Finally, they're starting to sit up and take notice. From page A01 of the Washington Post today.
(By Nancy Trejo -- The Washington Post)This is the danger of too much leverage. In the stock market, you would have needed a large down payment to buy pets.com.
Jeffrey Taylor and his wife bought their dream home in Purcellville for $538,000 last August. Now they have to sell it because they are getting divorced and neither one can afford the mortgage alone.
The most they could get for it was $430,000. After paying all the real estate commissions and taxes, they will still owe the bank $118,000.
A nontraditional mortgage and a prepayment penalty mean Kimberly Pexton and her husband will owe $28,000 at closing.
"Five months later, I lose $100,000," Taylor, a high school teacher, said. "I don't think I can take $100,000 into the stock market and lose it faster."
Such a scenario, known as a short sale, was unthinkable during the real estate boom of recent years. In the course of five months, a person could buy and sell a property and walk away with tens of thousands of dollars. Now, instead of receiving large checks at the settlement table, many sellers are writing them.It started to turn in the autumn of 2005. Most pundits were saying it was Hurricane Katrina fallout. That was the best excuse ever.
"It was unheard of three years ago," said Kevin Connelly, a mortgage banker for Pinnacle Financial in Vienna. "Everyone was doubling their money, and suddenly the tide has turned."
One of those consequences could be blemished credit. Taylor is willing to take that hit.I hope Taylor can find some hope and courage, and with the blessing of time find his way. He will have discovered wisdom to help others.
Even if he and his wife had not decided to divorce, they were not happy with their mortgage. They were not paying down the loan at all because it was an interest-only loan.
With an annual salary of $70,000, he does not have enough money for his share of the amount he and his wife will end up owing the bank. So he has asked the bank to forgive the debt, despite the tax implications. If the bank chooses to demand a check, he said he would take out another loan to cover it.
"This has destroyed me," he said.