in Debt, FS, Home & Garden

Drama in real life: Foreclosure!

Most of the time, the talk about the housing bubble and the credit crisis and the faltering U.S. economy seem rather abstract to me, as if people were discussing a problem in Canada or Mexico. Or Norway. I’ve spent the past four years focused on my own financial situation, ignoring the outside world. The national economy often seems remote from my own personal economy.

But there are millions of average people who have been affected by this country’s fiscal woes. My little brother, Tony, is one of those average people. He’s in dire financial straits.

In 2004, Tony bought a house in Portland for $415,000. In 2006, he got a new job in central Oregon, so he moved his family to Bend. He put the Portland house on the market. He intended to rent a place in Bend until his existing home sold, but then he found a house he liked. He applied for a loan and was approved. He bought the house.

The house in Portland never sold.

For the past two years, Tony has been making $5200 in mortgage payments every month. Or, lately, not making the payments. He ran out of money long ago. Tony agreed to let me interview him yesterday in order to share his story with GRS readers.

Note: Tony knows he made some poor choices, and he blames himself for his current problems. He’s candid that he should have been paying more attention to his finances. But looking back to 2006, he doesn’t understand why the bank approved him for the mortgage on the Bend house before the one in Portland sold. It seems like the bank was betting on that sale, too.

J.D.: How are things going?

Tony: What do you mean? They’re not going very well. The house in Bend was foreclosed on yesterday. The one in Portland is for sale again.

J.D.: You weren’t able to sell the house over there, huh?

Tony: No. Plus we consulted with a lawyer, and he said we should just give it back because of the tax ramifications.

J.D.: I don’t understand.

Tony: Well, it would be a short sale. To give you an idea, we put the house up for sale at $299,000, and we paid $380,000 for it. So what you do is you do a short sale — the mortgage company has to agree to it — but the government considers the difference as money that was given to you. It’s taxable income.

J.D.: When did you buy the house in Bend?

Tony: It cost $380,000 in September 2006.

J.D.: And how much was the mortgage?

Tony: Roughly $2400 a month. There were two mortgages.

J.D.: When the bank forecloses on it, what happens?

Tony: We’ve been out of the house for a while. We’re living with my wife’s parents. From what my lawyer says, there’s nothing the bank can do to us. They’ll essentially just take the house and then auction it off at the courthouse steps. There’s no other ramifications to me. There are several houses that are being foreclosed on in our neighborhood. One that went to foreclosure and was auctioned off sold for $230,000.

J.D.: Was it the same kind of house that would have gone for $380,000 in 2006?

Tony: Yeah. It’s the exact same house as ours except it has a two-car garage and ours was a three-car garage.

J.D.: Holy cats. That’s like a 40% drop in two years!

Tony: I know.

Note: In 2006, Bend had one of the hottest real-estate markets in the country. Now it’s fallen on hard times. Again, most of Tony’s problems come from the fact that he gambled by not selling his first house before buying a second one. Back then, this didn’t seem like it would be a problem.

J.D.: You wouldn’t have been in such a bad situation except you haven’t been able to sell your Portland house, right?

Tony: Yes.

J.D.: And how much did you buy that house for?

Tony: We bought it for $415,000 at the end of 2004. We still owe the bank $367,000. We’re paying $2800 a month.

J.D.: And you tried to put it on the market when you moved to Bend, right?

Tony: Well, on the advice of our Realtor, we put it on the market for $585,000, because that’s what she said that it would go for.

J.D.: And that was in the summer of 2006?

Tony: Yes. Then after the house had been on the market for a month, we got an offer at $500,000.

J.D.: And you turned that down?

Tony: It was turned down but not by me. The Realtor got it as a verbal offer and said that she told them “no” because she could get more for it. She informed us that they had made a verbal offer a week after they made it. Then last September we almost had it sold at $480,000 but the deal fell through because it was based on whether or not the couple sold their house. Guess what didn’t happen?

J.D. And that’s when you started renting the house. [For the past year, Tony has been renting the house to a friend, trying to defray some of the mortgage expense.] What do you have it on the market for now?

Tony: We have it on the market for $499,000. We just put it on the market last weekend, but we already have somebody interested in it.

J.D.: If that sells, does it get you out of your bind?

Tony: It helps, but it doesn’t necessarily get us out of the bind. Some of that money would go to the Realtor. Plus we owe money to other people. [Tony borrowed money from various family members.] And then there are our normal bills, which are behind. So even if we sell, it doesn’t solve the problem, but it does help.

Note: You know how the power of compound interest can help you save? Well, it works in reverse too. People in credit card debt understand that. Tony’s learning that the damage from mistakes can compound, too. What started as a small problem — needing to sell the Portland house — has mushroomed out of control. Things just keep getting worse…

J.D.: A couple months ago, you mentioned that you’re doing some sort of consumer credit counseling or something. How does that work?

Tony: Not very well. It’s not a debt consolidation place, but it kind of is. These guys are for profit. They piss me off. They told me they settled a Bank of America account for me, but I keep getting letters from Bank of America saying the account is not settled. So this place drafts money out of my account every month to pay the people we owe — it’s kind of forced savings, in a sense — but I won’t let them draft any more until they give me written proof that they’ve settled with Bank of America.

You know, this is my own frickin’ fault for not paying attention to exactly what was going on. I want to repay everyone because it’s my debt, but at the same time, it’s so frickin’ huge, I don’t know how I’ll ever do that.

J.D.: Why do you think you got in debt? Do you think it’s because of the house? Or do you think it’s other stuff?

Tony: There are several reasons that got us into debt. The first time we put the house on the market in Portland, we used credit cards to fix it up. We put a fence on it and that sort of stuff. The move here probably cost us $8,000. The idea was when we the house sold, that’d be paid back right away. The house never sold. Then we got ourselves into a situation where we had double mortgages.

J.D.: Oh yeah. What was the mortgage on the Portland house?

Tony: $2800. You do the math there. So, we had double mortgages, and we’re doing whatever we can to pay them both, praying that the house in Portland will sell. So we borrow from people. Slowly but surely, the amount we can beg, borrow, or steal keeps dwindling. I finally said, “This is is not going to work. We’ve got to do something different.”

J.D.: Were you having problems with debt before?

Tony: Before we moved from Portland? No. We were actually okay. We were financially okay. Did we have credit card debt? Yeah. Was it manageable? Yeah. Could we make all our monthly payments? Yes. Did we have extra spending money after we made our monthly payments? Yes. We weren’t paying off our debt extremely fast, but we weren’t building debt. You know what I mean?

J.D.: To me, you guys typify all the problems that are going on with the economy at large. You guys are the ones we know most being affected by it. Do you pay attention to the economic news at all?

Tony: Hell yeah — every day!

J.D.: What do you think about it?

Tony: I was just talking about this with my wife the other day. I don’t know if it’s because of what I’ve been going through or what, but my personal opinion is that we’re not looking at a recession. We’re looking at a depression.

J.D.: And what’s going to happen for you guys if there is a depression?

Tony: To be honest with you, I have no clue. I’m scared.

My heart aches for my little brother. Obviously, Tony is not a “victim” — I don’t think he’d claim to be — but he is one very real part of the ongoing credit crisis. To me, he’s the average American. He wasn’t pro-active. He was eager to have a new house, so he bought one before the old house sold. He didn’t have anything in savings, so he took a risk by financing his move on credit. Now, along with many others, he’s paying the price. I just hope he comes through this okay. Photo by respres.

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128 Comments

  1. One thing that strikes me is that Tony could’ve avoided alot of this heartache had his realtor not held out for a better offer when she had one.
    Yet another reason to distrust the incentives and advice of realtors

  2. I’m mixed on this one. I think you are giving your brother a slight pass because he is family, especially since you make a contradictory statement “Tony knows he made some poor choices, and he blames himself for his current problems…But looking back to 2006, he doesn’t understand why the bank approved him for the mortgage on the Bend house before the one in Portland sold.” Being approved and actually taking out the loan when you can’t afford two mortgages at the same time are two different things. Although you made a fine print summation, which I thought was good, a lessons learned summation would be nice and perhaps help your brother out, too.

    you don’t go into what he means by “making monthly payments” if it was paying minimum, although it kind of seems like it since they weren’t being quick to reduce their credit card debt which seems to have been around $20k? and there is no mention of other loans.

    and what is with the kind of debt consolidation place? it does not sound like a consumer credit counseling service, because if it was, they ccc would have received written acceptance from BofA before including it in the program.

    hope things work out.

  3. Sadly this is happening all over the country to good people who just wanted to participate in the American dream. It was proliferated by money hungry brokers who made deals that they never would have made in the late ’80s or ’90s when the market was more sluggish. Greed trumps all, always has, probably always will in a capitalist system.

  4. You may want to suggest to your brother that he cut ties with this settlement company.

    My experience with them, when I worked in the collections industry, is that they take money from their clients, take a hefty percentage off the top, and then allow all the accounts to charge off so as to negotiate a settlement. Often the settlements offered are in the range of 10 to 15 cents on the dollar, which no creditor will accept until the debt is, say, six years old and has been sold multiple times – each time reappearing on his credit report as it is owned by a new agency.

    I always thought they were incredible scumbags and crooks. Through slick salesmanship, fast talk, and the desperation of their clients, they convince people that they can settle for pennies and everything will be rosy.

    I’ve never seen it work like that. If he needs help from an agency, he can talk to a nonprofit CCCS group who may or may not be able to help him at this point. But even if they can’t, hell, better he let accounts charge off with that settlement company cut still in his pocket rather than theirs. He can negotiate a settlement just as effectively as those roaches can.

  5. Tim wrote: I’m mixed on this one. I think you are giving your brother a slight pass because he is family.

    Yeah, I’m aware of this danger. Kris and I talked about this a lot as I was prepping this post. I mean, I know that Tony did some dumb things (he knows it, too), but at the same time I feel sorry for him, especially because he’s family.

    Though it’s not reflected very well in the post, I believe he’s reached a point where he’s ready to stop letting other people (the bank, the realtor, the credit counseling place) tell him what he can and cannot do, and simply decide for himself.

    I think too many people (and I’ve been one of them) find themselves thinking that “oh, if the bank says it’s okay, then I should do it”. That’s simply not the case. It’s like using credit cards. Just because you have a $20,000 credit limit doesn’t mean you should use it! Just because a bank says you can buy a $380,000 house when you haven’t sold your $410,000 house, doesn’t mean you should do it.

    Anyhow, I think Tony sees that now, but it’s too late to do any good in his current situation.

    So, yes — absolutely a situation of Tony’s own creation. Others may have helped lead him there, but he had the responsibility to say, “Wait a minute — is this really right?”

  6. I know I harp on personal responsibility a lot, but it’s not because I don’t think the banks deserve some blame or that they aren’t predatory, it’s only because there will always be bad business practices and scams out there, and the only way an individual can protect themselves is to get informed and make good choices. Even if the government regulated, say, credit card companies, there would just be some other industry preying on consumers. Tony’s situation is very unfortunate.

