Because buying the second house this April seemed like a good idea.

I have no pity for this person. A lawyer above all should know to read the fine print. Nobody is going to refinance for you if the value of the house goes down, why do you think they appraise it when you buy it?

RESEARCH before spending a ton of money.

No sympathy.

a) if it's too good to be true, it probably is
b) see a)
c) how about a second or third opinion buddy?

Trusting your broker is as dumb as dumb can be.

I don't understand how people can get into hundreds of thousands of dollars in debt (for 30 years) and NOT do any sort of research. I spent 15K in a car a couple of years ago and I did exhaustive research for weeks. All these people f'ed it up for people like my wife and me. We have 60k in savings, no debt whatsoever and we couldn't afford a cardboard box here in CA even if we found one. Stupid flippers, stupid consumers and stupid greedy agents and lenders.

The one thing you have to remember about mortgage brokers is they are first and foremost in sales. Unlike say, a buyer's agent, a mortgage broker has no officially mandated fiduciary duty to the borrower in most states. That means if they sell you a bill of goods then, short of actual fraud, you are on the hook for whatever you sign off on.

Yes, attorneys are generally smart people but like most professionals they tend to specialize. Having a JD on your wall doesn't make you an expert in real estate finance or empower you to see through a masterful sales job. And that's what I think happened here...a smart person was sold something they shouldn't have bought by an even smarter salesman.

It's not just lenders that caused this housing bubble. Actually, they were just the facilitators. All the people over-valuating property because of this mad rush to "buy buy buy because it's going up 20% in 2 years!" fueled it just as much as shortsighted people who jump into unfair loans.

Okay, there are some brokers that hoodwink customers and share some culpability. There are others that merely dangle a carrot within a 5-mile radius of senseless people and are the walking epitome of Buyer Beware. This is the latter.

Burned up more than $60 THOUSAND on "improvements" (plus school & car loans, vacation...) when he had a mortgage that skeevy? When school loans are subsidized?

MAN, if anyone typifies, A Fool And His Money...

@alexander: Entry-level houses (~1200sq ft, non-fixer-upper) in Austin start sub-$100K; two in my neighborhood sold recently in the $85-90K range (which is a bummer for me, because I paid more than that... though it means property taxes should be going down a little), and the rest of Texas considers us expensive. California (or most of it, anyhow) is just a bad deal.

All that said -- I almost got into a similar dual-mortgage, minimal-down scenario myself around `02/03, and now am very glad I didn't.

Take out as many of those repairs as you can before you lose the house. Forclosure is sold "as-is". If you can make some of it back on the fixtures, appliances, furnace, flooring....whatever, what's stopping you?

Story Timeline:
1. Schmoe buys a condo he can't afford with a LIAR LOAN [no doc] with not even $1 out of pocket.
2. Schmoe "comes into money" and instead of paying off his second at an exhorbant 9%... he blows the money on travel and remodeling.
3. Schmoe gets even greedier, and buys a bigger house he can't afford, even though he couldn't afford the condo with ANOTHER LIAR LOAN.
4. Schmoe, thinking he is a real estate genius, elects not to cash out on the condo and instead rent it out with a negative cash flow.
5. Schmoe, who couldn't even afford the condo, now owns a condo AND a house, NEITHER OF WHICH HE CAN AFFORD.
6. ?????
7. NO PROFIT!!!

@Charles Duffy: Ugh, I know that all too well. My dad recently moved to Oregon and he bought a freaking palace for $250,000. I check the prices where he lives (Salem, OR) and they make me cry. The problem of course, is our jobs. More specifically mine. My wife could relocate easily. She is a dental assistant. We have contacted dental associations over there and they tell her they can get her a job no problem for just about the same as she makes. I'm a web designer getting into web development and lucked out by landing a really cushy job that is allowing me to become a web developer. They pay me really well and I don't see jobs like that in Oregon. In time though, if things don't improve I will have to really look seriously into it and determine if 20-30k more a year is worth it living in an onverpriced market.

don't blame the broker.

Schmoe was dead set on living a certain lifestyle he couldn't afford, and now he has to pay the price.

