Escaping the Death Pledge – The History

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I woke up an hour before the alarm was set to go off. I was wide awake, unlike other weekday mornings where it takes a few minutes to accept that it’s time to get ready to go to work. I took the phone off a charger and logged into my bank account to make sure the check I deposited 7 days earlier has cleared. When I was in the shower a made up melody with a distinct Mexican flair began playing on repeat in my head. It was Cinco de Mayo so perhaps that explains the music of choice this early in the morning. Whatever the case may be, I’ve been waiting for this day 10 years and now it was finally here.

2005 was a big year for us. We got married and bought our first house together. I pulled a plug on the corporate world and went solo – the same month that we closed on our home. This didn’t sit well with the mortgage loan officer and we ended up going the infamous “no doc, stated income” loan route. We could even choose our own payment amount adding to the principal balance with every monthly installment. I specifically remember the loan officer excitedly telling me about this feature: “Think of the flexibility this provides! You could use the savings to buy new furniture or spend it on new car payments!”

Instead I sold my BMW convertible to help with the 20% down payment. As immature as my younger self seems a decade later, even back then I already knew that some financial principles just make sense. If you’re gonna buy a house, put down 20% and pay principal and interest. Don’t mess around with these exotic payment plans that seem too good to be true. So while we had to get a no doc mortgage due to my new business at least the rest was done with a sound financial perspective in mind.

I was happy for exactly 1 month until I realized the importance of a key concept in real estate known as “Location, Location, Location”. Again, this is 2005 we’re talking about. The housing market was on a tear and we literally had hours to decide if we wanted to put an offer on a house. Homes would go on the market only to disappear from the MLS before we could even get a showing scheduled. The inventory was so low that the typical approach of making a list with everything you wanted, prioritizing the importance of each requirement and then checking boxes as you compared several homes at the same time just didn’t work. When we finally found a house that fit most of our criteria we paid little attention to its location which ultimately led to buyers remorse (mostly on my part) soon after we moved in.

We bought a 4-bedroom 2.5 bathroom 2,000 square foot home with a 2 car attached garage.

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Home sweet home!

It was a nice change from all the years of apartment living. There was just one problem – the house we now called home was 25 yards from a busy street. I could see cars on the road from my porch and from my deck. There was a fire station  a couple of blocks away and the fire trucks would drive by with sirens blasting at least once a day. I have nothing against firefighters but I would start cursing every time I’d hear them coming. Same with loud motorcycles or anything with a motor for that matter. I like to sleep with windows open instead of constantly running AC in the summer but I couldn’t get a good night sleep unless windows were shut. On top of that, we couldn’t really go for a walk since our cul-de-sac street was short and the main road had no sidewalks and a 45 mph (suggested) speed limit. To go to a park a mile away we had to drive a car.

Everyone said I’d get used to it – just give it some time! Well, after a year of trying to not let these things bother me and failing miserably I started talking about selling the house. The real estate market was still on fire and it seemed like we could sell quick. Only one problem – my wife thought I was crazy! Then another year passed and she saw that this is not something I could get used to.

We listed the house for sale by owner at $45,000 more than what we paid for it just two years prior. Remember those days?! In hindsight, we were close to the peak of the market – both real estate and financial. The Dow just smashed through 13,000 – for the first time in its history. We got a full asking price offer after a couple of weeks of showings and were pretty excited!

Everything was set for the closing. We put most of our stuff in one POD container (haven’t had a chance to acquire too much stuff yet) and moved in with our friends. This couple lived with us when they relocated to the area and were happy to return the favor.

The scheduled closing date came and went but we still owned the house. Turns out the buyers were using some sort of creative financing and our closing date just happened to pretty much coincide with the beginning of the housing crash and the subprime mortgage crisis in our area. Their lender pulled the subprime loan at the last-minute and the deal was dead in the water. They tried to get financing several more times but it would all fall apart like clockwork right before each closing.

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This is where our buyers were probably trying to get a mortgage…

After a month of this nonsense we reluctantly admitted defeat and moved back into our house late spring 2007. We had our POD container dropped in the driveway and I unloaded it all myself in a 4-hour stretch of quiet rage. This was the lowest point I’ve felt in years.

Another 6 months passed and we decided that a getaway was needed to get our minds off things. The Great Recession was just starting to pick up steam and it was time to check out for a bit. Right after Christmas we boarded a plane headed to Europe ready for a change in scenery.

While in Europe I got an email from an attorney back home saying that another closing was possible but only if it could happen before the end of the year (meaning within the next 3 days). The same people managed  to secure a loan after all. After one crazy day of emails about the details of this transaction (such as where would we live when we return from our trip), everything was ready on our end.

On December 31, 2007, just as the clock was ready to strike midnight in Europe I received an email from my attorney saying that the deal was done.

We sold the house! To this day we refer to this as our very own special New Year’s Miracle.

What’s even more crazy is that by this time the house was already worth $20,000 less than the sales price we agreed on months earlier and dropping rapidly. All other houses on the market were becoming cheaper by the day. It was a great time for someone in our situation – cash money in the bank living in a house that we rented back from the people who bought it from us.

It was buyer’s market and we were able to find what we wanted. A house (picture at the top) in a great school district with walking trails, bike paths, lakes and a community swimming pool. This neighborhood is known for its family friendliness – a big draw for us as we were thinking about starting a family. We wanted a house with a big backyard with mature trees on a quiet street. You better believe that location was at the top of the list this time.  The house that we found met all our requirements… and then some.

There were two downsides – the size of the house and its price. At 3,200 square feet with 5 bedrooms, 3.5 bathrooms and a 2-car oversized garage the house was a definition of a McMansion. We were not looking for more space than we had in our previous house (2,000 square feet) but unfortunately we couldn’t find anything of that size that would meet our criteria. All “smaller” houses on the market at the time had poor layouts with cramped rooms, low ceilings and sitting on small clear-cut lots.

And then there was the price… The house was listed at $475,000 which was a “great deal” compared to what it was worth just a year prior. We didn’t have a buyer’s agent so I was able to negotiate with the listing agent to get the price down to $455,000. Still an astronomical sum, but we were flush with unexpected cash from the sale of our overpriced house and decided to go for it. We were ready to move out from the place where we felt trapped for so long and start our new lives.

Like most people we took out a 30-year mortgage. After a large down payment using equity from the previous house, monthly payments were comfortably manageable at around $2,000 including principal, interest, insurance and taxes.

More importantly, we could finally say that we loved our home! I forgot just how much I missed being able to sleep with the windows open.

Read the next installment: Escaping the Death Pledge – The Plan

 

 

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