CASE STUDY: 24yr old lied to get 2.2 million in loans
Seems 24 year-old Casey got himself into 2.2 MILLION in mortgage debt...and is about to foreclose on 5 houses.
Here is part of how he 'did it'. The sad thing is....none of this surprises me. I will go into more detail later.why he is facing foreclosure:
What happened? Why am I facing foreclosure? Basically, I bit off more than I could chew.
Here is the long story.
I started investing full-time in January of this year. This is after going to numerous real estate investing seminars, reading books and learning from other investors for the past 2 years. Made a few successful deals on the side and was anxious to go full-time. I quit my website programming job and went all out!
In the last 6 months I bought 7 houses in 4 different states, mostly with the help of 100% LTV stated income (liar’s) loans. Most are fixers. I was going to rehab and flip each one within a month or so. Buying was easy, but man was I in for a surprise (or a lesson?).
I grossly underestimated everything. The money it would take to find contractors, run a rehab job, and resell quickly. Add the cost of doing out of state deals. I was not prepared for the huge travel expenses to manage the deals.
I messed up the local deals too. First I didn’t calculate all my costs correctly. Second, the lack of construction experience got me in trouble. The contractors took advantage of me. The first crew on the Modesto deal dragged me out for 6 month and never finished. The worst part is I paid them all of the money.
I did NOT have a solid exit strategy. I thought I would just wing it. You see, I become a “motivated” buyer. The kind they warned us in the seminars NOT to be. They told us to play it safe and start with wholesaling. But NO! I thought I can skip the basics and take a shortcut to the big profits NOW!
Yes, I did buy some of the houses at a discount enough to make a profit. However, I juiced up all of the equity on most of them right away by getting cash at close. So every time I bought one there was a “CHA-CHING” sound and my bank account got fatter. This gave me a false sense of profit and kept me going.
Well, everything went wrong. The rehabs were way behind schedule and grossly over budget. I was too busy flying around the country visiting each job. No time to manage details. I couldn’t sell the houses fast enough. I did sell one in Albuquerque on a round-robin auction. But I got stuck with the rest.
The holding costs on 6 houses is what started killing me. Paying about 15,000 per month in mortgage payments and utilities can really drain ones’ reserves. All the cash I pulled out at close is now gone. And the houses are not selling fast enough to keep me afloat.
As the last resort I went for one more cash-at-close deal. It’s another builder lease-back house in New Mexico from the same builder. The builder and I have become friends and we structured a pretty good deal. I told him I will close with no problems.
I went to get financing figuring I will get it just like before. However, this time my credit score took a dive because of all the maxed-out credit cards. I still pressed on and tried different loan programs and loan brokers. Finally I find the right program and was set to close. A few days before the close the bank denies the loan. Why?
They Googled me! Its ironic/funny/embarrassing. They found one of my early blogs where I was talking about flipping houses. It was pretty hard to find too. It was supposed to be hidden from the search engines.
Flipping (or quick turn investing) is not bad or illegal. What’s bad is applying for an owner-occupant loan but having no intention to live in the house. I have been doing this for most of the deals in order to get better rates and/or 100% financing. It’s actually pretty common and many mortgage brokers will encourage you to do it (along with stated income loans). But it’s plain lying! So the bank denied the loan.
That was the last straw.
Since that deal fell through I started falling behind on payments on all the mortgages. I ran out of money to finish the rehabs. No money to even buy groceries.
I may have to get back to a full-time job just so I can pay basic bills. I AM grateful to at least have my web development skills to fall back on. Or I may do some wholesaling or help other investors to make a little money.
It’s embarrassing to talk about this. Yes it’s my fault and I deserve the consequences. It sure is a tough way to learn though. This will teach me to be more responsible and play smart next time.
I started this foreclosure blog in order to talk about my experience. Hopefully this will help you if you’re in the same situation or know somebody who is.
I could go on and on about this situation, but I will keep it brief for now. This kid screwed up HUGE! He lied to get loans. He lied about income. He lied about owner occupancy. He wanted to get rich quick. At least this kid is standing tall and admitting his wrongdoings...for that I give him credit. He isn't grabbing a lawyer and trying to blame everybody but himself for his situation (yet...anyway). He is taking personal responsibility for his mistakes. But just because you take personal responsibility doesn't mean the consequences of your actions are waved. There should be no free-pass for Casey, or any of the people in similar situations. They deserve exactly what they have coming to them, and there should be NO taxpayer funded bailout of ANY kind.
Spend some time on Casey's blog and read about his situation. He is NOT the only person that did such things, or that is in such 'trouble'. Use it as a REAL WORLD example of what happened during this housing bubble.
AND PLEASE...keep the comments civil on my blog and his. Give your honest opinion and criticism, but keep the vulgarity out of it.
I look forward to the comments on this one. I will be active in the comments, and possibly even editing this post to address certain issues. There is just sooooo much I could say, but it is getting late.
Stay tuned....there will be many more stories like this popping up!