Reminds me of my wife's best friend. Her and her husband probably bring home $65k on a good year. Somehow they got themselves into a $1.1MM home, with a LIAR LOAN of course, and they had the nerve to come to my house and talk down to me about their new McMansion and why am I still living in the same apartment.

The point is, I could have gotten into a much bigger house then they could have, but I elected to be FINANCIALLY RESPONSIBLE AND LIVE WITHIN MY MEANS and continue to live in a very nice apartment while saving up for a large downpayment to avoid PMI [private mortgage insurance].

So now fast-forward two years and they're on the verge of divorce and their entire family has been stretched to the financial breaking point by subsidizing these idiots' millionaire lifestyle that they couldn't afford to begin with.

I'm still in the same apartment, with my downpayment money sitting in an ING HYS [high-yield savings account], waiting for this wave of idiots to be driven out of their homes and for inventories to get swollen so I can score a sweet deal on one of these idiot foreclosures.

The UGLY FACT OF THE MATTER is that these people who are losing their homes couldn't afford the houses to begin with, hence the 100% financing and the huge 2nd loans and PMI payments.

But every American feels that they DESERVE to be rich, and have a Louis Vuitton purse and a Mercedes C-Class... and the other accoutrements of this decade's faux rich. With out-of-control consumer lending, these idiots have spent themselves back 15 years, and they're barely figuring it out.

F em.

A broker's bald promises about what you'll be able to do in 2 years are worth exactly as much as the paper they're not printed on. If you were relying on these assurances, you should have gotten a written guarantee that he'd get you a refi or pay the difference if he couldn't. And preferably a guarantee from his firm as well. Called his bluff, in other words, because there's no WAY he would sign a guarantee.

I'm an attorney as well, and seeing this kind of story makes me SO glad that I haven't fallen into the trap of trying to spend more than I earn. My condo expenses are less than 10% of my income, I don't own a car, I'm aggressively paying off my student loan debt and saving and I don't want for anything.

Proving yet again, taking business advice from a lawyer is the WORST possible option anyone can do.

I suspect this guy is probly pretty good at what he does, like most SFO lawyers likely puts in 60 hrs a week and everything but the cases he is working is a blur. Income is fair and bills are being paid, why not buy more. Ben is absolutely correct in saying "but it's just as easy for smart and successful people to get caught up in the conspicuous consumption game...maybe even easier".

"but it's just as easy for smart and successful people to get caught up in the conspicuous consumption game...maybe even easier."

It is? Your headline makes more sense than your summary.

To summarise his mistake:
"We came into some money...We did not pay off the second or any principal on the first or re-fi it.

Then, this April, we bought a new house"

If you are in over your head on your first home, you don't buy a second home. You either sell up or make sure you can rent it for enough to cover the mortgage. Doesn't take a fricking genius. I can understand someone being pissed when their ARM costs them another $1000 a month, but dude, seriously - you brought this on yourself.

Every story I hear like this makes me laugh, Snidley Whiplash style.

My husband and I are so going to take advantage of this situation and buy when the market really drops.

it's not that this particular attorney was an idiot... he's just not as smart as he thought he was. however, there are plenty of idiots that have law licenses... I know because I went to school with a lot of them.

plus I love how the broker is supposed to be able to GUARANTEE you peace of mind through market turbulences into the infinite future. the concept of an adjustable rate mortgage isn't very complicated.

@ALEXANDER:
I live in Oregon, and While I grew up in Salem, I now live down at the very south, about 20 min north of the CA border. My house as DOUBLED in value in 3 years. I have a 3bed1bath 1200 sq. foot home that I bought for $75k. The one and only reason that Oregon is going so sky high is Californians! They sell they're 3bed 2bath 70's ranch home in the middle of the suburb for $750k, then move up here. Then they think, Hey, I can buy 80 acres with a 2500sq foot house for that much.. They have no problem paying (what we Oregonians think is) a huge amount, because its so cheap compared to where they just lived. Also, with Salem, a few years ago, they made it very difficult to build out in the county, outside the city limits. They also put in strict rules about cutting down trees, and plowing over creek's. They got tired of some of the best farmland in the country getting turned into suburbs. So, land is getting scarce inside their Urban Growth Boundary (this is modeled on what portland and Bend have done, with similar results to house values)

I feel for the guy. Real Estate is supposed to be a "solid" investment and putting additional money toward mortgages in the first five years often come with penalties.

