A home of your own is the American Dream—or at least that’s what I’ve been led to believe my whole life. Unfortunately, I wasn’t given the skills to know how to actually achieve this goal growing up. Instead, my husband and I have gotten ourselves into a pickle that we can’t get out of now—unless we give up our home.
Don’t worry, we’re not in danger of being put out on the street. The house in question is currently almost 2,500 miles away from where I live now, and I’m safe and warm in my apartment.
I struggled with this post because as a personal finance blogger, I’m surrounded by successful people who have paid off mountains of debt, saved a boatload of cash, and possibly even retired before I really entered the workplace after years of schooling.
But, this is real life, and sometimes things aren’t pretty. Even though we have good financial habits now, we’re still being dragged down by the ghosts of past indiscretions.
Put quite simply, the story is this: we moved out of our house two years ago. We couldn’t sell it before we left, and so we rented it out to cover the mortgage while we waited for a buyer to come along. During that time, we were obligated to spend tens of thousands of dollars in necessary repairs because we had to take care of our renters.
When a likely buyer did come along, an inspection revealed the house needed even more repairs than we had the ability to pay for. We can’t rent it out anymore because the septic system was no longer functioning, and we don’t have enough money to continue to pay the mortgage out-of-pocket. In a nutshell, we reached the end of the road.
But that’s not the whole story.
How We Got Into This Mess
There were two major mistakes and a lot of bad luck that led us to this point. We bought the home with a zero-down mortgage, and we weren’t informed on how to successfully navigate the home-buying process to ensure we didn’t end up with a stinker of a house.
Rewind to summer 2009, when we lived in interior Alaska. Zach, an Army soldier at the time, had just returned from a deployment to Iraq. We’d spent most of our first year of marriage apart, and the small amount of savings we had from his war pay gave us a false sense of security. We thought we deserved a home; we’d gone through difficult times, and he was an American hero and all that.
We bought a home with a zero-down VA loan. We thought it was the best thing ever—we could use our savings instead to buy new furniture rather than putting it towards a down payment (dumb, I know).
Related: How To Get Approved For The Best Mortgage Without Sticking A Fork In Your Eye by Elysia Stobbe (affiliate link)
Our realtor suggested having an old buddy of his do a home inspection for cheap. We agreed, and he declared the home in perfect condition after spending 10 minutes glancing over it.
Within two years, the problems started. The home was built on permafrost (permanently frozen ground) yet still had a buried septic system and water holding tank. The septic tank had melted through the frozen mud, collapsed, and had started sinking to China. It was $5,000 to replace it.
By 2014, we had decided to move to Colorado so that Zach could attend college. We listed the house for sale, but it didn’t sell. We couldn’t afford the mortgage out-of-pocket in addition to our new apartment, so we filled it with renters for the winter to await the spring housing market.
We went through two more cycles of trying to sell it each summer, failing, and desperately trying to keep it filled with renters. The whole time this was going on, we would receive regular phone calls from the property management company stating that something new was broken on the house, and needed to be fixed.
Winters were especially hard as they could only put on temporary patches because things were frozen and they couldn’t get down under the ground to do proper fixes. Here are all of the repairs we’ve done on the home since moving out:
- 11/6/14 – Water line repair, $50
- 12/9/14 – New weather stripping on door, $191
- 2/9/15 – Water pump failure, $717
- 3/2/15 – Water holding tank repair, $700
- 3/3/15 – Water holding tank repair, $2,000
- 4/8/15 – Water holding tank repair, $700
- 5/7/15 – Water holding tank repair, $700
- 6/8/15 – Water holding tank repair, $700
- 7/17/15 – Water holding tank repair, $1,645
- 7/17/15 – Water pump repair, $252
- 7/17/15 – Install new above-ground water tank, $7,865
- 7/27/15 – Water pump repair, $1,897
- 9/25/15 – Install TV bracket, $100
- 12/21/15 – Thaw frozen water line, $255
- 12/28/15 – Water pump repair, $125
- 2/1/16 – Septic repair, $1,425
- 2/24/16 – Interior repairs, $1,146
- 3/25/16 – Thaw frozen water line, $212
- 4/18/16 – Septic repair, $1,712
- 5/9/16 – Fix numerous smaller problems, $4,935
- 5/9/16 – Septic repair, $750
- 5/13/16 – Septic repair, $1,830
That’s just shy of $30,000—in the past two years alone.
During this time, I was working as a cleaning lady in a lab animal facility making only $500 a week, while Zach was in school full-time. You can understand why we’re in debt.
How We Reached The Turning Point
We’ve actually had two offers on the home, but both have fallen through. After the first offer, an inspection (by a proper, licensed engineer) revealed a list of broken items that needed fixing before the buyer would go through with the offer. That’s where the last $7,515 of the charges came from.
Unfortunately, the deal fell through. The repairs took too long because the contractors were waiting for favorable ground conditions that never came. The buyer backed out of the deal—but not before we put $3,000 on our credit card, expecting to pay it off within a few weeks. We’re still carrying that debt today.
Related post: Savings Vs Debt: A Four-Step Guide To A Balanced Plan
The second offer came through a couple of months later. Again, bad news from the inspection: after reviewing the repair records from the home and looking at the current state of the septic system, the engineer declared that the entire septic system had failed and was in need of replacement.
