How Much Shit Has To Hit The Fan....
Posted: Tue Jun 24, 2008 5:05 pm
....Before The Blades Stop Turning ?
Not the everyone is waiting on the edge of their seats to know why money is such a problem for me right now, but I did say that I would post about that, and who can resist reading the ugly details of other people's problems?
As many of you know from reading other posts in the forum, I sold my property in the city in 2005, closed the deal and moved away in 2006, purchasing a new property on the Oregon Coast. The deal that was put together on the city property was that the developers would put down 66% of the purchase price, and I would carry a trust deed for the remainder, charging them what could be considered a punishing rate of interest in the interim, with the principal balance due as a balloon payment in two years on April 28th, 2008.
Selling my property at the peak of the real estate market meant that I got top dollar, but it also meant that I had to buy during the peak, and finding an affordable property that was suitable was a terrible ordeal (that's the subject of yet another forum post...). I ended up purchasing a property that was much more expensive than I thought I would need simply because it was a seller's market, and this seemed to be the only decent property I could find. Since I hadn't anticipated needing so much cash when I closed the deal on the city property, I talked the sellers of my new place into carrying a note for two years, with a balloon payment of the balance due after interest and principal payments. That note would be due and payable on July 11 of this year.
So, everything was planned to work out just grand. My buyers would be paying me interest on the note in excess of what I was paying my sellers for interest plus principal, and the trust deed on the city property would come due about two months before I needed the money to pay off my sellers. Afterwards, I'd have a couple of hundred thou in the bank to collect interest, providing me with a modest, but secure retirement.
I probably could just stop here, and any one of you could complete this post in ten words or less.
Getting the regular interest payments out of my buyers (hereafter known as "The Jerks") was like pulling teeth. I had to engage the services of a lawyer to shake the second six months payment out of them, which cost me $1200 in legal fees. They were perpetually late, anywhere from 17 to 45 days in arrears at any time. Never once paid on time.
The last payment I got from them was for June 2007, which I received in August. They were late on their end-of-year payment. I wrote them polite reminder letter, imploring them to please get in contact with me. About a month later, I got a call from one of them telling me that things had been a little tight, but they were selling some property and would have my payment next week. Two weeks went by, I called back. More excuses, the buyers couldn't get loan approval without a tax return, the accountant was out of the country, they had clients paying back bills, they'd have half the payment tomorrow, they were going to borrow money from family members, the check was already written, but he'd have to ask Sanford where he had put it so it could be mailed, etc. I put up with excuses for two more months, and finally wrote a firm but polite demand letter.
The next call from them was to tell me that they probably weren't going to be able to make the balloon payment in a month and a half, and unless I would agree to extend the loan for another two years at a substantially lower interest rate, that they would probably have to "give the property back". Since they were facing default on the principal, they saw no problems on being in default for the interest, and refused to pay it.
Get the property back? So I can resell it? What I haven't mentioned is that when we closed the deal, I agreed to take second position behind the bank that they got the down payment from. "Getting the property back" meant that I would be inheriting a $420,000 debit that they owed on it, which would be due and payable immediately. This is the reason I also can't threaten foreclosure to collect the back interest. Time to get another lawyer, a more high-powered one this time.
The Jerks proposed to my attorney that I extend their debit for two more years at a lower interest rate -or- that they would buy me out for about 40% of the trust deed's face value. I probably would have agreed to extend their loan, except for the fact that the lawyer found out from the bank that although The Jerks were current with the loan interest payments there, they were likely going to default on the balloon payment due June 1. My lawyer asked what the banks procedure for foreclosure was and was told that they don't have any, they are a new bank, and this is the first time anyone has defaulted.
So, at this point, I am out $27,000 in interest owed (which would have been used to pay bills, payments to my sellers, and improvements around the new place), as well as $231,000 in principal, for a total of over a quarter of a million lost and possibly gone forever.
Oh, and I probably should mention that I have already paid $36,000 in capital gains taxes for "deferred income" on the money that they owed me and haven't paid.
