My Story: A Mortgage Nightmare Confession

Have you ever looked back in time and wished you could do something all over again, or not at all? Hindsight always objectively highlights mistakes that we make, and often causes us to play the “if I knew then what I know now” game.

Fortunately for us, this story has a light at the end of the tunnel. If anything, we learned a very valuable lesson in home ownership, specifically in terms of getting the right mortgage. As most of you know though, my wife and I decided long ago that once we were free from the bondage of mortgage debt, we would never borrow again.

Our mortgage nightmare has solidified that commitment even more, but even if we changed our mind, at least we would have something called a clue before starting the mortgage process again. Lucky for us, borrowing money is a thing of the past.

Our Story Begins

Almost five years ago we had just sold our very first home. We actually made some money on it, but had it not been for our stupid financial behaviors which caused us to refinance, we would have made more than $60,000 instead of just $12,000. And NO, we didn’t save any of that money. We did pay off a heloc we had and then blew the rest on stuff we “needed”. We hadn’t yet learned our lesson.

We rented for a bit but started to get antsy. At the time, we were of the opinion that renting was for idiots, and we didn’t want to be idiots. We started looking for a house to buy. To our credit both of our homes were not bigger than we could afford, but as you will see in this story, the type of mortgage we ended up getting on the second one, was the eager bullet looking for an empty chamber.

We had house fever, and we were willing to put absolutely nothing down if it meant getting us into a house. (Renting… Ewwww YUCK!) <—SARCASM!

Guess what. That’s exactly what happened. The good ole’ creative financing option was being done by everyone, why shouldn’t we take advantage. “We deserve to live the American Dream!” If we kept renting we would of been stupid, but if we forced our way into a house with no down payment, we’d at least be keeping up with the Joneses.

We followed the Joneses right into a trap! “Hey, we’ve been set up!”

Too bad we had not started our Total Money Makeover at the time, because I can assure you had we done so, there would have been no interest-only mortgages in our future.

We signed up for 100% financing on a 80/20 interest-only mortgage, or as I now like to refer to them as—an absolutely horrific, high-velocity, out-of-control roller coaster crash and burn! Getting on the roller coaster is easy, it’s getting off that’s the hard part.

Paying an interest only mortgage kind of feels like the climb to the top of the roller coaster. You’re going really slow, it seems like everything is fine and dandy, but something in your gut tells you all that is about to change.

This is where our problem became clear. We were at the top of the roller coaster gazing down the steep collision course ahead. “What in the world have we got ourselves into?”

Last year we had a second child. Little Noah was born and my wife was on maternity leave for 3 months. During that time we started talking about our options, and decided we needed to play defense. We wanted to refinance out of our interest only-mortgage, so that we could avoid the adjustment period and have a flat rate. All I can say is that we should have thought about that before the housing bubble burst, but we didn’t. (there’s that hindsight again!)

We found out that since we would be refinancing for the same amount we originally financed, having paid no principle, a refinance was not something the mortgage company was willing to do. It’s kind of like refinancing a car that’s not worth what you owe.

Our next step was to try for a mortgage re-modification. Keep in mind that we started this process about the time our son was born—around October—and at this point we’re in January of 2010. It took them almost four whole months to turn us down. From what they are telling us, our chances of a re-modification looked good, but again, this is not a quick and speedy process.

We were finally denied, and the mortgage company suggested our next step—a short sale.

“WHAT? You had a chance to re-fi, or re-mod our loan to get 100% of what we signed up for, but you are gonna turn that down…in this economy?”

I apologize for that emotional outburst.

No re-fi, no re-modification, one less income, and now we are really starting to feel the pressure. We put our house on the market hoping that we could get someone to bite, at a time when no one was really hungry. Crazily optimistic, I know, but we were beating hopes door down.

From around February (not exactly sure of the exact month), we have had approximately 10-12 people look at our house. It has been remodeled by me, and is in pretty good condition. “It’s a nice town home for someone dammit!” We received a whopping one offer right before the tax incentive expired, for $110,000. We owed $134,000 on mortgage A, and $33,000 on mortgage B.

