Thursday, June 11, 2009

I owe twice the market value of my home to the banks. How did this happen? What do I do?

When we bought our house in late 2006 we thought we were getting a pretty good deal. Mainly, because we liked the house and the neighborhood. The house — a Victorian-type structure — had front and back yards, the proverbial character, a new foundation, and 11-foot ceilings. A BART station was two blocks away, San Francisco less than 10 minutes away, the neighborhood was up-and-coming, and was steeped in history. We were very nervous during the appraisal process, fearing it wouldn't qualify as a single-family residence because of the unfinished first floor (it used to be a duplex).

We didn't have a downpayment, so in addition to a 30-year 400K mortgage we signed a 30-year 100K second mortgage. We thought: we'll fix up the first floor, reappraise the house, and get a normal jumbo loan in a couple of years.

So, kudos for the optimism and all, but that plan — how should I put it — didn't work out. One reason it didn't work out is because the housing market committed suicide and it became apparent that we wouldn't be able to refinance anything. I was grateful for being smart enough to steer clear of the short-term, variable-rate stuff (I had the luxury, my credit score was 810-ish). The second reason it didn't work out is because I grossly overestimated my ability to fix up the downstairs. Working crazy unpaid overtime for AKQA didn't help either.

The third reason it didn't work out is because the house decided to create projects for us on its own: in the two and a half years of living there we had replaced three out of four faucets, the washer, the dryer, the refrigerator, the garbage disposal, and the stove. They all broke. Then, the stately Victorian roof started leaking. Then, electrical outlets stopped working on one side of the house. Then, we found a major water leak in the laundry room.

I fixed the laundry room leak myself, because I sort of understand plumbing: water goes through pipes. But electricity is black magic. It'll probably cost around ten thousand dollars to fix the real problems. For now: orange extension cords.

It appears the path to our salvation is a bag with ninety thousand dollars (principal on second mortgage), which we would turn over to Chase Manhattan Bank. Then we'll have only one mortgage and the house will only be about 150 thousand dollars upside-down, not 250 thousand. But then we'll be much closer to being able to refinance. We'd have an extra thousand dollars a month.

We could abandon the house and stop throwing money away, at the cost of my credit history. People are doing that all over the place. For a while, it appeared that half the houses on both sides of our street were at some stage of a foreclosure.

Wait, maybe we can get a bailout? We can just wait for some bailout to arrive in the mail. But they probably won't be sending us any bailout since we have a steady income and we've never missed a mortgage payment. Not to mention the fact that bailouts are wrong.

Before turning to radical solutions, however, I did the obvious: began busking online at

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