I am spending a couple of weeks in limbo while I wait for my apartment to be ready. I have worked out a place to stay, all of my belongings sit in two storage rooms. We are living out of suitcases and eating off of paper plates. I call it "inside camping". I think we are weathering it well, but it is still a trying situation nonetheless.
However, this is not a story about me, but a guide for the rest of you.
The Foreclosure Survival Guide follows after the fold...
The details of the original purchase.
I purchased the house in May of 2001 with 5% down at 113,650 dollars on a 30 year fixed. With taxes, escrow, PMI and homeowners insurance the monthly payment was 990 per month. The house was built in 1971, and the AC was 30 years old when I purchased the home. My first summer I had electric bills of 350 dollars per month. That was killer.
Don't buy a 30 year old house with the original AC. Don't sink every dime you have into a down payment without really thinking about the condition of the house. Also, if you are going 5% down, look into buying something brand new as you will have lower bills and new appliances, higher energy efficiency, etc.
Here is my home buyer's paradise - put 20% down (no PMI) without taxes rolled in. Have a car that has been payed off, a 401K with 10K in it (no loans) and another 10K in savings. Have a credit score as close to 700 as you can get, and have another 30K available in a line of credit from your bank. Once you have all that, buy something brand new. Use your tax return to pay your property taxes. Pay each month to principle what you would normally pay in property taxes. If you buy your home in this manner, you will never have to foreclose.
Negative Equity, and the Refi trap.
After my first year of home ownership, my escrow went negative, the taxes and homeowner's insurance went up. The effect: my monthly payments went from 990 to 1330 in a single month. At 990 I was strapped, 1330 was simply killing me. I went to the bank and asked for a Refi, with closing costs rolled in. After three months of wrangling the Refi was approved, and my 5% equity was lost. My payments went down to 960 per month, but after 4 months of making the larger house payments my meager sub-prime credit cards were tapped out, and I was having to make larger credit card payments than I was before. In short, I began spinning my wheels.
Never refinance and roll in costs up to 95% equity or higher. You will regret it. If you go negative on Escrrow and your payments go up, suck it up. Work two jobs, deal with it for a year. You will not regret if you do. Short term relief will bring you long term pain.
Losing a job, falling behind.
The third year of homeownership I lost my job and found another at half my salary. I went on foodstamps and medicaid, and did my best to keep the lights on. I stopped paying the credit cards, and fell behind on the house and car payment. I hid my head in the sand and did not engage my lenders. They started getting agressive. I hid even more.
If you lose your job, call everyone you owe money to and start dealing. Call them everyday so they don't have to call you. Work our payment plans that you can afford. Consider filing chapter 13 while your income is low. File chapter 13 while your income is low.
Falling Behind, Staying Behind.
I managed to find another position that paid more, but I was already behind. Catching up was not gonna happen. I worked out repayment plans with the car and house, and barely managed to keep those up. I still was barely making it though, as my expenses continued to rise at larger percentage than my income.
The summer of 2005 I did an "in-place" refi whereupon Wells Fargo would roll the amount I was behind into my mortgage and and charge me a nominal administrative fee. That was fatal. Given the lack of upkeep on the home I went 105% on the equity-value ratio.
File chapter 13 and roll the amount behind into a 3 or 5 year repayment plan.
Falling Behind, Losing it all.
2006 was gruesome. All of my expenses continued to rise. I struggled every month to stay afloat, and at some point around April I ran out of steam. I sent Wells Fargo what I could, but I just manageed to fall farther and farther behind. At the end of May they sent me the letter saying my house would be Auctioned off on August 1st. I tried to work out repayment plans, but they always wanted slightly more than I was able to give them at the time. In mid-July I filed for chapter 13. This stalled the foreclosure and gave me some time to think.
Chapter 13 is a big process, find an attorney who specializes in Chapter 13 if you are considering filing. It is not a hard process, just a time-consuming one.
In the first week of August I began working out the chapter 13 schedules, or repayments. The payments were going to be around 600-900 per month for 5 years. In a situation where I was already unable to meet my monthly obligations, this was insanity. I converted from a cahapter 13 to a chapter 7. Wells Fargo immediately filed for relief of automatic stay. It was granted. They rescheduled the auction for October 1st. I began looking for a place to live.
File Chapter 7 if you have not paid on any credit cards for several years and cannot make your ends meet, but talk to an attorney before you ever consider any decision. The choice to file bankruptcy is a huge life-altering decision. Do not use my advce here as the sole basis for your decision. In my opinion Chapter 13 is only delaying the inevitable Chapter 7 filing in this situation, and the temporary relief will only bring you more pain. for me is was better to get out early via a Chapter 7 instead of getting dismissed later when I missed a Chapter 13 payment.
Also, when your credit is destroyed and you need to find a place to rent, don't bother with looking for a rent house. No one will rent you a house with destroyed credit and bankruptcy. Go to an apartment complex. Look for one-month-free deals. Your deposits will be lower, and your bills will be less. Also, apartments take care of a majority of the hassles that come with home ownership. After a foreclosure the last thing you will want to do is mow someone else's yard, fix someon else's clogged sink drain and change someone else's AC filter. Also, make sure your lease date starts before your auction date.
If you are going to foreclose and it looks like you may be financially liable for the shortfall, file chapter 7. If you manage to sell beforehand, excellent. If you manage to work a short sale and absolve yourself of the remaining balance, good for you. If you cannot work these deals out GO FIND A BANKRUPTCY ATTORNEY IMMEDIATELY. Every day you delay will only increase the stress you feel and strain your relationships. At this point you must think ahead and maximize your potential to reduce or eliminate any stressors in your life.
Get your belongings out of the house weeks in advance of the of the Auction day. Take things into storage rooms for a month if you have to. Take a long look at everything you own, and downsize. In a situation where you are losing your home the less you have to be responsible for will mean lower stress on your life. Don't be afraid to vent to your spouse, but be sure to appreciate him or her. Anticipate the move, don't think you are somehow going to hail-mary pass it and save the home. Give up as early as you can and start moving on. Seriously consider a one-month-free apartment. You are starting your life over and an extra few hundred bucks in savings will feel good.
I can go back and think about everything I did wrong, but really, what use is it? I can only look forward from here. The biggest mistake I made through all of this was not working 2 or 3 jobs during the crunch times, and taking the financing path as a way to relief financiall stressors. Also, I am looking at getting on a hardcore budget and following it ruthlessly. Honestly, I could have avoided this mess, but I hid my head in the sand for too many years until it simply beacame a foregone conclusion. My biggst peice of advice to all homeowners who may be in this situation is this:
Temporary relief will bring long term pain. The only way out is to work your ass off and pay into your home as much money as you can possibly afford. that is the best way to avoid the mess I went through.
Finally, do not use my words as the basis for any decision you make. If you are facing foreclosure, go find an attorney, a realtor, and an investment group. Talk to all of them about your options before deciding to file chapter 7 and letting your home go. My situation is unique to me, and I only intend this to help you as you make your own way to your own decisions.
Thanks for reading!