Our plan was to short-sale, and then make a deal with the mortgage lenders for the difference. Mortgage B, in a short-sale usually gets very little to nothing, while mortgage A has the priority. Mortgage A said that they would not accept anything lower than $115,000-$120,000. They denied the short sale over $5,000-$10,000. We even had our lawyer submit the offer where we would pay $5,000 out of pocket if they would accept the deal. By the time the bank responded the buyer had already backed out of the deal.

Our lawyer was SHOCKED, that the mortgage company would turn it down over such a small amount of money. Short Sale FAILED.

What happened next? We are now in foreclosure! Trust me when I say this has really messed me up.

I am pretty certain that the mortgage company will not get much more than $110,000 on the court steps, but I’m actually hoping I’m wrong, and that for once, they know what they are doing. The “comps” in the area are grim, which is why this whole outcome was such a surprise to us. We thought we were avoiding foreclosure, not slow-dancing into one.

Last Friday we contacted the mortgage B lender to see if we could strike a deal. They told us they would take around $7,500 to consider the loan settled. We asked them to send us a confirmation letter for our records and they had a deal. Confirmation received and payment was made! Thank God for emergency funds!

Speaking of emergency funds, ours was sitting pretty at $10,000, but has now been dwindled down to just over $2,000. We now have just a little more than we had when we became debt free last year. Now we are just waiting to find out about what our house sells for so we can hopefully do the same with mortgage A.

Crossing our fingers!

Wrapping It Up

Dealing with the banks this whole time is a lot like dealing with the government. Slow, slow, and then just a little bit slower. The banks are overwhelmed I’m sure, but there is not an ounce of competence whatsoever in these organizations. There were so many communication problems during this process that we thought we were dealing with a bunch of first graders. Absolutely no one knew what was going on, which was why we decided to hire a lawyer. We would get letters saying the short sale had been approved, then denied, and then get letters saying that the house was in foreclosure days later.

It’s like being stabbed repeatedly in a place that won’t kill you.

We tried as hard as we could to handle this situation as best we could. We tried to own up to our part of the contract, but at the same time, found ourselves trying to play defense to hopefully keep something worse from happening down the road. Not really sure what’s worse than foreclosure short of bankruptcy, and trust me, people have suggested we take that route.

We will definitely not be filing bankruptcy, that’s for sure! I will gladly accept a butt load of debt and go back to baby step two, rather than file stupid bankruptcy! It may be inconvenient, but we are not bankrupt.

This mortgage nightmare has been brought to you by a regular guy who has proven that even after you turn your financial situation around, bad decisions from your past can come back to haunt you. Murphy is a beast!

So now we will happily go back to renting and just thank God that our situation wasn’t any worse. Lord knows there are a lot of people out there dealing with much worse than this. As hard as this has been, we consider ourselves to be blessed.

I hope that if this article has taught you anything at all, it’s that you should avoid creative financing and sub-prime mortgage loans. Rent until you’re ready to put down at least 20%.

Do you have a mortgage nightmare?

About Brad Chaffee

35 Responses to “My Story: A Mortgage Nightmare Confession”

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  1. For me, the best thing is renting because I live a very mobile lifestyle and I hate the idea of being tied down.

    If I were to buy a home, I’d buy it 100% or close to 100% in cash. It sounds crazy but it really isn’t to me. That’s the only way I’d consider buying something like that, considering the maintenance, taxes and upkeep required.

    The second best option would be to put down AT LEAST 20% for the down payment so I avoid paying mortgage insurance.

    The above decisions are exactly the reason why I will never end up owning a home ๐Ÿ˜› At least, not that I know of, unless I can find a charming place in a perfect location for a great price.

  2. Jackie says:

    Great article. I’ll share this blog post with others in hopes they don’t make the same mistake.

