After eight unsuccessful months trying to sell our Somersett McMansion for $525,000, we raised the price to $572,000. No, we’re not crazy. The bank is.
For those who may not know me, I started this blog in late 2005. I was also a Realtor, a top producer in my office even as the downturn began to take hold, thanks largely to the success of this forum.
But in January 2008, a full pipeline of possibilities dried up almost overnight when banks stopped lending.
Thanks to my compulsion for examining local sales data every month looking for truth rather than happy-talk, a commitment to considering dissenting opinions on my own blog from so-called naysayers, and a curiosity beyond our local market into larger macroeconomic issues… I recognized the wake-up call.
Real estate had hit an iceberg. Reno, Vegas and a bunch of boomtown cities in Florida, California and Arizona were the strike points. Intuitively, it felt like the Titanic. I happened to be on deck watching events unfold, I knew the ship was going down, and if I didn’t find a lifeboat, my family would drown.
As the primary breadwinner for my household at the time, I realized that unless I morphed into Short Sale/REO Listing Queen (not a good match for my skills, interest or sanity) more and more of my time would be wasted, spinning wheels on fruitless activity in a declining market where I’d be lucky to make minimum wage after scrambling night and day. This was not the life for me.
I sat the hubby down for a serious talk. He’s a high-level software development architect who never, ever found employment locally… his periodic consulting gigs and start-up opportunities were mostly Bay Area-based.
I said, look, this market is melting down. I can no longer support us. You need to get back into high tech full-time, even if it moves us to Timbuktu.
Of course our preference was for a telecommuting option that allowed us to stay, but it was more important that he maximize security with a steady job, good pay and full benefits if we were to survive these next few years. Otherwise, I could see it’d be a slow and painful descent into bankruptcy, foreclosure homelessness and destitution.
Real estate agents are independent contractors, not employees. There’s no 79-week unemployment check (or whatever the benefit is now) waiting for us at the end of the rainbow. If business dries up, we have to figure something else out.
We also work on contingency, meaning we work for free in hopes that your best interests lead to a deal that actually pay us for our efforts in the end. It takes a lot of faith, confidence and chutzpah to work like this, not to mention a sharp instinct as to the probability around what might work and what won’t.
I could only see the odds getting worse.
After a lengthy job hunt, the hubby came through with a great offer from a big, stable, well-managed company working on something entirely new, but the job required that we move back to the Bay Area at our own expense. Telecommuting was not an option.
Since our house was worth significantly less than we owed, a short sale seemed like the right thing to do. We chose a short sale specialist as our Realtor, who informed us that to even get the bank to talk to us we had to be behind on our mortgage payments, so we stopped paying in May.
We listed the house for $545,000 and two weeks later got two offers at about the same time. Both were for around $500,000. We presented the least encumbered offer to the bank. The bank took 3-4 weeks to finally respond. They said they wanted more money. I think they were looking to net $525,000, which meant the price would need to be around $570,000 to cover expenses.
I wondered if they were getting their valuations from Zillow, whose algorithms think my house is worth far more than real people with money will actually pay. But no, an actual appraiser came out and told the bank who-knows-what.
The first buyer said no way and walked. The second buyer also walked. I’m sure they all laughed over dinner. So the house was back on the market in early summer.
We received a couple of other offers as the weeks wore on, but before the bank could respond the buyers withdrew. One because of last year’s earthquakes. The other gave no reason, they just spooked and ran.
By the end of the summer I was thinking this thing would never sell, and it would be Foreclosureville for sure. We formally requested a Deed in Lieu of Foreclosure in writing from the bank but never heard anything back, so I guess they weren’t interested in that option either.
Then along came Miracle Cash Buyer, who also offered $500,000. And bonus, he could close in two weeks.
I knew this was as good as it gets. If the bank didn’t take this offer, it was game over. Prices would continue to fall, no one would ever offer anything more, and our beloved albatross was destined for the courthouse steps.
Every short sale offer entails a mountain of paperwork for the seller (not to mention the agents), which meant, for the third or fourth time, I had to update numerous forms, provide up-to-the-minute paystubs, financial statements, updated tax returns, hardship letters and other paperwork that had to be copied, faxed, emailed, signed, notarized and mailed with receipts so that we had a paper trail in case something got lost.
