CitiMortgage Told Me to Default on My Loan
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Final Notice Only in the completely screwed-up world of the lending industry would this be a logical and serious piece of advice. But that’s basically what I was told after calling CitiMortgage to ask about help with my home loan.
Like roughly 25% of homeowners in the USA, I find myself owing more for the house than it’s worth. Now, before I get people screaming at me for biting off more than I could chew, that’s not the case at all. We did everything right: bought a modest home within our means, didn't cash in on equity (when the house had equity) by refinancing, never missed a mortgage payment, ever. And now, some seven and a half years later, our modest little home, which we have completely grown out of, has an even more modest value. It’s lost 25% of it’s value in fact, and we now owe more than it’s worth.
We can’t rent the home out without losing serious cash every month. That’s because we would have to charge rent based on what the house is worth. And that would leave us roughly $500 a month out of pocket on the mortgage.
We can’t sell without taking a serious chunk of money with us to the closing table. We’re talking $20k-$30k, which is money we don’t have to spare. Not many people do these days. But if we did, would we want to completely wipe out our savings on a piece of property we were leaving behind?
We can’t just stop paying and walk away. Trust me, I’ve never had a bad debt in my life, so I don’t want to start now. I was seriously considering it though. But in Colorado, the financial institution has every right to come after you for any money they lose on a property that’s been foreclosed on. We could not only lose our savings, but our cars, possessions, and everything else. This is called a deficiency judgment. Some states have it, some don’t. Mine has it, so it’s impossible for me to walk away from this money pit of a home without suffering some huge consequences.
What about a short sale then? Well, it’s possible, but there are issues with that too. Short sales are notoriously difficult to arrange. We’d have to put our home on the market and get an offer. And after that, we’d have to hope the lender accepts the offer. If they don’t, we have to start again. This could take months or years. And the whole time, we’re sinking money into a house that continues to lose value.
The whole “buy property, it’s a guaranteed investment” mantra is now just hot air. But what do we do? We’ve seriously outgrown the home, one which we bought as a single couple and now have two children. With no basement and a garage that’s bursting with stuff, we continue to give things away to charity, or just throw things out. Even with a regular spring clean, we're just running out of space.
We decided to turn to CitiMortgage and see if they could help us. After all, a recent article about Bank Of America gave us hope. They’re now helping people like me out by reducing the principal owed on the property! That’s right, they’re actually slashing money off the books.
Anyway, I went to CitiMortgage.com and filled out the form in the homeowner assistance section.
I was delighted to see that, after putting in my information, we were indeed eligible for some help. I just had to submit some proof of earnings, which was no trouble at all. I then got a call from CitiMortgage a few days later, asking me to call them back and talk to a counselor! Excellent, I could see a glimmer of light at the end of a long tunnel.
Then, the games of phone tag began. I called, was put on hold for 10 minutes, and the line went dead. I got a call back asking to call again. I did. I was put on hold for 10 minutes, then the line went dead. Argh!
I was not happy.
The third time I called, I finally got through to someone. As it turns out, there was actually no counselor assigned to me at all. No one was sitting behind a desk, filled with great information and some paperwork that could help me out. No, as it turns out, there really wasn’t much they could do, or rather, were willing to do for me.
“I was told I had a counselor,” I said.
The customer service rep, who clearly had no interest in me or my predicament, told me that no one was assigned to me and there’s really nothing they can do right now.
“What about this Bank Of America program that’s out there right now, helping people who are upside down on their mortgage?” I asked. “Do you have plans to help in that way?”
“No” was the cold and curt reply.
I did a quick calculation in my head and realized I had given CitiMortgage over $100,000 in interest over the last 7 and a half years. Actually, way more than that. And all I had to show for it was a house that requires many thousands more dollars just to walk away from. If I had dropped $100,000 at a casino, I would be getting the red carpet treatment. If I dropped 100,000 bones on a new car, the salesmen would be breaking their backs bending over to help. But CitiMortgage? Sorry, no dice. Which I find odd, because my tax money, and yours, went to CitiMortgage in the form of billions of dollars of stimulus money. They received 1 billion dollars from the government, and their parent company CitiCorp got a whopping 45 billion dollars!
“Is there ANYTHING you can do to help me?” I asked. I had read earlier that CitiMortage was supposed to be helping homeowners who are underwater, so I knew there must be something they could do.
And that’s when this salient piece of advice came over the telephone.
“We can’t help you unless you have defaulted on the loan for 90 days” was the almost robotic reply.
Wait, did I hear that right? Is this lady telling me to stop paying my mortgage? Isn’t that some strange advice? I double-checked.
“Are you telling me that there’s nothing you can do to help me out until I actually stop paying you?”
“Yes” she said, “but even if you default there’s no real guarantee we can assist you.”
“So, I could wreck my credit, have debt collectors calling day and night, risk being kicked out, and it could all be for nothing anyway?” I asked.
“Yes.”
So, that’s where I stand today, and I suspect many of you are in the same boat. Why, why, why would any financial institution want their customers to stop paying them? Why will they only help bad customers? Why is defaulting the only way to get help? Why are good payers being treated poorly, and people who can’t pay getting the royal treatment?
I’m now finding myself in a position I never, ever thought I would be in. I’m considering just stopping the payments and putting the money in the bank. I figure the worst that can happen is that I just have to pay that money back to CitiMortgage at some point, but in the meantime it can sit and collect interest for me.
If anyone out there works for CitiMortgage, or a similar lender, please let us all know why you won’t help people unless they stop paying you. And why the bailout money you received isn’t helping the loyal customers as well as the poor payers?
I, for one, am just completely thrown by this whole situation. And, for the time being, I may be living in my small house and tripping over my things, but at least I’ll be doing it for free. Hey, not my suggestion. It was CitiMortgage’s idea.
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Paul,
Glad you were willing to share. As I tell everyone in this situation, SPEAK WITH AN ATTORNEY. Seriously, do it today. Find a good attorney who specializes in foreclosures and put down a retainer. It will probably also help to speak with an accountant about some of the numbers as well.
These two people will help you way more than CitiMortgage reps ever will. They'll be able to help you decide if walking away is the best bet for you or not (I'd suspect that it is).
Don't take this personally or as attack on you, but saying you did everything correct is just not true. You probably did many things correctly--but you, like many others in bubble states, failed to take into account the wild difference in housing prices as compared to rent. That factor alone would most likely have stopped you from buying to begin with. Or not. I don't know for sure, but it's usually the case.
What I'm saying is I think it's important to take away something from this situation. Learn what you could have done to prevent getting to this spot, and then teach it to your children. Tell them how it's important not only to buy a house within their means, but how it's crucial to put 20% down and make sure that home prices are in-line with what people are willing to pay to rent a similar place.
You sound like an honest man who just wants to do what's right. I hear you on that and applaud you for it. Because of that, try not to take the idea of defaulting as a reflection of your personal character. You entered an agreement with the bank that says you either pay X amount every month or we take back the home. Defaulting is part of the contract and a course of action they are fully aware of; in this case, they're even recommending you do it. So understand that choosing to default, even if you can pay the mortgage, does not make you a bad person.
Hi Paul, I take phone calls on your situation every day. That rep. is stating that in order to qualify for an in-house loan mod., you need to be 90 days delinquent. Judging that you're not in a financial hardship, this is not what you want - especially if you're PITI is less than 31% of your household's gross income already. If you have a Fannie Mae or Freddie Mac, you can apply for the HARP [refi], else, you're looking at a short sale. The gov't plan for principal reduction will come out in the fall.
Google Fannie mae/Freddie Mac lookup if you're unsure.
Seek therapy your on here to much and comment on everything? Please focus on your problems...........
I am basically in the same position, several years ago our home was valued at $240,000 I re-financed to $160,000 thinking I was leaving lots of room for equity and now my home is worth $120,000. It just makes me sick. My neighbors did a short sale, it took them almost a year. The other two houses on either side of me are both vacant, making it that much harder for me to sell my home, I have considered a short sale, and considered walking away, I just do not know how it would hit my credit, my ability to get a new home afterwords, or would I be stuck renting for a few years first?
I am not very sympathetic. You've been able to make the payments for 7 years, so it isn't like this is unaffordable property. Yes, you want to move, but you may not be able to at this time and may need to wait for the market to recover. When you bought the house did you really believe that you would be guaranteed a profit on the purchase, and would always be able to sell at a positive delta (or even break even)? If so, that is naive. Property values go up. They go down. A house is illiquid and frankly not the best investment for guaranteeing gain as you have discovered.
