The short sale, the budget, we made it.
If you are in the reading mood and like adventure stories with happy endings, try this one.
This is the short version of our short sale. (Short!? Looks a little long.) Well, this story took over a year to unfold, so, yes…this is the short version.
“Experience is a hard teacher because she gives the test first, the lesson afterwards.” – Vernon Sanders Law
His + Hers = OUR$
A true story
I have been there and done that. Allow me to tell you my story, so you understand why you should listen to me about financial strategies.
In 2010, I was trucking along in life, earning a steady, decent-sized paycheck and had managed to save up a small pile of beans. My net worth was approaching six figures and I was only 30. Debt free and loving it I had a comfortable and reliable financial buffer between myself and the Bad Things in Life. As if there is such a thing as a financial buffer between ones self and the bad things in life. Then Boy Meets Girl, Girl Says Yes, and it’s off to our Happily Ever After. While my soon-to-be wife had a few small debts to clean up and a small student loan to pay off, it was easy stuff that I could cover with one check. It was all going to “work out”. But then… WE HAD TO DO A SHORT SALE ON HER OLD HOUSE! Suddenly things weren’t so peachy anymore. A short sale is what must be done in order to avoid a foreclosure on a property when you can’t keep up with the mortgage payments. When there is a gap between what you owe on the property and what you can get for selling it, where do you suppose that extra money come from? It comes from you! It’s like selling a house to someone AND paying them to buy it. Wikipedia describes it this way:
A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property and the property owner cannot afford to repay the liens’ full amounts, whereby the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt. Any unpaid balance owed to the creditors is known as a deficiency. Short sale agreements do not necessarily release borrowers from their obligations to repay any deficiencies of the loans, unless specifically agreed to between the parties. A short sale is often used as an alternative to foreclosure because it mitigates additional fees and costs to both the creditor and borrower; however both will often result in a negative credit report against the property owner.
When my wife Carrie was just twenty years old, she bought a house. The year was 2002, a time when banks and mortgage lenders where approving everyone and their dog. It was during this time when all of those “toxic mortgage backed securities” where getting ready to bring down the economy. It was a result of these bad lending practices that the global economy eventually tanked in 2010. She was doing what she thought was the right thing. Her family had been moving from rental to rental for years and the instability was getting old. Carrie was the only member of her family who had good enough credit to be approved for a loan. The plan was for her to sign the papers and own the house. The plan also included that the rest of her family live in the house and pay rent so that the payments could be covered. The plan worked great until, one by one, Carrie’s siblings and eventually mother moved out. (There was nothing wrong with any of this- no bad blood. The ‘kids’ were moving away for school, jobs, etc. and for other respectable and responsible reasons) Either way, the situation left Carrie holding the bag and unable to make payments on her own. For a while this wasn’t so bad either. Carrie simply rented the house to a series of renters. She even made money off the house during this period of time. Then, along came a family of renters who destroyed the house and didn’t pay rent for months. They did thousands of dollars of damage to the house. Items like the gas meter and septic tank pump even disappeared! After finally kicking out this bad tenet, the house was wrecked and un-rentable. Now what? During this time, Carrie had a good job working for an ….uh oh…. oil company. The economy tanked and the company she worked for (along with almost every other energy company) laid off about a quarter of their employees. Carrie was one of these. With this new-found freedom, Carrie decided to move from Oklahoma City to Kansas City. She had friends in Kansas City, why not? Moving five hours away to a different city made managing this situation even more difficult. It was almost impossible to keep tabs on the bad tenets or retain control over the situation. Dealing with a mess like this from afar over the phone was nearly impossible. Already feeling the pressure of being unable to keep up with the payments on her own, selling the house was the only option. By this time it was 2009-2010 and the housing market was in trouble. Try selling a nice house for half of what it was really worth, or at least what you originally paid for it. Now try selling a house that had been wrecked. The house was put on the market and no surprise, wasn’t getting a whole lot of attention. It was during 2009-2010 that Carrie and I met. More specifically, she moved in next door to me in June of 2009 and we got married just 17 months later! (When you know, you know. Why waste time?) This situation was growing more complicated and urgent. Here is a quick outline to help define the situation and paint a picture of what we were up against.
- The house was damaged and un-rentable.
- Carrie was falling behind and unable to make payments.
- Carrie was laid off.
- Carrie moved away, making dealing with things difficult.
- The house was put on the market. Because of its current state, it didn’t show very well. Several major repairs costing thousands of dollars had to be made to the house.
- The housing market was awful.
- Carrie and I met.