    Tony–It might be worth exploring whether you can make a case against the realtor who didn’t present the offer to you. Even if you wouldn’t have taken the $500K, it could have opened up negotiations. Realtors have to carry errors and omissions insurance, and while I was only in real estate for less than a year (couldn’t stand sales), I do know it is an agent’s fiduciary responsibility to present ALL offers to the seller, unless he/she was directed otherwise. In other words, if you said you didn’t want to see any offers below $550K, THEN the agent can reject the $500K offer, based on that instruction.

    It might be worth seeing if there’s enough of a case. I may not have lasted in real estate for long, but as a former realtor, this is just appalling. I know people are wary of realtors, but some DO put their client above their commission and save the client a lot of money and headache…it’s just hard to know if that’s the type of realtor you’ve hired.

  7. A few thoughts:

    1. Sad. I’m sorry for him.

    2. Yes, he contributed to much of his own pain. But there are many people who did “everything right” (in that they simply went along with prevailing market thoughts at the time) and are getting burned.

    3. This crisis is hitting close to home for me too. Not a brother, but close friends are leaving their home for the bank.

    4. Isn’t there some sort of legal action that can be taken against the realtor? Doesn’t a realtor HAVE to share any offer with a seller?

    5. “Holy cats”? Is that really an expression or were you cleaning up your real words? 😉

  8. I believe a combination – of mortgage company greed AND lack of personal responsibility – is to blame for the current financial crisis / meltdown. I too have a family story to tell.

    In March 2004 I bought a single family house with my partner, and we had 2 townhouses to sell. We bought the new house before 1 of the old houses was sold … and took an expensive 10% mortgage out on the new one until we could re-finance after the 2nd townhouse sold. Luckily it sold quickly, we re-financed the new house on a 5 3/8% mortgage. We had great credit. It worked smoothly. We had planned on renting the townhouse if it didn’t sell, to cover the extra mortgage.

    My brother, on the other hand, did nearly the same thing (bought a house before selling his old one – both for around the same $$ amount) around the same time period. He had poor credit, and had already asked our parents to finance a $20k car loan so it wouldn’t show up on his credit report, so the bank would loan him the $$ for the new house. He dragged his feet for MONTHS getting the old house ready to show/sell (he’s a lazy slob). I even loaned him $$ until he finally sold the old house about 5 months later. By that time, he’d missed mortgage payments and his credit was worse, and so they were stuck with the 10.5% mortgage, which they could barely afford.

    Fast forward a year – his wife got fired, and several really bad financial decisions (including keeping 2 kids in full-time daycare for 9 months while his wife stayed home to look for work – and continuing to run up credit card debt for stupid things), numerous (still unpaid) loans from family members (myself included) … and now they have gone through foreclosure 6 months ago and are currently claiming bankruptcy.

    Was I just “lucky” that I didn’t fall in the same trap? My house value has plumetted $100k+ as well, but I have no plans to move and can still afford the payments so it’s a moot point for me. If one of us had lost our job we would have rented a room out for extra cash. I would have done anything to keep my home. My brother has made numerous bad financial decisions, beginning WAY before his home purchase in the Spring of 2004, which most certainly contributed to his own mess.

    If the banks chose safety & reasonableness over greed, they wouldn’t have loaned my already financially-risky brother the money for the house before his old one sold, and the bank would be better off now. In hindsight, so would my brother, in his old house. Multiply that times a few million, and you’ve got your current financial crisis.

    (And personally, I’m a bit “peeved” that I will end up paying for his (and millions of others’) bad financial decisions – and the greed of the mortgage lenders.)

  9. @FMF
    Though I did clean up some of the language for this post (I’m no angel), I did, indeed, say “Holy cats”. Perhaps I shouldn’t admit it, but I say “holy cats” all the time… 🙂

    @Lilblueeyes
    I’ve been so focused on Tony’s story that I forgot I had one of my own. Except with mine, the numbers are much smaller. In 2004, we bought this house for $280,000 before we sold our existing home (on which the remaining mortgage was $70,000 or $90,000 — cannot remember off the top of my head). I financed a lot of the move and initial remodeling on credit, too.

    We were fortunate, though. Our house was on the market for one day before it sold. This was at the front of the housing bubble, which helped.

    All the same, I still felt pinched by the new payments and all the expenses. In fact, this was what led me to finally get serious about my debt….

  10. Wow, sorry to hear about his problems… the thought of trying to move from our current house, find two new jobs, sell our house, and buy a new one all at the same time is terrifying.

    But I can see how in the past it would be seen as “oh yea, no problem!”

    I wonder if he has any legal grounds with the realtor for not bringing the offer to them? Idiotic realtor.

  11. A $415,000 mortgage (2004 Portland or elsewhere) is heavy, heavy debt. Think about it, his mortgage payment alone was $2800 per month. If your brother followed the golden rule of 33% NET regarding home loans, then he would need to be making $150,000+ year income to be comfortable leaving about $5900 per month for other expenses. Was his income even close to this? If not, then his first mistake was living beyond his means, even with the first home in Portland!

  12. You know, one question I should have asked Tony is: “Would you have taken the $500,000 offer if the Realtor had told you about it?” I mean now he thinks he would have, but that’s with two years of hindsight. What would he have done back then? What did he do back then?

  13. I fail to see how it’s possible for so many people (on such a large scale) to end up foreclosing on their home around the same time within the last year. Year after year for decades, people have been paying their mortgage as usual. Job market has been bad before. If people were to lose their job and were unable to pay their mortgage, shouldn’t there have been a steady trend of foreclosures instead of everything happening within the last year?

    That said, mortgage don’t change that much (especially if you’re on a 30-yr fix) or even if people who are on ARM loans which can last anywhere between 3 yrs or longer. That said, people on these loans would make the SAME monthly payment they always make. Sure there are certain exceptions and unplanned events that causes the market to shift but even for non-investors and primary home owners who only have one home (eliminating your brother’s case out of the picture since he had two homes), why is it all of a sudden no one is able to afford to pay their mortgage just this last year on a large scale.

    I understand there are those who walk away simply because their home value dropped below the value of their loan but that makes no sense for the mass majority who actually lives in a primary home, has the same pay, and yet somehow between 2007-2008, added to the huge crisis. Sure investors who have more than they can handle, I can understand. Same goes with people who have certain circumstances such as the predicament your brother got into. But otherwise what else is going on that’s failing these people so badly that it all adds up to this one point rather than a steady trend of foreclosures year after year?

  14. I admire both your and your brother’s honesty. It gives a real feel for the pain that people are going through.

    I have to agree that most of us are so wrapped up in our own little worlds with our own economies (as you put it) to ever notice how the people around us are coping.

    Sure Tony is not free from responsibility here – but I don’t think there is a whole lot to be gained by engaging in self flagellation. Hindsight is 20:20 and we would all be millionaires if we could see into the future. I try my best to play the hand that I am dealt and not worry about the past mistakes. We have an opportunity now in the present to make amends for them.

    I hope that Tony and his family get through this okay.

  15. The only people I feel bad for are those who were responsible enough to sit on the sidelines during this bubble. Now they get to pay to save the banks, cover everyone else’s bad mortgage and, if they’re lucky, help to maintain propped up housing prices so they still can’t afford a house while the irresponsible keep their gains.

  16. Wow, it is amazing how banks were just throwing money around. This also shows how we are all just impatient. That is why the title of this blog is so fitting, Get Rich Slowly.

  17. I hope you’re helping your brother in some way – there is NOTHING in life more important than family, especially your immediate family.

  18. Thank you for sharing Tony’s story with us. I hope he makes it thru this and winds up in decent financial shape at the end (with a brother like you helping, I don’t see how he couldn’t).

    It also hardens my resolve to stay out of the real estate market. Right now (single, no kids), renting is so much cheaper and if I want to move I don’t have to worry about selling a house.

    I also agree with Seth tho, those like me that have stayed on the sidelines will end up footing part of this bill.

  19. I have a friend in Chicago who is sitting on two mortgages as well. They purchased a house about a year ago and hoped that their other house would sell quickly since it was in a prime area.

    I’m not sure how much longer they can hold out. They’re now looking to rent the house, but the house next to them is up for rent too and no takers.

    My husband and I made that same gambled four years ago when the market was hot and we sold our house by the second month. I would not take that gamble today.

  20. Hey JD

    Tough situation for your little brother. I have a little brother too, and here is exactly what I would tell him if he were your brother.

    LOWER THE PRICE!!! There is a reason it has taken two years. If I read correctly, they forclosed on one (Bend), yet will not lower their price on the other (Portland) even though they have $132,000 of equity. Doesn’t make sense.

    He states they owe $367,000 on the Portland house (paying $2800 month) yet they have the house for sale for $499,000. While waiting their other house went into forclosure.

    Drop the price to $450K, or $419K or even $399K if they are really serious, which they shoud be. At $399K, they still clear enough to pay of the balance plus 8K extra to pay for the repairs put on the CC.

  21. The reality is that this is a common situation. Whether you are “giving him a pass” or not, everyone makes mistakes. It reminds me of congress and the bailout issue. This is not the time to try and place blame. That’s for later, when the crisis has passed. I’m sure that there are many things that your brother would do differently now. It’s very sad, and I can see how it happens. Thank you for posting this.

  22. Tony: Your real estate agent owes you fiduciary duties, and by failing to tell you she received an offer it looks like she breached those duties. And I bet she and/or her brokerage have insurance that would kick in on a breach like this. My advice — go find a lawyer and kick-start that process. Best of luck to you.

  23. J.D., maybe you can do a post about helping or not helping family members financially. I am in the same boat, except worse where almost all of my family members are in bad financial situations. Although I would be willing to have my mother or father move in with me if they needed a place to live, what they all want is money. I have a job, but work hard for my money and use it to support my own family. I have been saying no (other than cash in leiu of gifts) but they want more than that. How did you deal with your brother’s situation, and how would you suggest people deal with family requests for money. Are there situations where it is ok to give money, and situations not? What are other things I can offer other than money?
  24. There are no winners here. The only winners maybe are those who sold there homes in 2004 for overinflated prices.

    I live in a somewhat rural area, and I see a lot of new homes that have sat empty since 2005. The area I live in has the average wage of around 10-12 dollars and hour, and they are asking 189-275 thousand for these homes. Most of these homes are owned by speculating builders or real estate agents.

    In my town the average wage earner is at 11 dollars and hour which equates to 22,800 a year. Even if two wage earners are in the family that makes it impossible to afford something like this.

    It is hard to keep things in perspective, just because someone will give you the money for something does not mean you can afford it.Complacency is the root of this evil. We are a nation of payment buyers, as long as we can afford the payments we think we are just fine.