The fact that the house is worse less isn't the mortgage folder's fault (well, maybe in a macroeconomic sense, but still...). If you sold at a profit, would you give back some of your gain to the bank, "just because"? SNo? So how is selling at a loss their problem? Given that fact, the ball is in their court. Whatever their conditions, they get to decide. Even if their conditions are silly. Frankly, they don't have to do this at all.
You sound bitter and mean? Also checkout your spelling and remember everyone's life and problems are different.............
Is that why anyone would ever buy a home to loose money on it and be tied into a property forever. Why not just rent at that point so you have more freedom to move and not worry about anything breaking and you fixing it. Come on think about it. If it were not to go up in value over the years Why Buy?
Check your recordings at your court records and your note payable to make sure you are paying the correct lender. Check all your paper time is of the essence.
Stop paying, The world is full of bureaucratic bs you just have to play their games, instead of sending them money, send them drawings of profanity and man parts in the mail, they will get the idea.
I dont buy your argument when our tax money is being utilized by the banks to help home owners. What you said would be true only if they didnt get any TARP money and it only decision on the terms. But here, they get our tax money, utilize for their heafty bonuses and still have the terms according to their will. Also this mess is caused by these greedy people where they gave out loan to those who could not afford loan and created a mess where people like us who are able to pay and be by the rules are most sufferer. Is this not frustrating when you are sticking by the rules?
Thanks for sharing. This kind of insanity is the type of thing that I wouldn't know about now that I live abroad. There's no excuse for this kind of banking practice.
I'm going to pull my money out of any bank that received TARP funds and that I suspect of having unethical lending practices.
Very upsetting news. I hope you figure this one out in a way that works for you.
I have a mortgage with Citi. I'm not in the situation you are in. But I find their customer service and customer relations appalling. I will never do business with them once I can get out of this mortgage.
I understand your desire for more space. But I think JT has some very valid points. I would just add that markets do go backup. It may not be for a while but the value of your house will increase some day. Waiting it out is still a valid option to consider.
Good luck on whatever you end up doing.
I agree Greg, I too have a mortgage with Citi. i recently underwent a "loan modification" which after 7months(I was told the process would only take 3)they only remodified it to payments of $100 less than what I was paying before. I can never speak to the loan officer(even thought they tell me every time we've sent an email and you should recieve a call in 5-7 business days). Whenever i call for any correspondence i have to lie about a situation to speak with a manager, it's like they don't want you talking to anyone but the person who answers the phone, and their just reading from a script and can't help you at all. So with all of that said I called to tell them it would be a struggle to make the payment, she replied with well how long do you think the situation would last, i said probablly long term, in which she went into her speech well the payment will be late after the 16th but be aware there are payment options you can make but they may(will)result in late charges and penalty's. So i said there really are no options, she replied well if you can't make your payments and fall behind, we would then assign your loan to someone who can help. I'm about ready to leave it all alone, seriously considering the deed in leui of forclosure and start over.
Just wondering--can you stay where you are and put on some kind of addition--building out or up? This is a tough situation. If you CAN ride it out you will do better than if you have to trash your credit and lose what you've put in.
I have to agree with JT and Diane.
So many folks believe that their house is always appreciating. We've found out more than ever in the past few years that what goes up must come down. And now so many folks are looking for someone to blame or bail them out.
This is not a personal attack, but sometimes when we're in the thick of emotional mess, we need to step back and look inward. It might help to figure out what we should or could have done differently in order to avoid it in the future.
Good luck!
Your queer!
loveandsalt makes a great point about remodeling.
Another option might be to rent a storage unit for all the stuff in the garage (buying you some space) while you wait for the market to recover (which it eventually will do).
Best of luck however you decide to move forward (although I would agree that an attorney and accountant should be your first stops before doing ANYTHING)
Hang in there, according to the most recent information Colorado real estate values are stabilizing.
http://www.today.colostate.edu/story.aspx?id=3452
-look for stock-gap measures
--remodeling or a rental unit seem the most pragmatic
--what about renting it out ... can that get close to paying the mortgage?
-Colorado is a hot retirement spot
--baby boomers will likely come in droves as they retire
-Colorado cities keep winning "best place to live, retire, start a business ..." awards
--the future is bright
... your home is likely to do well in the future
You have every right to be angry with the banks. It was their lending practices that inflated the bubble and forced you to overpay for your home in the first place. Unfortunately, I doubt you'll ever see them willing to help out someone who is on-time with their loan.
With 1/4 of all homes underwater right now, banks couldn't possibly afford the loss of writing down all of those mortgages. They need you to have some skin in the game to show you're serious about defaulting. Your credit score is their leverage to keep you from walking away. If they suddenly offered deals to borrowers in good standing, they'd have a "run on the bank" from the (many) people who are currently going to great lengths to keep current on their notes.
All of us homeowners who bought in the 2000's are in the boat with you. In this case a 20% _initial_ down-payment would have saved you from this out-of-pocket because you'd currently be around 30% equity on your original price. I recently had to sell a rental home at a 25% loss, but fortunately walked away from closing with a couple thousand dollars.
Here's the follow-up problem, though. You've presumably been saving up for the down-payment on your next home. Now you can choose to spend that down-payment money to get out of your current loan, leaving no money to put down on your next. Alternately, you can try to hang on to the money and default, leaving your credit in too poor of shape to get a loan on a new home (plus, the bank will come after that money anyway). Lose-lose. The state of the economy has paralyzed even responsible people with the inability to shed their home burdens.
I'd have to disagree with a previous poster, though. I recommend against trying to lawyer up on this. If you are really only 5% underwater then you would spend more in outrageous lawyers' fees than you would stand to gain. Sounds to me like you'll have to either put up with your home for a few more years while saving up for the next down-payment or spend your savings cushion now and save while renting.
"It was their lending practices that inflated the bubble and forced you to overpay for your home in the first place."
With all due respect, nobody forced you to buy a home. It was as much a choice on the borrowers part to take out the loan as it was by the lender to originate it. Both sides are "at fault" if you wanna play that game. However, I don't think it really matters much at this point in helping Paul get out of his current predicament. I do think it's important to look at for historical reasons, but playing the blame game isn't necessarily important right now.
"Your credit score is their leverage to keep you from walking away."
I think a lot of people are under this impression and it's kinda absurd if you think about it; I think putting a different angle on it may help. Most people think, "If I default, I'm going to lose that credit score that I worked so hard to attain. I can't let that happen!" But what if I told you that you could earn/save $50,000 - $100,000 if you let me lower your credit score a couple hundred points? Or better yet, what if I said that I will raise your credit score from 580 to 780 for $50,000?
Would you take that offer? Heck no you wouldn't! But that's effectively what you are doing by choosing to keep paying on an underwater house instead of stopping payment and starting to bank that mortgage payment.
The average length that a defaulted borrower gets to live in their house before foreclosure is 18 months! Yes, they get a year and a half of rent free living before they get kicked out. Take advantage of that fact and start saving your mortgage payment. That money will easily add up to tens of thousands of dollars which can be used to secure a nice place to rent after you are foreclosed upon.
And what's the price that you have to pay for this? Your credit score. How much do you have to pay? Probably several hundred points. However, if you stay current on your other bills, which should be easy with all the "extra" money, then it won't be as bad as many people think.
"I recommend against trying to lawyer up on this."
A lawyer should not cost you an arm and a leg here. Something like $500-$1,000 should be enough to get some decent legal advice. You're not going through a divorce or bankruptcy here. You just want to know what you legal options are and what the consequences would be if you exercise them. Paul said he would have to bring $20,000-$30,000 to the table if he sold, so the cost/benefit is easily there.
"Here's the follow-up problem, though. You've presumably been saving up for the down-payment on your next home. Now you can choose to spend that down-payment money to get out of your current loan, leaving no money to put down on your next. Alternately, you can try to hang on to the money and default, leaving your credit in too poor of shape to get a loan on a new home (plus, the bank will come after that money anyway). Lose-lose."
This actually angers me a little. Why? Well because you're creating a false dichotomy. There are more options, the best of which is to just freakin' rent. If rent prices are so much lower than home prices (still), then suck it up and go rent a place! This isn't rocket science, and renting is not some evil thing that only poor people do. So rent a house and save some serious cash for when your credit score is better and housing prices have come down even further. OMG, win-win! The irony is that you actually mention renting in your last paragraph but somehow can't see that option here.
"The state of the economy has paralyzed even responsible people with the inability to shed their home burdens."
It's called defaulting. See above.
Nice thought about gee yu should have put 20% down,
We put 20% down fixed 30 year, 5.375% and the value houses here has dropped 56% from the builders cost, with another 10% drop expected here this year!
$200,000 to build in 2003 and our house is now is worth $125,000.
Even with the 20% down that is a mortgage of $160,000.