    I can definitely feel your pain however, our story is a bit different. We moved from WI to MN two and a half years ago by choice. We sold a beautiful house with $180k and 10 years left on the mortgage. Only to buy a $420k house with a $290k mortgage for 30 years. Can you say “stupid tax”?! What were we thinking – the problem was we weren’t. We were out of debt and had some money in the bank but had a mortgage payment of $2000 which was 1/2 of our take home pay at the time.

    Once in our brand new model home – completely finished on a pond – was when I realized I really did like the 2 most important rooms – the kitchen and the laundry room! Not to mention the mortgage payment! We bought at the top of the boom – just before the bubble burst.

    So, we decided to put the house up for sale and see what happens. The house was on the market for 4 months and brought a few offers – none of which we were willing to accept. We would only walk away with 30-35k – which was ridiculous since we put $130k down on the house at closing. So, we took it off the market (for now) and we’ll wait 2 years and re-evaluate.

    Mistake #1 – don’t buy a house in the area you move to until you have rented for a year.

    Mistake #2 – buying a $420k house because you needed one completely finished and new.

    Mistake #3 – putting down a $130k when you could have bought a house for $130k 2 years later.

    Just thought I’d share. Good luck to you and your family. Jackie.

    • Brad Chaffee says:

      Please do Jackie! Share this with anyone and everyone that will take heed. As embarrassing as this situation is for us, especially me, I hope it helps others avoid the same type of mistakes. We were living in a \”dream\” world where houses never go down in value. Ha! Boy did we learn a valuable lesson. Had we for even one second took a second to think about \”what if\” the economy crashes, we would of never signed the papers. There I go again playing the \”if I knew then what I know now\” game. It\’s so easy to do!!

      It sounds like you are making a good decision for your situation. $130,000 down? WOW! That is awesome! MY wife and I will be saving our butts off for the next 5-6 years to purchase our next house with cash. No more mortgage risk for us please! ๐Ÿ™‚

      I wish you all the best in your situation Jackie!

  3. Kaye says:

    Wow. Wishing you guys the best. I hate when stupid past decisions keep rearing their ugly heads. I guess that is how we’ll remember not to make them again though.

    • Brad Chaffee says:

      Thanks Kaye! Yeah, it;’s even worse when you aren’t in control of those mistakes coming back to haunt you too. LOL We were at the mercy of the mortgage company. That alone is enough to make a preacher want to cuss. Haha!

  4. Wow, Brad! I didn’t realize you guys were facing this situation. I’ll be praying for a positive outcome so you can move on quickly and get back to building some wealth!

    • Brad Chaffee says:

      Yeah it’s not at the top of my most favorite discussions. Haha! It’s been kind of hard to deal with, but thankfully my wife and I have pulled together, and are hopefully rounding the corner. I’ll just be glad to find out how much we owe the mortgage company so we can pay them and move on.

      I wanted to mention this sooner but assumed I would have better news to share, but I figured what the hell. I should share my story so others can avoid our mistakes. The funny part, or not so funny part, depending on your point of view, is that everything else is in order. It’s kind of surreal getting your act together to then later down the road be sidelined by a decision you made 5 years ago.

      But hey, that’s life, and we will get through it. All I can say is THANK THE GOOD LORD we did get our act together because had we not we would really be hurting. Thanks for the prayers Dustin!!! ๐Ÿ™‚

  5. Jeff says:

    So yeah I am in the same boat. I bought a house in dec 06. Mine wasn’t an interest only loan but it was more house than we could afford and 0% down. (prior to growing a financial brain). So I got a promotion which moved me out of the state. No help with selling the house though. We rented it for a year for less than the mortgage payment. No problems at first but now we are in foreclosure. BoA contrictor (bank of america) can’t get there story straight. They have told me to try to short sell. I am currently trying but no luck as of yet. I fear they will foreclose on me. If so and they sue me for the difference I am afraid that Bankruptcy will be my only option. Never again.