    Now that everyone can not get access to credit lines, were in panic mode, isn’t this is what got us here in the first place?

    http://downwithdebt.today.com/

  25. Troy – I’m with you completely.

    To me, if there are interested people when the price is well north of what you owe, and even of what you paid, the housing market there must be substantially better than here. I live in Michigan and know of quite a few people whose homes are either on the market currently or sold in the last couple years. My husband and I even asked our realter to tell us what she’d list our house if we decided to sell (which we didn’t). Here, I don’t know of a single person who lists their house one cent higher than what they paid for it, and, if they bought it during the boom, they list it for lower than what they paid. And that’s just the list price – my sister’s house sold for $160k and she’d paid $200k five years before. My brother-in-law’s house has been on the market for a year – it’s currently listed at $170k and he paid a little more than $200k and hasn’t had any offers yet. Our realter wanted to list our house for $8k less than we’d paid just three years earlier, and we’ve done a lot of work to it. We decided against it. I don’t even want to think about what it will go for when we *have* to move in two years…

    I knew things here were bad, but I thought the rest of the country was catching up to us. If people are interested in your brother’s house when it’s listed almost $85k more than what he paid, that’s amazing to me. I’d lower the price to sell quickly and use the proceeds to pay whatever he can. He’ll still be in rough shape, but it’ll be better than it is currently.

  26. If Tony cannot work out a workable loan modification with his present mortgage company, let the house go. Let them both go. File bankruptcy as well and get rid of all other debt while he’s at it. Then start over again. With two foreclosures, Tony might as well file BK and start out with a clean slate. That’s what I’m going to have to do myself. It’s pretty much cut and dried. I can’t afford to keep paying greedy lenders exorbitant mortgage payments at the expense of everything else. I should never have been approved for the mortgages in the first place because it was obvious that I couldn’t afford them but the bank didn’t care about that back then. The stress isn’t worth it.

  27. I moved to Phoenix in 2006 and bought a condo. I was fresh out of college and accepted a job making mid $30k’s. My realtor was showing me around town when she goes “Good news! I saw you were approved for up to a $500k loan! Should we start look at homes in the mid $400’s?”. I nearly fell out of my chair. I knew damn well I could only buy a $200k condo(I was putting 20% down).

    Just goes to show you how the US got in this predicament in the first place.

  28. A lot of people do not understand how mortgages work, period. People always get upset when they take their monthly mortgage payment multiply it by 360 and realize that it is 2-3x the cost of their house. I suspect that the world would be better off, if people knew more information about the technical side of debt and interest.

    -ThatGuy

  29. “Tony: No. Plus we consulted with a lawyer, and he said we should just give it back because of the tax ramifications.”

    Two things. 1. Your brother’s lawyer gave him lousy advice:

    “Tony: Well, it would be a short sale. To give you an idea, we put the house up for sale at $299,000, and we paid $380,000 for it. So what you do is you do a short sale – the mortgage company has to agree to it – but the government considers the difference as money that was given to you. It’s taxable income.”

    Yes, it is taxable income, but President Bush took the lead in having Congress pass very recent national legislation (December, 2007) providing for a moratorium on taxation from the difference. So, between now and sometime in 2009, I believe, you can short sell and not take the tax hit, while still deducting mortgage interest. Happened to me. I wouldn’t be surprised to see an extension on this, given the current state of the economy, as well. A short sale is marginally better to your overall credit rating than a foreclosure. The difficulty he will have is getting someone at his mortgage company to actually approve it, as they are flooded. He needs to be persistent with them and demand help to negotiate their labyrinth. The companies are NOT forthcoming about this option, as you can imagine. Because of the tax legislation, I would think twice about handing over the keys and try to sell it at any price. He should talk to a tax accountant who could run some numbers for him, and perhaps find him a refund within potential scenarios. Our numbers were so similar to his it’s scary and we had several thousand dollars refund, recouping the interest we had been able to pay. It really helped.

    2. As a former Realtor, I am appalled that an agent would refuse any offer out of hand, even a verbal one, and not even present it to the client. Perhaps the laws and oversight are different in Oregon, but in my state, she would be wide open for an ethics complaint with the Board of Realtors and the State Dept of Commerce.

    @Steven Why did so many foreclosures happen at the same time? Simple. ARM resets. Look at the amount of refi’s 3, 5, and 7 years ago. Those little chickens are coming home to roost. Not all no-doc and low-doc mortgage holders are potential deadbeats. There are lots of self-employed folks (like me) who couldn’t get one any other way, and who weren’t scamming the market value for cash-outs. The issue is when the loan resets, what index is it tied to? No doc loans were/are often tied to “more exotic” indexes that fluctuate wildly, and mortgage payments (like mine) can shoot sky high (double or triple) on a reset. With tightening credit, it’s more difficult for these loan holders to re-fi into a fixed mortgage than ever.

    So what do you do? Like Tony, and myself, you pay one or more mortgages as long as you are able, often times in excess of your income, until you can no longer do so. Or, if you don’t give a rip about anyone other than yourself, you move out, save the money you would have spent in the first scenario, and leave the key under the doorstep for everyone else to wind up holding the bag.

    I wish Tony the best. It’s an enormous hole from which to dig yourself out. We’re not there yet. There are many days I wish we had mailed the key to my house in instead of hanging on for over a year making payments on two houses. But that’s not who we are, as my wonderful husband keeps reminding me. We ruined ourselves trying to do the right thing. In 2006, when this happened to us, all this wasn’t even on the mortgage companies’ radar. Nothing like being ahead of the curve.

  30. “Tony: Your real estate agent owes you fiduciary duties, and by failing to tell you she received an offer it looks like she breached those duties. And I bet she and/or her brokerage have insurance that would kick in on a breach like this. My advice – go find a lawyer and kick-start that process. Best of luck to you.”

    Eric is right. I don’t know what the code is like in the states, but in Canada it is against the realtor code of ethics to NOT disclose every offer received to your client. Your realtor may have done something completely illegal here. Realtors are obligated to present every single offer to the client and represent the client’s interests no matter if she disagreed with them. Whether Tony would or would not have taken the offer is irrelevant, I’d think, because he was never given the choice. Talk to a lawyer, talk to that brokerage because at the very least i do not believe you owe this person commission.

  31. Sorry I skipped some comments here because I really wanted to say this before I have to actually start working (dumb)

    Tell your brother, if he has not already surrendered his house to the bank, to negotiate a “Cash for Keys” settlement with the lender/mortgage servicer (and if the servicer is Wilshire Credit have him email me, I know most of their foreclosure team).

    It won’t be a lot, but the basic premise is that if you leave your house vacant and in occupiable condition they’ll give you $1-2K for saving them the trouble of trash outs/repairs/eviction proceedings.

  32. “I believe he’s reached a point where he’s ready to stop letting other people (the bank, the realtor, the credit counseling place) tell him what he can and cannot do, and simply decide for himself.”

    good! that’s one of the most important lessons he can learn.

  33. First, best wishes to Tony and thanks for sharing his story. I find myself in similar, but not so dire circumstances. We found our dream house, and the market was still hot, so we put our house up for sale and made an offer, with a contingency on the sale of our house. So far, so good. Then the market started to slip. All thetalking heads made it seem like just a temporary setback, we had plenty of equity and could afford to take a cut in our asking price, so we waited. The market collapsed (we’re in southern CA). The only houses selling were short sales, for way below what we were willing to take. The sellers of our house were getting antsy. They didn’t have any other offers, but our original offer had expired – it had been 6 months – and they wanted to take the house off the market and rent it out. We had a offer come in, it was good enough, and everything looked good, so we started forward on our purchase. Then the problems began – our buyer had problems with his loan. First, we were told that there was an issue with identity theft, and as soon as he cleared that up, things would move forward. Next we heard that his mortgage company had failed and he was looking for other financing. This was just as all the news about problems with stated income loans was coming out. We eventually found out that the buyer was one of those people and had stated that he earned $150k/yr working as a janitor. With the tighter credit, he wasn’t able to obtain financing. At this point we were already commited to the new house. Further marketing of our old house didn’t help bring in any offers – there were still too many short sales and foreclosures that were much lower than we wanted or could afford to go. Eventually we found renters. They’re good folks and we hope to sell to them eventually, but they are in the same boat. They still have a house in Phoenix they couldn’t sell when they moved here, and they are renting it out.

    Long story short – we’re stuck with 2 mortgages, but we’ve been able to (just barely) keep our heads above water for now. We’ve cut back our expenses (which is one reason I read here every day, thanks JD!), and if nothing major blows up on us, we’ll make it out the other end ok. The best thing out of this whole mess is that our new house is really our dream house and we do enjoy it very much.

  34. this story about your brother made me really sad.

    even when people make dumb decisions, I think that it is very important that we all have compassion for our fellow human beings at this time, especially when it’s someone you know and care about.

    most people reading this blog are the lucky ones- we know financial basics that a lot of (good) people out there just don’t have a good grasp upon. it’s important that we try to lead by example and to hold out a helping hand if we are able to.

  35. As an average American, it grates a little to hear people like your brother described as the average American, even though you’re probably right.

  36. I think we’ve passed the peak of the permanent house. People are moving more for jobs or just for better job prospects. People also move in search of the cheaper property costs, etc.

    The days of being able to expect you’ll work for the same company for 30 years is gone, and with it, the expectation that you’ll be living in the same place for 30 years will soon follow if it hasn’t already. Somehow the Donna Reed / Pleasantville suburban ideal is still embedded in much of the American psyche.

    Clearly house-hopping is no longer a reasonable expectation (if it ever was).

    Labor mobility is becoming increasingly urgent, but our hangups and our laws simply aren’t keeping up.

  37. At least he is a MAN about and fessing up to his own mishaps and not blaming others.

    Rule 1 don’t buy a new house until the other one has sold.

    We learn from our mistakes.

    Two years from now he will be alright!

  38. Being an International reader I just have to leave a comment on this mortgage-related issue.

    You Americans should consider yourself lucky that a foreclosure on a non-recourse debt means that the bank can’t claim the value from other assets and the debt is considered paid in full even if the sale price is less than the remaining mortgage. At least in Scandinavia (and I suspect much of Europe as well) this is not the case.

    Over here if the foreclosure doesn’t bring in enough revenue to pay for the mortgage the borrower is still required to pay the mortgage in full. This means that the bank can take a significant amount from your paycheck before you get it or repossess your car or other property.

    A lot of people struggled with paying their mortgages for 10 years after the house had sold in our 90’s depression for a third of the mortgage value.

    So you should consider yourself lucky that you can speculate on a house investment with lended money with no actual risk if the investment goes sour. 🙂 *trying to show the silver lining*

  39. For lesson’s sake, this is not the depression, where almost 10,000 commercial banks disappeared from 1929 to 1934, we had 23% unemployment, and people were standing in line for a loaf of bread.

    In this current “financial crisis,” we’ve had about 15 bank failures, around 6% unemployment, and no breadlines I am aware of.

