Shattered American Dreams

Sorry everyone, but my humor is taking a break just for today. I’ve got a serious topic to discuss that may already be affecting you, or could affect you or someone you know at some point in the future.

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In 2003, we signed the paperwork to start our little version of the American Dream. We bought a new house, being built in a new community. We were recently married, I had a good job, and a few months later I would be pregnant.

I’ll admit we were surprised at what we were buying. A four bedroom two-story house with an attached garage. The price was low compared to many homes in Columbus, but to us it still looked a little scary. Could we really afford this beautiful home?

Our Beazer Homes saleswoman only smiled at us and told us they wouldn’t approve us for the loan if it was outside of our means. Aaron was finishing school, so it was only my income they based it on. We were quickly approved without any problems, and Aaron and I figured that he would soon have a job as well, which would make it even easier to afford this starter home.

The saleswoman showed us what our payments would be, and we agreed that it looked reasonable. We were offered an FHA fixed rate loan with a 2/1 buydown, meaning the builder pays 2% of the interest rate the first year, and then 1% the second year. It is supposedly designed to help ease the buyer into mortgage payments. I considered myself a savvy person when it came to money, and I grilled her with questions. But she glided past each question, showing us that at the very most, our mortgage would never go past $1000 a month.

After delays in building (which is another story entirely), our house was ready in May 2004. The first year we had no problems paying the bills. We even managed to buy some new furniture to outfit our home. The second year, when our payments jumped $100 a month, we were a little nervous, but still managed to handle it, even after I had quit my job and taken a part-time job.

We just ended the second year, and now the payments have gone up again. But not just the $100 we expected it to jump, according to all of the numbers-sheets Beazer gave us. Oh, no. Last night I opened the envelope and was met with a payment for nearly $1300 due! That’s a jump of $400 per month.

It seems Beazer underestimated the property taxes that would be assessed on our house. We haven’t had large jumps in property taxes around here – they’re the same they were when the house was built, and the house hasn’t gained any value. They simply chose to not fully disclose what the true costs of the house would be.

We’re not alone in this sticker shock. In our neighborhood, at least four homes have been lost to foreclosure. At least double that have been placed on the market, as the owners desperately try to sell the house before they face foreclosure as well. Others have been forced into alternative refinancing options that are simply a bandage on a fatal wound.

I’ve also discovered this is a statewide problem, and is becoming a national problem as well. Ohio recently claimed the top spot for highest number of foreclosures in the nation. Our builder, Beazer Homes, currently is #1 for foreclosures with an 18% default rate. Of the buydown mortgages signed in Columbus, 10% are more than three payments behind. This article gives more information on the topic itself. (I should mention that in our area, Dominion Homes are the worst of the worst, and second in the nation.)

Luckily, Aaron got the new job. It does pay more, although now it seems a significant portion of that raise will go directly to the raise in our mortgage. Had the new job not come through, we might have been facing the loss of our house, just like many of our neighbors.

Looking back, I don’t understand why we were approved for the amount of our loan when it is now clear that it would have been impossible to pay it. Well, I guess we could have paid it, but we wouldn’t have had enough money left over to heat it, or pay for the electricity to microwave our ramen noodles.

We’re not ignorant people – we did our research – but we were given misleading numbers to begin with. If I tried to bring new numbers into the conversation, our saleswoman (and our mortgage broker) were skilled at twisting said numbers to show me how they were wrong. Since I have no formal education in mortgages, I trusted them. Me – the person who doesn’t trust anyone – somehow believed what they told me.

The entire situation makes me furious now. I feel betrayed by the people who smiled so nicely and sucked us right into that vision of the American Dream, all the while knowing we would be in financial hardship two years later without a big change to our income. I watch helplessly as our neighbors are forced to give up their dreams as they are forced from their homes due to predatory lending.

Even if we wanted to sell our house, we wouldn’t be able to. The home values in our neighborhood have not gone up because of the foreclosures. We probably couldn’t even sell the house for what we paid for it. It’s a losing situation for everyone except the builder, who happily leaves the mess they made behind with a fat bank account, soon to find another tract of land to repeat the process all over again. They prey on those in the lower middle class income bracket – those who want their first home, and make just enough to possibly cover the costs.

If you are thinking about buying a new home, get outside assistance. Don’t let the builder’s mortgage company show you the numbers – get them confirmed by an independent source. Learn more about buydowns and educate yourself before signing the paperwork. And don’t let someone try to sell you the American Dream with plans to rip it out from under you in two years.

Edited to add: Thanks for the responses so far. Just to clarify, we’re fine, and we will be able to keep the house without problem. The new job came in at just the right time to save the day. But I do still feel sorry for neighbors and those in other neighborhoods who aren’t so lucky.