That is still a balance due of $144,000. To sell the house requires usually about the mortgage+10% in costs so it would take $158,000 to walk away owing nothing. So selling for the $125,000...leaves a balance due of $33,000.
YOU tell me. When my house is worth less than $100,000 next year and I still owe $141,000 meaning I need about $155,000 still to get out clean and now a $55,000 gap.
Why dont I walk? Deficiency state. Get rid of that and I am gone. I have to move my family for my job. There is no one to rent to here because of all the investor rentals, unless you want your house used as a drug house.
This is pretty common advice from mortgage lenders. they won't help until you stop paying, because they know they can get money from you. I wrote about this a while ago: http://www.wisebread.com/should-you-skip-a-mortgage-payment-to-get-a-ban...
The new Obama program's guidelines "encourage" lenders to cut principal, but it's not required. The new plan to let people refinance into FHA loans and cut principal also comes with a caveat that the homeowners are about to default. Unfortunately it is a bizarro world where if you honor your contracts you don't get a big hunk of debt forgiven.
That is probably pretty standard advice since most folks are paying PMI. What does the bank care if you throw your credit under the bus, they will get their money in a few months.
I guess it is a common misperception that the BOA program and others like it are designed to reduce principal on underwater mortgages. They aren't.
The federal programs established to assist homeowners in peril, and those adopted by the banks are for just that: people in true danger of losing their homes. It is unfortunate that you find yourself in an underwater position on your mortgage, but as noted by a couple of other posters, this is a debt you CAN afford to pay. There are hundreds of thousands of homeowners in this country that (whether due to buyer or lender irresponsibility) CANNOT pay. Outside of a debate over whether the government should be helping out homeowners, you must accept that the people in the most immediate danger need to get helped first.
I am an attorney doing volunteer work assisting people with foreclosure work outs. There has been progress, but thus far it is PAINFULLY slow. People are getting trial mods, but the number of permanent modifications is only in the hundreds!
Instead of thinking of all the reasons why you deserve better treatment from your lender (and likely you do) think about how much worse it would be if you had an interest-only loan, lost your job, had a medical crisis in the family, etc. and your mortgage now represented 50% or more of your household income. Those are the people these programs are designed to help.
If you're willing to roll the dice and go into default, you will get their attention, but spend some time with the FDIC Mod in a Box program:
http://www.fdic.gov/consumers/loans/loanmod/loanmodguide.html and see whether you would actually qualify for assistance. Bottom line: if your mortgage is already less than 35% of your income, you don't.
Thank you for sharing. Your post brought up some thoughts that have been troubling me for the last year or so.
There are 2 assumptions that get you into trouble:
1. You asume that that you deserve free money and the bank is out to abuse you. You made an agreement that you signed. It included intrest payments. You are only entitled to what you agreed to. You used their money to buy a house. You agreed to pay them extra for the privelage to use their money. You can still pay your bill. I am not sure why you think they should forgive a legal debt (ie give you free money).
2. You have outgrown your house. As others have mentioned, there are options. Bunk Beds? People all over the world live in "cramped" homes. There is nothing wrong with that... be creative and enjoy living close to each other... if you have so much stuff that you can't live in your house... get ride of the stuff. Are you really using it?
These could be summed up in is a perceived assumption that "I deserve"... if you work on your wants and values, you might find that you are in a good place after all.
You know, I don't really understand your problem here. You bought a house and agreed in advance to both the price and the interest rate. The house is worth whatever YOU paid for it until the point at which you sell (and transfer the worth to someone else). You're only whining about being underwater because you want to sell it. If you were willing to live in it, you'd not know or care about its market value. If you paid the mortgage off and left it to your kids, how much would it be worth then?
Houses are not financial instruments, they are investments in security, community, and lifestyle. If we haven't learned this basic lesson by now, then we are bigger fools than I feared. You own a house that you can afford to pay for! So it's a little small. Deal. Expand or get storage or quit buying so much crap.
Our house is 1076 square feet (including garage) and nice for the three of us and dog. But the family who sold it to us had 9 members living at home! Somewhere between us and them (what our generation does and what our grandparents' generation routinely did) is a large gray area where you can make due and make it work.
I will save my sympathy for those who've lost their jobs in the economic crash accompanying the irresponsible and immoral speculation of houses as financial "vaporware" and who can not now pay their mortgages. They want desperately to stay and yet cannot. You are willing to walk away from your financial obligations because they are currently inconvenient to your lifestyle.
I hope you see the difference.
"I will save my sympathy for those who've lost their jobs in the economic crash accompanying the irresponsible and immoral speculation of houses as financial "vaporware" and who can not now pay their mortgages. They want desperately to stay and yet cannot. You are willing to walk away from your financial obligations because they are currently inconvenient to your lifestyle."
I don't understand this mentality. You sympathize only with the "poor souls" who lost their job through no fault of their own (at least according to you) and now cannot pay their mortgage, but you cannot sympathize with the people also bought at the top and are underwater by tens of thousands of dollars, just because they can currently afford their mortgage.
Why not?
That's like saying I only feel bad for the starving kids in Africa because they have no food and no shelter, whereas the impoverished children in America at least have shelter. How dare they complain!
Just because these people can afford their mortgage, at least for now, doesn't mean that they aren't hurting. I bet many of these millions of homeowners who find themselves underwater are struggling with a lot of stress, trying to balance it all while praying they don't lose their job.
And what happens when they do lose their job? Do you suddenly feel sympathy for them because now they know suffering. Just because losing your job AND your house is worse than losing a hundred grand in equity doesn't mean the the former invalidates the latter. They both suck and let's at least acknowledge that, while he is lucky, it doesn't mean he doesn't have a right to be upset.
All that I'm asking is for some consistency here. Either you care about these people or you don't. Don't try to be some judge of morality and compassion, lending your pity to one party while passing judgment on another.
Houses are not financial instruments... equity doesn't even exist until you actually try to tap it. He's not underwater until he tries to sell it. The fact that some random person wants to buy something at a certain price doesn't mean anything unless you sell. We know that when it comes to other objects, but somehow with houses we've forgotten. A house is not a stock or a CD or a bond.
I'm not coming down on the side of the unregulated mortgage industry who handed out giant undocumented loans or the unregulated Wall Street fools who decided that mortgages were exciting new "can't lose" investments. They caused the crises that put so many people out of work and so many neighborhoods in jeopardy. I'm not FOR the banks and AGAINST the little guy.
Sure, it's a bummer that he can't offload his house at a fat profit. Obviously that'd be preferable. We'd all like to make a cool 100K for doing nothing (or at least nothing we weren't doing anyway). But he doesn't have to sell and can make his payments (I'm basing this on his own description -- he didn't buy too much house, it was and is within his means, he's made every payment... it's just that he's cramped and wants a bigger house).
As he said he "did everything right." Where he's unclear though is whether the lender did anything wrong. They didn't. They made him a loan and he's paying it. But because he can't sell right now, he thinks he can just walk away. If I abandoned a car and quit paying for it because I couldn't sell it right then for more than I owed the dealer people would think I was a deadbeat. If I decided to keep the car while not paying until the repo man showed up, I'd be a criminal.
"That's like saying I only feel bad for the starving kids in Africa because they have no food and no shelter, whereas the impoverished children in America at least have shelter. How dare they complain!"
Sorry, no. It's more like "I only feel bad for the starving kids in Africa... not the kids in America who didn't get an iPhone for Christmas." Dude's got a house after all and can, by his own admission, make the payments. And yeah, if he got laid off because the economy's rough and began to have a hard time paying for his house, I would have more sympathy.
Why is that hard for YOU to understand? Someone who can't make their payments now and stands to lose their house gets sympathy... someone who's unhappy with their house and wants to cut out of their mortgage because they're a bit cramped, not so much.
And hey, this is my opinion in response to his opinion. That means that I can judge and moralize all I want, left and right, night and day, fair or un. That's what opinion is, after all.
"They made him a loan and he's paying it. But because he can't sell right now, he thinks he can just walk away."
It's not that he can just think about it, it's that he can actually DO IT; and that doesn't make him a deadbeat for doing so either. Rather, he's doing what he thinks is the best possible choice for his family, financially speaking.
Strategically defaulting is a legal option that should be considered by everyone who is significantly underwater. Yes, in a lot of states, they can go after a deficiency judgment so you may still be on the hook. However, from what I've read that rarely seems to be the case. But that's why I suggest consulting an attorney before sending any jingle mail.
"It's not that he can just think about it, it's that he can actually DO IT; and that doesn't make him a deadbeat for doing so either."