I had a very loose grasp of what was happening with the house. At first, all I knew was that she owned a house back in Oklahoma that she was trying to sell. Carrie was trying her best to take care of it on her own. I didn’t get daily updates and didn’t ask very many questions. Around the time we got engaged, the house was becoming a pressing issue. The situation went from somewhat manageable to somewhat scary. It had been on the market for over six months and all the signs started pointing toward disaster. The last half of 2010 was a mixed bag. We were in love, engaged on 7-25-2010 and married on 10-9-2010. The house was on a road to nowhere and through holy matrimony about to become my problem too. It must have been during the Fall of that year when the word foreclosure started showing up. Aw, sh!t! Foreclosure!? Isn’t that, like, really bad? The term short sale also started showing up. Isn’t that, like, bad also? I didn’t know what to make of all of this. On the one hand I was scared and felt very vulnerable. On the other, I knew that there wasn’t much I could do anyway so don’t worry too much. After all, like my buddy Jeremy says, “They can’t eat ya”. Letter after letter, email after email, phone call after phone call. The story of the house was unfolding. We had an amazing realtor who worked incredibly hard for us. She must have logged thousands of hours on this “project”. In the end, we owe it all to her. I even sent her a thank you note in which I referred to her as an angel. The house was floating down the river. We were unable to rope it and tie it down. It was clear to everyone that it was going to go right over the waterfall, and soon. The house was scheduled for foreclosure. I never did and still don’t understand how that process works. I know its bad and leaves a big, bad mark on your credit report. The house was placed on the sheriff’s auction list for sale to the highest bidder. I have no idea why the sheriff is involved. Anyway, it was on the list, it was going to happen, the date was even set. You could even go to some website and see it listed. NOT. GOOD. Angel No. 2 Somehow, a buyer came out of nowhere. Somehow, a short-sale arrangement was possible. Sweet, let’s do this! The lesser of two evils! Progress on the short sale started coming to life. Hooray! Still listed on the sheriffs auction website for a date that was only a couple of months away, we signed papers, returned emails and phone calls as fast as we could. We learned from the mortgage lender that we could short sale this thing for just a couple thousand dollars. Sweet. But then… The second lender wanted more, a lot more. Crap! Second lender? I didn’t even know there was one. Neither did our realtor. Carrie knew but in the middle of the mess assumed that it was known and being dealt with properly. It wasn’t. The clock was ticking and time was running short. When dealing with situations like this one here, things seem to move at the speed of, well, you would think that time had split into two separate forces. The time/space continuum was running circles around you. One branch of time was speeding up and against you. The other branch had slowed down and was determined to screw you too. The people who were on your side had their hands tied and where unable to help. The people who didn’t care about you and your situation always seemed to drag their feet as if they wanted you to fail – or at least go crazy trying to succeed. So much time had past between getting the first lenders approval and the second lenders approval (months) that the whole deal was in danger of having to be scrapped and re-visited. The paperwork actually had a signing deadline. That date came and went, we filed the paperwork anyway. A gamble, but we didn’t have very many options. This process is so complex with so many people involved that you can sometimes just “roll with it” by doing something not quite allowed. Often it is overlooked or “pushed through.” So much time had gone by that another important date had come and gone, our wedding. Important for obvious reasons for us, but for other reasons for others, specifically the second lender. The agreement with the first lender had been made while Carrie was still single, legally speaking. In between filing the paperwork for the first and second lender, we got married. The agreement between the first lender had Carrie had been made with a “hardship” in the mix. That didn’t work out so well with the second lender. The first lender didn’t know I existed and didn’t ask for access to my accounts. The second lender was very interested in me and my money! With my thousands of dollars just lying around they didn’t seem to agree with the hardship angle. They sent a letter that even said they didn’t agree that Carrie (and now me) were in a position to play the hardship card. We ended up cutting a deal with the second lender that included us writing a check for a few thousand dollars. It ended up being more than triple what we had to pay the first lender. It was coming together. Finally. But don’t even think about popping the champagne yet. The house is still listed on the sheriff’s wonderful little website. And the date is so close you could smell it. Return phone calls, emails, and send faxes at lightening speed! All of this is now a blur. But I do remember one detail. I remember wiring the money to the title company. “Title company?” I remember thinking, “What the hell is a title company anyway?” Having no experience with this stuff, I thought title companies where a thing of the past. The money transfer was made. It was done. Right? Wrong. Even though we had signed and faxed all the papers, sent all the emails, returned all the phone calls, met our end of the bargain and were holding up our end of the deal, sometimes that just isn’t enough. (one week … one week away from the auction) The Title Company requested PROOF THAT THE MONEY HAD BEEN TRANSFERRED! It was like handing someone a twenty-dollar bill and then they are standing there with the twenty-dollar bill IN THEIR HAND and asking you to prove to them that they have it. The money wire-transfer hand been completed weeks ago. The money was in their account and they wanted us to provide proof. (tick, tick, tick) I faxed the papers that I had been given from the bank when the money transfer had taken place. (tick, tick, tick) Nothing. The house is still listed on the sheriffs website for auction, foreclosure. The auction date came and went. It was like a seen from a movie were the bomb should have gone off and destroyed everything by now and yet, somehow, we are all still here. The bomb did