My options are few. I am waiting to hear from the lawyer what the bank is going to do. The bank can decide to extend their loan, in which case I probably will have to do so as well, ~after~ I get payment of the outstanding interest in full. If the bank decides to squash The Jerks like the cockroaches that they are (and so justly deserve), then I die too. The only enforcement option I have is to release the trust deed I hold as security and go after a court judgement and lien on their assets, a process that can take a long time to produce even a little bit of money. The risk is either that they have played the shell game very well and don't have any cash equity in anything they own, or that they eventually declare bankruptcy. In any event, once I have the court judgement against them, I can amend my 2006 tax return and get back some, if not all of the capital gains taxes I've already paid. This only if I get the judgement before Dec 31, 2009.
-=Meanwhile=-, I've been making my payments to my sellers (hereafter known as "The Okies") on time and in full, $1,500 a month, withdrawn from my ever-dwindling bank account. I've laid awake in bed at night for ten months agonizing about a solution to The Jerks and trying to figure out what I was going to do if they didn't straighten up and come through before July 11.
Some time in March, I think it was, I realized that I needed an independent solution, one that didn't depend on my old property, The Jerks, court judgements, tax refunds, or anything else outside of my control. I decided to get a home equity loan, pay off The Okies, and come out of the deal with a lower monthly payment until the whole situation shook down and settled.
My client who owns the radio station that I work for here is on the board of directors of the locally-owned bank, and suggested I talk to a particular loan officer about getting a loan. I contacted this person, set up an appointment, went in with paperwork, and told her the entire story, and applied for a $40,000 home equity loan, with the intention that I would deposit the remainder of my savings at the bank after withdrawing the additional amount to match the loan up to The Okies payoff amount. After a few weeks, (weeks?), I was handed off of another loan officer who suggested a different loan method, a loan secured by a certificate of deposit. I got handed off yet again, and told that since my buyer's trust deed was in default, and that I hadn't made enough money through self-employment in the last two years, that they were going to decline to loan me any money. I made a special point of going back into the loan office with additional income documentation ~and~ a letter from my client (member of the board) describing his contract with me to supply $13,000 - $15,000 worth of labor between July and the end of the year. No dice, no loan.
Went into a different bank and talked with a loan officer, who very quickly told me that because the trust deed was in default, that they would be unlikely to loan me anything.
Next up, I checked in with the bank were I was currently keeping my money. This time, I conveniently forgot to mention that the trust deed was in default. They were all friendly and fawning, and pumped me up with their latest current promotion, home equity line of credit, 3% interest for the first six months, prime + 0 to 2% thereafter, lock down rates, etc. I submitted an application, which was rejected by the corporate loan office. I countered that my tax returns were's portraying my income potential inaccurately due to my pretending to be retired, and that I was back on the job. They declined. I countered with a $10,000 loan, a quarter of what I had asked for at first. They declined. I offered a co-signer. They declined. Then I kind of unloaded on them. The interest on $10,000 is like $58.00 a month! Did they think I was incapable of coming up with $58 a month? I had almost $80,000 on deposit in their bank for Christ's sake! I was giving them rights to electronically transfer my payments out of my account. When the trust deed came due in April of 2009 (cough), I'd have lots of cash to pay off the loan. Nope, sorry Charley. I asked them exactly what in the hell they wanted to approve a loan for me. They told me that they needed to see a guarantee of income for the term of the loan. I asked the loan officer if she could guarantee that she would be working for the bank in ten years. Nobody can say what they will be doing in ten years! I even reminded them that if I didn't get the loan, I'd end up withdrawing all my deposits. That didn't work either.
So, why not approach the people who are in the best position to loan me money, The Okies? Well, for one thing, I know that they have a balloon payment due on the new place that they bought, but mostly it's because I think that if I had displayed any weakness, they would have seen it as an opportunity to take back this property. "Hot damn! Thet boy done failed to pay us, so's now we can take back the 'ol homestead and find another sucker to sell it to!"
By now, I'm feeling like dirt. On paper, I'm worth like, $1,200,000, but I can't borrow a ten spot from the bean counters to save my home from repossession.
Nothing left to do but try another bank. Went into the second locally-owned bank, told them the story (most of it, anyway), and confessed that they would probably have a problem with my tax returns. They looked it all over and said that they really didn't see any deal-breakers, that I would probably be approved, but that before they'd know for sure, I'd have to pay to have the house appraised, at a cost of about $450. Closing costs, title insurance, and fees were going to run about $1,000. Interest for the first year would be $3,000.