Someone like the Clintons play fast and loose with Real Estate, making a profit on the exact sort of financing that this guy used and it is only partially investigated. How much money did they make?

This guy suffers from a bad lack of timing and we call his credibility into question?

I have the feeling that historians are going to look back at the housing bubble the same way they look at the Stock Market of the 1920s and I am very afraid that the outcome will be very similar.

Guys like this are just the ones who invested in late 1928 and didn't realize the ride was over.

Wow, chill out everyone. He said he wasn't looking for sympathy. He knows he was a dumb ass. He was just sharing his story.

I too had the arrogant people giving me a hard time for buying only half the house we could afford several years ago. We did go 80/10 at the time to avoid PMI, but the second is paid off and the first is now about 10% of our income. We didn't "make our equity work (against) us" by getting equity loans. So seven years out even though we only paid down about 15% of the loan, our house would have to lose 2/3rds of its potential selling price before it would hit negative equity.

Thinking we'll be fine, thankfully.

"Let's just say, I do OK..."

Money don't fix stoopid.

Personally, I'd love to see a bailout for people (not like me) who are getting hosed by the ARM adjustment

Oh, yeah, let's just bail out everyone who took out ARMs. And when they buy more car than they can afford, let's bail them out again. And when the spend all their money on fabulous vacations and max out their credit cards, let's bail them out again. Never mind the people who don't do any of that and don't get free money. They're probably "the man" and sticking it to the poor schmoes who overextend themselves anyway.

(how about just fixing them at prime at the time they were signed?).

How about we send them free cookies and milk too?

But that's "class war."

No, it's "stupid war."

I just got a $300,000 house at 5.6% fixed 30yr. No mortgage insurance, $800/down. No catches. Just a really great simple interest loan. The lender... Bank of America. My credit is 590. There are dream loans out there still. Acornhousing.org helped me do it.. again no catches. You just can't have more than one house.

Holy S, PDXGREASE. I need that loan.

Sorry bud, I can't feel bad for you. You knew the kind of money you were going under with, and clouded yourself in a state of denial...as well as helped inflate home prices so that people with stable incomes couldn't afford one. Take responsibility and stop trying to pawn your troubles off on the lenders. Buyer beware.

I truly think everyone needs to spend some serious time living paycheck to paycheck, meal to meal. That way, you will always remember what poor feels like. I did it (unwillingly!) for about 7 years after getting out of college. It really makes you think before signing your life away to the banks.

That said, the lawyer who wrote this is not asking for sympathy. But for Pete's sake, why did he not clean up his financial house before buying the second property? I am not in the real estate business and I took the time to do lots of homework (while holding down a job that was a 65 hour a week ordeal). Granted every situation is different but assuming that buying a house was a form of printing press is naive to be sure. The first house is a mistake. The second one is just plain hubris.

Caveat Emptor. And better luck next time

@QuantumRiff: You are just now seeing what we've had to suffer through in Nor Cal, people selling their Mc Mansions in Southern California then moving up here driving prices insane. The local incomes didn't increase, just home prices. It's like a swarm of locusts, and you should be happy you're just now seeing it at the tail end. Wait until they start letting the homes go, no only will your neighborhood be peppered with for sale signs, but they'll quickly have "foreclosure" stickers hastily placed over "price reduced".

So you got your first bonus, you went crazy thinking the money would just get better but you fucked up and bought real estate at the epoch of the most wacky RE market in the country and you come here looking for sympathy?

CRAZYTREE -- Agreed, sometimes I look around my office and wonder how some of these people get dressed in the morning, let alone passed the bar.

Where does this dude think the bailout money is coming from? Just another individual with no self control who doesn't know anything about personal responsibility. Just to remind folks out there, the federal government doesn't grow money on trees, people are taxed. Bailing out isn't a costless exercise. Then he goes on to mention bailing out hedge funds - did I miss something?

So, let me get this straight. I should pay for your houses and your decisions even though I haven't been able to afford a house for myself? Sounds like a square deal.

