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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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?
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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…
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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.
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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
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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:
There are obviously deeper problems here that must be resolved, but this is another example of the crises people are facing every day.
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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
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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!
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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
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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….
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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.
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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
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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
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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.
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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.
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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.
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“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.
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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.
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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?
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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
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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.
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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.
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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.
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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.
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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?”
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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.
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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!
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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.
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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
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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!!!!
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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.
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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.
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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?
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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.
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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.
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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.
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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.
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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.
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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.
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“# 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.
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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.
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