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Comments

  1. Wow, that is a difficult situation. The house plan looks beautiful, though. I’m jealous of those walk-in closets.

    I’m glad you won’t be forced from your home. But, it is a bummer to be so in debt to your house. I always thought companies let you borrow more than you can really afford. I don’t think they take into account real life living expenses. We just refinanced our home equity loan and the lender tried to convince us to borrow twice as much. NO WAY! I don’t need those payments.

    Hang in there and hopefully the value of your house will grow. Good luck.

  2. I really hope that things will be okay for you. You’re right that the full story of home ownership is usually not laid bare for first-timers. And that that is, potentially, disastrous.

  3. Oh Christina.

    Kyle is a mortgage loan officer. Colorado has the highest foreclosure rate of all fifty states.

    I cannot BELIEVE some of the shitty deals that he has helped people escape. It makes me angry that some jackass preyed upon people’s ignorance (and I do not mean that as an insult to any homebuyer – as you said, you trusted them to do their job), and now they are in a terrible spot. Sometimes Kyle can help them. Sometimes not.

    I’m thankful that you are able to keep paying the mortgage and hang on to your home. And I’m happy that you are in a fixed rate loan and paying principal along with interest. You’re in a better spot than most.

    And your advice regarding lenders applies across the board. When I was collecting on delinquent auto loans, I always advised clients that next time, they should seek financing from a credit union or bank, not through the dealer. Dealers are in the business of selling cars, like builders are in the business of selling homes. They do NOT necessarily have the best information about how to finance those items.

  4. The Hubby and I are making our second attempt to buy a home. Everything got too shifty on the last home, so we called it quits before the process went anywhere, but now we’re out looking again. I’m glad you posted this so that I know what to keep an eye out for. There are so many ploys to cheat people of money these days that I don’t know who to trust!

    Good luck to you guys. I know how hard it is to be strapped for cash, but I’m thankful to still be able to make ends meet.

  5. That sucks big time that they did that to you. I would be pissed as well. We are a bit lucky when we decide to go for a home we have a bit of an advantage because my husband was a realator before his current job so he knows a lot of the tricks.

  6. that sucks and it seems that they’ll do anything these days to get people into a home.. even if they cant’; afford it

  7. Mommy off the Record says:

    Oh my gosh. I am sorry you are facing this situation! I have heard that many people ended up having to foreclose on their homes in the 80s (I think) due to similar situations in the housing market.

    And I think it’s horrible that salespeople mislead us into thinking we can afford our payments, only to find out later that they “left out” some critical information.

    I’m glad that Aaron’s new job came through just in time. I hope you guys will be OK.

  8. Wow. Thanks for sharing this. We will be buying a home at some time (hopefully this decade!) and it is good to be armed with other experiences (good and bad).

    I hope since you are sticking it out, you will end up on the winning side of this situation!

  9. That is just terrible! Thank you so much for letting us know your story. My best friend is going to be buying a home soon and I will pass the information on to her.

    I am very glad you get to keep your home, but it sure does put a damper on the new raise.

    Maybe in a year or two you can refinance?

  10. Gah, hon! We bought our first home in February after a year of research and we were still overwhelmed with everything. Thankfully we didn’t fall victim to any predatory lending scams. We run stories on those at our station at least once every two weeks. Josh’s sister actually just bought a house up north that was foreclosed and sold on auction. They were in the middle of remodeling. Gah, it’s sad that these completely mean, mean people are continuing to make money off the loss of others.

    We chose to buy an older home (1976) because of the fear of getting “taken to the cleaners” in the end, as we had been reading about and my station kept reporting. Yes, we’re doing work on it. No, it’s not finished. We won’t even begin to finish the basement until we’ve been here for a year to see how it fairs in all seasons. It’s a slow process. But we’re making it ours.

    I’m rambly.

    I’m glad that the job came through at exactly the right time. I’d be more than furious. I’d be cussing up a storm and contacting my local newsstation; hint, hint. They ARE interested in stories like these; they WANT to get the word out.

  11. I’m really sorry about this. I’m glad you guys are going to be OK. It’s so frustrating when you find yourself taking one step forward and two steps back.

  12. My husband used to be a mortgage broker. He decided to hang up his “fin” and do something that made less money, but he could actually greet the guy he met in the mirror each morning.

    We bought an older home as well, and way under our price range. I’m glad Dan had the experience he did to help us from getting taken. I still think we weren’t on the long end of the stick, but at least they didn’t beat us with it.

    I hope things continue to look up for you!

  13. First time home buying is scary and made worse by deceptive builders who just want to make the sale. I am sorry for your neighbours that had to foreclose. But it is good that you told this story because hopefully it will give others insight to avoid the same thing themselves.

