raise at work and that helped some. He works overtime but he has started getting behind on the mortgage payments. He still does not have enough income.
He is now two months behind on his payments. He called the bank again and asked for help. They told him that they cannot help because they work only with those who are current on their payments. He has no other debts at this point because his credit rating has already slipped because of late payments and no one will give him credit.
As a next step he is contacting the city about their foreclosure prevention program and he has contacted me about a short sale. I am reviewing various programs that are designed to help distressed homeowners. It doesn’t appear that there is a program for him, but I am still looking.
He is tired of it all and close to giving up. The young man has been dealing with this for four years now and wants to get on with his life.
He can pack up and walk away. That means he won’t be able to buy a home again for a decade or more.
He could stay and continue the daily struggle to work, and try to keep the house. The fiancée has already declared bankruptcy and doesn’t care what happens to the house, but the young man still cares about his credit rating and about hers.
There isn’t much a person can do in our society if he or she doesn’t have a good credit rating. It may be hard to find a job or buy a car. Studies show that people who have cars earn a better living on average than those who do not.
The bank will lose about $80,000 on the deal if he walks. They will lose about $40,000 if they approve a short sale, and they will lose much less if they find a way to restructure those payments. If the payments were $300 dollars a month less, he could keep making them and he would survive. If they could be reduced by that much for just a year, he would have a chance to pull out of the mess he is in.
The homebuyer made some mistakes. The mortgage is a simple agreement. You pay or they take the house. He knew that when he signed it. Everyone knows that when they sign it. The bank has held up their end of the bargain but he has not held up his end. He made two huge mistakes, or maybe just one by buying the house.
The people who have lost their homes and ruined their credit ratings will not be able to buy homes again for a long time. They will have trouble buying cars. They may have trouble finding jobs. The effects of the loss of credit and the lack of homeownership will have a long-term impact on our economy for at least the next decade. If the foreclosures ended today, the impact because of them will still be with us for a long time.
I wish it were just business and that I didn’t care, but I can’t help myself. The housing market may be better, but I am still negotiating short sales and seeing plenty of foreclosures on the market.
The foreclosures and short sales are not just numbers or business opportunities. Each represents one or more lives in distress. There is a kind of ripple effect that affects the neighbors and the community. A neighbor just a block away walked away two weeks ago. They just moved out of the house and are done with it. Maybe that is the only sane thing to do.