Ryan Downey first wrote to HuffPost in December 2009 in response to a request for readers to share stories about the fight with their bank over an underwater mortgage. A year later, he was interviewed for our story "Learning To Walk," which looked at the experiences of roughly fifty people who had considered walking away from their mortgage. Today, the chapter closes, and Downey writes it himself.
I made my last mortgage payment on November 1, 2009.
Bank Of America changed the locks on my house on September 29, 2011.
I realize that my results may not be typical and that every situation is unique. But I'd like to provide people in a similar spot with something that wasn't readily available to me when I realized I had to walk away from my house: answers.
What happens when you walk away? Are you arrested? Are you shunned? Do your kids decide they hate you?
When I signed a mountain of loan documents to purchase my first home in 2006 I had the same attitude as most people. "Do whatever you can to pay your mortgage: run up credit cards, work out payment plans with the IRS, eat Ramen noodles. But pay your mortgage, every month, always. Because when you miss a few payments, a sheriff shows up with a cardboard box and throws you and your family onto the sidewalk. Or maybe if he's friendly he'll give you a lift to a shelter."
Nobody told me that some folks miss as many as two years worth of payments before they have to move out of their home. Or that the bank may even hand you a few thousand dollars to quietly evacuate without dumping plant killer all over your upgraded landscaping, ripping out the microwave or spray painting "the mortgage crisis sucks!" on the garage.
It certainly wasn't clear that my house would eventually be worth less than half what I owed on it; that my small business would suffer from a bad economy; that half the houses on my suburban double cul de sac would fall into foreclosure; or that many of the people who made money rigging the system on the way up would find ways to do so on the way down while folks like me sat around waiting for the banks, for Dubya and for "hope and change" to do something to help us.
This is what happened when I decided to walk away. And it's not nearly as nightmarish as you might think.
I purchased a brand new home in Riverside County, California in April, 2006 for $422,000. As I write this more than five years later, Zillow.com estimates the home's value at $253,000. I had an interest only, nothing down loan with an adjustable rate mortgage through a lender called First Franklin. (Yeah, I'm one of those guys you've been reading about). I had a 711 FICO score when I bought my house but the woman who worked out the mortgage assured me that because I'm self-employed, I would never get anything better than an interest only, nothing down adjustable rate mortgage.
When the housing bubble burst I had some friends who purchased new houses -- which they told their banks were "investment properties" -- only to move into them while letting the first "underwater" house slip voluntary into foreclosure. At first I thought this was bananas. I figured I could call my lender, explain to them that my small business was suffering from the economy, that my mortgage was due to reset, and that I wouldn't be able to afford to pay them double the home's value. I was even willing to pay them more than the house was worth. I just couldn't make those huge payments.
I spent eight months trying to get a loan modification. I faxed close to a hundred pages of documents to them. I was very honest with them every time I called in, which was about twice per week. I never spoke to the same person twice. It would take them a week each time to even confirm receipt of a fax. They would regularly "lose" pages. At one point my bank statements became out of date because they had sat on my paperwork for so long. Eventually a negotiator assigned to my account (who would never answer nor return my calls himself) communicated to me that I would "probably" get a loan modification. Then a few days later the bank told me in no uncertain terms that they were denying my request because, well, I hadn't ever missed a mortgage payment and therefore I wasn't viewed as an "imminent risk of foreclosure."
That's right. They wouldn't help me because I was paying them every month and on time. They also told me they wouldn't help me because I had income, because I had a small bit of savings. Never mind that I was telling them, "Yes, I'm making the payments now, but I'm running up credit cards to do so, and soon I won't be able to make them at all."
The same month I made my last mortgage payment I read an article about an Arizona law professor who was advising people to do exactly what I had decided I must do. Two months after that, I read about how investors in the largest residential real estate deal in U.S. history had walked away from 11,232 properties at once.
The banks call it "writing off a bad investment." But when a private citizen does it, we're scum? Please.
The Phone Calls? I Say Ignore Them.
The bank started calling me relentlessly in December, 2009. One mistake I made early in the process was that I had this need to tell my story to every representative who contacted me. I wanted them to know I didn't buy my house to get rich. I never "pulled out equity" to purchase a boat, an RV or more houses, either. I just wanted to own a decent home and when I bought the house in 2006 I paid more than a decent house should cost thanks to speculators, big banks and so on.
Eventually I realized that some of them would just scold me ("you knew what the payments were when you bought the house"), others might sympathize ("yeah, this situation sucks"), some would even get political ("yeah Bush really screwed us"; "man Obama messed things up") but most were cold and indifferent.
What they all had in common was a complete lack of power to do anything to help me.
These people couldn't even tell me who actually owned my loan at this point. They "couldn't" give me that information. They would explain that they were my "loan servicer," as if I should know the difference. My understanding now is that the loan servicer most likely gets paid a fee each month whether you are paying your mortgage or not. But who knows...?
Once I stopped paying them, First Franklin / Home Loan Services were happy to offer me a second chance at a load mod. I went through the lengthy paperwork and followup phone calls process all over again. I kept detailed notes. Nothing.
