Friday, August 21, 2009
There's an interesting piece up over at Money Magazine (hat tip TK) about life after foreclosure for four families - two in California, one in Illinois, and one in Colorado. Aside from the obvious human interest aspect and the fact that at least two families had help from YouWalkAway.com, what is most intriguing is how personal spending excess in California is downplayed or omitted entirely.
First, here's Lori and Bill DiBacco from just north of San Diego:
City: Oceanside, Calif.So, the first thing that anyone remotely familiar with the California housing market should notice about the story above is that the "Price paid" as stated is really the "amount owed" - something that is clarified later in the story and makes all the difference in the world when it comes to personal spending excess.
Price paid: $610,000
Current value: $550,000
Lesson: "It was so horrible, the worst stress we'd ever been under."
Apparel sales rep Lori DiBacco and her musician husband, Bill, were living a dream life in their five-bed, three-bath home with pool in beautiful Oceanside, Calif. They bought the place in 1994, and they lived well, but not wisely.
An educated guess is that this couple paid about $200,000 back in 1994, meaning that these two managed to spend more than $400,000 in home equity over the last 15 years, most of it likely coming between about 2003 and 2007 during the peak years of the housing bubble when home equity was being spent freely in the state.
"We took great vacations, if we saw something we wanted we bought it," says Lori.I don't know. The DiBaccos come off as hapless victims here and the worst the author can say about them is that they didn't spend their money "wisely".
The couple was childless by choice, as they both traveled for work. Then, five years ago, their goddaughter came to live with them. That radically altered everything.
Bill stopped working so someone would be home, which halved the couple's income. Then, there were big expenses for taking care of the child.
"She needed a lot of extra care," Lori says. "We put a lot of money into her education, dropping $50,000 the first year into Sylvan Learning Center for remedial work."
The coup-de-grace happened when Lori injured her back and couldn't work.
They burned through their savings and took out a second loan on the house. Their monthly mortgage bill, about $1,400 when they first bought the house, ballooned to $4,400. They started missing payments; they simply didn't have the money. They went nine months without paying.
"Oh my God, it was so horrible, the worst stress we'd ever been under," Lori says. "It sent my husband over the edge to a nervous breakdown."
By the time they were done, they owed $610,000 on a property that was worth just $550,000 when they did a short sale last year.
Things are much better now. Bill runs a business restoring classic Mustangs, and Lori started a pet concierge business, which arranges everything for the pampered pet. She calls working with animals her dream job.
Their finances are still tattered. They were turned down for several places they tried to rent. They're living in a condo owned by Bill's mom, paying a small rent but fixing the place up. Lori loves the new place; it's in a quiet 55-plus community with very nice neighbors, most of whom have pets.
"We almost divorced many times over the stress of the financial burden and all that entailed," Lori says.
Clearly, there's some progress being made here, but not nearly enough.
The other story about life after a California foreclosure is even worse than the first in that there's not even a hint of the former homeowner being at least partly responsible.
Also from just north of San Diego, Ron Nash:
City: Carlsbad, Calif.Once again, the Price paid here is really the amount owed and it looks like Ron's loan value had ballooned to $840K as prices in San Diego peaked, meaning that, he too probably spent about $400K of his home equity, assuming that home values about doubled between 2000 and the market peak a few years back - a reasonable assumption.
Price paid: $840,000
Current value: $600,000
Lesson: "Nothing was lost but a big, freaking headache."
This California resident bought his house nine years ago in a gated community within the posh, seaside city of Carlsbad. He took out an adjustable rate mortgage to keep the initial monthly payments affordable, but by this spring his monthly mortgage bill was $5,600.
At the same time, he found himself severely underwater thanks to falling home prices and several cash-out refinances.
The headhunter and motivational speaker couldn't afford that big a payment and realized he wasn't likely to make back nearly a quarter-million dollars in value. He tried for months to work something out with his lender, but he says, "They made me an offer that was unacceptable."
Instead, Nash, who is married with two kids, decided to go through the foreclosure process. He didn't pay the mortgage for 18 months and finally vacated in June. Not having a housing payment during that time kept him from financial ruin since his headhunting business was in a tailspin.
Nash and his family are now living in a $1,900-a-month rented townhouse in the same great neighborhood just a half mile away from their former home. "I downsized about 1,000 square feet to a 1,500-square-foot home," he says. "Hey! It's a lot easier to clean."
He feels like he landed on his feet in just about every way: His kids were able to stay in the same school; he stayed in the same location, which is like living in a beach resort; and he's spending a lot less on housing. "Nothing was lost but a big, freaking headache," he says.
Still, he counts himself lucky that he was able to find the new place. Most large-scale commercial property complexes wouldn't rent to him because his credit was so tattered, but he found a woman who had just lost her job and needed to leave her townhouse on short notice. He had just received a big check for a head-hunting transaction he had just closed so he got the place.
His advice for others: "Make sure you take care of your family. And don't get attached to mere things."
Is this how we all move on after the biggest financial bubble in history pops?
By just ignoring individual responsibility?