February 17, 2006

So many of these debt debt debt stories, how can HP keep up?


I may have to outsource HP to India. Just can't keep up with all the sad stories...

A Warning for Condo SpeculatorsChicago Sun Times ^ 2/16/2005 Terry Savage
Posted on 02/16/2006 11:12:27 AM PST by ex-Texan

Q: My husband and I were on a great path to being financially stable. We both started saving for retirement early on, we both have great credit and we have always tried to live within our means and save for a rainy day.

Before we were married, we purchased a condo in the loop. After we were married for a year, we decided to buy a second condo for investment purposes -- and this is where the trouble starts. We used $20,000 that we had saved -- for a rainy day -- and took a second mortgage on our unit for $20,000 to make up our down payment for condo number two. The real estate developer was offering one full year of mortgage, assessments and taxes as an incentive to buy -- not to mention the unit was rented.

We thought this was a win/win situation. We would have two years minimum of no out of pocket costs, and at the end of that period or even before we can put the unit on the market and sell. We figured even if the value only increased by $5,000 it was still a good thing.

When we applied for a mortgage, the lender informed us that our credit score was good enough that they were going to approve us for a no doc loan. I now think this was a red flag for us to realize "this means you really can't afford this loan, but we're going to give it to you anyway."
Well, here we are two years later, and I fear of what is to come. We put the unit on the market in April 2005 with no luck thus far. We first started the price out high, but by the summer we had came down to our exact purchase price.

In November 2005, the tenants' lease was over, so they left. Now we are in the last stage of the two-year period with no out of pocket costs. We are hopeful that we will get a tenant in the spring, but the rent does not cover all of the costs of owning the unit. We pay our current bills no problem, but once we have to start covering the costs of our second condo on our own, there is going to be no way.

I know the bank will want us to blow off our current debt and pay them first. We've worked so hard to keep our credit scores looking A+, and now I'm afraid of what is going to happen.
I know you can't tell us what to do, but can you advise me on how to handle this? Should I start talking to attorneys or debt consolidators? I just want to be pro-active in taking care of this costly mistake.

A: I hope you don't mind that I'm going to print your letter -- with no names, of course -- because for sure you're not the only ones in this situation. About two years ago the speculative condo boom was at its peak. And now many speculators are about to find out that it doesn't take a "crash" or "breaking the bubble" to create your own personal speculative crisis. All it takes is being unable to cover the carrying costs.

42 comments:

moman said...

Another example of some idiot listening to "water cooler" talk and deciding that if the idiot in the next cubicle can do it, so can he.

Bake McBride said...

***When we applied for a mortgage, the lender informed us that our credit score was good enough that they were going to approve us for a no doc loan. I now think this was a red flag for us to realize "this means you really can't afford this loan, but we're going to give it to you anyway.***

So this couple didn't ask any questions when the lender wanted to go no doc?

People make me laugh....they sign off on huge loans that they don't understand. There will be thousands of people like this couple in the next few years....Let's hope most will look in the mirror and blame the right person.

Robert Coté said...

Reads like a Dilbert comic:

Lender (Dogbert): I can put you in a no-doc.

FB (Dilbert): Why will it save me money?

Lender: Oh! You so now you want to make this about -you- do you?

the thinker said...

The smart money is out first, the stupid money is in last.

Bake McBride said...

RE: the thinker said...

So True....

Anonymous said...

My IDIOT Ex-Wife, of LONG AGO, ...JUST BOUGHT IN on 2 HIGH End unfinished Condo's in Chicago Area. Thank GOD the kid JUST finished undergrad College. Fortunately he is planning on going to Law School and SHOULD be able to assist her with her LATEST BANKRUPTCY !

Anonymous said...

The thinker said "the smart money is out first, the stupid money is in last".

Hmmm... I'd say the smart money thinks long term, and the stupid money tries to time the market.

That said, I'm fairly bearish on housing these days, so I may be stupid by my own definition.

brokersleaveyoubroke said...

I was talking to a guy about no-doc loans a while back. I asked him why he would pay more for a no-doc loan when he still has to put his salary on the loam form anyway. He rolled his eyes and said "you don't put down what you really make...duh" I asked him if he understood that if he defaulted on the loan he could be charged with criminal fraud. I wonder how many people in no-doc loans have a bit of an exposure there.

the thinker said...

Anonymous said...
"Hmmm... I'd say the smart money thinks long term, and the stupid money tries to time the market."

You had better believe that the smart money knows when to hold them, knows when to fold them, knows when to walk away, and knows when to run.

Anonymous said...

"You had better believe that the smart money knows when to hold them, knows when to fold them, knows when to walk away, and knows when to run..."

Well, *personally* I do have to agree - the smart money isn't on condos right now. But it is very difficult to time markets, and I'm not sure analysis will really help you much.

You can only do this in retrospect. To some extent, retrospect is now here - things are starting to unravel as we speak. But then there's the new question: how do you call the bottom? That's just as difficult as calling the top.

Maybe I'm just not smart enough for short-term investing.

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