I'm sorry, I'm afraid it does. See definition 2 below. Or course we don't know the author's history, but seeing as a mortgage is about the biggest debt an individual can have, I'd say that CHOOSING to default is certainly edging into deadbeat territory.
Main Entry: 1dead·beat
Pronunciation: \ˈded-ˌbēt\
Function: noun
Date: 1863
1 : loafer
2 : one who persistently fails to pay personal debts or expenses
Of course this is all moot. Since he will most certainly not be eligible for any government assistance (designed for people who are having real difficulty paying their mortgage in order to reduce the foreclosure rate) he can enjoy trying to buy that second larger home with a credit rating trashed by a foreclosure.
Forgiven principal typically equals income to you, and the lender will likely report it as such to the IRS.
And that concludes the advice any attorney can give you.
If in a non-recourse state, walk away. Consider a strategic default. You've done your part. The bank has done what they can (or they claim).
Give them back the keys to the house. That's all you have to do per your mortgage agreement if you no longer want to make payments on you house. Let them deal with it.
IANAL. YMMV. But screw the banks.
Another common misperception - there are very few non-recourse states, and as Paul noted in the main article, Colorado is not one of them.
So you are angry at Citi for not letting you out of a loan agreement you made? 5 years ago banks were not going to home owners asking to modify loans because their homes were worth much more than what they bought them for.
Here's some advice I think others have already given you. Don't move and keep making payments. I pay my mortgage and pay taxes. Why do I have to support your bigger house?
My husband and I have decided, even after college and getting jobs, we are not ready for a house. We could save and put money down and fit the status quo. Buying a house in our families is VERY important. We just don't get why. "I'm putting my money towards the value of my house and not rent." That seems like an excuse to not rent. What is wrong with renting? I have beautiful home, all problems are fixed for me, and my out of pocket is close to zero. People get wrapped up in houses and owning in a way that I think my generation is seeing as a misconception of wealth and status. I see paying towards a mortgage like hedging bets that your property with appreciate value. With an apartment, that isn't my problem and the rent I pay get a great value and good amenities at a stable price.
I guess I hear all sides of this debate in the comments and realize how complicated and nasty buying house can be. My sister has a plumbing issue and it's on the city side but they don't want to pay her. That is stress I'd PAY to have out of my life. They owe her around $1000 and refuse to pay without proof. This is all too much to have an extra bathroom or two compared to my apartment. I'm not convinced buying a house is the best thing.
Thank you for sharing, and I harbor no judgment. I am just fortunate to learn from people's stories before finding myself in situations like yours. It made total sense to buy a house for yourself and family, didn't it? You did everything responsible and good as a buyer and credit holder? Why would things change so dramatically? It's obviously out of your hands and not your fault. Good luck with your home and remember that despite the stress this brings, you are teaching you children that life is not cut and dried. It's complicated and we all have problems. No one is perfect, even if they do everything right in their mind.
one of the previous commenters said the following "With 1/4 of all homes underwater right now, banks couldn't possibly afford the loss of writing down all of those mortgages. They need you to have some skin in the game to show you're serious about defaulting."
the fact is that banks don't care if you default in the current world. a huge portion of loans are guaranteed by the FHA or Fannie/Freddie. Fannie & Freddie have what is basically a blank check from the treasury. So if you default, the banks get their money back from the guvment. if you keep paying then they don't care either.
Xin,
Yeah, for the most part you are correct. I'd add that another major reason they do not care about whether you pay or not is due to the suspension of mark-to-market accounting. Changing that accounting rule has allowed them to play pretend and extend on all their mortgages.
Additionally, there is a disincentive for them to foreclose and sell the property as a successful sale means they would have to write down any losses. Therefore, they'll continue to hold they non-performing loans on their books as money good when a 10 year old could tell you that's not the case.
It's kind of funny how the government has a program called Making Homes Affordable, yet that very act does the opposite. It props up housing prices, trying to spur up artificial demand. High housing prices != affordable homes. People need lower prices in order for the to be affordable, but leave it to the government to mess this up.
Xin,
Yeah, for the most part you are correct. I'd add that another major reason they do not care about whether you pay or not is due to the suspension of mark-to-market accounting. Changing that accounting rule has allowed them to play pretend and extend on all their mortgages.
Additionally, there is a disincentive for them to foreclose and sell the property as a successful sale means they would have to write down any losses. Therefore, they'll continue to hold they non-performing loans on their books as money good when a 10 year old could tell you that's not the case.
It's kind of funny how the government has a program called Making Homes Affordable, yet that very act does the opposite. It props up housing prices, trying to spur up artificial demand. High housing prices != affordable homes. People need lower prices in order for the to be affordable, but leave it to the government to mess this up.
Can't you just wait until home prices go back up? Clean out the garage - really clean it out - after all, if it's in the garage, you aren't using it, right? If you absolutely HAVE to have a bigger house, why don't you spend some money on adding on or doing some remodeling - knock out a few unnecesary walls for a newer, more open floor plan, if your have an older house like we do. Didn't you say you had 10K or 20K to put down on a new house? You could use that for remodeling. Most people don't have that kind of savings and I don't think you value just how well off you actually are.
You aren't going to be stuck there forever, unless our country's economy stays on it's course for the toilet, and then it won't matter much. Housing prices will go up again. It may take a few years, but they will.
If you're seriously underwater, there aren't many options left. However, one I might suggest is advertising your home on a lease option (e.g. rent to own) to a buyer who can't get traditional financing.
Usually, these renters/buyers have an aversion to throwing money away on rent, but can't qualify for a mortgage because they have poor credit for various reasons. It's certainly an ideal fix, but it's one suggestion if you want to close the cash flow gap on rental income and get a sales price slightly above market value since lease option agreements usually sell at a premium.
When will people start getting bailed out of their 2 year old cars that they bought on a 5 year note because their car is worth less than what they owe after 2 years?
Or how about the farmer that bought a tractor to farm on a 10 year note and the tractor is worth a less than the note 5 years into the loan and the farmer dies and his children have no interest in keeping the farm and want to sell the tractor? Should they be allowed to walk from it and let the bank, and ultimately the people with money, eat the cost?
Because that is exactly what you and others propose. As long as the value of the house goes up it's all good but as soon as it goes down someone else should pick up the tab?
It is unfortunate that this had happened and people are upside down on their mortgages but it is no different than trying to get out of any other depreciating assets. The only difference is that people were lured into the house buying assuming or promised that they would hold their value. Well that assumption or promise was unfounded and untrue. So why should everyone pay the price for it?
Which part of you think you are entitled to be able to sell your house at no loss and get a new one? I have co-workers who relocated from Florida to Texas and they bought their house at the peak and sold after the collapse. They lost $30K. They ate it, sucked it up and went on with their life.
If you can't afford to bail yourself out of your current house you can't afford to buy a bigger one even if you have outgrown the one you have with having two children. And you're most certainly not entitled to moving into a bigger house by any standard just because you have two children. Not on my dime at least!
What you are proposing is capitalizing gains and socializing losses. Couple that with a sense of entitlement and we're heading for disaster.
Is "socializing losses" not what the banks got? The biggest capitalists of all, the greediest and most wealthy get a socialist solution to allow them time to bankrupt the taxpayer who his funding their socialist solution. Can anyone explain this?
I think it is reasonable to expect a meaningful, face-to-face conversation with a vendor that you paid $100K over 7.5 years. And, if you are willing to negotiate a deal that could help both parties, that doesn't sound so sinister.
"I think it is reasonable to expect a meaningful, face-to-face conversation with a vendor that you paid $100K over 7.5 years."
You're right. We've all been focusing on the ridiculous entitlement attitude expressed here, that we've been forgetting about the core complaint.
CitiMortgage obviously has terrible customer service.
The problem with taking the hard economic line on mortgages and analogizing to other depreciating assets is that it fails to take into account that a house is also a home, a shelter, and for most people, the largest investment they will ever make. On top of that, people who would not generally classify themselves as "investors" buy homes (noted that they also buy cars). No question, too many people had too much faith that "the bank won't approve me for more than I can afford" and "I have a job, I am entitled to a home" but at the same time, lenders capitalized on the uneducated and the sense of entitlement. This happened to varying degrees - some of these lenders are guilty of actual fraud for lying to people about what they were signing. Some signed off on appraisals without a second thought as to accuracy. Some just flat out approved deals that never should have happened. And some lent money to Paul here.
As I've explained, Paul is not the homeowner being rescued by federal or lender programs. Those that are fall all over the spectrum. Many were victims of abuses by the lenders, and in those situations, I strongly disagree that we are merely socializing an investment loss.
Keep in mind we are talking about lenders who have received bailout money here - they aren't playing by the rules of capitalism anymore either. If they're too big to fail, I think they should have some accountability to clean up their mistakes here.
