The Blog of Ken.

from November 28, 2010

A Foreclosure Story, Part 1: How I Ended Up Here

I’m writing this mostly because I want to pass on what I’ve learned to others who may find themselves in a similar situation. Please learn from my mistakes.

My condo is about to be sold at auction after being foreclosed upon. Here’s how it happened.

In the middle of 2001, I bought a nice 1 bedroom, 1.5 bath condo in a high rise building at the foot of the Hollywood Hills. I paid $225,000 for it. The building and unit appeared to be in great condition. The previous owner had just remodeled when he decided to move to another city. The Hollywood & Highland complex was not yet finished and the neighborhood was considered a bit dodgy. So $225k was a pretty good price at the time.

Around 2004 I refinanced to get a lower interest rate and take advantage of the amazing amount of equity that had already built up (due to the H&H complex and the general upswing in real estate prices.) I ended up with a $240,000 mortgage and no other debts.

From 2003 onward, I was a freelance web designer who was also trying to get an “in” in Hollywood as an editor or writer. There were many financial ups and downs as a result.

Early in 2007 – during one of the “downs” – I got a call from a broker at World Savings who wanted to sell me on another refinance. Basically, my condo was now worth $525,000 and I could take a big chunk of that out in equity… as long as I took out a new, more expensive loan.

I ended up taking out a new loan for around $340,000. As part of the deal, I got $50,000 out in equity.

Let’s stop and take a moment to talk about blame and responsibility. I am the one who signed the loan documents. I am the one who saw dollar signs when I was told I could get $50,000 in cash out of the deal.

However, I am not the one who misrepresented the type of loan I was getting, nor am I the one who assured me that the real estate market had no where to go but up, and I’d be able to refinance yet again in just a couple of years and get even more equity out. I’m not the one who kept quoting a very low number for my new monthly payment.

But… I am the one who failed to understand that I was being given a “pick-a-pay” loan. A “pick-a-pay” loan is one where the minimum due every month is very low, but doesn’t even cover the interest owed on the loan. Thus every month one pays the minimum, the remainder is being added to one’s principal. Instead of paying DOWN the loan, you’re actually owing MORE each month. I am the one who trusted the brokers I was working with. And I am the one who, in a time when I was low on funds, didn’t step back to see if I had other options.

I’m pretty sure it wasn’t until the second monthly statement that I actually took a good hard look at it and thought, “Waaaait a minute…”

I consider myself to be a very smart man. Unfortunately, sometimes I can outsmart myself.

I continued to freelance, which didn’t come anywhere near covering my monthly bills. I kept dipping into the $50,000 I’d gotten from the new loan. It’s amazing how fast it went.

In mid 2008, I was once again in dire financial straights. I contacted a realtor, but the bubble was already in the process of bursting and there was no way I could break even on my condo. In less than a year, it had lost over $150,000 of its value.

Fearing foreclosure, I desperately searched for a full-time job. I found one just in time. It was for a company I would never normally work for, but I had firmly decided that I was going to do whatever it took to keep the condo. After all, the real estate market was just having a little glitch, right?

A couple of months later, feeling more stable financially, I was able to hunt around and get a better job at another company that, at first, produced in me far less nausea.

Things continued to recover for me and by early 2010, I was able to actually save a bit of money. But I was taking a long, hard look at the mortgage, and my living situation.

I had not once, since getting the loan, ever paid more than the minimum. I now owed more than $420,000 in principal. Every month I paid the minimum, I owed another $1,000 in principal. The economy was now in a sustained morass, and there was no way I would be able to sell my condo anytime in the foreseeable future. Plus, the building had deteriorated rapidly. The water was full of rust, burglaries were reported, pipes broke and caused water damage – all while the HOA fees continued to rise.

At this point, my minimum, still-adding-to-the-principal mortgage payment was $2,000 a month. Add to that $700 for the HOA fees.

I had decided to start a small web consulting firm with a couple of partners in March of 2010 and planned on quitting what I now considered the worst job I’d ever had in May. But looking at how much I had in savings, and realizing that our new company might not be immediately successful, I started wondering if the pit I was shoveling $2,700 a month into was really worth it.

I did some research and found that many people in my situation had decided to just “walk away” from their mortgages or perform a “strategic foreclosure.” I decided that this was my best option.

And so, the March 2010 payment was the last one I made.

Oddly enough, the phone calls didn’t start until May. AT&T has a “call blocking” feature, so these didn’t bother me for long.

Around June, I would occasionally get a Fed Ex letter or certified mail. Each time this happened, I thought, “Well, this is it. This is the end.” But they always turned out to be generic pamphlets from Wachovia telling me they wanted to help if I had difficulty paying my bills (World Savings was bought by Washington Mutual, which was bought by Wachovia, which was bought by Wells Fargo.)

In July, with our company starting to show some signs of life, I decided to go ahead and call Wachovia and make absolutely sure I was making the right decision. I explained my situation and spent two hours on the phone being transferred from department to department as everyone in turn took my information, typed it into their computer, and was told by their monitor that I didn’t qualify for their particular program, but let me send you to department X to see if they can help you. I came out the end of that ordeal realizing that I had made the right decision.

In late August, I began to get letters from an agency hired by Wachovia to handle my foreclosure. It wasn’t quite a done deal yet, but they were letting me know that it was about to happen. The funny thing is, they would send four to six letters a day, then another four to six letters registered mail, all containing the exact same note. I felt bad that the bank was wasting so much money on postage.

In September, I was told that I had been foreclosed upon. Now I had to wait for the other shoe to drop.

Early in November, I finally got a letter telling me that the condo would be auctioned off on Monday, November 29, 2010 at the courthouse in Norwalk. I have no idea why Norwalk. I guess that’s foreclosure auction central. Maybe it’s the courthouse with the biggest awning, so people can get out of the sun or incase it rains.

Previously, I might have expected to wait a few more months for the auction. But I hear that Wells has put the spurs to Wachovia and told them to get rid of their bad debts.

It would appear, as far as I can tell from the notice of sale, that Wachovia is going to ask for $460,668.96 as an opening bid. That is approximately $160,668.96 over the market value. So most likely, the bank will end up buying the condo.

Whomever buys the condo, they can either take me to court to evict me (which usually takes 1 to 2 months,) or, more commonly, they’ll give me “cash for keys.” This is where I voluntarily move out in exchange for some money.

As I write this, the day before the auction, I’m feeling a lot of uncertainty. Just how long will I have to move out? Will I be able to find a new place with ease? Will I get cash for keys, and if so, how much? Will I get more if I agree to leave sooner? Will that make it harder to find a place?

But I’m also confident. I made the right decision. I made a mistake three years ago, and now I’m correcting that mistake in the least painful way possible. And whatever happens, I’ll find a place with a sunny spot for my cats to lounge in. And maybe this place will have clean water (that stays in the pipes) and fewer barking dogs. I doubt I’ll find a place with such a nice view, though. Oh, well. I’ll just have to wait for my empire to grow a bit more.

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