About this time, an old high school friend whom I've kept in contact with offered out-of-the-blue to loan me what I needed to make the payoff to The Okies. Since I was short only about $7,000, I was having a hard time thinking that I'd be paying fees of about $5,000 just to get the money from the bank, and still owe the principal. After some deliberation, I called the bank and told them that I had found private financing, thanked them, and made the necessary arrangements with my friend to borrow the cash.
The bottom line is, last Thursday, I made a trip to the city armed with the loaned funds in the form of a cashier's check. There I withdrew all but $1 from the bank that refused to give me the home equity line of credit, and then made a payoff of $85,719.66 to The Okies. My home is now paid off.
I should be happy, right? Well, the aftermath is that I have closed three bank accounts, and completely decimated my savings. I have put away (new bank account at the bank that was willing to loan me money) the first one-third of next year's property taxes, a payment that is due in November. I have about $200 cash to last me until the job at the radio station kicks in. I will have to cancel a couple of insurance policies, and have cut back drastically on anything that even smells of luxury. I eat a vegetarian natural foods diet. Normally, I don't pinch pennies on groceries or get very concerned about buying higher priced quality foods. I've been cutting back on snack foods for a while now, and last time into town, cut a lot of regular purchases off my list. I have a serious granola habit, eating it not only for breakfast, but as a snack food during the day. I can go through $13 -$15 worth of the stuff in a week and still run out. No more, I bought three varieties of hot cereal last week. You can't just pop raw oatmeal into your mouth on a eating scene impulse. Eating out at restaurants is something I do infrequently as a rule, but I do enjoy a fish dinner from time to time. If I want fish now, it's down to the creek with my pole, boys.
In all, this is the bottom of the curve, from here, I begin my financial recovery. If anything comes out of the trust deed I hold against The Jerks, it will be a windfall. I can neither count on it coming, nor do I have expectations on the outcome. I'll just have to work my way back to monetary health, anything else is delusional at this point. I'm finding out who my friends really are (and who they really aren't).
I've been poor before. I've just never been old and poor. Should be a new experience.
Not the everyone is waiting on the edge of their seats to know why money is such a problem for me right now, but I did say that I would post about that, and who can resist reading the ugly details of other people's problems?
As many of you know from reading other posts in the forum, I sold my property in the city in 2005, closed the deal and moved away in 2006, purchasing a new property on the Oregon Coast. The deal that was put together on the city property was that the developers would put down 66% of the purchase price, and I would carry a trust deed for the remainder, charging them what could be considered a punishing rate of interest in the interim, with the principal balance due as a balloon payment in two years on April 28th, 2008.
Selling my property at the peak of the real estate market meant that I got top dollar, but it also meant that I had to buy during the peak, and finding an affordable property that was suitable was a terrible ordeal (that's the subject of yet another forum post...). I ended up purchasing a property that was much more expensive than I thought I would need simply because it was a seller's market, and this seemed to be the only decent property I could find. Since I hadn't anticipated needing so much cash when I closed the deal on the city property, I talked the sellers of my new place into carrying a note for two years, with a balloon payment of the balance due after interest and principal payments. That note would be due and payable on July 11 of this year.
So, everything was planned to work out just grand. My buyers would be paying me interest on the note in excess of what I was paying my sellers for interest plus principal, and the trust deed on the city property would come due about two months before I needed the money to pay off my sellers. Afterwards, I'd have a couple of hundred thou in the bank to collect interest, providing me with a modest, but secure retirement.
I probably could just stop here, and any one of you could complete this post in ten words or less.
Getting the regular interest payments out of my buyers (hereafter known as "The Jerks") was like pulling teeth. I had to engage the services of a lawyer to shake the second six months payment out of them, which cost me $1200 in legal fees. They were perpetually late, anywhere from 17 to 45 days in arrears at any time. Never once paid on time.