    Perception is reality but they have inverse relationships: Tony perceived times were “great” two years ago but “real risk” was actually high. Now Tony perceives times are terrible, but “real risk” for financial markets is much lower now than it was two years ago, and even two weeks ago…

    If we learn lessons, we will be stronger going forward. It just doesn’ “seem” like it now…

    “To make no mistakes is not in the power of man; but from their errors and mistakes the wise and good learn wisdom for the future.” ~ Plutarch

    “Perception is strong and sight weak. In strategy it is important to see distant things as if they were close and to take a distanced view of close things.” ~ Miyamoto Musashi

  40. Alex, the notion that a mid-30s income means one can afford a $200,000 condo is ridiculous. We’ve been in our house for 19 years. At the time we were buying, the rule of thumb was that you can afford a house that is no more than 2.5 times your gross income. When did that change?

    Interst rates have been so low the last few years so perhaps that has changed the thinking. When we bought, the loan rate for a 30-year fixed was 9.75% (our current 10-year mortgage is only 4.625%). On a combined gross income of $56,400 we could have bought a house for $141k. However, we’d prepared a budget and knew how much we were comfortable spending after putting 10% down. After all, we also needed to furnish and heat the house, pay for maintenance (house built in the ’20s), food, clothes, transportation, and just maybe, go out and have fun. So we bought a house for $130,000, put 10% down, paid cash for closing costs, and had to pay PMI. No big deal, we could afford it although it left our savings account with about $600 after closing. At the top of those closing papers are the words “FannieMae.”

    It was a great deal for us. We didn’t buy a starter home but one we’d be happy in for a number of years. We also bought a smaller house in the best neighborhood (two blocks from Lake Michigan and the million-dollar mansions on Lake Drive) rather than a bigger house in another neighborhood. When rates declined in a couple years, we refinanced for 7.75% and had enough equity built up that the PMI was dropped. Over the years, we refinanced twice more – first to a 15-year mortgage, and finally to a 10-year mortgage. With 5.5 years left until it’s paid in full, we’re planning to pay it off even sooner for peace of mind in the current economic climate.

    During our years of home ownership, between the two of us, we’ve weathered 4 periods of unemployment – some for only 2-3 months, some for 16 months. But because our expenses were lower as our incomes went up and because we had adequate emergency savings, losing our house never ever was a possibility.

    I understand that most people don’t stay in a house as long as we have. You have children and you need more room, you get a great job offer across the state or country and have to move, etc. I think, however, too many people have been sucked into thinking of their houses as a way to get rich rather than their homes. We see our friends in new construction with the walk-in closets, the tricked-out entertainment centers in the lower level, the granite counters & stainless steel appliances in the kitchen and think we need that, too. Shows on HGTV certainly feed that feeling. But what we want and what we need are two different things. One thing this current recession and dropping home values may teach all of us, is the joy of financial solvency and owning our homes outright and that our houses are not ATM machines with cash available for upgrading bathrooms and European vacations and new cars. We need to listen to ourselves and crunch our budget numbers and ignore the voices of the real estate agent who wants to show you something bigger than you dreamed of owning or the mortgage broker who approves you for a loan you know in your heart you can’t afford. People need to educate themselves about basic finance and not accept what the “experts” tell them.

    I feel sorry for anyone else who bought a home that is now worth much less than they paid for it. But for those that don’t need to move and can afford to ride out the market, stay there and it will come back one day. Our little $130,000 home is now worth about $285,000. Sure we live in a part of the country (Milwaukee, WI) that did not have the huge bubble in rising home prices, but that just means we didn’t crash as hard as other places have. I’ve never liked roller coaster rides, anyway. What I do like is being debt free. It certainly makes sleeping at night much easier.

  41. The saddest thing about this whole mess is how preventable it was.

    If only people had been listening to the “whackos” out there that were trying to warn everyone of the dangers of the housing bubble back in 2005 and 2006, we could have avoided the problem entirely.

  42. J.D., you and the other personal bloggers out there should totally have courses, maybe at a university, maybe even for free, to teach people about personal finances! It’s tough looking backwards at people’s problems and fixing what’s already done, but maybe doing some preventative courses would steer the next generation of adults away from poor money choices, or at least educate them better.

    It’s unfortunate that people who have done all the right things (saving, staying out of debt, living within your means, etc.) still end up getting screwed over, either by paying for others’ mistakes, or having lower savings interest. This is one of those times when another person’s actions DO affect everyone else around them. So it would be awesome if people can be helped out prior to those mistakes being made.

  43. One of the biggest lies we tell ourselves is that we can afford something just because we can swing the monthly payment.

    I feel for your brother, but this is entirely his fault and he can work his way out. He signed for the loans they SOLD him. Mortgage brokers are sales people. If they don’t close a deal they don’t get paid. He could have chosen to get advice from someone like a CPA who would have painted this dark picture for him BEFORE he did it.

    When we decided to move we put our house up for sale. We didn’t sign for the new house until we had a done deal selling the first one. This meant moving into an apartment for several months. Was it inconvenient to move twice? – yes. Did people think we were out of our minds? – yes. Did we ever worry about the money? NO.

    Perhaps the bank was betting with him that the house in Portland would sell, but that in no way gave them a green light to say that this is a good idea.

    LAST AND MOST IMPORTANT…there are tax ramifications for letting the home go into foreclosure. The difference between the amount owed and fair market value is taxable income. The Portland home may not qualify for the exemption because it isn’t their residence.

    I suggest that your brother get some tax counsel ASAP. It is generally better to take the tax hit on a short sale over a foreclosure.

  44. 1. I used to work for a mortgage lender until they left the market (it was a new market for them) when the mortgage bubble burst. What some don’t realize when things like a forclosure happens, it stays on your credit report for years, severely limiting your ability to purchase a house in the future. Things like “bridge loans”, or financing a house when the other hasn’t sold is not a good idea unless you can carry both for an extended period of time! The lending institutions generally try to keep your mortgage debt under 45% of your income or so, depending on the lender. This amound does NOT include living expenses!!! Tradition dictates that mortgage, insurance, maintenance, etc…should NOT exceed 28%. That is a HUGE difference. As a general rule, do not buy a house based on what you qualify for. Buy a house based on what you are comfortable with.

    2. I live in Texas, and am a licensed realtor. Here we have a law that a realtor MUST disclose ALL offers to the seller and can not under any circumstances speak for the seller on if the offer is too low or to high, etc. There are legal ramifications if you do not comply with this, and money due the injured party. You might look into local laws and see if a)your realtor acted legally and b)if you are due damages. In Texas you do not even have to go through a lawsuit necessarily, but you lodge a complaint with the Real Estate Council. Regardless, it may be worth lodging a complaint as it sounds as if they did you a disservice.

    Good luck! And don’t worry, through planning and a little bit of sacrifice, you will get out of this before you know it.

  45. I can relate completely to your brother’s feelings of frustration, anxiety and overwhelming stress.

    In 2006 we bought land as an investment property. Real estate was booming around here. We were making more money than we had ever dreamed of and had been doing so for a few solid years.

    A year after buying the land, my husbands company “restructured” and our yearly pay was cut by $60,000! That made things tougher, but it was okay because we had an amazing investment that gave us a huge monthly return. We used that to pay this loan on the land. We put the lot up for sale. (it’s been on the market for over a year and a half now) Exactly one year after my husband’s pay was cut, that investment company went belly up and we lost another $55,000!

    Well, that was the straw that broke our backs. We could no longer make the payment on the land and were really struggling to pay our own mortgage now and had to use credit cards to make some payments on cars and to even buy food sometimes.

    We talked our bank into letting us do a short sale on the land. We thought that was an answer to our prayers. Well, the market crashed and now comparable land is going for almost $100,000 less than we owe on ours. We had offers early on after buying the lot but turned them down (of course, just our luck) because things were good then and we had no idea what was in our future.

    Now technically, we are in foreclosure on the land. It’s our worst nightmare come true. And almost ironic because my husband works in the credit repair industry. We have always had amazing credit our entire adult lives. We worked hard for it… and now this.

    The foreclosure hasn’t actually gone through and isn’t on our credit yet because the bank is holding off on completing it. Apparently banks get rated by the government and too many foreclosures isn’t good for their record.

    We just keep hoping and praying that the right person will come along and want this land and we can somehow stop the foreclosure even though we haven’t been able to make a payment for 7 months now.

    It feels awful. I find myself thinking back, going through my mind all the “what ifs”. What if my husbands work hadn’t done this to us? What if we hadn’t lost all that money in the investment deal? What if we’d sold the lot to the first person interested? What if I had just kept driving through the round about and hadn’t done that second loop around just so I could write down the phone number I saw advertising this land for sale in the first place? That is the biggest what if at all. I picture myself driving in my car that day in my mind and will myself to keep going, like that could change history.

    Assuming things change in the future and we are ever able to invest in anything ever again…I honestly don’t know if we will. This experience has changed us. I don’t know that I am willing to take risks anymore. Not even educated risks, because both of these ventures were not dumb decisions at the time. We had no way of knowing what was going to happen. That doesn’t mean I don’t take responsibility for what has happened. I regret making both decisions immensely.

    Anyway, that’s our story..just one among millions.

  46. I’m with FHF (#8) – I think the realtor bears some responsibility – it seems she was trying to maximize her commission at the expense of your brother’s best interest.

    I don’t know that it would do him any good, but he might look into it.

  47. I feel sorry for your brother, I really do.

    I don’t mean to come across as rude, but he bought two houses. He bought one without selling the other first, knowingly taking on over $5k in mortgage payments. It doesn’t matter if he assumed he would be able to sell the other property.

    He gambled. He lost.

    I really do feel bad for him, but why should my tax dollars be spent bailing him out?

  48. The GREED of all of this (meaning this store and the larger mess in America) kills me. And I mean the greed of individual people and of financial institutions. The greed of thinking one is entitled to buying two homes, charging everything, etc. Mostly the greed regarding the pricing of homes above the current MARKET rate, then not selling them, and then creating a bigger mess (foreclosure) that tax payers will help to clean up. There is no entitlement to profits on a home. Price it at a price that will sell. Quickly. Now.

    And people need to self-educate. How can your brother be so clueless and turn over his finances to corrupt “financial counseling” services when he has someone like you to get real advice from?

    Then there’s the greed when dealing with the ramifications of one’s mess. Your brother’s priority should not be to avoid paying taxes on the mess he created. I would rather pay some taxes than totally bailing out on my financial commitments, having a foreclosure on my record, and contributing to the financial downfall and lower prices in my neighborhood by doing a foreclosure.

    And then there’s the greedy banks…

  49. What a painful story. A friend of mine is in a similar position: he moved from Boston to Portland two years ago and has been paying rent plus mortgage because he can’t find anyone to buy or rent his old place in Boston. He bought it when prices are high and would take a big loss if he did manage to sell it at current prices. The job he moved for ended a while ago. He works in theater and it’s been hard to find new work with the economic downturn, so he’s really hurting. Sometimes even if you plan well, the economy screws you over.

  50. I didn’t realize it at the time but my parents and grandparents must have really coached me in money management. I guess I’m lucky because I just couldn’t make some of the decisions that Tony made that got him where he is today. I’m not saying I’m better than he is as much as I’m saying that somehow my family was able to teach me some basic “rules of the road” when it comes to finance. I think of myself as lucky because as we face this nationwide financial crisis I’m in a better situation than Tony is, I’m still worried, very worried but I’m not starting off already in the hole. I want to thank you and Tony for sharing this story because this whole lesson is great for me as I look at my three elementary aged children and realize that they won’t learn this in school – It’s up to me to teach them about fiscal decision making.

