Today, Jeff Melemed is thrilled to be a homeowner again. But his experience with homeownership has not always been a positive one. In 2007, he purchased a property close to the height of the market. At the time, he was stably employed as a licensed financial planner at Washington Mutual, the largest savings and loan institution in the U.S., and had no reason to believe his steady income would decrease any time soon.
Soon after the onset of the financial crisis his employer notoriously filed for bankruptcy, leaving Jeff unemployed in the process. Having no income and dwindling savings made it difficult to keep up with his mortgage payments. Eventually, he fell behind.
Fortunately, this slump did not last long and Jeff found employment with US Bank in 2010. He used his signing bonus to cure the default on his mortgage loan and things were looking up once again. In a true example of the personal roller coasters the bubble burst created, this relief was also short lived. Jeff’s income as a financial planner greatly depended on the volume of clients. Starting from scratch meant that he was virtually without income for seven months. He once again fell short on his mortgage, realized that he needed a long term solution and applied for a loan modification. After six months of repeatedly sending in duplicate documents and updated financial information, his lender offered a modification that would cure his default, but increase his payments by roughly $1,800 per month. This was not feasible, and as a result, the Melemeds had no choice but to short sell their underwater property.
His story is not unlike many underwater homeowners during the financial crisis. James Moore*, another homeowner affected by the downturn, purchased his Las Vegas property in February of 2008 for $477,500. At the time, he had a liquid net worth of almost $800,000. After the meltdown in the fall of 2008, his net worth was less by more than $500,000 and he was just a few months into an extensive, expensive remodel of the house. Of the approximately $260,000 he still had, $103,000 was equity in the house.
During the Spring of 2011, James severely twisted his left knee while installing a new courtyard entry to the house. This meant he could no longer physically work on the property and also had more time to ponder his decision to move forward with the remodel. After deleting the “owner’s estimate” from Zillow, he watched the” zestimate,” (a popular value estimation generator) plummet to $290,000. This led to the realization that it no longer made sense to keep the property under the current terms. He contacted Bank of America in regards to loan modification prior to defaulting:
“I could tell the person I was on the phone with was laughing at me and didn’t really care about my request, but I put up with it to see if anything would come of the call.”
Nothing did. In July, he made the decision to cease mortgage payments beginning in August. His property short sold in September of 2012.
Today, James travels the country in an RV as his credit score naturally heals itself. For the time being he prefers to “spend the hottest months where it’s still cool enough that I don’t need to run the A/C, and to spend the coldest where it’s still warm enough that I don’t need to run the furnace.” So far, that’s working out pretty well he says. If he does buy again, it will be in a small town in Colorado and he will still probably leave during the coldest months.
Former client Jay Barry also originally defaulted as a result of extended unemployment. In August of 2009, he was able to secure employment but this meant relocating his family fromLas Vegas, NV to Monterey, CA. Even after securing employment, the need for a rental in CA made it impossible to cure and maintain the mortgage payments. He defaulted in June of 2010 and his property was sold at auction in August of 2011 for less than 35% of what he purchased it for.
After the foreclosure, Jay decided to take early retirement and relocate to small town in west central Idaho – a place where rents were less than half of what they had been paying in California. Their rent was paid on time, all bills were kept current and credit card debt was completely paid off.
In May of 2013 he began to take action to repair his credit. It was reporting as a dismal 563 at that time. By October, it was 595. By January 2014, it was 647. This month, it was reporting as a vastly improved 703. He was recently pre-approved for a mortgage loan, had an offer accepted and happily refers to himself and his wife as “boomerang buyers.”
For Rachel Morgan, foreclosure was the result of her job loss and her husband’s increased medical insurance cost. They felt as though they were “being sucker punched every possible way.” After running the numbers, it became clear that holding onto the house they purchased in 2008 would be nearly impossible. After 16 months of missed payments their property reverted back to the lender at auction in November of 2012.
After a short stay with Rachel’s parents during the holidays, they moved into a rental where they still reside today. Rent is half of what their mortgage payment was, her husband now drives 1/2 mile to work compared to a 45-minute commute and they are less than one mile to their son’s pre-school where Rachel also works part time. The close proximity allowed them to downsize to one car for a year and save money. They recently purchase a minivan with cash and are now expecting baby number two – something that was put on hold as a result of the economic downturn.
Perhaps the most important things to come out of the foreclosure?
“My husband and I have made it through our first rough patch stronger than ever. It was our first test as a married couple and we became closer through it. Going through this made us talk about priorities, goals, mistakes, and the future in meaningful ways. When we first married, finances were no big deal. We both made decent incomes and paired together, we didn’t ever have to worry much about money. I’m very glad that we didn’t let money tear us apart and that we are closer now than ever.”
Even those who were both professionally and personally involved in real estate during the crash have had a surprising turn of events. By 2006, Steve and Zoe Thomson had built a portfolio of 10 investment properties while both working as busy Realtors. Dishonest developers, rapidly rising HOA dues and heavy assessments ultimately led to the foreclosure of 6 properties by 2011 – also their first year with virtually no income. Luckily, by March of 2012 Zoe obtained a position with a national home builder and has been very successful during the last two years. Three years after their financial rock bottom they’ve established three auto loans (paid off one) and three credit cards in order to help heal their credit scores. Last year, they were able to obtain a high interest loan (9.5%!) with a private money lender; something that many choose to do after major events that disqualify them from traditional lending. But after almost a year of grossly inflated payments, they realized the need to find another option. They visited AfterForeclosure.com and took a quick and easy pass/fail test that revealed there was hope for their situation. After being contacted by Jon Maddux of AfterForeclosure.com and going over their situation in more depth, they were fully pre-qualified and eventually able to refinance into much lower rate of 4.625%. Steve and Zoe, no strangers to real estate, were extremely grateful for the assistance in their own line of work:
“We didn’t think that we could get approved for a mortgage loan other than private money after our default, but Jon got us approved for a Jumbo loan and we just closed last month! Now we are doing great and business has never been better!”
The Melemeds, it turns out, were also grateful for the help of the experienced professionals at AfterForeclosure.com. After coming the realization that renting was just not for them, they too reached out to the company which was designed to help people in their situation. After 30 days, they were pre-qualified to buy again – years before they thought they’d be able to.
With close to 5 million foreclosures having occurred since the onset of the housing crash and still more in the ubiquitous pipeline, these buyers could be truly essential to the recovery of the market. This is why it’s so alarming to that close to 80% of those polled were unaware of programs available to help those who have gone through foreclosure purchase a home much sooner than the seven year ban quoted by many traditional lending institutions.
AfterForeclosure.com’s Co-founder Jon Maddux says, “Knowing this is what prompted us to launch our site. We truly believe in homeownership and buying under the right circumstances.” What are the “right” circumstances under which homeownership is appropriate for a “boomerang” buyer? Well, the term “right” will always be subjective, but those who wish to purchase again do report being in an overall healthier financial situation the second time around. Of those who participated in last year’s AfterForeclosure.com poll, 64% report that their income is higher or the same as when they first purchased, 63% report that their other debt obligations are lower or significantly lower than the last time they purchased and 46% report the desire to purchase in a lower price range this time around. Maddux continues, “Our goal is to give people hope and let them know that we are not going to turn them away just because of their past mortgage blemish.”
*The name of this subject has been changed at their request.