Friday, January 22, 2010

My Neighbors’ Mortgage

My neighbors are gone. They left several months ago. I didn’t realize exactly when, since I didn’t know them that well and frankly I don’t pay attention to those things.

There is a sticker on the front door, placed there by the homeowners association stating that “We have determined that this residence is abandoned and have contacted your mortgage lender”.

My curiosity was piqued. “What happened to these people?” A lost job, perhaps, or some other misfortune. Is the property for sale? Can I buy it dirt cheap? and so on.
I remembered that the property was up for sale for a short while, but then taken off the market again.

Well, the interweb is a wonderful and scary place and the answer was there. I looked up the county records and voilá:

I believe the table explains itself quite clearly, but in any case: they bought the property in 2002, with 20% down financing $205k for 30 years. Three years later, they refinanced for $342,400, probably at a better rate and pulled about $140k out. And then, only one year later, refinanced again with a $414,000 first mortgage and an $86,000 second mortgage tied to a revolving credit line (which I can only assume they used) and got themselves another cash-out for about $160k.

So basically, my neighbors bought their house with about $50k down, and pulled roughly $300k out of it in four years. We all know what happened to the real estate market and now the house is listed at with a value of approximately $340,000, but no way it goes for anything like that in an auction.

I guess my neighbors just “walked away”. Can’t say I blame them. Sure their “credit score” will be shot, but that’s just “joining the club”. There are millions of Americans in the same boat. And it’s perfectly legal.

They will be liable for some taxes once the bank forecloses on the property and sells it (owner is liable for the difference between the loan value and the sales prices), But who knows when that will be. I went to the bank to find out about the house. I figured it would a nice way to add an extra bathroom (or two or three) or have a place to put my mother-in-law when she comes for a long visit (totally worth it) or simply make a deal.

From what I could gather, though, the bank has no idea the house is probably theirs, and very little interest in getting rid of it. They have not listed it in among their properties and I guess its not going to be on the market for a while.

So it sits there, deteriorating. The homeowners association mows the grass and cleans up the garden. The paper is still delivered and usually winds up on my driveway. The crack dealers are moving in (just kidding!).

One can only wonder how many more neighbors’ houses are still out there. Abandoned, but not foreclosed, sitting in residential real estate purgatory.

Time to sell my Bank of America shares.


  1. Alex: These people did not take out a mortgage, they sold their house to the bank. Only thing is, the bank didn't realize it. Bankers think that, because they have an MBA after their name, that makes them smart. I pulled all my asccounts out of BofA over a year ago, and gave up on Citi a year before that.

  2. You're right, Ken, but it's actually worse. The bank "sold" my neighbors a put on their house. If there had been any further upside to the price of the house, my neighbors would have gotten that, and not the bank.

  3. great post, Alex. (sarcasm) i can't believe those greedy bankers took advantage of these poor hapless borrowers like this. (/sarsam)

  4. si esto sucede con tu vecino, qué pasará con otros vecinos...
    si los bancos no saben ni sus propios agujeros, que pasará con nosotros...
    Alea iacta est.

  5. I once was interested in a foreclosed property (had been winterzied, so some department was aware of it), but there was no one to make an offer to, as the banks REO department did not know of it. It had been foreclosed on 1 year and 8 months before.

    The other comment I have, those people took out a lot of money in 4 years. Did they invest it wisely or did they just waste it and are in trouble despite that money?

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  7. Thats interesting about your neighbors mortgage

  8. Interesting how the internet allows one to find out all sorts of interesting juicy tidbits about their neighbors. Sadly, this scenario of homeowners walking is probably quite common.I am also quite curious as to what they did with the money the pulled out; it was a nice chunk.

  9. Being in a situation like the previous owners but not having walked away I can say to those who ask what they did with the money they took out...that they survived on it. When one is out of work and looking desperately for the kind of job that will pay a mortgage, support a family pay for gasoline etc., it costs money. They didn't think ahead and steal the over priced house in cash. They were just trying to survive. We were handed a line in 2000. And that was optimism. Less than a month after 9/11 we were told to shop! Everything will be alright! But in the meantime no jobs were created during those eight long years. Except in the military. So the middle class has been left out to dry. Losing jobs overseas.
    So, a long story short, I don't know these people but I'm sure they tried. Please don't be suspicious of their motives other than survival.