    Thanks,
    Amy

  51. Thanks for all the comments so far, folks. I’ve asked Tony to come read them. I hope he’s able to get some good info from them.

    Meanwhile, here’s the exact text of an e-mail I received from a reader last month. Her family’s in a similar bind:

    I would appreciate any ideas you have to help solve our following family dilemma;

    My parents are on the brink of selling the house that my two sister’s and I grew up in because they can’t make ends meet.
    · They have a mortgage balance of $145,000 and a home equity loan of $46,000. Their monthly payment is $2,171.24
    · My father is on a fixed retirement income of only $3,853.80 a month and my mother is collecting $800 a month from retirement and a PT side job working retail at a museum.
    · Their combined incomes don’t leave them much left to cover their general living expenses and home upkeep costs and my father now has almost $30k in credit card debt that was used to pay bills. My mother has credit card debt as well, but I’, not sure how much.
    · The house has been assessed at $278,000 — 75% of the retail values of $370,000
    · At this point, my father is tired and feels like they should just sell the house and pay rent in a condo somewhere, but my sisters and I don’t want to lose this house — it’s in an amazing location in Mystic, CT with a big yard for our kids to play in and water views etc.
    · One of my sisters and her husband might be willing to take over the mortgage if they can sell their house and add an addition or a “pod house” for my parents’ to live in.
    · I’ve always told my parents that they should live below their means and adjust their lifestyle, but old habits die hard — they were used to living a certain way on my father’s teaching salary and once ever since he retired it’s been a struggle for them.

    Let me know if there’s any more info. I should give you before you can offer any advice.

    There are obviously deeper problems here that must be resolved, but this is another example of the crises people are facing every day.

  52. Thank you both for your honesty.
    Everyone can learn from this story.

    I do not think you are giving your brother “a Pass.”
    It merely shows that no matter what you practice, there is always a place for compassion.

    Keep up the good work!
    Dee

  53. J.D. – re comment #55 – she needs to let go of her emotional attachment to the house unless she wants to live there herself. Her parents have the right idea about getting something cheaper. It’s her and her sister’s emotional attachment that is preventing them from making that decision.

    The memories are precious and should be honored, but the house is an albatross around her parents’ neck, and she needs to be OK with them letting it go.

    -Erica

  54. Tony Paid $415,000 for the portland house, owes $367,000 now, yet he is still trying to sell for $500,00 even while the Bend house is lost to foreclosure? This is not a hardship case! Drop the price of the house in Portland until it sells and stop trying to get money from imaginary appreciation.

  55. This was a similar situation for me. I had the double loans also. I tried selling my place on short sale but the lender Saxon never answered the phone or approved any of the paperwork. So my house went to foreclosure.

    Two bad decisions killed my ability to pay the mortgage. A new car loan and a new laptop loan.

  56. I live in Western MA near the Vermont border. Home prices here never reached the sky high limits they did there. Also, people here really don’t make the >$200K a year (the salary of someone who can afford a $415K house) so we old Yankees tend to not really have much sympathy for those who can’t afford their two McMansions.

    Honestly, living in a small town always taught me that places like Seattle, NYC, Southern California are really other worlds.

    Honestly, I feel bad that things are as they are but he made his bed, now lay in it.

  57. Thank you and your brother for sharing his story with us.

    Unfortunately, even with the current economic situation, I’m not convinced lenders have wised up any. My husband and I have steadily saved money for a down payment on a house and are getting ready to start looking. We know quite well that the area around us has been more than we can afford even though we have a decent combined income, so the downturn is actually going to help us. But we’ve looked at our gross and monthly take-home income and crunched numbers and decided that $300K is our absolute maximum limit.

    The bank, however, is willing to lend us enough to buy something for $450K. I believe our joint response to this was something along the line of “Morons.” We’re sticking with shopping in the range we’ve decided upon. Just because they want to give us extra rope to hang ourselves with, it doesn’t mean we have to accept it.

  58. Someone may have already stated this in the comments, but I believe that Realtors are under an ethical obligation to convey ANY and ALL offers to the sellers, regardless of whether they think the sellers will seriously consider the offer. I am an attorney and, in my state at least, that’s the way it is.

    So, my point is that Tony’s realtor’s failure to convey the offer to him may have been in violation of this ethical obligation. If so, then he should seriously think about consulting an attorney regarding the realtor’s E&O insurance. There’s no telling whether Tony would have accepted that offer at that time, especially if the realtor was assuring him that he could get $585k, but it’s something to consider.

    Normally I am pretty anti-litigation (being a lawyer will do that to you!), but that seems like a pretty egregious omission on the realtor’s part. I can tell you that if I failed to convey an offer of settlement to a client, I could possibly lose my license or be censured by the State for it.

  59. One of the reasons I left Portland was the way the housing market had skyrocketed, effectively locking me out. Maybe that wasn’t such a bad thing after all! Yes, I’m still on the real estate sidelines, and may be forever, but now I live in a place that’s even more stupidly expensive (Bay Area) and I have NO desire to buy here.

    Still, I’m hopeful that the market crash will help me, and others like me, some time in the future. Let’s go back to the glory days of nice little houses for 150k! That seems far more in line with more incomes.

  60. Although Tony’s story is sad especially considering that his finances weren’t in shambles beforehand. But the reality is he knows where the fault lies and its not with the banks. If I was in his situation i might have considered doing the same thing. But what baffles me is the fact that he was trying to sell his house for such a profit. Granted you want to make as much as possible when you sell your house there comes a time when you simply pull back and make sure you’re not digging yourself further into the hole. He bought his first house for $415K and selling it at $500 back in 2006 would have given him a very nice profit of $85,000. As far as I’m concerned there should have been many warning signs along the way that he needed to sell the property for a lot less stop carrying such a huge mortgage.

    I do feel for a lot of the people whose homes are being foreclosed but I would wager a great many of them are people who really knew better. Banks made the mistakes of giving such huge loans but these people should have known they couldn’t possibly make the payments.

  61. I doubt this is typical behavior, but my sister went through foreclosure 2 years ago. The bank is just now selling the house at auction. She’s been living mortgage and rent free in the house the whole time.
    I can only imagine that the length of time from foreclosure to auction is the sheer amount of foreclosures happening.

  62. I agree with Pamela #34 about the fudiciary responsibility of the realator, but i get the sense that Tony has already saw a lawyer. It also depends on what arrangement Tony made with the Realator as far as infroming and authority to take and reject offers. We don’t have the complete picture on that.

    I also agree with Erica Douglass #57. The people in post #55 really need to get over the emotional attachment and not let it drive the realities of the situation. First, the parents should have had enough even on their fixed income to afford the house, but there were some heavy debts racked up. What the heck was the HELOC for and the credit card debt? The parents stand to gain enough from the house to pay off the mortgage, pay off the HELOC and pay off the credit card debt. Forget about retail versus current cost at this point. The house is still worth more at 75% than they owe on it with the HELOC. The one daughter wanting sell the current home in today’s market is just asking for trouble. There are too many variables depending on other variables that can go wrong, moreover, it doesn’t sound as if they have time on their side either. It also doesn’t seem like the parents weigh the emotional attachment to the house as greatly as the kids do. I also find it odd that the writer’s sister is the one who “might” be willing to take over the mortgage, yet the other sisters, the writer and brother aren’t going to contribute, although they don’t want to give up the property. That family has to come to certain realities and start looking after their own individual families before trying to save a house based off of sentimental values. Keep your photos, keep your videos, keep your memories of the house, but get rid of the house. None of you sound like you can afford to keep it while maintaining your own families’ financial well-being.

  63. Kristin – in Portland 415,000 does not buy you a McMansion. I’d imagine Tony’s house is a comfortable house in a decent neighborhood but not over 2500 SF or with a huge lot or anything you’d associate with a McMansion… I’d bet it’s over 30 years old too. (although I could be wrong)

    Jeff- The amount of time from foreclosure to auction varies widely from state to state. Many states have laws saying that give home owners X amount of time after the foreclosure to pay off the mortgage and save the house. Oregon is fairly middle of the road, I believe it’s a 90-120 days after foreclosure has been filed before they can begin eviction proceedings… but I’m not sure and am certainly no lawyer!

  64. Luckily I have not had to go through this mess as I am a young professional who has yet to purchase a home. I plan to in the next year or two though and I will make sure that I learn from others mistakes. Any advice will be well received about the issue!

    http://jwojdylo.wordpress.com

  65. Holy cow, thank goodness for living in the Midwest! $500 grand for a house?!? That’d get you a palace around here!

    Good luck to everyone….

  66. To the commenter from Scandinavia – I believe a foreclosure here means the same thing that you refer to in Scandinavia. If the bank forecloses and then sells the house for less than you owed, they can then sue you for the difference. It can take them a while to come after you for it, especially in this economy where they are processing so many foreclosures, but eventually they will. This is one reason why a short sale is generally better than foreclosure – if you get the bank to agree to let you sell it for less than owed in a short sale, they are then agreeing that they will take what you sell it for as a settlement on the mortgage, rather than coming after you for the difference.

    If you file for bankruptcy then I think that difference you owe the bank would get addressed during the bankruptcy proceedings along with your other debts.

    I’m far from an expert, but this is what I’ve gathered from reading about such things. Someone please correct me if I’m wrong.

  67. I feel sympathy for Tony and he is acknowledging that he made mistakes. Getting into the double mortgage thing while waiting for your old house to sell is an evil trap to fall into.

    I know hindsight is 20/20 but.. Honestly seems to me as if a major problem here was he was holding out for too much money on the Portland home. I’m puzzled why they didn’t drop the price on the Portland home sooner?? They owe $387k on it and they’ve been trying to sell it for $500k? If they had dropped the price sooner than they would have sold it and wouldn’t be in this problem.

    And its not as if the Portland market did anything here to hurt him. This isn’t a case of someone losing 40% of their home value. The Portland Oregon home market has been one of the very best in the country. Median home prices in 2006 were $280k, peaked around $300k in 2007 and are now back in the $280k’s again in 2008. So we’ve seen relatively very little drop in values in Portand. Theres really no reason he shouldn’t have been able to sell the Portland home faster if he was willing to sell for less. Honestly this all looks like he was holding out for money on the Portland home hoping to cash in well over $100k in equity. And at the same time he was getting behind on bills, borrowing from family and eventually going into foreclosure.

    It does seem like the REaltor was pushing for higher sale price so maybe thats why they were hanging on so long. But it shouldn’t take that long to realize you’re getting bad advice from the realtor. If they haven’t switched realtors already then I’d do that ASAP.

    Jim

  68. Kind of chilling when you can think about short selling your own mortgage on your house.

    But it brings up an interesting point. Should you continue to sacrifice your income if you are upside down, and know that you have to eventually foreclose anyway?