not go off. The house did not get auctioned off. The foreclosure had not come through. Two days after the foreclosure date, we got THE letter. The one that said the short sale was official and final. We can only guess that the folks over at the Sherriff’s office had been informed by the bank or title company or God himself that a deal had been worked out. Just how close had we come to losing the house in a foreclosure? Answer; the paperwork officially came through three days AFTER the foreclosure auction date. Just a little too close for comfort. The Dust Takes Years To Settle A short-sale stays on your record for years. Just the other day (over a year since we got The Official Letter) we turned in an application to move into another apartment. This new apartment was only $80 more a month than the one we where living in. It wasn’t as if we were trying to buy a house and double our monthly housing payment. The landlord called me in need of some more information and briefly mentioned the “forclosure” on our credit report. I politely corrected her saying that it was actually a short sale. Nothing came of it. But it was there, lurking in the darkness. This experience is also lurking in the darkness of my mind. I am always and maybe forever will be leery of the official looking letter waiting for me in the mailbox. I opened too many letters that offered bad or ridiculous or confusing news. Almost a year after we got The Letter, we got another letter. It claimed that we STILL OWED the balance that we had previously paid in order to settle the short-sale. “Here we go again” I thought to myself. A week and a few phone calls later it was settled. It turned out one of the balances on one of the loans had been sold to another company sometime in the middle of the whole process. They never received conformation of the balance being settled. It had been settled just before it was bought and transferred to this other company. It takes so long for these transactions to take place that plenty of things can change between starting the transaction and completion. Remember earlier I talked about the deal with the first lender was in danger of falling through and having to be re-written and possibly voided and unable to be rewritten in the same manner because it took so long to strike a deal with the second lender? If time had run out on the first deal and had to be re-written, there was also the added damaging potential of the first original deal not being valid anymore due to this “new evidence,” that being the “un-earthing” of the second lender. The deal with the first lender had been struck without the knowledge of the second lender (and without the knowledge of me and my money). Learn from our ExperienceWe clamped down on our spending, started an intense monthly budget and managed to avoid foreclosure by paying our portion of the short sale. The house is a memory now and we have the documentation to prove it. It was a valuable learning experience for us. As a result of this experience I am writing a three-part series. I offer this to anyone in need of help, support, and encouragement to create a real pen-to-paper strategy and action plan.
- “The Weekender” Designed to get you up and running quickly. Take a quick look at how you are spending your money and create a plan that you can feel better about. This little guy is free on most e-readers and $.99 on Kindle.
- “The Four-Week Financial Turnaround” A more in-depth workbook. Create an airtight monthly budgeting process by challenging your spending habits from every angle. Attack debt and gain financial independence and freedom. Out October 2012. Join the Book Launch Team before October and get a free copy.
- His + Hers = OUR$ The complete short-sale story(yes, there is more). How we made it through, what we learned, and how it can help you. If you are facing a difficult situation and need encouragement, this is your book. Check out the website and join our little community. The community is full of others who are up against similar challenges. His + Hers = OUR$ is a community of people who are fighting together to create a better life for themselves and the people they care about. When his plus hers becomes ours, its time to fight together, not each other.
My wife and I figured this stuff out because we had to. I didn’t want any of this to happen. I didn’t go out looking for it. It wasn’t fun at first. I resisted the whole thing at first and even tried hiding my head in the sand. That won’t work. The banks and lenders and title companies want what is owned to them and they will get it. We cooperated and gave them everything they needed to make things happen. If we and cried and told them it wasn’t fair and we would rather not participate, things would have gone very differently. I suppose the worst would have resulted. Foreclosure, financial ruin, bankruptcy, fines, prison….I really don’t know. At some point in time I realized that I enjoyed the process. I enjoyed gathering the information, organizing it in a way that made sense, identifying our values and goals, and creating a plan of action. In a strange way, the whole thing turned into a fun challenge. After each battle that we won, a feeling of accomplishment always followed. Reviewing the results of all our efforts, hard work and discipline was even more satisfying. And when we finally got that last letter that said it was all over, I could almost see the trumpets that I was hearing. As a result of all of this, we looked at our spending habits from every angle. We read books, attended Dave Ramsey’s FPU and created a system of our own that we now use to keep control of our spending habits. We discovered the difference between a want and a need. We discovered how little we actually need in order to survive. (A new car and granite kitchen counter tops aren’t on that list, shocker) Another plus–my marriage is stronger than a Tyrannosaurus Rex because we stuck together during this season of scarcity in our lives. My wife and I didn’t blame or fight each other. We held each others hand when it got scary. It would have been very easy to blame and get mad at each other, but it wouldn’t have gotten us anywhere. We fought together, not each other. When you both fall out of the boat and find yourselves in a raging river, the best thing you can do is hold on to each other. Experience is truly the best teacher. I learned that the hard way. I learned on my own. And I am better because of it. I offer to you now what I learned from our experience. I hope you will let our experience be your teacher as well. -Derek (with tons of help and love from Carrie)