Coming Up Short

After the ex and I parted ways last fall, deciding to sell the house was a no-brainer. The place was half-again as much space as I could ever use. The one-acre lot — an asset when I moved in — had become a liability. Taking care of everything, inside and out, required far more work than even the two of us could manage. No way I could do better on my own.

Just making the decision to move took a load off my mind. Even though I’d refinanced and cashed out some of the equity back at the peak of the housing market, I figured I had enough equity to cover the loan and closing costs. Assuming home values would keep going up forever, my philosophy had always been to minimize my home equity to maximize leverage. Besides, I could get a better return on the money elsewhere. Live and learn.

The realtor did some comparisons of similar houses on the market. We priced the house to sell and she ran the numbers. At the asking price, I’d almost break even. Paying the real estate commission out-of-pocket seemed a small price to pay relative to the long-term benefits of downsizing. I put the house on the market in September and looked for a smaller place.

Days later, the realtor told me we needed to cut the asking price — by more than $10,000. She’d run some comparisons with houses that had recently sold, rather than those on the market. Yikes. Now the cost of moving on had become prohibitive. I was crushed.

Dealing with my father’s death in July and the split with the Finest Man On Earth in August had been difficult. Being trapped in a house I no longer wanted was more than I could handle. My home had become Alcatraz — a sparsely furnished prison from which there was no escape. Gloom, despair, and agony on me.

My financial planner suggested I see a lawyer. I was willing to do anything — even file for bankruptcy. Whatever it took to get out. After an overview of options and possible outcomes, our discussion focused on a strategic default. Basically, I abandoned the house.

Nearly ten million U.S. homeowners owe more than their homes are worth. The mortgage industry made billions and left the rest of us holding the bag. Sure, my hit would have been less had I not refinanced. But the industry is still to blame for the huge drop in the value of my house. Eventually, housing prices will get back to where they were before the bubble burst. Some homeowners can and will stick it out. Not me. Life is short.

My credit score was in the low 800s when I put the house on the market. Other than the mortgage, I had no debt and was able to qualify for a new loan without any contingencies about selling the old house. I stopped making payments on the old place when I closed on the new. My attorney contacted the lender before I’d missed a payment to initiate the process.

In January, a buyer offered more than $20,000 less than I paid for the old house nearly seventeen years ago. My attorney submitted the offer to the lender to activate the process, and stayed on top of things for the next five months. Weeks after they’d received the offer, my attorney said the bank had approved me to proceed with a short sale.

In a short sale, the bank accepts less than the amount owed. In the past, they could still come after me for the difference, and I would have had to pay income taxes on the amount they wrote off. But because so many homeowners are upside down, banks have stopped going after folks for the difference and for now, the charge-off is tax-exempt.

Being approved meant I had to apply for one of several short sale programs, involving more requests for the paperwork I’d already provided no less than a dozen times. Weeks later, the bank approved my application for a short sale. At last, they were ready to take a look at the offer we’d received three months earlier.

A week or two later, my attorney tells me the bank has countered — for $10,000 LESS than the offer we received. Huh? Tons of paperwork had to be resubmitted to reflect the change, with “wet” rather than electronic signatures. Meanwhile, I was required to continue to pay utilities and upkeep for both houses and to keep an eye on the old place to make sure everything was okay.

Finally, the closing was scheduled for May 31st — more than four months after the offer came in. The buyer got a great deal, and I shed a huge liability. The bank not only paid my attorney and both realtors, but they also cut me a check toward moving expenses. I love this country!

Yeah, my credit score is in the basement. But the worst is behind me now, and my score will climb a bit every month. Because I’m old and have a long credit history, my credit score will be back to where it was before the default in a matter of months, not years. All in all, a small price to pay to unload a huge psychic burden.

2 responses to “Coming Up Short”

  1. That was really interesting, Michael. I have FL friends in much the same position. It’s tricky. I understand it better now.