  14. lynsalyns says:

    This sounds like a class-action lawsuit in the making. Dude, if you lived in NY state Elliot Spitzer (attorney general) would be ALL OVER this one. Maybe you should inform the state?? Do a little Erin Brockovitch?

    This is a good warning for us, as we are going to be forced to settle for a newer home in IL. The older homes like ours – which we love – are well out of our price range.

    Thanks for this one.

  15. Wow. The whole market freaks me out. The house next door (two bedrooms, one bath, 1500 sq feet just sold for 1.3 million) It’s almost funny actually. Ahahahahahaha! Needless to say we won’t be buying a house in L.A. unless Archer becomes the next Mary-Kate and/or Ashley Olsen.

    Thank you for sharing your story. Shit is way scary.

  16. Someone should turn them in…that should be soooo illegal! You, like us, always seem to get the final straw just in time to spend it….lol…just as I think we are about to go under, something bails us out..I keep wondering how long we will be getting these wonderful helpings of grace! Good luck and I’m glad it works out ok for you guys and feel bad for the others…still seems like it should be illegal!

  17. Yuck. I hate money. Why Why Why must EVERYTHING be about money??

    I would love to go back to bartering with shiny rocks and wheels of cheese. Things were so much simpler then.

  18. That’s a pretty terrible story. Although your house is awesome, and I am jealous of all the space you have! I’m sure you’re really glad that Aaron got the job so that you can stay there, but you are right–regardless, it’s ridiculous that that kind of practice goes on, every day. I don’t really understand how people can do that kind of thing for their livelihood, and still sleep at night.

  19. Holy cats!

    I’m so sorry to hear you guys have to put up with this crap. I know you well enough to know you aren’t kidding when you say you did your homework. If this happened to you it’s a damn certain thing most people wouldn’t have a chance in hell to spot it.

  20. Suzanne says:

    I agree with you 100%. Realtors and bankers are out there to make money (not saying there’s anything wrong with that I have some in my family)Theres just those few that don’t care about how it will affect us, the buyer. I’m sorry you have had such bad luck. We are in a house right now that we bought for a very reasonable price, but now we would like to move but it is impossible due to the increasing realestate market.

  21. SUCK! Geez. I don’t know what else to say. That just totally frickin’ BITES.

  22. This is a great public service you’re doing here. What a suckass situation. It’s a little like what happened in NYC since Guiliani destabilized the rents. If you’re paying over a certain amount, there’s no more stabilization and the landlords can increase it 100% a year if they want. It screwed so many people.

  23. Christina, this topic hit home for me. We have a beautiful house that we bought from my parents on a land contract. But this last year our propert taxes went up $1000. We are so strapped that we are worried we may have to sell and we won’t be able to sell it at what they recently appraised it at. It’s sickening. We have 2 months to come up with $1300. Lest than that. July 31st.

    I may have to start praying!

  24. Wow! That totally sucks. We actually bought our house on foreclosure. It was great for us. The lady was a gambling addict.
    Anyway, I am not sure how mortgages work in the USA, but I have always been baffled by it. My dad is a bank manager, and my mother is a financial planner. I know mortgages. I get it. I could never get my head around American mortgages though. I see people who make NO money, and they have the nicest friggen house. We also have locked down interest rates and we don’t get a bill every month. Our payments are the same every two weeks. It comes straight out. We don’t even think twice.
    That really sucks that they did this to you. I am happy for you guys that you do have the means to cover the house.

  25. Mortgage companies are some sneaky em-effers. They’ll get you. I’m glad the new job came along just in time so that you and Karma can still be friends.

  26. Christina_the_wench says:

    I feel you. We just built with Pulte Homes here in Michigan and we’re having difficulty too. It looked good in the beginning…

    Soooo many people in our subdivision are selling their homes.(like 25 out of 199 homes) The selling market sucks. We’d sell if we could but noone is buying right now.

  27. I’m glad your situation is going to work out for you, but I am sorry that you are in the situation in the first place. Realtors and builders are often too focused on THEIR bottom line only. My experience with realtors is that they want you to buy a house that you can “afford”, with their definition of afford meaning have absolutely no money left over at the end of the month…and you’d better hope you don’t have any surprise expenses in any given month…

    I guess if something good comes out of this, you know better for next time.

  28. I just found my new home in Huntersville, NC and the 1st 7 days are getting over next wednesday…which means I won’t get my earnest money of $1000 back if I backed out after next wednesday! But I think I have more time to close.

    It’s with Eastwood Homes and am going with their preferred mortgage company. And I would definitely bring this up when I am speaking with them. Thank you for sharing your experience.

    Your story is scary. I am not so very glad that we all have to learn a lesson through someone else’s terrible experience. Very sorry about that and at the same time very glad that you are holding up to it!

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