Wednesday, February 29, 2012

Day -1: Introduction

Hello everyone. Welcome to our brand new blog. My husband (Cory) and I (Jane) plan to keep this updated as we progress through our foreclosure.

Foreclosure seems to be something that nobody wants to talk about, and that nobody wants YOU to talk about. Especially the mortgage companies. But with the influx of foreclosures going on the last few years, and the rampant mismanagement of those foreclosures, maybe it's not such a terrible thing to talk about anymore.

So I'll be talking about mine. I'd like to start with a few disclaimers. First, any and all information in this blog may not be applicable to you. Everything that I'll be undergoing is subject only to Washington State law. Your state has entirely different laws for mortgages and foreclosures and you should not expect them to be the same as mine. Second, I'm not doing anything wrong. There is nothing wrong with a foreclosure or talking about foreclosure. Lenders just don't like them, and they don't like people talking about them. So I'd appreciate if you helped me keep this under wraps. I'm aware it's public, being on the internet and all, but as long as nothing can tie this blog to my name or address, my foreclosure will go a lot more smoothly. Lastly, I don't intend this to be instructional or terribly informative. I'm pretty much entirely creating it to help my friends and family worry about me less, and know that I'm alright throughout the process.

Let's start!

I'd like to call today "Day Negative One." Tomorrow, March 1st, will be the day that my mortgage payment is due and will be the first time, EVER, that I've missed a payment. On anything. I've prided myself on being incredibly responsible with my money. I'm proud of my spotless credit score. I'm proud of not using credit. I'm proud of having savings that keep me comfortable. I've worked for all of those things in my life and have been lucky enough to be able to keep them.

Tomorrow will be a big day for me. Missing a payment with the full intention of never paying it. Come March 2nd, "Day 1", I will be on my way towards a foreclosure, even if the bank doesn't know it yet. I'll keep tabs on what happens when, what I'm expecting next, and how it's going.

Before I get there though, I should explain how I got here.

In the last couple months, I really started realizing how far underwater my sad little condo was. Based on the recently sold units in my complex, I'm at least $80,000 underwater. It suddenly felt like a huge black hole that would swallow up all my money if I didn't escape from it. Staying here was never a long-term goal. I bought the condo in 2008, shortly after prices hard started dropping. I thought, "Hey! Great! Prices are down. Mortgage costs the same as rent. I should buy!" And it was an alright decision at the time. I had no way of knowing that prices would continue to sink forever. I thought my 3% down payment, plus a few years of paying the mortgage would leave me not much worse for the wear. I'm now approaching four years since that decision and I want out. I'm 80,000 worse for the wear and counting.

This black hole of a condo kept creeping up on me. It kept me up at nights - I wasn't sleeping well. It would depress me at the most random times. It would make me tear up just talking about the house I would've liked to have had with Cory but that we'd never be able to get. Our options looked like this:

1) Sell the condo and pay off the balance of the loan. We'd have had to sink thousands of dollars in to the place sprucing it up, improving, repairing, and crossing our fingers hoping that ours sells before the neighbors'. After that, we'd have to scrape together the balance of the loan out of our savings and retirement accounts. We'd end up broke, damaging our retirement, exhausted, and potentially stuck trying to move a house that nobody wanted.

2) Grin and bear it. Live here till the cows come home. We'd have to stay in our sad little condo, with the tiny kitchen, with rickety steps, with grumpy HOA board members, with loud neighbors, with a parking lot outside our bedroom window, with the interstate beyond that, and with no joy left in being here, feeling trapped. There would still be 26 years on my mortgage, and far too many of those would be required to be spent in the condo before the price came up enough and the principal on the loan came down enough, that we could afford to leave without causing Option 1. According to an internet amortization calculator, and assuming a 1% yearly increase in value of the condo (that's a little optimistic), it'd take me until 2029 to actually have a few dollars of equity. 2031 if the value doesn't increase at all. Far longer than I want to live here, at any rate.

3) Contact the bank and negotiate relief on the mortgage. That would mean a short sale, or a deed-in-lieu-of-foreclosure, or a refinance on the loan terms. For the short sale of deed-in-lieu, we would have to talk to the bank. Having not missed any payments yet, they would have no reason to give us any relief. They'd just say that obviously we can afford to pay (or else we'd have missed some payments already), so pay. If they were willing to consider relief, we'd have to show them our finances. Only my name is on the loan, and I've been paying the mortgage out of a bank account solely in my name, but because we're in a "common property state" all the payments I've made, all the money I've made, are half my husband's, and vice versa. Showing the bank our finances would be the worst thing we could do, because they'd be able to see that we do have those savings, and they'd either refuse us relief, or they'd take the savings. Neither is a good option. The last option, refinancing, does not require that we show the bank our finances. But it would only be beneficial if we were intending to stay in the condo long enough to realize any value. Refinancing costs money up front, so it'd take a couple years to earn back that cost in the lower interest rate we'd get. And then many more years to buy the loan down to near the diminishing value of the condo.

