My underwater house

At the height of the market in 2006, my husband and I bought a 4 bedroom home in Mountain House, CA. It had most of the features we were looking for in our first home together. We willingly paid the market value for this home at $599,900.

In 2007, the housing market slowed down. We decided to take advantage of it and bought another house and moved in December. We bought a bigger home on a bigger lot in Mountain House (at about $200K less than the price of the 2006 house) and it became our principal residence. The first home we purchased in 2006 became our investment property. We had it rented out for all of 2008 for $1800 per month. Our out-of-pocket was $1500 including HOA fees.

Fast forward to November 2008. An article appeared in The New York Times about Mountain House being the most underwater town in the nation. Wow, I was hoping for my new community to be in the news in a more positive light NOT in this negative connotation of "underwater mortgage capital".

Let me explain: Mountain House is a fairly new town that became a concept in the early 1990s as a master-planned community for the future: fiber optic lines, town center, schools, retail, etc. The concept became a reality when ground broke in 2002 and the first homeowners moved into their homes in 2004. The builders sold homes through lotteries because there were so many people vying for the limited releases. The market started ramping up, buying frenzy was happening everywhere! Homesites were sold even before concrete foundation was poured! Equity was rising faster than anyone could predict! This boom period continued until early 2007 when we started to notice a slow-down. Then the bubble popped...in a big way. The fact that all the homes in the community was built and purchased during the boom period, it only makes sense that we are the most underwater town since most of us here bought at the peak of the market.

It's 2009. The investment property has dropped 50% in value. Similar homes like it that are short sales or foreclosures have sold at mid $200Ks to low $300Ks depending on lot size. Mine will probably sell somewhere between $270-300K. The housing stimulus package doesn't help us out for this property because it is considered an investment. Our lender is unwilling to do a loan modification. I have been self-employed since the beginning of 2008 and with business being very slow, we can't afford to pay two mortgages any longer. Without a regular second paycheck from me, our bills are starting to overwhelm us. We have tapped into our savings and we have very little left. With two college kids, one income and the rising costs of living, we do not see any other option but to give up the investment property.

Hard times call for drastic measures. We didn't purchase the car we were leasing since 2006 and returned it to the dealer in December 2008 when its lease expired. We've cut down on luxuries: soda drinks, dinners-out, going to the movies, junk food, gym and wine club memberships, buying expensive wines. We've streamlined our grocery list to essentials only. We put the investment property up for a short sale. It didn't make good business sense to keep putting money into an investment property that may not see its worth in 15 years. The fact that the lender doesn't want to help us reduce the monthly payments during our temporary hardship situation certainly made us more determined not to pay the lender anymore than we have to.

I wished things were different: that I wasn't laid off in 2007; that my consulting business had more contracts to generate revenue; that I could find a job quickly in this economy so we could be back to a dual-income family. But, IF things were different, would we still continue to pay for a property that may not see its value in 20 years? Or would it still end up as a short sale? This entrepreneur thinks short sale is the better business decision.