News coverage and water cooler chitchat has mischaracterized what these programs can and can't do. The MHA, HAMP, FDIC mod-in-a-box all work based on evaluating interest rates, principal, home value and the expense of foreclosure to attempt to reach a scenario where the homeowner can afford to stay in the home, and the lender makes more money than they would have if they foreclosed. Sometimes we do try to get the lender to forgive some principal if the home has lost significant value, but still - you cannot get one of these modifications if you do not show that the lender benefits more from the modification than the foreclosure.
All I'm trying to say is that this isn't the huge handout it may seem from the outside (as it must for people like Paul to think it applies to them). It's government assistance, and full of humiliations and bureaucratic paper shuffling. Hopefully it will keep a few people from having their lives ruined by abuses, but rest assured that most people will have to learn a painful lesson about investing from this.
Author, please help me understand.
You called the bank hoping that they would reduce what you owe on your house so you can turn around, sell it and get a bigger house?
I know this is a "frugal" website, but what you just attempted isn't frugal, it should be considered criminal. The sad thing is, I bet a lot of people able to pull this off right now...
Wow, you are getting a lot of advice here. I would stay put and pay the mortgage until you can sell. If you wait until the value rises a lot then your new home will also have risen in value. So you just need to wait until the value rises sufficient for you to sell, even if you sell at a loss.
Maybe parents can help store some of your stuff or you could rent storage. It will all work out in the end if you choose the right and keep to your standards.
Don't let a bunch of crooked bankers and politicians get you down.
It's interesting that you think the bankers are crooked because the author asked to borrow a mutually agreed money on amount of money and pay it back at an agreed on rate. Now, he wants to pay less back and the bankers are greedy?
Can you lend me $300K? I'll agree to pay it back, then a few years later ask to pay less. You wouldn't want to be greedy and demand the full amount, would you?
Wow, you are getting a lot of advice here. I would stay put and pay the mortgage until you can sell. If you wait until the value rises a lot then your new home will also have risen in value. So you just need to wait until the value rises sufficient for you to sell, even if you sell at a loss.
Maybe parents can help store some of your stuff or you could rent storage. It will all work out in the end if you choose the right and keep to your standards.
Don't let a bunch of crooked bankers and politicians get you down.
Your naive?
Government subsidized loan modification is like stealing money from the taxpayers. If you took a loan modification, you are no different than a bank that took a government bailout. Even worse, most banks have paid back their bailout money while those that take loan mods never will. I'm not siding with the big banks, but just understand you have your hand out to the American people just like them.
A house is not an investment, it is a place to live. Through careful planning and saving up extra payments, I paid my house off completely in less than 8 years; in addition to making several capital improvements. Now that I am selling it twelve years after purchase, it is barely worth more than I paid for it. I don't feel great about it, but sometimes you get the bear, sometimes the bear gets you.
Garage???
If the garage is full of stuff get rid of it...get an outside shed to hold things like the lawnmower...THEN remodel the garage into a new room.
Much cheaper than building an addition.
You can even leave the garage door in place and put up a false wall behind it so that should you or a future owner wish it would be simple to turn it back into a garage.
I bet you could turn the garage into a new room for under 10 grand.
P.S. If you think you have to have the garage to park the car in instead of just the driveway because it needs protection (Hellowww...where does it sit while your at work???)..then IMO you have too much car.
I don't have a garage OR carport for that matter and my vehicles have been fine left outside.
Though I will admit that my father was a car dealer and to my family cars are commodities...not prized posessions.
Really not the kind of post I'm used to seeing on WiseBread.
If you're going to default on your home simply because you want to get rid of it and buy something bigger, I don't feel you're a very positive authority on frugal living.
Instead of screwing all of us taxpayers like you're pondering, please remodel like has been mentioned in this thread. You have two kids, yet your house is too small? Is it a one bedroom or something? Why not remodel the garage, as was said, into the kids room. I'm sure your garage is big enough to be made into two rooms. Get rid of all that stuff (refer to Zen Habits or Mnmlist and start internalizing it) and convert it to a fun, livable space. I don't know how old your kids are, but a teenager would love to have a room apart from their parents. "I live in the garage with my own separate entrance." How cool is that? Seriously, your kids will thank you one day.
With this post you're essentially saying you deserve a handout. You don't. Suck it up and start practicing what you preach. You deserve what you work for. Maybe in twenty years your house will be worth a fortune. For now, live with the decision you've made and try your best to be a good person. Otherwise, you're just giving in to and contributing to the self-absorbed mentality that is seriously putting a hurt on our country right now.
I could have written this post myself. They did the exact same thing to us.
Wow! I am stunned that you are actually considering defaulting on your mortgage loan. Start acting like an adult and not a cry baby. Your home of 7 years has lost value and you WANT a larger home? Grow up! Persons of character would never entertain such a selfish and narcissistic idea. Nobody owes you a thing....not even a return telephone call. I thought I had heard it all until I read your article. Consider me a FORMER reader.
Honestly, I seriously doubt you have actually outgrown your home, unless you live in a studio apartment. Knowing the size of the average "small" American home, that's usually bigger than a lot of family houses in say, Europe, most of which don't even have garages as well! You may feel cramped by American standards, but in all likelyhood you just have too much stuff. Get rid of as much as you can, maybe repurpose a room or the garage, and you can deal.
As for walking away from your mortgage...don't. When you can afford to pay it, and you signed a piece of paper promising you would pay all that money back? Just...don't.
A mortgage says that you will make payments on a domicile until the loan(s) are paid off. If you do not make the payments, the bank(s) have a right to take back the domicile.
After you've made all the payments owed, the domicile is yours. But if you don't make the payments, you have to give the domicile back.
There is no language in (most) mortgages that says you still have to make payments even if it means you will live a sh!thole of a life for the rest of your life and most of your kids' lives since you are making payments that barely scratch what is "owed" on your underwater domicile.
There's no need to bring in ethics/morals/etc. Again, it's a business decision. Make payments; keep domicile. Do not make payments; you have to give back the domicile. Oversimplified. But that's all a mortgage loan "requires".
@Rich: Ummmm...no. If one "chooses" to do this business decision, it makes them a baaaaaaaaaad credit risk in future. They don't get a free pass for this. They don't get to do it with no impact. If I were a bank, and saw that someone had walked away from a previous mortgage I would not lend to them at all. If they are able to get a loan in future, it will have a higher interest rate than for non-deadbeats like me.
As for living in a "***hole." This person chose this house. They've been making payments on it, and living there a while. Presumably they've gotten value from having a roof over their heads. If they felt it would not be adequate for them in the near term, and wanted to be able to walk away free and clear with no obligations, there is a very easy way to do that. It is called "renting." No one is owed profit on a house. No one is owed a bigger house. The fact that people think this is OK boggles my mind.
your queer
Guest,
It says PERSISTENTLY. As in, you continually do not pay your debts. Defaulting on your mortgage is just one debt. If he started defaulting on his credit cards, car loans, student loans, and other debts consistently, then he's a deadbeat.
Also, by this definitely every unemployed person out there that lost their home, got their car repossessed, and couldn't pay their credit card bills would be considered a deadbeat. How dare those people lose their job! They should have chosen a different industry or learned a different skill set. Deadbeats!!!
I actually hope the there are more people like you in the world. You know, people who are willing to throw $50,000 down a black hole just so they can hold on to their false sense of self-righteousness. In fact, I'll make a deal with you. You can call me a deadbeat for $50,000. For $100,000, I'll call myself a deadbeat. Deal?
Yes, I commented on the persistently part myself (note the bit on "CHOOSING" and on "largest debt" and "edging into deadbeat territory"). I've also made it clear that there's a difference between losing your job and just deciding to cut and run for fun.
"I actually hope the there are more people like you in the world. You know, people who are willing to throw $50,000 down a black hole just so they can hold on to their false sense of self-righteousness. In fact, I'll make a deal with you. You can call me a deadbeat for $50,000. For $100,000, I'll call myself a deadbeat. Deal?"
I'm afraid these two sentences don't actually parse into any kind of meaning for me. I'm going to have to assume that there's a large enough gap in our reading comprehension and composition skills as to make further online communication impossible. Thanks for engaging though, this post and subsequent comment discussion have been extremely educational for me on a number of levels.
