Magnolia Street Part 3

Now, a bit about the things we had to consider before we made the choice to go the foreclosure route:

1. Arizona is a non-recourse state, so we knew that the mortgage company could not come after us for the difference between what we owed and what the house eventually sold for.

2. According to our real estate agent, the average length of time a short sale was on the market in our town before it was approved for sale by the bank was 18 months. The market was just utterly clogged with them.

3. Because we now had two different mortgage companies any short sale would have to be approved by both, which would add time on to the whole process. Given that there seemed to be zero communication between the two companies, I was not encouraged by this development.

4. There didn’t seem to me to be a lot of credit score advantage to the short sale vs foreclosure route. It seems like most of the damage to the score happened from the past due mortgage payments. By this time my credit score was already down 100 points or so.

5. The deed in lieu option was the one that we had the hardest time getting accurate information about. It sounded good, in theory, but we could never nail down what kind of tax implications it might have.

We weighed our options and decided that, at that point, our main goal was to be done with the whole blessed mess. Foreclosure seemed like the quickest and surest way to do that. We let the main mortgage company know and continued to basically ignore all the past due notices, registered letters and scam mail we began to get (oh, the scam mail. If you go down this route you will get tons of mail from shady places saying they can “help save your house” and “protect your credit”. These people are lying lie faces).

It is interesting now that we are done with the situation how blurry the timeline on all of this is. I think it was about 9 or 10 months from when we stopped paying the mortgage to when the house was officially foreclosed on. I would say the worst time, in terms of phone calls from the mortgage company, was the first three months. After that it was a pretty quiet experience in a lot of ways. I never felt harassed. Nobody called me a deadbeat or yelled at me. It just seemed like, well, what it was: a business transaction.

I want to say something here about the “moral” aspects of all of this. I know that there are some people who think that walking away from a home when you can technically still afford it is morally wrong. I don’t agree and part of the reason I can talk so openly about this experience is that I don’t have a sense of shame about it. I still feel disappointed that it worked out the way it did, but I’m not ashamed. In my mine we met the terms of the mortgage contract. We lived up to the agreement with the bank. A mortgage is a contract that says, basically, if  you (Monkey family) pay X amount on time each month for 360 months you will get to have this house (option A)  If you don’t, you don’t get this house and we ding your credit score (option B).  You have two choices. We chose B.

What also probably helped us deal emotionally with all of this is knowing that what was financially best for our family was very, very clear. I happen to teach financial literacy classes so I could calculate all the lost savings we’d be facing if we didn’t do this and could not justify it. We were also in the place where we could say, eh, we probably don’t need a lot of credit for the next couple of years. We don’t plan to buy a house again for a good long while and, frankly, we now have healthy savings so there are few problems in life that you can’t solve as easily with cash as you could with credit.

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So, what happened after the house wasn’t ours anymore? A couple of things worth sharing:

– the house eventually (after months and months and months on the market) sold for just under $100,000. More than a 50% drop in value in less than 5 years.

– When it was all said and done, my credit score had gone down almost 200 points and Mr. Monkey’s went down about 120 points or so. I still officially have “bad credit” but my score has gone up about 80 points in the last year.

– The most annoying outcome was that my credit card company (the one that I had once owed gobs and gobs of money to) cancelled one of my cards and dropped the credit limit on the other to a ridiculously low level. Mr Monkey’s credit limits didn’t change at all so we still have his for emergencies. Depressingly, the credit card companies were much more willing to lend me credit when I was in debt up to my eyeballs. A lowered credit score for someone who doesn’t carry a balance= major reduction in credit line (we are talking like a $28,000 reduction).

-Another semi annoying thing was that mortgage company #1 never told mortgage company #2 that the house was foreclosed on and sold, so I finally had to break the news to them myself after still getting random bills from them for the next half year. This did not give me a sense of confidence that they would ever have been able to figure out the short sale between the two companies.

– About six months after the foreclosure we found that we needed to replace our ancient car. We went to two dealerships. One would finance us, one would not. The one that did gave us a 2.9% rate, which we were very pleasantly surprised by. Part of the good rate probably came from the healthy down payment we put down but still, better than expected.

– I have zero regrets about our decision. Well, not true, maybe one: I wish we had done it sooner. Knowing what I know now, I think we should have pulled the trigger sooner. But I think we took the time we needed to feel good about the decision and I can say with certainty that we are in a much better place financially than we when we started this process, even though my credit score still kind of sucks.

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Bless you if you made it through this multi-chapter saga. If you want to know anything else, please feel free to ask in the comments. I’m glad to talk about it and hope it helps someone someday.

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6 thoughts on “Magnolia Street Part 3

  1. Leandra says:

    Your story sounds very similar to mine except that we maxed out our IRAs and all our savings trying to “save” our house. Later I read an article that said not to do that, but I *was* ashamed (tho not anymore) about what was happening and I was trying to be a good little consumer. So, now our retirement is in the crapper so to speak. Also, we had a short sale offer that the bank rejected. Ironically, the house ended up selling on the courthouse steps for LESS than the short sale offer. I was amused by that, I’m not going to lie. Suck on that, Big Corporate Bank.

    I was really frustrated early in the process by how unwilling our bank was to work with us. I called them and basically said, “Look, we’re about to be in trouble. Can you help us?” and they said “No. We can’t help you until you’re past due.” How effed up is that? If they had been willing to work with us in the beginning, we might not have had to foreclose.

    We did want to own a house again and I’m happy to say that within three years of our foreclosure we were able to buy again with a very low interest rate. I think a lot of that had to do with the fact that we spent the interim paying off all the rest of our debt and saving like crazy, but it feels good to know that’s all behind us now. And our credit score is back up. 🙂

    • Wendy says:

      It is really insane isn’t it? Nobody wants to help you unless you are behind in payments. There is just no good option when you are current on payments but underwater and wanting out.

      I also believe that we’ll be able to own again in the future, when we want to. For now renting is just fine and I love to see our savings grow.

  2. pseudostoops says:

    This is so, so good. Good on you for writing about it so clearly and honestly. I think the emotional/moral/shame stuff makes it very hard for a lot of people to get information and talk about what they’re dealing with, when really it is just as you say: a business transaction.

    • Wendy says:

      I think people have such a hard time setting aside the emotions of home ownership and that leads to financial decisions that are just not great for the long term. We want to do what is “right” but right and going broke just to save face/credit scores are not the same thing.

  3. sarah says:

    I’m a new reader but wanted to say this series of posts is awesome. We weren’t in the same position exactly since we were still LIVING in our house, but our experience was similar. Our house had lost $150K in value, we couldn’t afford the payments anymore, hubby’s hours were cut the week before we had a baby, recession, etc. We couldn’t afford to stay, couldn’t rent it (since rent would have been WAY short of mortgage payment), and lender refused to work with us. We couldn’t short sell it because it needed lots of repairs and market in our area was terrible (lots of other perfectly good houses to buy). After attempting to make a deal, we walked. We got cash for keys (since we were still living there), moved into a rental that is bigger and in a better area. More than a year later, the old house is still on the market, now at $200K less than our prior mortgage. The relief that it is no longer our problem is immense.

    • Wendy says:

      Welcome! We have that same sense of relief. The worrying about what to do was so much worse than the finally doing something about it. I’m just glad to be done with it all and I hope the new owners love that house as much as we did…especially since their mortgage is probably only $400-500 a month!

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