  6. Julie says:

    Brad,

    Thanks for sharing such a personal story so that we can all learn from it. Have you tried the new government program? (www.savethedream.ohio.gov) Wishing you and your family the very best. God will see you through! :0)

  7. Peter says:

    Brad, I remember talking to you about this a while back, and I know it has weighed heavily on your heart. While the situation stinks, I’m sure it’s freeing to talk about it here, especially in the hopes that it will help someone else avoid making the same mistake. I admire your integrity in sharing your story, and I know that you guys will come out stronger and wiser on the other side. God bless!

    • Brad Chaffee says:

      Thanks Peter, we will just be glads when it is all said and done. I am looking froward to paying off the remainder of what we owe for the first mortgage and being done with the whole process. ๐Ÿ˜€ It is going to fire me up if they end up selling the house for less than $110,000 though. LOL

  8. Sam says:

    Tough one mate. Just wondering instead of gig through the entire process and hurting your credit and suffering losses, why not just continue paying your mortgage?

    Rates are at all time lows, so if it floats your oaymet and rate would had most likely gone down.

    Best

    • Brad Chaffee says:

      Because those rates aren’t likely to remain low, which was why we were trying to refinance when we did. We wanted out of the interest only mortgage. ๐Ÿ™‚ Oh and we don’t make any decisions based on how it affects our credit scores. My credit score is non-existent since I have no loans in my name since before 2008 when I paid them all off.

      • What was your rate and what was it going to?

        If you let your mortgage float now, based on my conversations with my broker, it will float at 3.5%, and MAX 4.5% if they are really gouging you. Wouldn’t you rather just let it flat in a low interest rate environment? Sorry for the questions, as I’m just confused.

        • Brad Chaffee says:

          No problem Sam. Our rate was 7.5%, and the process has already started. We have already settled with the 2nd, and the foreclosure date was last week.

          Interest rates are low right now but most would say they are artificially low and that they can\’t keep them that low for too much longer. We had absolutely no way of knowing if they would skyrocket or not, and you\’re right, they are low right now, but we were trying to think ahead. I guess the bottom line for us was that we didn\’t want to get reamed so we panicked and decided to do everything we could from making it to the adjustment phase.

          Wouldn\’t you agree that rates have been artificially low and that with the state of the economy, spending, and the way Washington is printing money and adding to the debt, the rates are more than likely going to skyrocket. I am far from expert on this so please tell me if I am missing something? Like I said earlier, we acted possibly prematurely but once we decided we wanted out of our interest only mortgage, and they wouldn\’t give us a refi or modification, we took the next step. The only thing we didn\’t count on was that we wouldn\’t be successful in the short sale process.

          I don\’t mind the questions Sam, I am hoping to learn from this as much as I can. Perhaps I should have blogged about it in the beginning and got a variety of advice from different experts on the subject. All I know right now is that I hate interest-only mortgages, and that dealing with the bank is a pretty big headache.

          • Gotcha. What’s done is done, so no need to dwell.

            To answer your questions:

            1) No, rates are not artificially low. The output gap is sufficiently wide. Take a look at the 30 year chart of the 10-year yield. It has been on a downward trend for 30 years.

            2) Foreigners are addicted to our buying power and are recycling their capital account by buying US treasuries. Foreigners i.e. Chinese will buy our treasuries FOREVER, keeping rates low.

            In the end, there has to be something else you are not mentioning as banks aren’t that willing to foreclose/short sale. There’s no shame if there is an income issue. It’s been a tough economy.

            Definitely next time, ask around for help. I know it’s embarassing at times, but it’s all good. It’s a community and there are a lot of smart folks in PF.

            Rgds,

            Sam

          • Brad Chaffee says:

            Number one and number two went way over my head, so I definitely need to read up on how all that works.

            There\’s nothing I left out. The bank was the one that suggested it to my wife after being turned down for the refi and remod. Although we were not in default she expressed concern over the fact that we had went from two incomes to one, and that the amount of our payment was too high. Since they wouldn’t/couldn’t give us the first two options to lower the payment, the bank suggested we move to the next step which was a short sale. A year ago I held your opinion of what banks would and wouldn’t do, but now, nothing the bank did has made any since to us at all. Our lawyer was shocked, as was our short sale “specialists”.