That leaves:

4) Default. Just stop paying. Do nothing and let it all happen. Suffer the consequences and get the albatross off my neck. It seemed the only remaining option to me. I don't want to be here. I don't want to lose our combined life savings because of one bad decision. I don't have the ability to sell the condo and continue paying down the mortgage because it's not allowed per law. Mortgage loans have to have a property as collateral and two people cannot have a single property as collateral, especially when only one of them would actually own it. Every other investment, you're able to cut ties with it when it's no longer making you money.

I decided foreclosure was the route for me. A strategic default was my best chance at protecting my financial future and to sleep through the night. But Cory wasn't convinced. I had done all this internet research on my own. Generally late at night when he was asleep and finances were keeping me awake. So he was still hours of research behind me, and trying to catch up. He still held out hope that one of the options was better.

I tried getting as much help as I could from non-internet sources. I tried talking to two mortgage companies (neither was the one I actually had my mortgage with), a tax adviser, and emailed some lawyers. In all cases, I either got radio silence, or "go talk to a lawyer." So, finally, Cory and I decided that we had to go sit down with a real lawyer, pay the guy, and get his advice. It'd be the only way we'd both get up to speed, and that we'd feel informed enough to make such a huge decision.

Last week, Day -7, we met with a bona fide real estate lawyer, paid him a flat rate to talk to us and answer all our questions. We'll even be able to send him copies of all the documents that show up at our door, he reviewed our entire mortgage contract, and he wants to keep tabs on how we're doing.

We talked for an hour. The conclusion was to default. 100% just do it. And do it soon. Specifically because of our savings, we should have no communications with the bank. They cannot get our financial information in any way other than asking us for it, or suing us. They'd have no reason to sue us as there's no current indication that they'd get any value out of it. It's "unheard of" for lenders to sue over a sad little 2 bedroom condo in our area. Worst case, if they do decide to sue (that really would be the worst case scenario now), he'll be available to represent us and won't let it come to a judgment against us. In that very very worst case, it'd mean the bank can take the condo (that's not so bad) and then take the balance of the loan in any way they can - like our cars, savings, etc.

The lawyer did warn us that my credit score will be ruined for seven years. I will not be able to get credit anywhere. But because so many people are ending up with terrible credit scores just for getting caught up in the mortgage bubble, a low credit score isn't as bad as it used to be. We should still be able to rent an apartment just fine, especially if we warn the owner up front that my credit is low only because of a foreclosure. And Cory's credit won't be affected at all. Since the loan is not on his credit history, his credit report can't change.

I was a little bummed to hear that we really should stay in the condo. I was sort of looking forward to moving out. Getting a new place. Having a bigger kitchen. Having more new views for the cat to look out. Having windows on more than one side of building for cross ventilation! But, the reasons for staying are rather important.

A) It's rent free. However long the bank decides to take, I pay them nothing. So my monthly spending is now reduced by $1200 a month, and that's great. In Washington state, foreclosures take a bare minimum of 8 months. And my bank is not known for its speedy delivery.

B) Speaking of speed, the second reason is far more important. March 1st + 8months = November 1st. Bare minimum, we won't have a foreclosure document stapled to our door until November. Currently, there is a federal bill that says all forgiven mortgage amounts are NOT counted as income. But it expires at the end of this year. So if our foreclosure doesn't happen by December 31st (which it 99% likely won't), we might be taxed on $100,000 forgiven (the lawyer's estimate of how much we're actually under). $100,000 more income to pay taxes on is a LOT. Hopefully congress will extend the bill and allow 2013 foreclosures to be included, but there's no way to know. If we move out before the foreclosure and that bill is in effect, it will no longer apply to us, because the condo would no longer be our "primary residence."  Might as well hedge our bets and hope that either we're out quickly, or the bill is extended. The way we're looking at it is that we'll have saved at least $12,000 by not paying the mortgage for the rest of this year. If we have to pay $20-30,000 in taxes, at least we'll have good headway on getting that sum together.

I really hope it doesn't come to that. I'm doing all this to try to save us money. But, if it does, losing $30,000 in taxes is better than losing $100,000 owed on the loan, or $300,000 if we pay the mortgage for full 30 years. I do accept that my credit will be ruined. I do accept that we'll probably be renting for at least the next five years of our lives. And I do accept that some people will think we're being selfish. But this is the best financial move for me and Cory. We're making an informed decision; we'll recover from it eventually. And I want off this sinking ship before it goes down with me.

Consequently, I'll be keeping you updated on Schrödinger's House. Is it foreclosed yet?

- Jane