Stuck

Image credit: Urko Dorronsoro

There was a story on NPR a few days ago about a woman working on the assembly line at the Chrysler plant. She was a single mother of two teenagers who had a Master's Degree and had been laid off from a Human Resources job, lived on $300 per week unemployment for a while, and eventually filed for bankruptcy. She found her new job to be really really boring, but was grateful to be employed.

Stories like that make me feel guilty about complaining, but I'm going to do it anyway.

I live in a big college town. In 2004, the housing market was beginning to boom- if you wanted to sell your house, you put a For Sale sign in the front yard, and by the time you finished putting it up you had an offer. Prices were climbing. Interest rates were low. I decided it was time to buy.

I picked a modest condo that I could afford without being house poor. I had about $12,000 in the bank that was left to me by my grandfather, which gave me a down payment of about 15%. My credit was and is impeccable. I planned to own this little "starter" house for 3-5 years, sell it with no problem, and move on to bigger and better things.

Housing prices continued to climb. Around town, a bunch of apartment complex owners began selling off units as condos to young families and graduate students. Several new condo complexes were built. Suddenly the market was flooded with condos, which were being sold for ridiculous prices.

Then the bottom fell out. Suddenly mortgages, which banks had been giving out like free toasters, became difficult to obtain. Prices dropped. Foreclosures increased. Houses sat empty for months or years waiting for buyers. Condos didn't sell at all.

I live in a very different neighborhood than I did eight years ago. When I moved in, more than half of the units in the complex were occupied by the owners. Almost all of the units were occupied. At the time I was looking, two condos out of 100 were for sale.

Today more than half of the units are rented, which makes buyers ineligible for an FHA loan.  About 25 units are for sale. Probably 15 are empty.  There have been several break ins in the neighborhood in the past few years. At night I worry about someone breaking into the house while I'm sleeping, leaving me trapped in my upstairs bedroom.

I estimate that I currently owe about $35,000 more than my condo is worth.

So now I live in a house that I can afford to stay in but can't afford to leave.  I'm thinking about leaving the area for graduate school, but I can't figure out what to do with the house. People endlessly suggest renting it out, but based on the number of empty units in the neighborhood, I would have to be prepared to pay the mortgage for several months at a time (not feasible on a graduate student income). I'm also agonizing about some improvements that need to be made- a remodel of the upstairs bathroom and some cosmetic updates to the kitchen- which I think will cost at least $5,000.  Is it worth it to invest the money to make the condo more renter friendly?

My parents have encouraged me to consider a strategic foreclosure- simply walking away from the property. This decision not only jeopardizes my credit, but also my savings, because the State of Florida allows mortgage companies to sue for the balance.

I was talking about this to a friend the other day, who said, "These are the questions I ask myself every day." She and I are lucky that we own modest homes, but a friend of hers is something like $200,000 underwater on her large house in a bigger city.  My parents have been paying two big mortgages for over a year, and are praying that their former house sells this spring. I wonder how many people out there are in a similar position. If we are employed and paying our mortgage every month, do we even show up in the statistics?

I try to stay away from playing the victim, but I'm making an exception here. I thought I was being financially responsible by buying instead of renting.  I followed all the rules- I saved my windfall for a down payment (wish I'd gone to Europe instead), kept my credit clean, bought something I could afford, made every single payment on time.  I'm not eligible for any kind of assistance or refinance. I just have to make the agonizing decision to either stay stuck in my "starter" for at least the next several years, or to break the rules of good finance (not to mention my own personal moral code) and just stop paying something I owe.

Is anyone out there are in the same position as I am?  Have you found a good solution? Have you taken part in a short sale or strategic foreclosure? If so, please post a comment- I can't be the only person who would like to hear!

So long for now, KISS (keep it simple stupid), and thanks for letting me play the victim for a while!