    Lee from http://www.cheaplee.com

  69. CAVEAT EMPTOR [let the buyer beware]!!!

    I’ve been hearing about GREED lately and how people are being preyed on. The sad fact is that people have been preyed on since Grok tried to sell Bok a sharp new spear made of balsa wood. There are predatory practices and liability. They are wrong and should be prosecuted. But a broker telling you what you can “afford” versus lying about what the payment will actually be are completely different things.

    Banks changed their approval formulas and lending products following the changes to the Community Reinvestment Act in 1995. They were told to make homes affordable to lower income people so higher debt to income and other numbers were allowed. Some fraud took place such as with Fanny Mae, which has been covered in the news. But a bank doesn’t WANT to forclose. It takes time and money. It is in their best interest to make loans that borrowers can re-pay. Some brokers got excited and took advantage since their brokerages would package and sell, but this is once again where the CRA comes in as Fanny and Freddy bought these products. If there weren’t a market the brokers wouldn’t make the loans because they wouldn’t be marketable.

    There is also a disconnect for some people between having the money and having the maturity to own a house. This is not a comment about Tony who seems a responsible person but in general on some of the above musings as to what has contributed to the volume of foreclosure. When my husband and I bought our first house it was a struggle to get him to change from a RENTER mentality to OWNER mentality. If the roof leaks there is no landlord to come fix it and you are risking more than just your security deposit. The buck stops with you. Many people who are being foreclosed on bought a house because that seemed like the thing to do and they were told they could afford it. They [arguably] had the money for it, but not the maturity to make it happen. A couple years ago before the bubble burst these people could gracefully back out by selling the house if they were in over their heads. But without the appreciation to pay for the cost of a sale and potential damage to the property they are simply walking away instead. This leads to dropping home prices which leads to panic and massive sales which drops prices further which is the net that Tony got caught in.

    Finance is a cycle. Busts happen. Creative destruction happens. It’s hard but a reality of life and my fear is that in a panic we will do things that in the coming years we will find made things worse. FDRs programs during the depression seemed like “doing something” but many historians and economists look back now and say they may have actually exacerbated the depression. Maybe the government needs to do something, but let’s not do it in a panic to just “do something” rather than the RIGHT thing.

    And finally to the people who say we shouldn’t blame anyone, just fix it: How can you fix it if you don’t do a cause analysis to determine what caused the problem? The CRA and mark-to-market regulations [result of Enron panic] have had huge contributions. Gov’t fingers in lending has had a huge effect. Let’s make sure they do the right things to fix it.

  70. State law here in the U.S. governs whether or not the lender can sue you for a deficiency after foreclosure.

    California, for example, prohibits a first mortgage lender (but not a second, or line of credit lender) from doing so – the first’s only recourse is to repossess the house.

    Some states simply prohibit wage garnishment for private creditors – even if a lender gets a judgement they can’t take your wages.

    I expect many more states to prohibit garnishments as more people fall behind in their loans (mortgage, credit card, etc.)

    On another note, I hope J.D.’s brother is keeping his resume up-to-date.

    Bend is a relatively small town which only recently has undergone a huge population explosion based on tourism (along with a property bubble to rival any big city) – one of the first things to suffer in an economic downturn.

  71. i feel really bad for tony and his family. it could happen to anyone, especially in the climate of 2006.

    my husband and i bemoan the fact that we haven’t been able to save enough to buy a house yet, and we’re in our late 30s. but i think maybe we should be more grateful for how little debt we have (though we definitely have some) and just keep working toward it.

  72. “Tony Paid $415,000 for the portland house, owes $367,000 now, yet he is still trying to sell for $500,00 even while the Bend house is lost to foreclosure? This is not a hardship case! Drop the price of the house in Portland until it sells and stop trying to get money from imaginary appreciation.”

    Ding, ding, ding! We have a winner! Your whole financial world is falling apart, yet you are still trying to hold out for a profit on a bad investment. Price it to sell within 2 weeks and start rebuilding your life again.

  73. I don’t feel bad for Tony. I’m sorry he’s in the predicament that he is in, but it is his fault. As several others have pointed out, Tony is not aggresively trying to sell his Portland house for enough to pay off his mortgage – if he’s really serious, lower the price.

    I’ve worked really really hard to pay off my debt and create a savings.

    And the people from #55 – get over it. Don’t saddle your parents with something they don’t want to make you happy. If there is a way that you and your siblings can hire lawn care and cleaning service, maybe staying in the home will be easier. Be thankful you have two parents who are alive and married to each other, and be thankful for all the happy memories you have. And stop being selfish and let your parents have their happiness.

  74. Before the credit card age we lived in a smaller home. Kids shared bedrooms, families shared cars, etc. We ate at home at the kitchen table.

    Now we live in bigger homes. We store stuff we cannot keep in our bigger homes in a storage unit we rent to keep it safe. Kids have their own room with their own tv and their own computer. We drive nicer cars. We go out to eat.

    Does all of this stuff make us so happy that it is worth taking on the debt and the stress that goes with it?

  75. For the people in #55.

    If the parents want to sell the home then that is their right, it is THEIR home. If you want to buy the home then make them an offer for it.

    If the parents want to keep the home then they might be able to refinance their debt. They have a $145k loan balance and $45k HELOC, so thats $190k in debt. With a new 30 year fixed rate they could get the payments down to around $1200 a month.

    Jim

  76. JD, what does a (2006) $415K house get you? Three car garage? How many square feet? Bedrooms? Does your brother have a big family? I don’t make very much money so I rent a 550 square foot apartment which I find quite comfortable. For me 1000 sq feet would feel like a castle. I can never understand the motivating factors for buying a house. Does $415K get you a modest bungalow or a McMansion in Oregon.

  77. Shara Says:
    October 2nd, 2008 at 1:28 pm
    CAVEAT EMPTOR [let the buyer beware]!!!

    I’ve been hearing about GREED lately and how people are being preyed on. The sad fact is that people have been preyed on since Grok tried to sell Bok a sharp new spear made of balsa wood. There are predatory practices and liability. They are wrong and should be prosecuted. But a broker telling you what you can “afford” versus lying about what the payment will actually be are completely different things.

    Banks changed their approval formulas and lending products following the changes to the Community Reinvestment Act in 1995. They were told to make homes affordable to lower income people so higher debt to income and other numbers were allowed. Some fraud took place such as with Fanny Mae, which has been covered in the news. But a bank doesn’t WANT to forclose. It takes time and money. It is in their best interest to make loans that borrowers can re-pay. Some brokers got excited and took advantage since their brokerages would package and sell, but this is once again where the CRA comes in as Fanny and Freddy bought these products. If there weren’t a market the brokers wouldn’t make the loans because they wouldn’t be marketable.

    I’m glad somebody gets it. Also, banks could face fines and have their attempts at expansion curtailed if they didn’t loan to subprimes. But hey, let’s just blame greed (whatever that is), it’s a lot easier.

    Well, it’s more than the CRA of course, but I believe it was a large contributor.

  78. I must admit that I had quite the resevations about letting my older brother share this story with over 60,000 people. It is nothing that I am proud of and would never wish this situation upon anybody.

    I would like to thank everybody for their comments and advice.

    To those of you that think that the current price of my house is to high and that I am being greedy…this is not the case. Sure there is alot of money there but once I pay the agent, possible closing cost, family members(which by the way does not include my brother) and accumulated debt from having two mortgages…I get absolutley nothing. More than likely I will not get what I am asking for and will still be in debt. Hopefully the debt will be managable and my wife and I will come out of this okay.

    Hopefully the next time I agree to let my brother do a post on my finances it will be for more positive reasons.

  79. Tony,

    Thank you for being man enough to take responsibility and for sharing your experience with the reading audience. A very valuable lesson.

    Good luck.

  80. Tony – I think your objective at this point is to get that house sold so you can start over with a fairly clean slate. Yes, there are still people to pay back and all that but get that monkey off your back first! Breathe easier and move forward.

    I am saddened by the number of stories I hear of people who are in a tough financial situation… a mortgage that is too high, car payments, huge credit card debt, computer loans, etc, etc. Why are people willing to commit to so much debt? And when things get bad enough for people to realize it (usually when they can no longer make the minimum payment), why are they unwilling to work extra, sell their stuff, and slowly start to pay things back? And when did “afford” start to equal “make the (minimum) monthly payment?”

  81. just like people have bought into the idea of a diamond for an engagement people have bought into the whole idea that a home is part of the American dream.

    Tony, here’s a thought, let your brother continue to track your progress and road to “recovery” as it were. Nothing like not only having the scrutiny of a family member (although he was a little too nice on you), but 60,000 strangers as well to either prod, encourage, or lash out at you during your movement forward.

  82. Wow. Thanks for sharing that story. It helps to put a human face to the mortgage/housing crisis.

    It’s especially sad to see that after Tony went to an agency to try to get help settling his accounts (the right thing to do) and that agency turned out to be shifty. I anticipate that a lot of Americans are going to be turning to these “agencies” and so many of them are shady and can make your credit worse rather than better. It’s important to go to an agency that is non-profit, and check their credentials. For example, did you know that there is a National Foundation for Credit Counseling, Council on Accreditation? Also, instead of a percentage, some Credit Counseling Services will just take a flat fee, and if it’s a non-profit, they might be able to waive the fee based on need.

    I truly hope that your brother can get out of his financial mess. Let’s hope for his sake that we are in a recession, and NOT a depression. It will help him to get past this sooner!

  83. Tim – The road to recovery tracking is up to my brother. I have know problem with it as apparently I have nothing to lose and everything to gain. As far as him being too nice to me… it is about time!:)

    Heather – I agree with you on getting the house sold.

  84. Tony,

    First, I’d like to say thank you for sharing your story with us via JD’s blog.

    You paid $2800 monthly payments on a home for almost 2 years. Thats about $67000 you’ve put into payments on it (probably mostly interest). If you’d dropped the price more significantly earlier then you might have avoided most of this and not accumulated much of the debt you have now. But then hindsight is 20/20 and it sounds like you got poor guidance from your Realtor.

    What about the price on the home right now. Are you pricing the house right now based on how much money you feel you need to make to settle debts or on how much the house is really worth in todays market? I don’t think you’re being ‘greedy’ by asking a fair price for your home, but sometimes it makes sense to sell for a little less so you can avoid the monthly payments and get the problem behind you.

    Jim

  85. Barb1954- YOU ARE RIGHT!!!!

    How many times can this be said, NO ONE should buy a house for more than 2.5 times their gross income.

    I repeat:

    NO ONE should buy a house for more than 2.5 times their gross income.

    NO ONE should buy a house for more than 2.5 times their gross income.

    NO ONE should buy a house for more than 2.5 times their gross income.

    NO ONE should buy a house for more than 2.5 times their gross income.

    NO ONE should buy a house for more than 2.5 times their gross income.

    NO ONE should buy a house for more than 2.5 times their gross income.

    NO ONE should buy a house for more than 2.5 times their gross income.