But we couldn’t just put in any old septic system: this time, due to all our previous problems, he recommended a custom-designed above-ground septic system built for permafrost soils—and it came with a price tag of $35,000. The contractors—all two of them in our city—agreed, and even said they were hesitant to do any more work on the system at all by this point unless we replaced it according to the engineer’s recommendations.
We were at an impasse. We couldn’t put renters in there again because the septic system wasn’t working. We couldn’t put another temporary fix on it because the contractors didn’t want to work on it. We couldn’t take out a loan to fix it because we were still paying on debt from previous repairs and had tapped out our ability to take on any more debt. We couldn’t afford the mortgage out-of-pocket because Zach is returning to school this fall and his income is dropping in half, which will be just enough to sustain us without the mortgage bill.
Making A Difficult Decision
We knew we couldn’t afford to keep the house. We don’t have a financial advisor and even though I am a personal finance blogger, I am not a finance expert. I didn’t feel comfortable making any rash decisions without confirmation from someone who knew more about this stuff than I did.
We decided to talk to an NFCC-certified financial counselor. They were very kind and gracious, and went over our situation in detail before discussing our options with us. They agreed with us; we are not financially able to keep our home.
We decided to pursue a deed-in-lieu of foreclosure, in which we give the house back to the bank—equity and all—in return for being released from the mortgage. We could have done a short sale, but we had already been trying to sell the home for two years with no luck, and because we’re heading into winter, the chances of selling it are growing slimmer every day.
Our only other option was actual foreclosure.
Pursuing The Deed-In-Lieu Of Foreclosure
After we made our decision, our financial counselor offered us more assistance. She wrote a letter of hardship for us and sent it to our mortgage company on our behalf. A few days later, she tried calling the mortgage company with us to notify them we’d like to pursue the deed-in-lieu of foreclosure.
The plan was to have her act as our advocate with the mortgage company. She would describe our situation, and how we wanted to proceed. Instead, the mortgage company denied to speak with her because she was on a recorded line (go figure).
She had to hang up, and we proceeded on the call ourselves with the mortgage company. A week later, we got a letter in the mail saying that we were eligible for a deed-in-lieu of foreclosure and they are now beginning to process our request.
What We’ve Learned
Throughout this whole process, we’ve learned many important things.
First, get a damn good inspector, especially if there is any indication that the home you’d like to buy is in any way substandard (in our case, marginal soil conditions). I don’t care if you’ll save a few bucks by going with a cheap inspector, or if the market is so hot you voluntarily waive the inspection. Do it. I learned the hard way for you.
If we would have known the potential for the home to need so many repairs (as revealed by the two buyer’s engineers), we would have never bought the house.
Second, don’t scrimp on the down payment. We may have been able to sell the house easier if we had more equity in it. We could have lowered the price on the home if our break-even point was lower, and a buyer possibly may have been willing to overlook the huge septic repairs if they were getting a great deal.
As it was, we couldn’t lower the price below average market value because we were already at our break-even point for selling the home. We could have done a short sale, but by the time we realized that we weren’t going to sell it at our break-even price, it was essentially too late.
What’s In Store For Our Future
Firstly, the mortgage is in Zach’s name only, so his credit will take a huge hit. He was on his way to an 800 credit score. Instead, his score will probably drop 100 points or more because a deed-in-lieu of foreclosure has a similar effect on credit profiles as an actual foreclosure.
The mark will stay on his report for seven years, and during that time, no lender in their right might would approve him for a mortgage—on paper, he’s too risky. While my credit will stay pristine, I don’t have a high income in my career field, and so on my own I could probably afford a mortgage for an outhouse at best.
This is good and bad. We both want to be homeowners again (while fully implementing the lessons we learned the hard way), and it’s not going to happen anytime soon. Zach will be forty years old before we can get another mortgage. On the bright side, this gives us plenty of time to save up for a down payment.
Secondly, we’ll have more money left in our pocket each month. The most difficult thing of all is that we know what we did wrong, and even though we’ve done everything possible to cope with it, we’ve still been sinking financially. We’ve managed to drastically cut our expenses, save up more than we’ve ever had before in our lives, and work several additional jobs in an effort to increase our income.
Just this evening I decided to stay home and work on freelance writing. I turned down friends who wanted to go out and play bar trivia—bar trivia that my husband is leading, one of two part-time jobs he works at while attending school full-time.
Our life has turned into an endless battle to deal with this problem and try to get ahead, but no matter how hard we’ve been working, we’ve still just been running in place on a hamster wheel or even falling behind further.
With this deed-in-lieu of foreclosure, we’ll have a huge weight lifted off our chest and finally be able to relax. No more worrying each time we get a phone call, wondering if it’s the property management company calling to say we’re on the hook for another few thousand dollars when we have none. No more fretting about showings, or if we’ll get an offer on the house as winter ticks ever closer.
The stress from dealing with this house is a major reason I’ve been having problems with depression in the past two years. It’ll be nice to finally be at peace, even if it comes at a high price.
And who knows? Maybe we’ll finally be able to start moving ahead financially.
Have you ever had to make a difficult housing decision? Leave a comment below!