            Our Realtor listened to our situation and we even brought along my father in law. Everyone seemed to agree we were doing the right thing. Was it? Who knows, but when the property is sold and we learn what the difference will be on the first mortgage, we will be one step closer to being completely finished with it.

            I really appreciate your responses Sam! Thanks! You made me feel pretty dumb, but it made me realize how little I really know about this subject. LOL I really wish I would have blogged about it now, but admit I was a little embarrassed about the whole thing. The one thing I definitely look back on and question, was the fact that I quit my job when I did. Perhaps I should of waited. My wife and I talked at length about not using day care, and we both agreed at the time that we didn’t want Noah or Isaac going. Plus the cost to send both of them was outrageous for two kids.

        • Brad Chaffee says:

          Oh and Sam for us, $1,300 a month for a mortgage with two kids and one income was more than we wanted to deal with. (which was another reason we decided to take the next step.)

  9. I have to agree with Sam (for once).

    It’s not clear in the article that you were in any kind of fincial distress. Why wouldn’t you wait until interest rates made the payments unaffordable before doing this?

    Mike

    • Brad Chaffee says:

      Yeah I guess I didn’t make that part clear. By the time we got our answers from the mortgage company concerning refinancing and the modification, we kind of panicked. We were not willing to wait and see if interest rates were going to remain low (everything happening in our economy suggests that interest rates cannot be kept artificially low for too much longer), plus we were short one less income and a new baby. So although we weren’t technically in default, our mortgage payments were too high for our income at the time and we didn’t think we would ever see foreclosure in our future. We were certain that the house would short sale and that we could just pay the difference. We certainly had no idea that it would creep along as slowly as it did either.

      I’m sure along the way we made some mistakes or could have done things differently, and the outcome could have been much different. The point of this post was to help others not follow in our footsteps because we accept that we made some wrong choices. ๐Ÿ™‚

  10. Debt Solution says:

    First don’t feel stupid! You made this mistake when it was a common mistake that most American’s were making due to the easy credit climate before the crash. I’m glad you and your family are at ease and secure with a roof over your head.

    My mortgage story was really stupid on my part. Back in 1993 I purchased a duplex for a whopping $22,000. The interest rate at that time was about 6.5% because it was an investment property. My monthly mortgage payment was only $245 per month.

    I was so racked up in debt at that time I ended up losing the duplex. The tenants never paid on time and I wasn’t disciplined at all with my money.

    I guess this isn’t a mortgage company nightmare but it was a nightmare for me having a foreclosure on my credit. I later found out that that same duplex sold for $168,000 in 1999 boy was I shocked.

    • Brad Chaffee says:

      Wow! $22,000 to $168,000! That is pretty impressive. That kind of sounds like the house we bought for $80,000 and sold for $140,000. The only problem was we had a great mortgage to begin with but then refinanced so we could cash out and buy some \”stuff\” and pay off some debt, and ended up only making around $11,000-$12,000. Most of that $12,000 had to go fro remodeling the place. I had to redo everything because the tenants tore up EVERYTHING!

  11. I feel you brother….I had 7 of them, it was a nightmare for our family for almost 2 years. Through God’s grace we made it through…..and now my main mission for my business is to bring peace to others. Thanks for sharing….if it makes you feel better, check out my story: http://www.pechmanncoaching.com/about/my-story

    • Brad Chaffee says:

      Thanks Greg! I checked out your story and it is an awesome one. It\’s amazing, the things we can endure and eventually overcome! Having to deal with 7 short sales must have been exhausting! I\’m working on doing exactly what you did—becoming a financial counselor and getting a degree in psychology—which also happens to be my passion and calling in life. I would love to connect with you just to chat about the process. I love what I do and can\’ wait to do it on a bigger scale! ๐Ÿ˜€

  12. Dd says:

    WOW WOW WOW!