    The trouble is most people were too greedy and decided it was OK to break this rule. I do not feel sorry for people who decide to break this rule and get into trouble.

    NO ONE should buy a house for more than 2.5 times their gross income!!

    Said another way, don’t spending more than 26-33% of your take home, NET pay on housing. If you can’t do that, then you CAN’T AFFORD TO OWN A HOME!!!!

  86. Thanks, Tony for the interview. I appreciate your candor. I can only imagine the pain you have been going through.
    I saw that you took risks, but at the beginning of 2006 I might have considered the same without much thought. I’ve learned quite a bit about risk, worst case scenarios, and financial realities the past two years also.
    Take care of yourself and your wife. You can and will get through this.

  87. completely agree with poster #4. Get out of cahoots with the settlement groups and hightail it over to CCCS (consumer credit counseling service). Non-profit.

  88. This is sort of a broad question, but I’m asking this because I don’t really understand. In my adult years, I’ve only been a renter.

    Why do people buy houses before their old ones sell? For example, when people move to a new city, why do they try to buy a house first? Why don’t they rent until they get to know the area better and their houses sell?

    Is it because they assumed their houses would sell quickly anyway? Is there some sort of stigma against renting? What’s happening here?

  89. ya, i heard about those debt consolidation programs.. the ones for profit often kill your credit rating in order to negotiate a better deal between you and the credit card companies; so it means that they ask you for the money, they pocket it, and eventually are able to negotiate you a better financing deal, often with the cc companies taking a portion off of your balance.

    lovely!

    @kacie: yes, there is a stigma against renting; also some folks might be okay with renting their first house out if they have someoe in the original community to look after it, and if it is a strong rental community, they would be able to cover their mortgage… meaning they’d end up with two properties and one that was helping build up their equity… about 5 years ago here that would have been an awesome idea; but with the market the way it was it wasn’t sustainable.. thus … houses not selling.

  90. On the basis that it’s never too late to comment…

    I think this just shows that most of the little people that everyone wants to blame for the subprime crisis didn’t actually make a string of long and stupid mistakes. Well, certainly no more than the rest of us.

    Whilst it’s not a great idea to pay for 2 mortgages at the same time, it’s a calculated risk that pays off sometimes. Not a great decision, but not impossible.

    Ignoring his finances once they started to get worse got Tony into a whole heap of debt, but at least he’s only lost money. Other people ignore health worries, and end up in much more serious trouble.

    Tony hasn’t really done any worse than anyone else – it’s normal to make mistakes, and it’s common for people not to be that interested in finance. GRS’ 60k readers are awesome, but still in the minority.

  91. I was thinking about this last night and I realized what really bothered me was the lack of personal responsibility being assigned to Tony (in this case) and others who blame realtors and predatory lending.

    And Tony, you have accumulated debt and debt to family members now because you didn’t lower the price or aggressively move to sell the house before. All that debt is debt that you decided to take on with the gamble that things were going to work out. You may have also decided you needed a new car and digital cable and an expensive cell phone plan.

    It is difficult to have a lot of sympathy for people who chose debt because they were gambling on something and then the gamble doesn’t pay off.

    There is a different between need and want. I want a new car. However, my car works pretty well even though it is 10 years old and has 100,000K miles on it, and I’m kind of sick of it. So even though I could get approved for a car loan, I made the decision that it is better to not have a car payment, keep my car and start saving for a new car so when I do have to buy a new car (in a year or two when maintenance costs may no longer be a good investment), I’ll be able to either buy a car outright, or the amount that needs to be financed is small.

    There is also a difference between people who decided to gamble and lost and people who have made good decisions and then had something (death in the family, illness, natural disaster) happen that makes it difficult to pay bills and obligations which had been very managable. And this is a distinction that is sometimes lost.

    I hope that the House doesn’t pass the bailout. I’m not interested in continuing to prop up the corporations that led Americans down the path to where the economy is now. Part of the problem is mark to market accounting. This is what Enron did, and one of the reasons Enron ended up being so overvalued. AND PEOPLE ARE STILL USING IT THIS METHOD OF ACCOUNTING AND IT IS LEGAL. So let’s get rid of mark to market accounting and raise FDIC insurance rates, see what happens before we start throwing money at people who have already gambled away everything they had.

  92. Hey Conrad, our house was bought for closer to 4 or 5 times our annual income… yet we only spend 28% of our net income on housing… 2.5 times is a guideline that in some markets Does Not Exist and if, like us you have a lot of money in savings and put down a large downpayment you can buy above the 2.5 x guideline.

  93. Tony,
    Your response shows you’re missing the point. The value of a home is not based on the amount of debt you’re trying to get out of, commission costs, etc. Two years ago and now, you should have priced your house very competitively and on the low side of the market rate to get it SOLD. You were not in a position to maximize profit. It would have been more ethical for you to sell it short of what your hoped and still have a bit of debt to pay off. Instead, you’ve held out for a maximum selling price and chosen to implode your family’s financial situation and do a foreclosure which means you’re expecting the bank and your neighbors to take all of your losses. Not impressive.

  94. Holy crap. This post sent chills up my spine because I nearly did what your brother did a year ago – buy a new apartment, end up having a double mortgage, and crossing my fingers and hoping that my older apartment will sell. I remember a realtor telling me (when I expressed my doubts about having a double mortgage): “Why not? People do it all the time.”

    I’m so glad I did not listen to him. Maybe it’s my parents’ lessons (my parents thought me some sound financial lessons – most important of all: don’t owe money if possible and live within your means), but I backed off.

    Instead, I decided to make the best of my apartment, love it for what it was (I bought it at a steal – at an unbelievable price for a 1,000sqf apartment – and now it’s worth 15% more) and forgot my dreams of owning a beautiful apartment with a city skyline and a posh lobby. Over time, I grew to cherish my place.

    Sometimes it just pays to be content with what you have.

    But on another note, my heart does ache for your brother. I pray that he gets out of his bind. I think some of the commentators were too harsh. People make mistakes; I know I did (I was once 10k in debt).The important thing is to learn from them and improve.

    Best of luck, Tony. I’m sure you’ll come out stronger from this.

  95. “# interwebhunt Says:
    October 2nd, 2008 at 5:42 am

    Sadly this is happening all over the country to good people who just wanted to participate in the American dream. It was proliferated by money hungry brokers who made deals that they never would have made in the late ’80s or ’90s when the market was more sluggish. Greed trumps all, always has, probably always will in a capitalist system.”

    I think people aren’t putting enough blame on the government (with a heavy emphasis on members like Barney Frank and Chris Dodd) who refused to see any “problems” with the way Frannie and Feddie were doling out money and failing to see that the goal of home ownership with lack of standards was dumb and dangerous.

    Now the effects are being felt by everyone and the tax payers who made the RIGHT decisions are going to suffer for it. It ticks me off royally. We were offered more money than we could actually afford and were offered a variable rate on our loan. No thanks. We passed. We made the right and responsible decision.

    It’s not the “Capitalist” system that makes people greedy…there is greed in every system. But the government is just making things worse when they were part of the problem to begin with.

    It’s very frustrating.

  96. Tony screwed up, big-time, and in many different ways. And he’s just one of the thousands and thousands of people who, due to the constant media barrage of “everyone’s losing their house due to this economy!”, they just throw up their hands and walk away.

    And I’m sitting here, living within my means, working basically two jobs (one full-time and one freelance), and I’m supposed to feel sorry for Tony or any of these other lugheads, because the bank offered them more money then they could afford? Hell no. I remember when I got my current mortgage, my wife and I had decent jobs but no savings. They offered us over $150k more in a loan than we could comfortably afford. We both said no to it and spent within our means. Like Tony should have.

    And, did I read it right – he’s got the one house, which didn’t sell for just over $500k, re-listed at $499k now? Uh…here’s a tip: SELL IT AT THE FAIR MARKET VALUE OF TODAY. Not the one you got ripped off for.

    Sorry for the anger. But I’m just tired of everyone telling me how bad the economy is, yet there are plenty of jobs out there, and plenty of loan money out there to anyone with good credit. And as I would hope everyone reading this blog knows already – it’s not very difficult to have a decent credit rating.

    Now excuse me, I have to run to the mall and go on a shopping spree. American Express just approved me for a credit card with no spending limit on it. So I guess that means I can just buy whatever I want.

  97. “Note: Tony knows he made some poor choices, and he blames himself for his current problems. He’s candid that he should have been paying more attention to his finances. But looking back to 2006, he doesn’t understand why the bank approved him for the mortgage on the Bend house before the one in Portland sold. It seems like the bank was betting on that sale, too.”

    This is EXACTLY why our housing market is in such a mess..

  98. The comments about the 2.5x gross annual have me a bit confused. I’m on the east coast (Baltimore / DC), and just the rent around here is nearly 900/month. (Thats with a roommate in a decent, but not great area). That translates to approximately 160 ~ 175k loan for a home (plus taxes). Based on my income, I should only be able to get a 135k home using the 2.5x method. The method would definately keep you responsible, but I’ve been able to save for a down payment and maintain a comfortable lifestyle while paying the rent and utilities. Why wouldn’t I be able to afford the 170k house, if those payments are already equivalent to what leaves my wallet for housing every month?

    I feel like equations and rules shouldn’t necessarily be stead-fast as long as you are responsible with your personal finances.

  99. Chris H., making the monthly mortgage payment is only the start of home expenses. Utilities are always higher than when one is renting — heat, electricity, water/sewer, sometimes garbage pickup. And all those pesky and major maintenance issues that your landlord fixed before — those are now all your problem. (Next week we’re having a new roof put on for $12k.) Depending on the size of your yard, you’ll have outlay for a lawnmower, snowblower, and other lawn and garden equipment. I could go on and on. There are a lot of people with big houses with mattresses on the floors and empty rooms because they can’t afford to furnish the house. In Texas, I believe they call that all hat and no cattle.

  100. Thanks for sharing this story. This situation reminds me how close I could have come to making the same error, if only I wasn’t such a suspicious and paranoid person. 😛

    When my husband and I were looking to buy a home in 2004, we were approved for a loan for over $750k. With an income of $120k a year, we realized that it would not be wise to purchase a home for over $550k, despite the fact that we could have technically been approved for a home that cost a lot more and had a very good amount of put down on the home. We aren’t the most financially savvy people but we could certainly sense that if we went whole hog and purchased a much more expensive home we would eventually end up putting ourselves in financial jeopardy down the line. So, we ended up buying a small two bedroom, one bath bungalow for $525k (we live in California here, folks). It’s cramped and not in the very best section of town but it was a realistic option for us. There is a part of me that finds it hard to believe that all these other people who were offered tremendous loan amounts couldn’t also have figured this out. My sense is that a lot of people are just living in a state of unreality and not accepting what really is. This may or not have been the case with your brother; only he knows that.

    I’m glad you shared this story though. We are now thinking about moving to a larger home and had considered moving into a new place before selling our current home. After reading what happened to your brother, we will certainly hold off on doing that and find a buyer first. I really hope that American learns from this mess.

