Last night I received an email (thank you ActiveRain) that I followed up with a 45 minute phone call this morning from a homeowner who knows he is on the steps of disaster as his 80/20 sub-prime adjustable loan (ARM)already reset once increasing the principal and interest from $2200 a month to over $2900 monthly payment...and is expected to reset once again in under two months. He has a homeowner's association payment of $300 due every month on top of his mortgage payment. I am not sure what the insurance runs, probably not a big bullet. The taxes however are getting ready to be 3 years delinquent - to the tune of roughly $10,000 that he cannot afford to pay.
What Can He Do to Avoid Foreclosure?
The homeowner first identified himself as an Assistant-Pastor and was not looking for the easy way out, but wanted to be both a good steward of what he and his wife had been blessed with and at the same time to be responsible for his debt.
The Pastor earns $3600 a month. His wife is a hair stylist that does OK, but her income covers the food, gas, utilities and other day to day living expenses. Their cars are paid off and they carry no other consumer debt - including credit card balances.
They ended up in sub-prime because they thought they would file a bankruptcy when they sold their last home and wipe out a bunch of consumer debt. However, the Pastor made the decision to use his equity in the pending home sale to do the right thing and pay the debt. However, the bankruptcy had been filed. Even though he did not go through with the scenario, it still shows as a negative on his and his wife's credit scores. When they bought the condo in March of 2005 her FICO was a 680 and his a 620.
Even though she earns the lions share of her income as cash with tips, they were very straightforward with their stated income loan and only claimed the amount they claimed on their income taxes. There was no funny business. Good people buying a home with the best loan they could qualify for at the time.
When they bought their condo, their intention was to refinance in two years, after the hefty pre-payment penalty disappeared. Unfortunately, the weekend their prepayment disappeared (March 10, 2007 - Saturday) so did the equity in their condo. This was the same week (Monday, March 12, 2007) that the subprime market went south, started by the collapse of New Century and all of the other subprime lenders right on their heels, when Wall Street quit buying their risky products.
So, lets look at the condo itself...
A nice upscale condo they paid $370,000 for. It had escalated in value to $430,000 to $440,000. It is a 2 bedroom 2 bath - freeway close and 10 minutes fro his Church / place of employment. Perfect for the empty nester Pastor and his wife to both enjoy life and relax from the stress that the ministry can cause as well as close enough to entertain and host Bible studies and other meetings as a Pastor will typically do from his home. (This complex has nice recreation rooms that can accommodate all of his meeting needs and a great way to witness to his neighbors.) Of course, it had all of the amenities one would expect from a new upscale condo complex -so they were very happy.
Unfortunately, when the subprime market began its downward spiral, so did values in real estate, as we all know. They have seen their little nest egg of equity drop from a $40,000 to $50,000 investment to a $380,000 condo that would leave them upside down to the tune of about $10,000 if they were to sell and pay closing costs and commissions - plus they would still owe another $10,000 in delinquent property taxes...which they had planned on paying off with the refinance. Not to mention that there really haven't been any fair market transactions in the complex for several months now - but lots of inventory.
Other than the taxes, the Pastor and his wife are current on all of their bills. They are of course concerned with what a short sale or foreclosure will do to their credit as well as the tax consequences that may be imposed by the IRS reporting their forgiven debt as taxable income.
ActiveRain - Now It's Your Turn
I have an appointment set up to meet with the Pastor and his wife for Wednesday afternoon. We have discussed many options and alternatives. I have offered both the pros and cons. I have even done something that I just don't typically do and emailed him a copy of my book, "What You Need to Know...About foreclosure and How You Can Stop It!"
What I am looking for here is your advice on how to handle this situation. I believe I have relayed every pertinent fact that I have short of giving you his name and phone number.
What course of action would you recommend? I am sure when the Pastor and I get together on Wednesday, that the results of this survey will correspond with the advice that I have already given - I am looking to confirmation so that the Pastor and his wife will know through the power of prayer and the Internet working together that they are making the right decision for them to do what is God's will for them.
I welcome all opinions, not just those of Believers. After my meeting, I will return and update you as to what transpired.
I'll end this article though, the way I ended our phone call with a passage form the Book of Romans - chapter 8, verse 28, "And we know that all things work together for good to those who love God, to those who are called according to His purpose."