You seriously want to default on your mortgage because your house, which you can afford, lost a chunk of value? I don't want to hit a defense mechanism for you, but, ARE YOU CRAZY???? You can afford it, you have a home, and your family lives in it. A snug fit, perhaps, but it is affordable housing. Do you honestly think that if you default on this loan that any bank is going to lend you money for a larger home? Yes, you owe more than it is worth, yes, it's a bummer, but seriously, YOU bought the house, not the bank. They didn't hold a gun to your head and make you sign those papers for the loan. You probably were excited the day that you signed them--your first home! Bluntly, this sense of entitlement that everyone deserves to have a home, nice car, and everything that goes with it, with no sacrifice on anyone's part, is rubbish, plain and simple. If you borrowed an amount from a person to purchase something, you would not have this attitude. But since it is a big, bad bank, it's okay. The banks aren't the bad guy here, your whining is. Their "crime" is lousy customer service.
You just gonna have to wait and admit you can't get everything you want right now. Everything is coming back, property values, stock market, etc.--you just have to wait. I find it hard to believe that the top of the market was 7 years ago... the market peaked 2 or 3 years ago. So, you wait til the value slow regains and then you move. Easy. We'd all like more space, but we wait until we can afford it. I read a sad case about someone who sold all her stock after it lost so much value. She sold at the bottom of the market. Now all her boring friends who waited the recession out, have seen almost all of their value return, and she is out. Cold. Don't run at the bottom of the market. Sit quietly and be patient.
YOu have no predicament. A predicament in this instance would be lose of job, not able to pay mortgage. You are able to pay mortgage! the only predictament is that you want MORE and can't pay for it. That's not a predicament, that's consumer addiction. Don't ask for help when you don't deserve it, there are real good people who ARE in predicaments, have lost their jobs, had expensive health care bills, who DO need help. They deserve it, they'd be happy to live in your lovely home. You are just in a consumption fantasy, don't increase MY mortage costs by being greedy and defaulting. Good luck finding a new place to buy or rent (they check credit report too!) after that!. I frankly, am horrified that you claim to be an expert on finance and saving with a blog and you're proposed walking away from a loan you can afford simplely because you want to acquire a bigger house. I give this post an F.
I just UNSUBSCRIBED based on this post. I don't have time to read posts by lying stealing hypocritical materialistic greedy cheaters. bu-bye!
At one point, I called the bank asking about lowering our interest rate, and was told the same thing: unless I had missed a few payments, they wouldn't even consider reducing our rate. Anyways, I saw this post today on Frugal Dad and really liked it, and just wanted to share.
Good luck!
http://frugaldad.com/2010/03/30/falling-in-love-with-your-home/
This post and its responses make me think I need to just stop reading this site.
If everyone did what you are proposing the end result would be no credit for anyone without substantial assets at hand. And requirements for a much larger % downpayment. If even a reasonable number of people do what you propose, lending standards will change. And then there will be posts from people whining about how they can't get cheap loans. Or loans at all. And deservedly so. I think irresponsible borrowers should be weeded out.
No more Wise Bread for me. And this site should change its name to "Foolish Bread."
Thanks for sharing your story. I can understand your frustration with Citi. It infuriates me when companies treat paying customers like they don't matter. Paying customers are the very reason for their existence; they should treat us all as if their survival depends on the customer's satisfaction, instead of their ability to bribe politicians for tax money.
However, I agree with some of the other comments that it is unreasonable to expect any sort of reduction because you want a bigger house. Or because other people got a reduction. Or because the government handed our tax dollars over to Citi (appalling). It's my understanding that Citi has agreed to pay that money back though. That doesn't make their use of tax money right, but it does make their 'assistance' received different than the 'assistance' you would like to receive.
I would also like to offer a different perspective. What would it have cost you to rent that house for the last 7.5 years? Somewhere in the neighborhood of 100K, maybe? I've spent nearly that amount in the last 7.5 years on renting, and for most of that time, I didn't have a second bedroom or a garage. For part of it, I was just renting a room. Those are sunk costs for the both of us. My landlords didn't roll out the red carpet for me either, and sometimes they tried to extort more money from me, making illegal deductions from my security deposit, etc. I have also not included in my calculations the costs of moving - double rent, truck rental, labor, missed work, deposit deductions for cleaning, painting, wear and tear.
You have been skewered quite a bit for this article. I don't wish to vilify you; I can sympathize that your situation seems unfair. I don't think the banks are blame-free. But their bad decisions/actions do not make them responsible for rectifying your situation. In my non-legal, non-expert opinion, your best option is to keep paying, and find a way to make the current space seem less cramped. Good luck.
This post baffles me. You have a home that you can afford. You have a stuffed garage, and then complain of cramped space. The fact that the house's value has gone down is irrelevant.
Four people don't need that much space; I shared a room with my sister and the whole family shared one bathroom. And we did perfectly well.
Perhaps you should change your expectations.
there is no reason to stop reading wise bread because you disagree with one post or one blogger. This is a collective of bloggers and ideas, and you would be cutting of your nose to spite your face if you stopped reading such a marvellous resource because of my opinion. That, to be honest, is very foolish.
As for the skewering I've received, I've got pretty tough skin. What I will say is that I deserve no more of a handout than any of the businesses that have received billions of dollars from the government. But if they are getting help due to their bad decisions, shouldn't that trickle down to the public? And it's clearly not so ridiculous an idea if Bank Of America are cutting the principal owed on mortgages.
help me out with this one please:
"You have a stuffed garage, and then complain of cramped space."
It's like saying "you have no money in your bank account, and then complain about being poor." What would your advice be? There is no room in the home for the things in the stuffed garage. I would rather not sell or give away the things in the garage, they are too important to us. The kids need their bikes. We need strollers. We need everything in there in fact, and regularly go through the garage to make sure that anything we can throw away, or give away, gets taken care of. So what exactly are you suggesting I do?
Any clarification?
I am not Suzette, but do you really need help with this one?
If a child can ride a bike, they no longer need a stroller.
Do you think Bank of America will give you a loan for a bigger house after you walk away from this one?
I can't believe how entitled you feel to the government's (and the Wisebread reader's) money. It's like a slap in the face to anyone that has not taken a handout and has been responsible for their financial decisions.
You say you did "everything right". Actually you didn't. Your financial plan for your family and their living space and quality of life was completely dependent on the value of your home rising. Now that it has lost value, you have nothing to fall back on and you write about wanting to walk away...?
Next time maybe you should write about making sound financial plans for your growing family before complaining that you aren't getting your fair share of handouts. You might as well write about "How to take advantage of soup kitchens and how it can save you money on eating out"
I would also advise losing that "tough skin" and really listening to what others are telling you. What you really have is a sense of entitlement and stubborness and it doesn't serve you well.
by that account anyone who ever lost their job and needed help didn't think about the future. In fact, anyone who doesn't have an enormous bank account with living expenses tucked away for 8 months hasn't done it right. To take it further, anyone who relies on the government for anything is entitled. But anyway, you clearly did everything right and have never taken a handout for anything, so for that I congratulate you. Most people have made a few mistakes though, I'm now seeing I'm one of them for ever trusting in mortgage brokers who sat down and showed me the appreciation numbers on my home before I bought it.
as this is getting ridiculous. But our smallest child has a running bike, she's 3, and when we go on long walks she is still at a stage where she needs a nap and needs the stroller. We also have jogging strollers as the kids can't keep up with us. So kids can ride bikes and still be in strollers. And I think I'll stop with the comments section now.
you post alot that means your on the comp alot how is your marriage and sex life?
I am actaully quite liberal and I do believe in government assistance for the disadvantaged and for those temporarily out of work. I just don't believe that taxpayer money should be used to move you into a larger home. Why would you even extend the argument beyond that?
Well darn, you seem to have a lot nicer things for your kids than I have for mine. Maybe I need to call my bank to get my loan modified so I can catch up to you.
I'm in the same boat! This, too, is pretty much my story ... except, I want to "down-size" ...
I no longer need a 3bd/2ba home with a yard and a detached 2 car garage ... but I'm stuck paying for it because I'm $50k underwater and can't rent it out for what my monthly payments are ... and although I am still able to make the payments (just barely), if I were to incur any additional expenses (medical deductibles, auto insurance deductibles, auto repairs, home repairs, etc.), I wouldn't be able to make all of the different minimum payments ...
I use to have 3 dogs, 2 cats and a significant other ... now, it's just me and one dog ... and, now, I'm single ... also, I'm not as young as I use to be ... I don't want to shovel and mow anymore ... don't have money to hire someone to do it ... can't let it go because I'll get fined (oops! more unplanned expenses ...).
Plans change, situations change, people change ... and so do our priorities as we grow older ... nothing remains static ... decisions we made 10 years ago were based on the specific set of circumstances at the time ... and the times have changed ... a lot!
I'll be listing my house soon as a short sale ... because I don't want to be in my house for another 10 years "hoping" the housing market gets better ... 10 years ago, I was "hoping" I made a good 'investment' in my house ... (sigh) ...
