BAILOUTS, BUSTS AND FALSE PROMISES, THE DESTRUCTION OF THE ENTREPRENEURIAL SPIRIT
(Dec. 26, 2009) — My husband and I have owned and actively managed rental property for more than 15 years. My husband is a skilled home improvement contractor, and we were very conscientious landlords.
I say “were” because in six short months, we have gone from having a self-sustaining business with 18 apartment units to filing for bankruptcy. Our buildings are gone, one sold at a significant loss and the other two deeded over to the bank after negotiations failed. We have lost 90% of our income and are unable to pay any of our remaining bills.
Before Obama, there was an America where people could build a future through their own hard work and perseverance. If you were responsible, treated others fairly, paid your bills and lived up to the terms of your contracts, you could enjoy the fruits of your labor and be encouraged to work even harder. But no more.
This is especially true in “blue” states where tenants can come and go as they please, convert a landlord’s property into a drug-dealer’s hideout, provide sanctuary to a convicted felon and otherwise ravage an apartment which someone else has worked hard to repair, without any liability whatsoever. Contracts mean nothing, and the tenant has been given carte blanche by liberal judges to withhold rent for virtually any reason or with no reason at all. It is an expensive, lengthy and undeniably distasteful process to evict a tenant, yet a landlord has no hope of collecting anything for his hard work without it.
However, we will not be evicting any more tenants.
Our personal nightmare began in July when three tenants left simultaneously, one at the end of his lease, lured back to a former landlord by slightly lower rent. The others simply walked out, one claiming that her hours at her job had been cut and she was moving in with a relative. No notice, no nothing. That left one building all but empty and the other short three tenants. In the spring, a group renting our newly-renovated office space broke its lease after six months, even childishly demanding back its security deposit. That’s not unusual in Obama’s America.
With tenant prospects having dried up considerably due to the poor economy, we asked for a meeting with the bank to discuss our options. We were current in our payments to everyone at that time. They appeared amenable to modifying both mortgages to something more affordable given the “challenging” rental environment they clearly acknowledged. We paid $2,000 to have the two buildings appraised in anticipation of refinancing. The bank’s Commercial Lines president offered to create a jumbo mortgage, roll the closing costs and legal fees into it, and escrow the taxes. It sounded like the perfect solution for us to be able to weather the significant shortage of people seeking apartments, a situation we had never seen before.
After a delay, the appraisals came out much lower than expected as real estate prices continued to plunge, despite all of our improvements. It was early November and we now were unable to make our mortgage payments. The bank told us that, based on the low appraisals, they had changed their mind and refinancing would be possible only if we brought $4,000 to the table to compensate for the lost loan-to-value ratio. Having already lost thousands of dollars in rental income over the summer, we were unable to do so, and the bank offered nothing else.
State law dictates that even if a landlord is unable to make mortgage payments, he must still maintain the property and keep the utilities on if they are included in the rent. Therefore, we had to fill oil tanks, pay light bills, pay for emergency heat loss on one occasion, and repair anything the tenants broke, all while a mass exodus of tenants continued. We watched all of our savings dry up as people continued to move in with friends, relatives, or anyone else with whom they could share expenses. The commercial real estate collapse was upon us.
For the next six weeks, we attempted to work things out with the bank. Just last week, they proposed a reduction in interest from 8% to 3% after speaking with our attorney. They were willing to give us six months of paying 3% simple interest, later increasing that to ten months. It was almost enough for us to make it work, so I got on the phone with the town revenue collector to make payment arrangements, which they were glad to do. We negotiated a budgeted electric payment and lower trash collection fees. It looked as if we might be able to hang on long enough to put in tenants who might actually pay the rent.
Unfortunately, we had lost two tenants who had just moved in during October, one staying only five weeks who had gotten in because of a promised two-month security deposit from “Obama stimulus money” which turned out to have been fraudulent. The other simply stopped paying. Even when we showed the bank the numbers, they didn’t understand why we couldn’t make the payments they were demanding, always punctuating our conversations with “We could take these buildings away very easily, but we don’t want to do that…”
By the second week of December, we had missed two mortgage payments on the rental properties and three on our own home and were running out of options. We had all of the properties listed for sale with one under contract. We dropped the prices of the others, but the bank would not allow a short sale. We therefore met with a debt relief attorney, which means bankruptcy. I was horrified to even think that we might have to file for bankruptcy, but it was looking more and more real. Tenants were continuing to leave or refusing to pay at whim. The bankruptcy attorney stated that we were perhaps the 20th couple to have consulted with him in the last two months due to the exact same problem.
After gaining an understanding of what filing for bankruptcy entailed, we decided to try to pay our bills and renegotiate with the bank. Once they knew we were considering bankruptcy, the bank offered to accept a “deed in lieu” from us on both properties “so that our credit would not be ruined.” However, they were demanding that we give them all of the remaining security deposits. Our attorney suggested a middle ground: that we forfeit the more troublesome building with a deed in lieu and keep the other on the modified payment plan the bank had proposed. They had repeatedly stated that they didn’t want the buildings back, so it seemed a viable alternative to surrendering everything. On Monday, December 21, I asked the Commercial Lines VP about it, and he flat-out refused. He said it was both of them or neither. l will never understand why they took that position.
