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Who will bail out John and Sandi?

Sandi and John thought that they had everything. It was January, 2001, they were expecting their first child, a man that they respected was the new President, and they were about to buy their first home.

 

The house in Port Jefferson, New York was more then they had budgeted, but their Realtor, Alice, had assured them that the "creative" financing that her husband Carmine could get for them would solve the problem.

 

Sandi just adored Alice, so when she referred him to an Attorney, William, she hired him without hesitation.

 

William suggested that the couple have an engineer look over the house. Alice suggested that they hire her friend Jim.

 

Jim inspected the house on a Thursday and said that it was in mint condition. John was concerned about the inground oil tank and the deck. He asked Jim, "don't these tanks have a tenancy to leak?" Jim said, "It rarely happens. Anyway the test itself can cause a leak."

 

John then asked Alice, "is this deck legal? Doesn't it require a handrail?"

 

"Don't worry," Alice said, "Carmine assures me that the bank doesn't care. Anyway if you legalize it, your taxes will increase."

 

John was skeptical, but he had never seen Sandi so happy, so he agreed, they would meet with William the next day and sign the contracts.

 

When John first saw the contract he questioned the price. "Why does this say $325,000.00 we're only paying $300,000.00?"

 

William told him all about the Seller's Concession. "The Government allows the seller to pay 3 per cent of the purchase price in buyer's closing costs. So we increase the price to include that amount. That way you can finance more."

 

"But 3 per cent of $325,000.00 is only $9,750.00. Where is the other $15,250.00?"

 

"Alice told you about the creative financing. That’s a repair credit. By increasing the price again, you can finance more."

 

"But the sellers didn’t agree upon this, that can’t be legal."

 

"Don't worry it's done all of the time."

 

John knew that he should cut his losses and walk. William was too slick. He didn't believe Jim and he thought that Carmine was an idiot. He loved Sandi and couldn't say no. So he signed the contract.

When Max, the seller’s Attorney received the contract back. He immediately called William. "We never agreed to this repair credit, and it violates Fannie Mae regulations."

 

"Hey, it’s the only way the deal will fly. Do you want to tell Alice?"

 

There had been a history between Alice and Max. Alice used to refer all of her business to Max. But Max, despised Carmine and word of this got to Alice. Max had suspected William was the courier. "I don’t give a flying fuck about Alice." Max said.

 

Five minutes later Alice called Max. "I’ll get your clients another Attorney if you don’t do this my way."

 

Max knew that she couldn’t convince his clients to fire him and told her so. The contract was to read a sales price of $309,250.00 with a seller’s concession of $9,250.00. This still allowed John to finance $300,000.00. He would only have to come up with the closing costs.

 

Only one problem, William forgot to tell John of the change. He thought that he’d have to come up with nothing. He told Sandi that it was alright to buy the 60 inch television and the new couch.

 

Two months passed, they barely spoke with Carmine. He wasn’t returning their calls. On March 25, they received a call from Carmine. "You’ve been approved for an interest only mortgage. It will be fixed for five years, for $300,00.00 at 6%."

 

"Interest only, isn’t that dangerous? What do you mean fixed for five years? Then what happens?" Sandi said, She had lost all confidence in Carmine, but it was too late to go anywhere else, the sellers were threatening to hold them in default.

 

"One more thing, the rate expires on the 28th."

 

So now everybody had to scramble to close within 3 days. Luckily the sellers were available to close, but since this short notice was a surprise to them, they wouldn’t be able to move out until April 7.

 

The day after moving in, the town inspector came by and informed them that if they didn’t immediately put a handrail on the deck, he would have to fine them.

 

Two days passed, William still hadn’t told them what to bring. The morning of the 28th they received a call from William. "All you need is a check for the closing costs in the amount of $16,300.00"

 

"I thought that that was all being financed." Said John

 

"No the seller’s Attorney wouldn’t allow it."

 

"Nobody told me this, I don’t have that kind of money."

So John begged his in-laws for a loan and arrived at the closing angry, but ready to go.

 

"This document is the note." said William. "It’s a fixed rate note for two years at six percent."

 

"Wait a minute, Carmine said that it was fixed for five years." Said John

 

"No, I didn’t, I said interest only for five years. At the end of two years it can adjust and the negative amortization comes into play. But don’t worry, I’ll make sure that you refinance by then."

 

" Negative Amortization! Do you mean that I can owe more than I actually borrow?"

 

"In a rare circumstance." Injected William.

 

"Let’s get out of here." John said to Sandi.

 

"I have to advise you that you could lose your down payment if you don’t close." said William.

 

Max sat there quietly. These weren’t his clients, he couldn’t ethically say anything.

 

Sandi and John decided to close.

 

Epilogue

 

In two years the mortgage adjusted to 8%. Because of the negative amortization feature the payment was based on 7%. For the next three years their payment went up $250.00 per month, with $250.00 being added to principal. After 5 years when the loan would amortize they owed $309,000.00. Their monthly payment climbed from $1,500.00 to $1,7500.00 to $2,384.91.

They couldn’t afford the payments.

 

They called Alice to sell the house. It was a bad market, but she assured them that they could get $265,000.00, but only if they removed the in ground oil tank.

 

How do they pay the additional $44,000.00? William assured them the bank would take a "short sale." Which they did. So after closing costs they paid the bank $246,500.00. $62,500.00 short.

 

They had no money left. In January they received a 1099 from the bank showing that they earned $62,500.00 as forgiveness of a debt. (This is no longer the law, but it was in 2006). William never told them about this aspect. Had they let the house go into foreclosure they wouldn’t have owed more than $20,000.00 in taxes. They eventually divorced and moved in with their respective parents.

 

Alice is now selling foreclosed houses that William forecloses for the lender.

 

Carmine now sells FHA mortgages.

 

Who will bail out John and Sandi?

ype your cut contents here.These are the real victims of the mortgage crisis.   This is based upon true stories.  The names have been changed to protect me. 

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