I'm looking forward to hearing how things work out for you, Paul ... keep me (us) posted!
Karen,
I concur with the suggestion to find a roommate or two. I'll go further and suggest you find roommates who are in a similar situation to you -- (slightly) older single women. Not only will you get along better, but you can work together to handle the stuff you can't or don't want to do alone. I knew three women in Minnesota who did this. They were divorced or widowed and helped one another with things like hanging curtains, rotating mattresses, cleaning gutters, installing storm windows, yard work, and so on. It was a real blessing to be able to count on each other in addition to financially beneficial.
Just because you need a roommate doesn't mean you have to share a house with raucous college kids or anything. Many people are consolidating and living with less space in order to save money right now.
Good luck!
Karen, can you rent a room (or even 2) in your home while you continue to live there to help with the mortgage?
Paul, it's a shame you've reacted so defensively here. How is your decision to stop reading our comments any different from a reader deciding not to follow wisebread.com anymore?
Many people, myself included, spent time and made the effort to discuss your situation. Some even cited references. We are also entitled to our opinions, and simply because by and large the opinions were that you were being a bit unreasonable, you've decided to ignore us? Now THAT's the kind of post that makes me consider not reading your blog anymore!
However, I do plan to continue reading, because I consider this post to be unusual in it's lack of logic and focus. Let's face it, it's basically just a rant. Well, you ranted, and we responded.
Thick skin? Hardly.
REMODEL! In the long run you are adding value to the house. I suspect that you're feeling this way because you've been looking at the price you could pay right now for a "bigger" house, and it makes you want to unload your current smaller home. You still have many options - bite the bullet and rent it out. So you'll have to pay a few hundred bucks to cover the mortgage, so what? It won't be forever, and is it really worth the struggle you would face in the future dealing with poor credit? Also, what would you be teaching your children by walking away? As they say, "a winner never quits and quitters never win".
Paul, I am not sure you understand the purpose of the mortgage assistance program. It is intended to prevent forclosures on homes. You are not seen as a forclosure risk, thus you are not eligible for the program.
What you are proposing by stopping payment on your home is akin to someone trying to get themselves laid off because they want to collect unemployment. You take this a step furthur by saying you would like to get a bigger house once your loan is modified, which is like someone trying to get themselves laid off so they can collect unemployment for a while, then find an even more high paying job. I'm sure it can be done. Is it fair to the rest of us? No.
As someone has already stated, your "rant" lacks logic and focus. I am sure they way Citi handled the situation angered you, but you need a more clear and reasonable perspective on this. You are not owed anything by the bank. If you don't like how Citi has treated you, simply don't be their customer next time. It would be their loss.
Maybe step away from this for a week or two and come back with a more thoughful follow up on your situation.
There sure are a lot of snippy, self-righteous people posting here. Get over yourselves. The rules have changed you churchy fools! The likes of Citi and BOA are fleecing hundreds of billions from taxpayers while at the same time screwing each individual mortgage holder. Talk about double dipping? Why don't you go lecture them!
Sure they want you to default...they get tax breaks for every loss. This post illustrates the dilemma that honest people are facing, which is to become more like the banks! They don't care about you so, why should you care about them. It's just business. You have to change your perception of the world. There's a rule in this business: "You never throw good money after bad." The banks wouldn't do it and neither should you. So, of course you stop paying a loan that's 25-50% underwater! Now, try the details of this story when dealing with a lender who's call center is in India and they can't even get your name, address, and phone number straight after repeated attempts to communicate. "We can't handle this until you are in default."
"So, you can't start the process of working with me on this until I stop making payments?"
"Like I said, sir, we can't initiate the claim until the loan is in default."
"So, I should stop making payments?"
"...."
Of course, when you finally get some answers from one department, they can't coordinate with the collections end of their company, so you get dozens of calls that you have to explain the same thing over and over again. Don't worry about defaulting, etc. In the long run, millions and millions of people have faced the same thing so, it's just not that big a deal anymore. Hoard your cash, pay your credit cards, and you'll be just fine. Whatever you do, go forward, forget the sinking ship (house) and don't look back!
So if your car depreciates in value after you purchase it, you should just stop making loan payments?
Your "lecture" worse than anybody else's
Cars and all other consumer goods are completely different than houses, and therefore, the comparison is invalid.
Just a guess, but I'll bet that someone who makes such a thin argument like that has also uttered phrases like: 'Better to fight them over there than fight them over here' or 'people choose to be poor' or 'drill baby, drill' or 'God made Adam and Eve, not Adam and Steve'...
Your guess is completely wrong and insulting. There are financially responsible people on both sides on the political spectrum, so please don't try to draw that line in the sand because we are probably on the same side.
Since you seem to be missing the point completely; how about this comparison? I bought stocks on margin that depreciated during the economic collapse. I should walk away from that as well.
Paul, let me first thank you for sharing. I'm sorry you're going through what you are (and many are), but interested in the range of emotions/opinions it has brought forth.
First of all, Citi/BofA/etc. have no real vested interest in how you feel. Your loan was sold before you signed off on it, and they simply kept the "servicing" (or lack thereof). This allows them to do a loan, essentially get their money back + additional for doing the loan, and THEN get paid to "service" the loan. This is how not only the super banks do it, but any bank that sells mortgages to Fannie/Freddie and keep servicing the loan. Some do it well, others do not. This is also what allowed banks to book subprime loans at high interest rates...but not shoulder the risk, as the sold the loans off to Fannie/Freddie too. This is what allowed all the loans to keep getting done...regardless of inflated prices, inflated risk, inflated interest rates.
Second, several above referenced "lending practices" are being blamed for the bubble and subsequent collapse. While my first point addresses part of the lending side, I'd like to mention the "borrowing demand" that disappears in the discussion. In order for a bank to "lend", there has to be demand for the lending product. What amazes me is the market's IGNORING of the "market bubble" warnings! Yes, they warned of a bubble for what...5 years?!?!? But people kept buying, buying, buying! Do you all remember the boy who cried wolf? This is absolutely what happened - they warned about it for so long, that the market grew oblivious to it! I think consumers grew complacent. I think there were MANY *IGNORANT* consumers. Did the lenders (keep in mind some were not banks) take advantage of this? In some cases, yes. In other cases, no. I'm NOT going to place 100% of the blame on the banks - it took 2 to tango.
As for your particular situation, Paul, you signed up for this ride. I'm not a fan of "principal reduction", unless you can prove that Citi fabricated the value of the home specifically to get you into the loan. If you wish to maintain your credit through all of this your best situation may be to work with Citi to sell your home and get a note from them for the difference. Argue that this would essentially put them in the same position they are now, but they could make a little money on it! You'll have to rent, and you'll have a rent payment plus this smaller loan payment but you'll keep your credit solid and be in the best position upon exiting the situation. If you walk away from it, they could come after you for the deficiency. They could throw a 1099 your way, and then you'll owe the IRS instead of Citi...I'd MUCH RATHER owe Citi. The IRS is just evil.
As for the "nuclear" option put forth by Richard - I think this is terrible advice. My primary reason for saying this is you give up ALL control of the situation. You don't control the selling price. You don't control the outcome after the sale (which you can possibly negotiate if you do it as I said above).
I don't like relying on a credit score, but if you're looking at another house in the next 5 years...I'd recommend trying to broker a deal that gets you out of the house, into renting and with a small note for the difference. Hope this helps! Thank you again for sharing!
I am assuming that the plan announced by the government on March 26th are going to cover these kind of cases. I know it is up to lenders but lenders are clearly experiencing strategic defaults. There are very few people like Paul who are keeping up and Government is worried about people (25%) who are every day planning or doing defaults.
When I called Citi and asked about the new plan they told me that it is currently under progress and they may launch it in May.
You aren't a problem for them yet, so they don't have to help you. Just think about becoming the person that answers the phone at Citi. Their job is to keep customers paying, or to get customers who aren't paying to start paying. You are still paying your bill, so you are an easy fix. All he or she needs to do is tell you there's nothing we can do for you, and send you on your way.
I actually find it almost unbelievable that they told you what it would take for them to start caring about your mortgage. They must have really wanted you off the phone!
I understand your situation, as having worked for a financial institution before...But too many individuals are lazy and only follow what other people say.