The last payment I got from them was for June 2007, which I received in August. They were late on their end-of-year payment. I wrote them polite reminder letter, imploring them to please get in contact with me. About a month later, I got a call from one of them telling me that things had been a little tight, but they were selling some property and would have my payment next week. Two weeks went by, I called back. More excuses, the buyers couldn't get loan approval without a tax return, the accountant was out of the country, they had clients paying back bills, they'd have half the payment tomorrow, they were going to borrow money from family members, the check was already written, but he'd have to ask Sanford where he had put it so it could be mailed, etc. I put up with excuses for two more months, and finally wrote a firm but polite demand letter.
The next call from them was to tell me that they probably weren't going to be able to make the balloon payment in a month and a half, and unless I would agree to extend the loan for another two years at a substantially lower interest rate, that they would probably have to "give the property back". Since they were facing default on the principal, they saw no problems on being in default for the interest, and refused to pay it.
Get the property back? So I can resell it? What I haven't mentioned is that when we closed the deal, I agreed to take second position behind the bank that they got the down payment from. "Getting the property back" meant that I would be inheriting a $420,000 debit that they owed on it, which would be due and payable immediately. This is the reason I also can't threaten foreclosure to collect the back interest. Time to get another lawyer, a more high-powered one this time.
The Jerks proposed to my attorney that I extend their debit for two more years at a lower interest rate -or- that they would buy me out for about 40% of the trust deed's face value. I probably would have agreed to extend their loan, except for the fact that the lawyer found out from the bank that although The Jerks were current with the loan interest payments there, they were likely going to default on the balloon payment due June 1. My lawyer asked what the banks procedure for foreclosure was and was told that they don't have any, they are a new bank, and this is the first time anyone has defaulted.
So, at this point, I am out $27,000 in interest owed (which would have been used to pay bills, payments to my sellers, and improvements around the new place), as well as $231,000 in principal, for a total of over a quarter of a million lost and possibly gone forever.
Oh, and I probably should mention that I have already paid $36,000 in capital gains taxes for "deferred income" on the money that they owed me and haven't paid.
My options are few. I am waiting to hear from the lawyer what the bank is going to do. The bank can decide to extend their loan, in which case I probably will have to do so as well, ~after~ I get payment of the outstanding interest in full. If the bank decides to squash The Jerks like the cockroaches that they are (and so justly deserve), then I die too. The only enforcement option I have is to release the trust deed I hold as security and go after a court judgement and lien on their assets, a process that can take a long time to produce even a little bit of money. The risk is either that they have played the shell game very well and don't have any cash equity in anything they own, or that they eventually declare bankruptcy. In any event, once I have the court judgement against them, I can amend my 2006 tax return and get back some, if not all of the capital gains taxes I've already paid. This only if I get the judgement before Dec 31, 2009.
-=Meanwhile=-, I've been making my payments to my sellers (hereafter known as "The Okies") on time and in full, $1,500 a month, withdrawn from my ever-dwindling bank account. I've laid awake in bed at night for ten months agonizing about a solution to The Jerks and trying to figure out what I was going to do if they didn't straighten up and come through before July 11.
Some time in March, I think it was, I realized that I needed an independent solution, one that didn't depend on my old property, The Jerks, court judgements, tax refunds, or anything else outside of my control. I decided to get a home equity loan, pay off The Okies, and come out of the deal with a lower monthly payment until the whole situation shook down and settled.
My client who owns the radio station that I work for here is on the board of directors of the locally-owned bank, and suggested I talk to a particular loan officer about getting a loan. I contacted this person, set up an appointment, went in with paperwork, and told her the entire story, and applied for a $40,000 home equity loan, with the intention that I would deposit the remainder of my savings at the bank after withdrawing the additional amount to match the loan up to The Okies payoff amount. After a few weeks, (weeks?), I was handed off of another loan officer who suggested a different loan method, a loan secured by a certificate of deposit. I got handed off yet again, and told that since my buyer's trust deed was in default, and that I hadn't made enough money through self-employment in the last two years, that they were going to decline to loan me any money. I made a special point of going back into the loan office with additional income documentation ~and~ a letter from my client (member of the board) describing his contract with me to supply $13,000 - $15,000 worth of labor between July and the end of the year. No dice, no loan.
Went into a different bank and talked with a loan officer, who very quickly told me that because the trust deed was in default, that they would be unlikely to loan me anything.
