Whoever heard of punishment for trying to cover your debts? Several years ago my husband and I decided it was time to move to a bigger house. We knew we might be housing my parents sometime down the road and were searching for a place with more space.
With the fall of the economy it was a good time to purchase a home, but a bad time to sell one. We decided to keep our current family home as a rental property and move into a bigger home better suited for our future needs. Additionally, I thought the rental property could eventually be sold to fund our lives during retirement.
It wasn't hard to qualify for two mortgages. Turns out that banks were giving mortgages to people who could not afford them. According to the mortgage company we cold afford two mortgages as long as we had renters or as it turns out not eat. There was no discussion or thought if we could afford the two mortgages if we didn't have a renter. Feeling liberated and set on being grand landlords we set out on our new adventure.
We later found out later that our mortgage on our first home was written in less than legal terms. The mortgage company refinanced our first house and then gave us a new loan for the second house. The type of mortgage for our first house was meant for a homesteaded home and not a rental property. The mortgage company was fully aware of our intentions to rent the first home and live in the second. This bit of information would create problems down the road.
We started out on our landlord journey learning that there are tons of unscrupulous people in the world. We had several tenants over the course of a two plus years. The first tenant signed a lease and then failed to move in. We had to scramble to find someone new. This left us two months to cover the mortgage of that house. The second tenant moved in and out within six months, breaking the lease and destroying the house.
We decided the 'right' thing (or what we felt was the only answer) and fix the house, keep paying the mortgage and find another renter. The lack of rental income was a huge strain on our finances. The decision was made to cash out most of my husbands retirement fund to purchase materials to fix the house and keep the mortgage up on the property. It took three months to fix the house and re-rent. The cost was thousands of dollars. The third tenant moved in and paid the rent on time for two months. Things started going downhill from there. She stopped paying rent and for two months I called, left notes on the door and mailed her letters regarding the rent. When I finally spoke with her she said times were tough, etc. I was forced to file the paperwork to have her legally evicted through the courts. She continued to live in the house without paying rent for two additonal months. The day before the Sheriff was to arrive to evict her from my house she left. This left us with four months of unpaid rent.
Tax time was upon us by now and since we had cashed out my husbands retirement we learned that even though we paid penalties and taxes at the time, the money pushed our combined income into a new tax bracket. We now owe the IRS $11,000. We had to set up monthly payments to pay off our debt.
It was a couple of months before we could find another renter. By this point we had fallen far behind on the mortgage of the rental and our family home in an effort to juggle the debt. We could not possiby catch up and cover both mortgages. The renter moved out as the house went into foreclosure, but we were luckily able to save our family home.
Even during foreclosure we attempted to right our issue the best we could. We contacted a realitor to short sale the house to ease the loss of money. The house was worth much less than what we owed and figured that we would fair better from a short sale than an out right foreclosure. Neither foreclosure or short sale were routes either of use felt comfortable with, but there were no options left. Both of us are honest people to a fault and have always been responsible for our own debt. In past times when money was tight and we were short on paying our bills one of us would get a second job to make ends meet or sell something of value. Many birthday and Christmas presents made their way to the pawn shop.
But at this point they money owed is far more than either of us could generate in a reasonable amoutn of time. We received a total of three offers on the house. Each offer was considered and denied by the mortgage company. It was determined by the third offer that our mortgage was not eligible to short sale because of the type of mortgage. We were foreced to give up.
The house went into total foreclosure. It sat for more than two years as the government and the banking industry fought over the fradulant mortgage market. Eventually the house sold at auction January of 2012. We have been lucky that the remainder of the loan has been forgiven, but we did not escape the IRS charging us income tax on that money since the house was not our primary residence.
Just as we are close to paying off our tax debt for cashing out a 401k and being bumped into a higher tax bracket we are saddled again with a tax debt of $19,000 for the 'forgiven' loan.
Over the past four years I have had multiple people steal money from me by living in my home for free or breaking a rental contract, destroy my property; unexpected tax on money intended to pay off my debt and then taxed again on my poor real estate decision.
My intentions in the beginning were to provide a space for my parents who were facing foreclosure themselves and rent a home with the hopes of one day selling for retirement, but my hopes have fallen way short.
Many people have purposely let their homes go into foreclosure. I have seen those same people buy new cars, go on expensive vacations and do pretty much to their hearts content from money that should have been paying the mortgage, property taxes and insurance. It is true that eventually those people move out of their almost free home and into a rental property and are saddled with a poor credit score. I too have a poor credit score, but I attempted to pay my mortgage and got taxed only to further tighten my budget. And just when I see the light at the end of the tunnel I am hit again by more taxes.
My family vacations are trips to visit family. There are no extravagant vacations or brand new cars for every family member. Our monthly payments will continue for several more years to the IRS and once that is finally finished I will begin to dig out of my student loans that have had to sit untouched for years until the budget allows for payment.
While I am dismayed by the way society has ignored their responsibilites since it has directly impacted my life substantially. I still feel doing the 'right' thing is the 'right' decision even if it will take years to 'right'.
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