In the beginning you don’t mind because you naively think it will all work out, but as time goes on and you hit the bank reality wall of no or inexplicable response, you become ever more grumpy, cynical and less apt to respond as quickly because some large institution staffed by overworked, underpaid employees outsourced to India obviously doesn’t give a crap, why should we?
I feel for the agents involved. They put up with so much BS from these giant bureaucracies in hopes of getting buyer, seller and behemoth, disinterested third-party together in hopes of maybe getting paid for their services, which they often don’t. I wonder how much longer their good faith will last.
As the bank sat on our paperwork, Miracle Cash Buyer ended up selling his primary residence more quickly than expected and asked if he could rent our house until the bank made a decision, because we all knew this could take forever. At least this way he could settle in and wouldn’t have to move twice.
We said sure. As we’re still on the hook for property taxes, special assessments, the HOA, maintenance, repairs, winterization and all the rest, it would help offset these expenses while the bank spent possibly months making up its collective mind.
But it turned out we couldn’t do this. Nevada Law considers renting your home while in default on your mortgage, fraud.
Okay, I get it. If we collect rent, banks should get all of it (market rent, by the way, would be only about half our mortgage payment anyway).
And yet, as banks dilly-dally around, not responding to live people who want to give them real cash to take losing assets off their books, we the people are still on the hook, waiting in limbo, racking up penalty fees, as they the banks get bailouts from Washington on the backs of us the taxpayers, now and for generations to come.
Oops, sorry, I digress…
After two months of waiting, the bank finally responded. And though five months had passed since the last offer in our steadily worsening market, not to mention moving squarely into the slower fall season, they came back with the same number. They needed to net $525,000.
Their negotiator I guess wasn’t interested in counter offers because she failed to return multiple phone calls from both agents. If Miracle Cash Buyer didn’t come up with their number in seven days then she would close the file, end of story.
Well, you can imagine the MCB’s response. So the house is up for sale again, this time at the bank’s price including all transaction costs, thus the $572,000 price tag.
Our esteemed lender, American Home Mortgage, was one of those high-flying superstars back in the day, and one of the first to succumb to bankruptcy in August 2007. American Home Mortgage Servicing is the servicing arm that collects payments and determines how they’ll work with troubled borrowers, if at all. Go ahead, click on the link and scroll down to the customer comments… that’s the best part.
I’m sure that AHMSI won’t take less than $525,000 because it’s more profitable to foreclose on my house and stick it to the investors who bought my sliced, diced, and tranched-to-the-max Alt-A loan with all the extra fees they can legitimately charge per the terms of their contract. I understand. They’re a business, they survive on profit.
They don’t care about helping underwater homeowners or investors who bought their bankrupt parent company’s crappy loans by liquidating the underlying asset now, while it’s still worth something, as opposed to next year when it’s abandoned, run-down and worth far less to everybody in the transaction and the community. AHMSI doesn’t care because there’s no money in it for them, totally understandable.
So think about that. The real reason lenders rarely cooperate with short sales and generally prefer foreclosures is because they make more money with foreclosures. Read this report from National Consumer Law which explains everything in excruciating detail.
Lots of people get all wrapped-up in morality issues with their mortgages, but really, it’s a legal contract with ramifications for non-performance. Due to economic circumstances beyond our control, we were no longer able to perform on our contract, so we accept the penalties per the agreement. The credit hit on our formerly pristine scores is a painful but acceptable loss.
We will not be able to borrow money to buy a home for years to come, fine. I never want to borrow another cent as long as I live anyway, so who cares. Lesson learned. If I don’t have the cash to pay for something, then WOW, maybe I shouldn’t buy it.
When you strip away emotion, it’s a simple business decision, a rational choice, much like the commercial property owners who choose not to pay on their obligations to force a workout, or my very own bank that chooses not to cooperate in a short sale for less than a certain amount.
I am not too big to fail. In fact, I prefer to accept my failures immediately, sort them out pronto, take my penalties and move on. Sometimes it’s better to puke it all out.
Right before Thanksgiving, AHMSI finally recorded our Notice of Default, almost three months late. Okay, at least we’re moving forward.