Next they ran me through the government's "Making Homes Affordable" program guidelines. I wasn't approved for that, either. They just couldn't budge on a house so far underwater. I was baffled. I mean, I was under the impression that underwater mortgages are a big part of the housing crisis and that HAMP was setup to help troubled homeowners, right?
The Scary Notice Taped to Your Door. Pfft!
The bank first taped up the scary "your home is going to be sold at auction in three weeks" papers on my door in March, 2010. The actual auction didn't take place until August, 2011. But of course, at the time, I was sweating bullets.
What's interesting was that I never really formally requested postponements of the auction dates. I would call in to get updates throughout my third attempt at a loan modification and they would tell me in ominous tones, "Mr. Downey, I see here you have an auction date for April 29. That's in a week. What are you going to do about this today?" I would call back the next day and a different person would tell me in the same manner, "I see here you have an auction date of May 5."
This continued all the way until September when I got a letter from Bank Of America politely informing me they had become my new mortgage servicer. It turns out First Franklin had "charged off" my second mortgage and sold my first mortgage to Bank Of America, or so I think... Who knows really? They don't seem to know themselves.
A collection agency started calling me for the second mortgage. First I had to explain to them that I live in California, which is a non-recourse state. They had an address in Indiana where I haven't lived in eleven years from an old credit report and begged to differ. I said, "read the property address you are calling about. It's in California. A non-recourse state."
If you used a second mortgage to purchase your home and you live in a "non-recourse" state they can't come after you for it. Furthermore if you have negative equity in your home, they can't foreclose on it over the second if you owe more on your first than what the house is worth. I explained all of this to the collection agent who changed her tune and offered me "a very generous settlement amount for pennies on the dollar" to "clean this from your credit." I declined.
I've never heard from them since. And why should I? I agreed to pay back the bank for loaning me money to buy my house and also agreed that if I didn't, the bank could have the house themselves. Why consent to more than that?
Make the Bank's Lack of Organization Their Problem, Not Yours
After months of being frustrated by the bank's poor organizational skills (yeah, yeah, they are overwhelmed by all of the people losing their homes; whose fault is that again?) I decided to turn the tables. Poor organization can be your friend!
I would take my time to send them documents. I wouldn't return phone calls for a few days. If I didn't like the attitude of the person on the other end, I'd hang up on them and call right back. I mean, you get a different person anyway. Why not?
The first letter I got from Bank Of America said essentially, "We are your new loan servicer and your first payment is due as of December, 2009." I got this letter in September, 2010. When I called them they said they didn't have my files yet.
By the time I was fully in their system and they realized I was nearly a year behind, it was October, which happened to be the month they instituted a foreclosure freeze to do their own "internal investigation" about potential wrongdoing.
When they turned the foreclosure faucet back on I went through their loan modification process (which was said to be different than my last lender's), then they ran me through HAMP, then we talked about a short sale, then I was sent to their "deed in lieu of foreclosure" department. Then on August 9, 2011 they finally took my house to auction.
Nobody bought it and it went back to the bank.
What Happens After the Auction?
I'm told that if investors buy it they will eventually show up on your porch, give you a call or write you a letter. They'll tell you they've purchased your home and they are prepared to offer you some "moving expenses" cash to get outta Dodge.
If the bank takes your house it's more or less the same thing. A realty company came by my place on BOFA's behalf.
In either case the bank or the investors could evict you, which you can fight. This process will cost them money and give you even more time in the house -- anywhere from thirty to ninety days, I've heard. It makes more sense to them to give you cash to get out faster so they can be sure you won't trash the place on the way out or let the lawn turn brown.
If you decide to stay this extra bit of time, be aware that an eviction looks much worse than a foreclosure to a landlord.
In my case it took the realty company a few days to show up and (surprise, surprise) they had to wait on Bank Of America to finish up some details before they could work everything out with me. I'm not saying I worked out a "cash-for-keys" agreement. I'm pretty sure those agreements have a non-disclosure mechanism. But I hear they're offering about $5,000.
I handed Bank Of America's representatives the keys nearly two months after the day they took the house to auction.
But What About My Credit Score?
American Express lowered my spending limit for a few months when I stopped paying my mortgage. A few months later they raised it again. I kept all of my credit cards and auto loans current. When it came time to rent a house I was accepted by the first landlord at the first rental property I looked at with the only application I turned in. I simply explained the entire situation to him in our first conversation. He wanted to see my bank statements and ran a credit report. That was it.
It's my suspicion that a foreclosure is going to be much less detrimental when it comes time to getting credit to do anything -- including buying another house -- than it used to be. Think about it. If people won't rent to folks who've lost their homes, who will they rent to? It would be McDonald's deciding they won't sell food to people who are out of shape.
The place I'm renting is costing me less than half my monthly mortgage and property tax bill used to be.
What Will the Kids Say?
My three-year-old daughter loves our bigger house and our nicer neighborhood. She announced recently that, "One time I saw an ant sleeping on my bike in the garage so we had to get a new house." Our dog loves the new house, too.
Finally, What Will the Neighbors Say?
The honest ones will ask you for advice. The proud ones will probably end up with papers taped to their doors, too.
Follow Ryan J. Downey on Twitter: www.twitter.com/SuperheroHQ