    I must say that you are very bold to share this online–I can only imagine the stress it has put on you and your family and it is good that you are able to keep focused!

    Unfortunately in Canada housing costs WAY too much and we need a crash, 20% down is simply not possible here. Go figure we have a low population and more land than you can shake a stick at ๐Ÿ˜›

    All the best–keep fighting the good fight!

    • Brad Chaffee says:

      I admit it was kind of hard to do, but telling my story is the whole reason I got into this blogging stuff. I wanted to help others avoid my mistakes. It\’s also important to let people know they aren\’t alone. Thanks for the great comment and thanks for stopping by! ๐Ÿ˜€

  13. Brad, thanks for letting us in this crazy story and what was a serious nightmare when you were in the thick of it. It’s definitely a great lesson to learn from, and I’m really glad you had the emergency fund to get you back on your feet, with still at least some money to spare. Definitely hope everything works out and it sounds like you really did the best job you could even though there are always going to be regrets.

    • Brad Chaffee says:

      Thanks Andrew! Yeah our emergency fund was crucial! We are trying to build it back up as fast as we can. The truth is this lit another fire under us, because for the last few months we have been slackers on saving money. You said it—there are always things we wish we would of done differently when we reflect on past decisions, the key is to learn from those regrets so that hopefully it doesn’t happen again. ๐Ÿ™‚ Thanks for stopping by!

  14. Reed says:

    Bank rejected to refinance after my wife lost her job. We were denied because we did not have enough income. We made an attempt to short sale, which they rejected 2 CASH offers. The condo appraised for 100,000 less than what we owe….that is the bank appraisal. The highest offer that came in was 10,000 less than what the bank wanted, FHA rules shot down the last offer because it came from an investor.

    • Brad Chaffee says:

      If the banks were smart they would have just refinanced right? I\’m bewildered at their decision to let it get this far. I don\’t think the banks are very competent, and the volume of foreclosures, refinances, and short sales has just made it that much worse! To turn down an offer only $10K shy of what they wanted just doesn\’t make any sense, especially when you consider how the housing market is struggling and some think that we haven\’t seen the bottom yet. Unbelievable! I wish you much luck in getting your situation handled! Hang in there Reed, there\’s always a light at the end of the tunnel. ๐Ÿ˜€

  15. FreeBird says:

    Brad,

    My husband and I read through this post and it so could have been us a few years ago. We did stupid on more than our share of mortgages and we got out by the skin of our teeth before the housing market crashed. I am so sorry you and your family had to face this, especailly your wife with a new baby, God bless her.

    We just hit our debt free date on Saturday (except the mortgage) and I have to say it must be hard to think about going back…I can’t imagine how hard, but no doubt it’s gotta be a relief to think about this nightmare with the mortgage coming to an end. We’re with you on the no mortgage thing, once we sell this one there’s no chance we’ll be putting risk on a home again and this post is exactly the reason. Good luck and we’ll keep ckin in with you!

    FreeBird

    • Brad Chaffee says:

      Hey Freebird! So glad you were able to get out, even if only by the skin of your teeth. It has been pretty exhausting to say the least but in other ways we feel very blessed. The good news is that we\’re almost done, and the even better news will be that we will be completely debt free soon enough. I can\’t tell you how happy that makes me to be able to say that.

      Congratulations on being debt free but the house!!! That is awesome! I know you are so very excited!! (You\’re right, it has been no fun thinking about being debt free, only to have this house thing put us right back in, but we are hoping they will settle like the second mortgage company did! It will be so great to finally be able to move on.)

      Good to hear there are some other weirdos out there with me that see the value in avoiding a mortgage and paying 100% cash down! I can\’t wait to prove the naysayers wrong about it even being possible for the average person. ๐Ÿ˜‰

      Again, CONGRATULATIONS, thanks for sharing your thoughts, and good luck with your new debt free life! If you would like to, I would love it if you answered my debt free questionnaire so I could post your story in my Debt Free News From A Debt Free Reader series!

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