Maybe this D-Bag can bail me out on my Christmas shopping this year...

@humphrmi: not for nothing, but we bail out agribusiness every time the farm bill comes up for a vote, we bail out the airlines every time their leases bloat their balance sheets, we bail out the automakers when they make more crapass suvs than americans can park in their driveways, we bail out the entire continent of south america to keep them from following the fate of cuba (& now venezuela - that's certainly working)...is it really a whole lot to ask to have the feds pony up some funds to "bailout" a few million americans that are gonna end up on the street when the reset hits?

i understand your point & i agree that sometimes the only way to teach johnny is to throw his ass on the street. but if that's the case, then let's at least have some f-ing uniformity. it pisses me off to no end that everyone gets a bailout but joe blow the voter. lord knows that if we started slathering washington with campaign contributions & champagne cruises, we'd probably all end up in interest-free loans.

Yeah, I agree we should take it a little easy on this guy. He is putting himself "out there" to tell his first person story and he appears to be taking his lumps like a man.

I do have to wonder, though, what kind of financial education kids are getting from their parents these days. If I had been even tempted to sit in a room signing my life away for over a million in mortgages, the visage of my long dead depression era Grammy and the subtle influence of my fiscally responsible parents would have stopped me dead in my tracks no matter what the broker was saying!

Hi, I'm Schmoe. I'm the guy you're piling all the scorn on.

First, I said I wasn't looking for sympathy. I made my bed and I'm sleeping in it. I don't care.

Second, I think some of the factual analysis of what I did is incorrect. None of the loans I paid off were lower interest than the second, except for loans that were cosigned by the donee of the money, whom I promised to rid of any potential burden.

Third, the improvements were all good ideas.

Fourth, none of this was "more than I could afford" until lenders stopped doing refinances. assuming I could have re-fied the condo, even at the then-current market rate, I would be fine.

Anyway, this wasn't a whine. I understand that I'm gonna have bad credit, and I'm writing the losses off, instead of letting them get worse. I'm happy to take my lumps--that's the system.

This whole contention that I'm a dumbass because I listened to someone in a field about that field, and that I should know everything because I have a law license, is crap. If it makes you feel better to laugh at me, go ahead. I put myself in a high risk situation, and I lost.

My point was this: if this happened to me, I feel bad for people in worse circumstances who aren't getting bailed out.

I don't even disagree with a lot of the comments that say I was dumb. I learned a lot from this. So, anyway, I'm glad I could provide you a good laugh.

@SuperBooyaKid:

Good question: where is the bailout money coming from? It's going to people at the top. Why is that ok?

I explicitly said I shouldn't get one. I just wonder about people that are going to lose their roofs.

I may be dumb to take on too much debt, but at least I can read.

@FishingCrue:

Again, I may have been dumb, but at least I can read. I am not asking for sympathy. Let me put this in small chunks so that dumb people like me that you wonder about can understand:

I f-d up. I say I f-d up. That is ok with me. lol. I feel upset in my tummy for people with less munny that might not have things real nice like me and my ponies. boo hoo.

Well, I guess I'll avoid a career in politics. My attempt to make a point about the mortgage crisis turned into a rock-throwing forum against me, after I admitted that I sucked.

I love my life and can't complain. My finances are actually in better shape with that loser cast off, see? and... I could have afforded it just fine with a timely refi, but it's probably even better this way because of the sunk costs.

Anyway, I feel stupid about this, and you can say whatever you want.

My worry isn't for me. It's about people who are even more retarded than me, if that's even possible.

Anyway -- let he who has never made a financial mistake cast the first stone...

Dear Schmoe,

Glad to see you are putting yourself out there. It takes courage (even if anonymous). That said, it seems like you were willing to borrow as much as you could afford, according to the lenders. This is like relying on the diamond industry to tell you how much to spend on an engagement ring.

To make an inexact analogy, sure I invested in a few dotcoms in the late 90's. We all did. Just don't bet it all on Pets.com. Save a few bucks for the tried and true investments.

Lesson learned, I assume.

Dear Storm (formerly schmoe),

Don't sweat it. People tend to get very sanctimonious behind the cloak of internet anonymity. Take the good advice and discard the bad. There will be plenty of both, trust me.