  101. To PDXgirl, post 96
    To Chris H., post 102

    Both of you make good points. The 2.5x income rule to determine how much mortgage you can afford is far from perfect, but I bet it would keep lots of people out of trouble. Could make a good bumper sticker.

    A better equation would be to limit mortgage/tax/insurance payments to 26-33% NET income. This would leave 66% of your remaining income to pay for all of life’s other needs. One third house, two thirds for everything else!

    My mortgage/tax/insurance payment of $2200 is 22% of my net income, but I know many friends and coworkers who spend 40-50%+ of their net income on housing just to fit into a 3,700 sq.ft. McMansion with only 1 or 2 kids.

    These people broke both the 2.5x rule AND the one third NET rule and no one was there to stop them. Maybe they simply didn’t know such guidelines are out there for a reason…to keep them out of trouble. Other people knowingly break these rules and choose posh lifestyles over financial security. It’s a personal choice (I suppose), but so is suicide.

  102. On an individual level it sounds like a tough situation and a painful lesson. But it’s hard to drum up much sympathy here; I’m one of those who didn’t buy. I’ve rented the same apartment for the last nine years and paid $120,000 in rent in that time, and all my friends would pity me for my less-than-fancy residence (which has 1250 sq ft of space, paid heat, peace and quiet, and lots of sun and working appliances). So now I get to help bail out everyone who can’t pay their mortgage, and bankers with fat paychecks. I lost my job a year ago; no one is bailing me out or helping me in any way. What I want to hear these mortgage defaulters admit is that they knew on some level they couldn’t afford it, chose to believe people who had their own interests, and thought they were entitled to own a home as an American “right” and not a privilege.

  103. Regarding the girl in the story in post #55:

    “My father is on a fixed retirement income of only $3,853.80 a month”

    Since when is a retirement income of almost $4,000/month characterized as “only?” Geez, I’d love to have a guaranteed pension income of $4,000/month when I retire. Newsflash: That’s a lot! Most retirees get a lot less than that!

    “They have a mortgage balance of $145,000”

    Why do they still owe money on a mortgage? What have they been doing all these years? Geez, they probably bought the house when it only cost $30,000, how come they haven’t been able to pay it off after 30 years? And why would they retire if they still owed so much on a house?

    This really sounds like a classic case of people living way beyond their means, and refusing to adjust their lifestyle for a diminished income. $4,000/month (plus the mother’s $800/month retirement income, plus the mother’s part-time work income) should be waaaay more than enough for a retired couple.

  104. This could be my brother and his wife. They pay mortgages on an unoccupied rental house and their primary residence. Neither house is worth what they owe on it. Oh, and they are both “work” in real estate. Ouch.

    Some people call it greed.

    But I’m struck by the blind optimism that underlies these stories. My house is an no-risk investment. It will always rise in value. I’ll be able to sell my house when I want to. A bigger house is what I need and deserve. My income will never go down. I’ll never lose my job. If I move to this new place, my life will be so much better.

    What’s missing is a healthy analysis of and aversion to risk. The equity in my house is just on paper: it’s not real money until I sell my house. My house is worth what someone else will pay for it. I need savings more than I need the lastest gadget or gizmo. I should diversify my investments rather than load up in a single sector that is booming right now. Moving is expensive: Is that the best way to spend my money?

    I wonder if we’ll learn our lesson from this. Or will we go back to our old ways–blind optimism– when the housing market recovers?

  105. Your brother may have a possible law suit against the Realtor for rejecting the offer for him. That is a breach of a fiduciary duty, assuming the listing agreement didn’t give them the power to reject.

  106. Louisa, if you don’t mind me asking, why is their rental property unoccupied? Why not at least try to get something rather than nothing?

  107. The rental house is unoccupied because of damage from previous tenants. Not sellable in this market, not rentable and no money to make repairs. Oh, and it’s located over 100 miles away.

  108. Maybe I’m paranoid but I hate to hang onto a house. I’d rather fire sale the thing. Case in point. We finally finished remodeling my boyfriend’s house. It took 4 years. Rather than hang onto it, we sold it quickly (about 3 days). That way we don’t have to worry about a renter trashing all the brand new flooring, carpeting, walls, appliances, etc. nor will we have an empty house that we have to mow the lawn and maintain (mowing takes 4 hours).

    We took the money and ran.

    In May my mother passed away. Being a bit of a greedy gus, I had my family all pitch in to paint inside & out, replace carpet, fix roofing, clean, and do the estate sale. It took about 2 months (much of it the estate sale). We were able to pay ourselves a nice wage – all non-taxable!

    Within 2 days the house was sold. I sold for $25,000 less than the same house down the street. And it was killer ready.

    Gone. No more worries about paying the gardener (there was a huge garden and the need to for a mower which none of us had an extra) nor need to commute 45 minutes each way to clean, etc.

    Having an extra house is a huge worry and overhead. Unless you want to have rental income and need to shelter extra money, don’t have an extra house.

    Just my 2 cents.

  109. In respoinse to comment #55, the poster whose retired parents have an income of $3800/month:

    Our take-income is right around $3750 per month. We are raising 4 children and expecting a 5th in the spring. We do not receive food stamps, WIC, free/reduced school lunch, heating assistance or any other form of assistance. We are able to pay our mortgage and utilities, buy groceries, pay a car payment, and still put $500/month into our emergency fund.

    Your parents need to sell their home and buy or rent a smaller, more affordable home. They should be able to live comfortably on their current income. They don’t have any obligation to save the house for you and your sibling. If you want it,buy it at fair maket value.

  110. I was in the mortgage business through most of this mess. My title was actually “Director of Specialty Lending Group”. My job was to work with wholesale lenders to create the most flexible mortgage programs on the market. I’m not proud to say it now, but I funded loans where I knew the person wouldn’t be able to make their first payment! Looking back, I should have seen the black hole coming- When prices stop going up and people stop buying, this thing will come to a hault!

    Chris Dunn

  111. Tony,

    Sharing your story is a very brave and courageous thing to do especially exposing yourself to a wide variety of views, negative ones also.

    Having lived in Bend briefly in ’05 coming from the Bay Area there were too many people buying up the homes causing overinflated home values. It’s understandable you got a new job and thought the old house would sell once you bought the new one. I wish you luck with your dillema. Sometimes it’s better to rent and watch from the sidelines how the homes are selling before taking the plunge.

    I hope everything works out!

  112. Tony, I commend you for sharing your story. I wish you luck, and hope you and your family can dig out of this situation and get back on your feet. Kudos to you for sharing this and working through it.

    I just want to point out to people that in many areas, and I suspect Portland is one of them, $415K (even in 2006) would not get you a McMansion. Here in eastern MA, it will get you an older three-bedroom house (actually, back in 2006, an older 3 BR house like my parents’ would go for $500K or so).

    Yes, Tony made some unwise decisions, but haven’t we all? Instead of wagging our fingers and blathering about how these folks should lie in the beds they made, it may behoove us to realize that we’re not perfect and that we’ve all made mistakes, and may make some in the future. Jeez.

  113. “I can’t afford to keep paying greedy lenders exorbitant mortgage payments at the expense of everything else. I should never have been approved for the mortgages in the first place because it was obvious that I couldn’t afford them but the bank didn’t care about that back then. The stress isn’t worth it.”

    You are kidding – right?? The bank is entirely to blame? If it was so obvious you couldnt afford the payments why did YOU take out the mortgage?

  114. I have more bad news for Tony – even if he sells the Portland home for $499k, he is going to have to pay tax on the gain based on his purchase price of $415k as he is not eligible for the exclusion on the gain on sale of a principal residence.

    By his own admission he only lived there from late 2004 to summer of 2006 – less than the 2 years required for the full exclusion. He may be eligible for a reduced exclusion since he moved for a job, but he needs to get himself to a good CPA if he doesn’t use one already.

  115. i think A solution to this mess would be to force the lenders to make a mortgage the borrowers could afford at 1% interest. the bank will still make money. the borrower may have to extend the mortgage but he agreed to buy at that price. if the borrower still decides to let it go, he should face the consequences( bad credit, extra taxes due to short sale, etc.) instead of me having to pay higher taxes to let others off the hook for their bad decisions. I have made my own and still do. but i pay my debtsand am trying to turn my financial situation around.

  116. I think this is another open and shut case of, “Don’t buy things you can’t afford.”

    Just follow this rule and a huge chunk of America’s financial problems go away.

    Seriously. If you can’t afford to buy or make payments on something, why get it? What’s going through your head?

  117. Adam, a lot of this had to do with his house not selling. It was reasonable for him to expect a sale, as it’s reasonable for everyone with a house for sale to expect to be able to sell it; it was not taking the offers he received that got him into this.

  118. I’ve had realtors play games to ratchet up offers, and have reached a point where we insist on making a written offer. Which the realtor is legally obligated to give to the seller. We did that once. The sale fell through for other reasons but the realtor told us they wouldn’t accept our offer and we insisted on making it anyway.

    Only realtors know the difference between a verbal offer and a written offer and they use it to jerk you around. And … I’m in New York City where $415,000 will get you a one bedroom apartment six blocks from the subway.

  119. I wound up buying when I didn’t want to – just BEFORE the bubble burst. I bought because no, it ISN’T always better to rent – not when the owner of the building sells it out from under you without warning. I paid more than I wanted to, even with putting down a good chunk of money, but even if I had to sleep on a mattress on the floor, it would have been better than not knowing where I was going to put my mattress. So I suck it up, KNOWING that I’m paying more than I should, and having to be grateful that I was in a position to buy. C’est la guerre.

    For the folks at #55, if you want to keep the house you grew up in, buy it. My brothers and sister are sharing the house we grew up in; it’s doable.

  120. Wow, it’s interesting that the bank would give him another loan before his first house sold. We were very lucky, we went with a small well-established local lender and they flat out would not give us a loan until our house was completely sold. We may have been silly enough to go ahead and buy the new house we loved without closing on our first one if they had. I am glad they were “looking out for us” in a way.

  121. Not everyone is irresponsible and takes on loans they can’t afford. I chose to buy a smaller place in a great area in a big city (Chicago) while my friends were buying huge places in the suburbs. My realtor was told my budget was between 130k and 150k and showed me places only within it. I chose something in the low 130s and have not regretted it. Because I was self-employed I needed a no income verification loan and was shocked at how much I needed to prove in order to get it. I wonder how happy the bank is for approving me and me not turning into one of these people that couldn’t pay! While I lost my job, I had some money in savings and took a non-dream job in the meantime to ensure I could pay my bills while the economy settled, since my self-employment depends on a good economy and consumerism 🙂 There are honest realtors and mortgage lenders, and it is up to you to find them as well as educate yourself. My parents were poor and never taught me any financial knowledge, so I taught myself like JD.

    Tony you can get out of the debt once you take responsibility for your actions, stop trying to gamble and profit and maybe take your brother’s advice on thrift. You made mistakes. Move on and learn from them.

    Hopefully the crisis will pass, but I doubt people will ever learn to spend less than they earn.