We had just done two showings on one of the apartments with a third trying to schedule something after Christmas. However, the apartments would no longer be ours to show. That afternoon we gave the bankruptcy attorney a retainer, because it was less expensive to pay him than to give the bank what they demanded. He quickly got on the phone to the bank’s attorney and told him that we would be paying nothing at the transfer, which would have to be scheduled soon if they didn’t want the buildings to be tied up for six months in bankruptcy proceedings. That was Tuesday, the 22nd, and the transfer was scheduled for the next day.
On Wednesday evening, December 23, two days before Christmas, we went to the bank’s attorney’s office with the leases, keys and lock combinations. The Commercial Lines VP came in a few minutes late, visibly shaken and hardly able to keep his composure nor look us in the eye throughout the long 40 minutes during which we signed paper after paper. The properties were being transferred to a property management company which the bank’s attorney owned, a very cozy arrangement. He had summoned his property manager, who wanted as much information as he could get about the buildings before we left.
While my husband gave the property manager detail after detail on the buildings, I thought about the tens of thousands of dollars we had spent rebuilding apartment floors and walls, installing new appliances and kitchen cabinets, new windows, and central air conditioning. I thought about my husband putting down new carpeting despite his back, neck and heart problems. I thought of all the trips out to the properties my husband had made to check on things, collect rent, and even remove the trash when we could no longer afford to pay for it.
Several minutes into the meeting, the bank’s attorney accused us of calling the power company and requesting that the power be turned off to one of the buildings, which we did not do. What we had done was to tell the electric company that there was to be an unexpected, short-notice transfer, something that the bank itself should have done to ensure continued service in its name. He finally backed off after we came to our own defense, but not before bragging that he knew the technician who had gone to the property to shut off the power because he was also a state representative.
At one point, the attorneys left the room briefly, and there was a heavy, palpable silence which the Commercial Lines VP finally broke by stating, “I didn’t have to be here, but I wanted to be.” His words trailed off as he could barely finish his sentence. At that point, he was actually more upset than we were.
During the signing of the papers, my 31-year-old neurologically-impaired son had a seizure, which made the entire thing even more poignant. Our entire income, other than my part-time business and my son’s SSI, was now taken away by a bank that had insisted that they would work with us but ultimately let us down. So much for the TARP money and Obama’s stimulus bill that were supposedly designed to prevent all of this from happening.
We weren’t in a lot of debt when our tenants began to leave last summer. We had no credit card debt, our vehicles were paid for, and the only payments I made outside of our business commitments were those related to my husband’s heart attack sustained in May 2008. I had been faithfully paying off $20,000 in medical bills with only $6,800 left. Now those providers will not be paid. Neither will the property surveyor, who sent his bill 18 months after performing the work, but nevertheless was now trying to collect. And most likely, the remaining tenants will be ordered to leave by a politically-connected judge so that the bank can forgo the costs of heat, lights, upkeep and collecting rent, all of the things they expected us to do.
In August we sold my husband’s truck which he had used for the business to make our mortgage payments. I stopped using my dryer last spring to save LP gas. This fall we ran the wood stove as much as possible with wood paid for last spring before the collapse so that the furnace wouldn’t come on. We had cable TV shut off. My disabled son went without the natural medicine he needs to keep his cholesterol within a healthy range because we could no longer afford it. His LDL went up significantly after the medicine was discontinued, yet his state worker said that there is no funding for it, even with the doctor’s letter I provided. Welcome to Obama’s America.
I am sure that my story is not unique. I am one of millions of formerly independent, middle-class, hardworking people who believed in the American dream and wanted nothing from government except to be left alone to create, repair, renovate and improve something which could provide someone with a necessity of life while at the same time provide us with a living. It had worked before, but it will not work now. Both Bush and Obama lied to us inexcusably by telling us that the the TARP and “stimulus” bills would help to avoid the impending economic disaster. The disaster is here, laid out by greedy, conniving politicians decades ago, and only now being realized by millions of Americans who have been reduced to poverty in a matter of a few short months.
It is important for us to understand how this happened. Quite simply, the people we elected to represent us did not uphold the Constitution. Over many years, they voted to invalidate contracts between parties, insert themselves into how health care and the greater economy operate, and gain control over the nation’s banking system. As a people, we have allowed the safeguarding of our liberties to fall to those unworthy of it. We created and became a nation of derelicts who consider themselves entitled to everything from free housing, food, and medical care to just about anything one can imagine.
It is up to us to fix this problem. Just like repairing a building, you start by tackling one rotten floorboard at a time. You strip out and replace the electrical system if it doesn’t work. You eliminate waste and reduce costs to create a well-oiled machine devoid of waste. And you throw out the freeloading tenants who destroy all of your hopes and dreams. While there’s still a chance, let’s get to it.