When Catastrophe Happens
I believe that most of the time when we get ourselves into a jam we can usually figure a way out. My grandfather, who was a small town minister, used to tell me “When the devil slams a door in your face, the Lord always has a window open somewhere. All you need to do is look for it.” He would always blame the devil for whatever disagreed with him and thanked the Lord for his blessings. I was reminded of his simple mid-western philosophy when a former client called me last week telling me he was three-months behind on his house payments.
I had helped Bob buy his first home a little over a year ago. It was a small 2-bedroom condo priced under $200,000. Bob didn’t have any money saved for a down payment and closing costs, so I structure a 100 percent loan and had the seller pay most of the closing costs. Bob’s total move-in cost was less than $2,500. He was a happy guy. What happen to change all that?
Over the last year Bob had made some poor life decisions. As soon as Bob closed escrow on his home he was besieged with offers from merchants and credit card companies with promises of quick money and easy repayment terms. He failed to consider the long-term implications of consumer debt. With his new credit cards he proceeded to furnish and decorate his new home with top of the line electronics. Since the garage had so much empty space, he filled that too with big boy toys. He was enjoying the toys so much, work became of secondary importance. After he lost his job, depression set in and to avoid facing the consequences of his past follies, decided to travel. Unemployment insurance wasn’t nearly enough to travel first class so he used his credit cards. When he finally came home and to his senses, he called me.
The lender had already started the foreclosure process and once in motion, stopping it was unlikely. I knew that the condo wasn’t currently worth the money Bob had paid for it eighteen-months ago. There was no chance of selling it quickly and with a mortgage default, no chance of obtaining a home equity loan. I felt a little responsible for getting Bob into this home and remembered having lobbied the lender into making him a loan. I wasn’t about to watch a financial catastrophe happen.
The first thing I made Bob do was the thing he had been avoiding the last few months. He needed to call the lender. He would be required to fax or mail them a letter naming me as his trusted advisor. Lenders will not discuss or negotiate a borrowers position with another person unless they have a borrower’s written permission or power of attorney. Bob didn’t have a clue about short sales or negotiated settlements and I could not have him making commitments that he could not keep. Bob had some options but they all required the lender’s approval. Lenders hate foreclosures as much as borrowers and this one gave us 10 days to come up with a plan to cure an $8,500 problem.
We needed to show some immediate good faith and demonstrate that this loan and borrower were worth salvaging. Bob needed some money quickly. As much as he hated it, I had Bob put everything up for sale in the condo and garage that he couldn’t wear or eat. Most items were financed on credit cards. The credit card issues could be dealt with after we stopped the hemorrhaging. Next I had him contact every friend and relative, confess his stupidity and beg for money. While he was busy parting with his toys and eating humble-pie, I had him get his old job back and take another part-time job after the first one ended. Since Bob was going to be busy working two jobs he wouldn’t be spending much time at home. He needed a roommate. After a week, Bob had raised $6,500 and had a roommate who was paying him $800 a month rent. It was a start.
The lender took the $6,500, waved the delinquency and attorney fees but not the back interest. The lender charged Bob $500 to rewrite the note and added the $2,500 shortfall to the note. It will take Bob a year to work off the credit card debt. He is still working 65 hours a week and not thrilled with having a roommate. He misses his plasma 50” HDTV and his Harley but knows he made the right decision. When bad things happens, look for a window.
I had helped Bob buy his first home a little over a year ago. It was a small 2-bedroom condo priced under $200,000. Bob didn’t have any money saved for a down payment and closing costs, so I structure a 100 percent loan and had the seller pay most of the closing costs. Bob’s total move-in cost was less than $2,500. He was a happy guy. What happen to change all that?
Over the last year Bob had made some poor life decisions. As soon as Bob closed escrow on his home he was besieged with offers from merchants and credit card companies with promises of quick money and easy repayment terms. He failed to consider the long-term implications of consumer debt. With his new credit cards he proceeded to furnish and decorate his new home with top of the line electronics. Since the garage had so much empty space, he filled that too with big boy toys. He was enjoying the toys so much, work became of secondary importance. After he lost his job, depression set in and to avoid facing the consequences of his past follies, decided to travel. Unemployment insurance wasn’t nearly enough to travel first class so he used his credit cards. When he finally came home and to his senses, he called me.
The lender had already started the foreclosure process and once in motion, stopping it was unlikely. I knew that the condo wasn’t currently worth the money Bob had paid for it eighteen-months ago. There was no chance of selling it quickly and with a mortgage default, no chance of obtaining a home equity loan. I felt a little responsible for getting Bob into this home and remembered having lobbied the lender into making him a loan. I wasn’t about to watch a financial catastrophe happen.
The first thing I made Bob do was the thing he had been avoiding the last few months. He needed to call the lender. He would be required to fax or mail them a letter naming me as his trusted advisor. Lenders will not discuss or negotiate a borrowers position with another person unless they have a borrower’s written permission or power of attorney. Bob didn’t have a clue about short sales or negotiated settlements and I could not have him making commitments that he could not keep. Bob had some options but they all required the lender’s approval. Lenders hate foreclosures as much as borrowers and this one gave us 10 days to come up with a plan to cure an $8,500 problem.
We needed to show some immediate good faith and demonstrate that this loan and borrower were worth salvaging. Bob needed some money quickly. As much as he hated it, I had Bob put everything up for sale in the condo and garage that he couldn’t wear or eat. Most items were financed on credit cards. The credit card issues could be dealt with after we stopped the hemorrhaging. Next I had him contact every friend and relative, confess his stupidity and beg for money. While he was busy parting with his toys and eating humble-pie, I had him get his old job back and take another part-time job after the first one ended. Since Bob was going to be busy working two jobs he wouldn’t be spending much time at home. He needed a roommate. After a week, Bob had raised $6,500 and had a roommate who was paying him $800 a month rent. It was a start.
The lender took the $6,500, waved the delinquency and attorney fees but not the back interest. The lender charged Bob $500 to rewrite the note and added the $2,500 shortfall to the note. It will take Bob a year to work off the credit card debt. He is still working 65 hours a week and not thrilled with having a roommate. He misses his plasma 50” HDTV and his Harley but knows he made the right decision. When bad things happens, look for a window.
posted by Ken Calhoon at 8:20 AM
0 Comments:
Post a Comment
<< Home