Next up, I checked in with the bank were I was currently keeping my money. This time, I conveniently forgot to mention that the trust deed was in default. They were all friendly and fawning, and pumped me up with their latest current promotion, home equity line of credit, 3% interest for the first six months, prime + 0 to 2% thereafter, lock down rates, etc. I submitted an application, which was rejected by the corporate loan office. I countered that my tax returns were's portraying my income potential inaccurately due to my pretending to be retired, and that I was back on the job. They declined. I countered with a $10,000 loan, a quarter of what I had asked for at first. They declined. I offered a co-signer. They declined. Then I kind of unloaded on them. The interest on $10,000 is like $58.00 a month! Did they think I was incapable of coming up with $58 a month? I had almost $80,000 on deposit in their bank for Christ's sake! I was giving them rights to electronically transfer my payments out of my account. When the trust deed came due in April of 2009 (cough), I'd have lots of cash to pay off the loan. Nope, sorry Charley. I asked them exactly what in the hell they wanted to approve a loan for me. They told me that they needed to see a guarantee of income for the term of the loan. I asked the loan officer if she could guarantee that she would be working for the bank in ten years. Nobody can say what they will be doing in ten years! I even reminded them that if I didn't get the loan, I'd end up withdrawing all my deposits. That didn't work either.
So, why not approach the people who are in the best position to loan me money, The Okies? Well, for one thing, I know that they have a balloon payment due on the new place that they bought, but mostly it's because I think that if I had displayed any weakness, they would have seen it as an opportunity to take back this property. "Hot damn! Thet boy done failed to pay us, so's now we can take back the 'ol homestead and find another sucker to sell it to!"
By now, I'm feeling like dirt. On paper, I'm worth like, $1,200,000, but I can't borrow a ten spot from the bean counters to save my home from repossession.
Nothing left to do but try another bank. Went into the second locally-owned bank, told them the story (most of it, anyway), and confessed that they would probably have a problem with my tax returns. They looked it all over and said that they really didn't see any deal-breakers, that I would probably be approved, but that before they'd know for sure, I'd have to pay to have the house appraised, at a cost of about $450. Closing costs, title insurance, and fees were going to run about $1,000. Interest for the first year would be $3,000.
About this time, an old high school friend whom I've kept in contact with offered out-of-the-blue to loan me what I needed to make the payoff to The Okies. Since I was short only about $7,000, I was having a hard time thinking that I'd be paying fees of about $5,000 just to get the money from the bank, and still owe the principal. After some deliberation, I called the bank and told them that I had found private financing, thanked them, and made the necessary arrangements with my friend to borrow the cash.
The bottom line is, last Thursday, I made a trip to the city armed with the loaned funds in the form of a cashier's check. There I withdrew all but $1 from the bank that refused to give me the home equity line of credit, and then made a payoff of $85,719.66 to The Okies. My home is now paid off.
I should be happy, right? Well, the aftermath is that I have closed three bank accounts, and completely decimated my savings. I have put away (new bank account at the bank that was willing to loan me money) the first one-third of next year's property taxes, a payment that is due in November. I have about $200 cash to last me until the job at the radio station kicks in. I will have to cancel a couple of insurance policies, and have cut back drastically on anything that even smells of luxury. I eat a vegetarian natural foods diet. Normally, I don't pinch pennies on groceries or get very concerned about buying higher priced quality foods. I've been cutting back on snack foods for a while now, and last time into town, cut a lot of regular purchases off my list. I have a serious granola habit, eating it not only for breakfast, but as a snack food during the day. I can go through $13 -$15 worth of the stuff in a week and still run out. No more, I bought three varieties of hot cereal last week. You can't just pop raw oatmeal into your mouth on a eating scene impulse. Eating out at restaurants is something I do infrequently as a rule, but I do enjoy a fish dinner from time to time. If I want fish now, it's down to the creek with my pole, boys.
In all, this is the bottom of the curve, from here, I begin my financial recovery. If anything comes out of the trust deed I hold against The Jerks, it will be a windfall. I can neither count on it coming, nor do I have expectations on the outcome. I'll just have to work my way back to monetary health, anything else is delusional at this point. I'm finding out who my friends really are (and who they really aren't).
I've been poor before. I've just never been old and poor. Should be a new experience.