To Prosper Again
-by The Mysterious Flying Miser
Recent headlines have made much ado about homeowners who tap themselves out trying to pay their mortgages and keep their houses. And recent spending has been aimed at helping them do it. An oft-repeated premise behind this action has been that homeowners must be saved from the only tyrannical outcome of foreclosure, a fate on par with homelessness: renting. But is this assumption valid? Are we really helping homeowners in this environment by encouraging them to pay their unaffordable mortgages? What exactly becomes of them once they leave their houses? Do they die, or are they …better off renting? The truth may shock you.
In 2005, Robin Kerr Drulard was a real estate investor, so she bought an apartment in Hollywood, FL. Her monthly mortgage, HOA dues, and maintenance set her back about $3,000/month, but she was sure she would make a profit by holding the property for a short while before selling it at a higher price. By 2008, the 1-bedroom, 1100 sq. ft. ocean-view apartment had lost much of its value and was foreclosed upon. She lost her entire down payment of $36,000, along with $300,000 that she put down on multiple other investment properties, and will declare bankruptcy at the end of this year. She will also lose a small cottage in upstate New York as a part of her bankruptcy.
But 53-year-old Drulard says that life is better since she got out from under her onerous investment properties and began renting a nicer apartment across the street. Her new 2-bedroom, 2-bath, 1700 sq. ft. apartment with wrap-around views only costs her $1500/month, which means she can save money, live comfortably, and work on her new business that helps people save money. When asked how she feels about her future, Drulard states “I feel great! I learned a lot, crashed, burned, came out alive, and I am ready to start fresh and prosper again.” She also thinks that, with foreclosures becoming so common, “if landlords don’t want people with damaged credit or a foreclosure on the records, they will lose their whole rental base.” Drulard’s husband shares her optimism, but she says that many of her family and friends are less understanding.
Brad, a 33-year-old San Diego resident and electrician, bought a condo with his wife
in August of 2005. The monthly mortgage and HOA dues on the 684 sq ft unit were $1867/month. By June of 2009, the value of the condo had dropped precipitously, so Brad arranged a short sale. The loan payments, initially requiring them to pay interest only, cost them $700/month above what they could collect in rent.
By the time they sold the condo, they had a 14-month-old and another on the way, so Brad was happy to have the 3-bed, 2-bath house he rents today, paying $2,125/month. Brad was not required to make a down payment, so the only thing he feels he has lost is his good credit. “Our life has definitely improved lifestyle wise. However, there are a lot of credit ramifications that we didn’t anticipate; such as the credit card companies monitoring your credit and lowering all your limits because of any negative marks, regardless of (your history with) the creditor lowering the limit. …Another reason (I feel my life has improved) is that we were covering the negative balance of the rent coming in. We were paying an extra $700.00 a month in hopes that we would get a loan modification. We wasted a year and a half spending that extra money, and that’s one of the reasons we’re in the debt we’re in now.”
Brad’s advice to anyone else in his situation: “I hope others out there that are underwater give up the ‘loan modification’ route. It is a waste of time and the banks are not as willing to work with you as they say they are. The best thing to do if you foresee a shift or loss of income is get the hardship documents into the bank ASAP. Get approved for a short sale before you list the property. That way, you can advertise it as an approved short sale. You will end up with multiple offers, and you won’t make a potential buyer wait while you wait to get a final approval. There is really no quick fix for the upside-down home, but if you are considering a short sale, then get the paperwork 100% complete before you send it. Otherwise, the process is delayed by weeks. That was our experience and we were lucky to have the buyer stick it out with us; we would have had to go into foreclosure otherwise.”
A 58-year-old retired biomedical researcher and freelance writer, Sue Chehrenegar bought a house with her husband in Culver City, CA in 1987 with a 30% down payment. They refinanced the 3-bedroom, 2-bath house several times, and then sold it in December of 2006. She went through a grieving process when they sold their house, and still keeps in touch with the real estate agent. “I felt sorry for my granddaughter,” says Chehrenegar. “She and her parents stayed in our home from May of 2006 until January of 2007. She was almost walking when we sold our home. I never got to see her playing in the yard.”
But Chehrenegar was able to use the money from refinancing to cover added and unanticipated expenses in her retirement, and to help care for Mr. Chehrenegar’s mom without accumulating debilitating debt. She also made enough profit from the final sale to cover 10 months of rent on their new apartment. She says that her life today is much like her life 30 years ago, and “As long as I have a computer, and as long as I can keep writing, I feel that I have some control over my future.”