But given what’s going on in our country, I can’t help but wonder… does this former superstar bank and/or its assigns still have my original note? They no-doubt tossed my vintage 2006 loan into the MERS paper processor to be sliced, diced, tranched and pooled into some amazing mortgage-backed security sold to big-name investment banks then resold to mystery investors worldwide in a cloak of confidentiality. But who REALLY owns my loan? Can they produce the note? And if not, do they have the legal right to foreclose?
Before Miracle Cash Buyer finally walked, we learned that our second, a HELOC, which was only about a third drawn down for the sole purpose of landscaping the backyard as required by the HOA (SNAP! I should have bought exotic vacations and a brand-new SUV) was unwilling to cooperate with a short sale because they noted on our financial statement that we had some modest retirement savings and a brokerage account set aside for our kids’ college education (both of which, by the way, are severely underfunded for their intended purposes, still working to build those). So even if MCB had miraculously come up to the bank’s number, our HELOC, originated with American Home Mortgage then quickly sold to GMAC soon after origination, would have refused to cooperate anyway.
(Hmm, GMAC, sounds familiar… Didn’t they just get another nice, big, fat-ass American taxpayer bailout?)
Yes, locking ourselves into the purchase of our shiny, new American dream home in 2004, then waiting a year and half for the developer to build it, was a bad financial move in hindsight. We did not see the train wreck coming. We planned to live there for at least 10 years until the kids went to college, but, you know, life has a way of throwing curve balls when least expected.
We lost $100K in real money on this house, which is 100% of our equity investment. I’m not counting mortgage payments, taxes, assessments, HOA, maintenance and the other costs/tax benefits of living there. I’m just counting cash into the deal, not refinanced out.
You might think that given we’ve lost 100% of our investment, the primary lender would be willing to write off 30% to get their 70% back now, before the market further deteriorates. And you might think the second, entirely junior to the first, would take 10% rather than nothing. After all, as I understood it, these were loans were secured against the property as collateral. These were not personally guaranteed loans, an entirely different contractual animal.
But, these are the banks’ business decisions to make, so I must accept them. We’ve tried to do the responsible thing to bring the matter to resolution. If they don’t want to play, so be it.
I guess our next best option, since the primary has refused to accept three good offers in more than half a year’s time, and since the secondary doesn’t see any reason to cooperate, is to request mediation through the new State of Nevada Foreclosure Mediation Program. Part of the process requires that the lender actually show up with the original or a certified copy of the deed of trust, the mortgage note, and each assignment of the deed of trust and mortgage note, with the goal being some resolution other than foreclosure. I’ll keep you posted on how it all goes, but thanks in advance to local lawmakers for even organizing this option… I’m glad someone still cares about the individual taxpayer.
I was taught in the fourth grade that we have three branches of government, each designed to balance and check the other. Unfortunately at the federal level, it seems that the Legislative and Executive Branches of our government have been bought and paid for by big business, lobbyists and other special interests. Maybe the Judicial Branch, that one place still seemingly beyond buyouts, bullshit and bailouts, can stand up for the American people and bring back the integrity of our Constitution.
I voted for change, but I see no change. I fear that we as a country have gone so far astray, only a total and complete economic collapse ala Soviet style will flush the system and allow the reboot that we so desperately need.
Regardless of how my personal situation ends up, however, this blog has saved me, and I can’t thank each and every contributor enough for their insightful conversation over the years. You taught me to question assumption and to see through faulty mental models. You opened my eyes to subtle economic realities churning beneath the surface, pointing out causes that would lead to unimaginable effects, which we are only now beginning to see today. You gave me the gift of insight.
Thanks to you, I now recognize the voice of truth.
Nobody wants to admit that our country is bankrupt, that government spending is out of control, that our debt to foreigners is so large as to be incomprehensible, that we as a nation are losing influence worldwide, that the value of your dollar is dropping rapidly and will continue to drop more and more precipitously as the government prints more money to pay for programs we can’t afford to keep the voters happy so that the politicians will be re-elected regardless of long-term consequences. Nobody wants to admit that an elite oligarchy of government and corporate insiders are robbing the American people blind.
But I say this… The emperor has no clothes.
The decline of the American Empire has begun. You can deny it, mock it, ignore it and eventually go down with the ship, or you can accept reality, make a plan, and do your best to survive and maybe even prosper through the challenges ahead. As we enter the Fourth Turning, I hope you choose to prepare.
As for me, all I want is closure.
Just give me what I lawfully deserve, and I’ll be on my way.