Again, thanks for sharing your story and better luck next time

(and try and remember many folks have a built in bias against lawyers - not your fault).

You are a lawyer, so if I went to you and said, hey, I'm about to spend a ton of money can you help? And you would say, "No, you need to consult a real estate lawyer". Lawyer, law thyself, or whatever the legal equivalent is.

Also I'm curious about these 2/28 ARMs, the main issue seems to be that they reset to prime + 18% or something insane. I had a second that was a 5 year ARM with a 15 year amortization, but it had a limit on how high it could go each year and an overall cap. Also since it was only a second, it was only worth about 30k which means even at 10% it wouldn't kill me.

@tadowguy:

Sort of. If you were asking about banking, I'd say go see a banker. At some point, the system breaks down if we can't rely on information from professionals in their respective field.

No one can know everything. I need to rely on doctors for medical advice, lawyers for legal advice, and real estate people for real estate advice.

Apparently I can't, and that's one lesson learned. But, honestly, I'm taking my lumps, and enough about me.

My point is--if they can make special loans to reinforce the value of these bad loans (like mine), why can't they do something for Joe Working American NOT like me? Just askin'.

@storm: If you truly "don't care" what we think, then why continue to follow and respond to all of the comments? Someone who truly "doesn't care" wouldn't even bother reading them, let alone write numerous responses to them!

Hey - Just a note, the tag for San Luis Obispo has a typo. Normally I wouldn't care, but unfortunately, I live there. Ain't housing prices a bitch?

@QuantumRiff: Thanks for the info. Still, a 3 bd 1 br 1200 SQ FT home for $150k is just heavenly. If I could find anything for 150k here in Los Angeles I'd be all over it. To defend my dad, he is no urbanite who sold his 750k home. He is a working man who simply got sick and tired of city living and discovered his savings would go further in Oregon than in CA. He bought his house for his family and for him to live in, hopefully for the rest of their lives.

No bailouts... No much more to say...

oh typos

Reading all this articles in the news made me wonder:

Who made out in this Housing BOOM?

It is made to sound like everyone(hedge funds, lenders, real estate agents, retailers, home owners) is suffering and i am rather confused on who really benefited from the bad lending practise.

Do we think that the yearly increase in profits by the business had come from from this boom either directly or indirectly?

Well, even though it sounds like no one really made out on the housing boom, I do know that people who have been working hard and paying their taxes well will pay the price. Though I know we feel that we need to do a bail out in order not to go into a recession(or have our retirement fund drop to almost zero), it just hurts to know that no one is made responsible(and pay back what they have stolen) and we, the tax payers have to pay for it. Even worst, it means that we will not have enough funds to repair a bridge that might one day tumble on us.

Phase one: Take out $1.4 million in fishy loans.
Phase two: ???
Phase three: profit!

In the SF Bay Area here. I appreciate the poor folks in trouble - I know of one family near me that will probably lose their house. But you know, I have been struggling to clean up my credit and learning to save and sure haven't been able to afford anything, tempted to do the 100% financing but just couldn't do it. Now we will probably get to bail them out, and unless things really tank, I'll probably never get to buy a place.

@storm: said "...none of this was "more than I could afford" until lenders stopped doing refinances"

I'm not breaking your balls but let's be honest here...

you went into a deal with no money down, and were paying PMI and a very high rate on a second.

you kept it as an investment and thought it would appreciate significantly and you would make a ton of money.

then you got into another house with another no-doc loan, which you wouldn't have done if you were able to demonstrate enough income that would have allowed you to "afford" the condo... not to mention the later house.

in the interests of disclosure I am also a real estate broker, but the fact of the matter is that you thought you were going to make a ton of money through the apprecation on the condo. the market cooled down, and your unrealistic value expectations turned into a negative cash flow investment property.

you had no reason to keep the condo unless you thought it was going to appreciate. and I won't even get into whether or not you still had "owner-occupied" rates on the condo.

the fact of the matter is that taking out a $1,000,000 loan is a huge business decision, and creates a RISK OF LOSS. you thought you were going to come out ahead on both deals, and that didn't work out. and I think it's not fair that you're blaming the loan broker when he was just giving you what you wanted.