Homes are not the best investments as media and financial knuckle heads tell you. You are buying/investing in property that is initially owned by the banks.....Please look at your mortgage after your name as you will see 'tenant'...that is why you pay taxes on property.(they all work together:IRS/banks/fed)
If you do not have allodial title, which means you own the earth that your property sits on, you have to pay taxes on it. As for any mortgage, you are paying between 2-3 times more for interest than the original listing price of the property(why else do we have 15-year mortgages and 30 year mortgages, DUH!!!)....plus for anyone who stupidly assumes that upkeep and renovations, ect. after purchasing a home, that they are guaranteed a profit, please think again. Unless you are doing a short sell or rental, get some common sense.
Please do your homework...The banks never lose money....That's why they lend 10 dollars for every dollar they take in.
My advice is to liquidate all you can and keep a stash out of banks. switch the mortgage to one spouse's name and Default on the mortgage. stay it out until you have to leave your home. keep a job, delete automatic deposit...and RENT!
Regardless of how the commenters feel, thank you for sharing your personal experience with us.
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After reading the long list of comments here I hate to butt in, but I need to share our story. We are in the category of thoes who are trying to modify our loan thru BoA due to a job loss. My husband lost his job in june 09 and at this point still has nothing.
His unemployment runs out in July 2010 and we have been going thru the modification process with BoA since Feb with no end in sight. We call on nearly a daily basis only to get the same response over and over, "Your loan is still under review..."
That Hope you hinted about from the BoA article is hopeLESS. They consistantly lose our paperwork every time we send them a fax and are ALWAYS told something different by different agents each time we call. I have had better customer service from the DMV then with them. At least the DMV tells the right hand what the left hand is doing.
I don't want to sit here with a sense of entitlement about getting my loan modified -- but we didn't get in under our heads either. When we moved in we had car loans, private school payments and of course the usual bills that come with purchasing a new home. with my husand losing his job (he was working in construction) last year we have come up against so many road blocks in every area. My son has no medical insurance and DSHS won't pay for it, we will go into Default in July and considering missing our payments to speed the process up with BoA. Because we are not in default and have not missed a payment so far, we are in the "no worry, no hurry" category at BoA.
So far it appears BoA is going to only offer us maybe a $250 discount on our mortgage. The Hope Program that Obama put into place must only happen to a very small percentage of people because saving $250 isn't enough to keep us in our home.
I don't want to default either - and we are not bursting at the seams. Just fell upon hard times. But there isn't anything we can do. We are at the Mercy of BoA who wasn't our lender in the first place. We were originally with Countrywide before that fell apart as everyone knows. Thankfully the unemployment has been enough so far to cover our payments with my income, but with that ending soon we are working on borrowwed time.
What do I do people?
What do you suggest?
I can't pay my mortgage, it won't sell because we are under water, I can't even afford or qualify for medical coverage for my son and husband, we can't rent it because our situation is similar to Paul's and my income won't cover our mortgage payments for even one month. We have no savings because BoA made us liquidate it because "having money in the bank gives the illusion that you can pay your mortgage" what a joke. That savings wouldn't have even covered 3 months worth of payments, but they don't even take THAT into consideration.
So while everyone sits here and reams one another about their situations, what do you suggest for us?? I have 2 months to make a decision and right now the timing from BoA doesn't look like it'll happen or with a lower payment that we can afford.
We have little choice but to default or foreclose. My hope is that maybe someone on here will have a recommendation aside from Judging me and my situation. Yes, I get it, my husband needs a job. Tell me something else I havne't been stressing about over the last 9 months. Just please consider what you might think about those going thru the modification program. We should be the type of people who qualify for this program, but even us who have been and are still being responsible are being hit and hit hard. It doesn't matter if you have a great credit rating it means nothing to the big heavies holding my mortgage.
Has anyone out there had luck with You Walk Away?? Considering doing that because it provides more services then a lawyer.
Thank you people and thank you paul for being able to tell your story about how horrible CitiBank is. Just know BoA is about 100% worse due to how many people are on the wait list with them.
Thanks for sharing. Your situation is very common in the industry, and a tough choice most have to make. Ruin the credit to keep the house. If my clients would step away from the emotional aspect of home ownership, logical financial solutions can be attained.
Daniel
The Modification Insider "What Banks and Loan Modification Firms dont want you to know"
I've beenr eading a lot about this stuff. I dont know what to do myself. i had to refinance my home in Sept 2009 to get it out of my now ex husbands name. We couldnt sell because the value had gone down - so I "won" the house in the divorce since I made more money. I tried modification but do not qualify because of the refi. I have great credit and have been paying minimum payments on credit cards, and making sure my mortgage gets paid monthly. I've thought of short sale - but they bank will not approve unless I miss payments. I called the bank up - they had my financials in front of them from the loan mod request - and said they can't help me unless I default for 2 months. Once i default they will consider helping but can't garuntee it. My mortgage is about 40% of my gross and 80% of my takehome. After I pay minimum on all my bills I have about 200 bucks a month for food, gas, heat etc. So the credit card debt will be rising.
So I know some will see this as my fault because I wanted a divorce -or I should have held my ex husband more accountable and kept him in the house (for potentially years) until we sold the house.
I hate the idea of defaulting but each day when I can't even afford to put gas in my car to drive to the commuter lot to get to work - I think about it.
Paul, thanks for sharing. I can completely relate to this story. All the news about these banks assisting home owners seems to be a bunch of B.S. When you do finally reach someone at the large bank, they are indifferent to your situation most times, and the ones who do try to help you are likely unable to due to limited positional authority. What's more frustrating is you also receive advice like the type you received from Citi, where they actually tell you to do something which is completely opposite of common sense! If you are so gullible to follow this advice, then you end up being totally screwed. Almost as if this was the purpose the bank gave such advice in the first place... Bottom line, hang in there. The economic climate in the country will hopefully change soon, then we can all come together collectively and work on changing this system once and for all.
April 22, 2010
MORGAN STANLEY
Metalmark now CITIBANK
Whitebox
Wachovia
Bank of America
We have been shareholders, patient ones, with family members of AVENTINE RENEWABLE ENERGY since early 2007. In January of this year, we, Bill and Sheila Toomey, sat in attendance during a Bankruptcy, in Wilmington, DE, hearing, where our objections were entered into the dockets record. We are not lawyers and our attendance was with sincere respect to the court, for entering our objections. We learned, quite quickly, the procedural format of lawyers takes precedence over the actual evaluation of data impacting this entire Bankruptcy, in progress.
With the manner of how this has developed, we have the following concerns and are frustrated with the procedural process inability to resolve these concerns. We are and have been shareholders, yet, our rights, as shareholders to VOTE on the initial bankruptcy filing, the selection of the ever changing senior management and the Board of Directors have ignored and excluded our input, as members of majority shareholders . We have been consistently superseded by a creditor group who had directed the activities of the senior management and Board of Directors prior to the Bankruptcy filing, and continue to do so, as indicated by previously employed senior managers. We, the shareholders, have not been considered, informed or included in the decision making process for over two years, well before the Bankruptcy filing. From our perspective, we had been passively patient not even considering how our management and Board of Directors were taking direction from the company financial advisor, and creditor, while excluding shareholders. It is this obvious CONFLICT(s) of Interest(s) which causes us to implore your support for the overdue formation of a Shareholders Committee.
Further, we would request an understanding, with explanation, why a creditor group and financial advisor selected and voted successfully a POR, Plan of Recovery, which was overwhelmingly rejected, by over 70% of the actual shareholder owners. Those who won the vote for the exclusive POR, submitted, were nothing more than bondholders who could, and can, be paid, as promised through the cash flow of the business. Of course, they would like to take ownership of the company for serviceable debt, but why should a creditor and financial advisor be placed into a position to take the company from the shareholder owners, without the shareholders choice to pay the debt, as promised ?
Finally, we the shareholders, having been excluded and ignored throughout this procedural process, we find completely unnecessary, humbly request, your support of the shareholders right to call an immediate shareholders meeting, in April 2010, to deliberate in these details for the benefit, inclusion and future success of employees, shareholders, partners and customers of Aventine Renewable Energy. We may not be lawyers, but we know what paying debt and managing a business requires. Given the opportunity, we will ensure the bills are paid and business responsibilities are conducted as the principles of business ethics expect. We believe the actual bankruptcy filing should be rejected, dismissed, because the rationale and premise, for filing, have been proven to not satisfy or meet the need for Bankruptcy protection.
Your consideration and approval of these requests are in line with the respect shareholders deserve for their investment in this company and in how shareholder rights are understood by the majority of existing, shareholder owners.
Thank you for your time and sincere consideration of our humble requests.
May God guide and Bless you.
Sincerely,
William J Toomey and Sheila M Toomey
Shareholders Aventine Renewable Energy
http://register-news.com/news/x2143174581/Lay-Skilling-convicted-in-Enron-collapse
http://www.bloggingbuyouts.com/morgan-stanley-capital-partners/