Advice Wanted: Family losing $1000/mo on condo


Dear Readers, I got a very moving email from a reader this week. They are taking a $1,000 a month loss on a condo they bought in California in 2006.

But now we are just a ticking time bomb… My retirement savings will likely be less, my assets fewer, my children’s college loans greater… and on and on.

This issue is beyond my area of expertise.

So, I would really appreciate it if any of my personal finance blogger friends could offer her some helpful advice.

Please leave your advice in a comment so she can read it.

Thank You!

– John

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Hello Mr. Wake,

“The Big Short” Isn’t Over for Millions of Americans.
I recently stumbled upon the above article when I was researching what I should do about my underwater home. I am not quite the homeowner described, but pretty close.

My husband and I bought a condo in San Diego county in 2006. We were very young (23 years old) and pretty naive. We have a subprime loan mainly because we were too young to have enough employment history to qualify for the 30 year fixed loan. The 30 year fixed was what we had wanted. The loan we ended up with was supposed to be fixed for 7 years which we thought was a pretty safe amount of time. 7 years seemed like an eternity to us, at the time!

Anyway, we stayed in our condo when the market tanked and we still own it. I just wanted to share with you the reason we stayed: We considered it our obligation to our community, our neighbors, and our economy to not contribute further to the problem. We also wanted to preserve our credit. Now we have our second baby on the way and we are stuck in an 800 square foot condo in a not so great school district.

We decided this year to move out of our condo and rent it out. We moved in with my inlaws so we could try to save a down payment for another home. We are taking a $1000 per month loss on the condo now. Even with the sky high rents, the rent still doesn’t add up to cover the mortgage, let alone the HOA fee, property tax, and insurance.

Again and again we are faced with 0 options for what to do about this problem. We are still trying to meet our obligation and save our credit, but I truly don’t know how much longer it will last. We have mounting childcare costs. I doubt that we can even qualify for another mortgage on a home bigger than the one we have now given the loss we are taking every month on the condo. I do not know if we can afford rent on a bigger home than the one we have now.

We can’t be the only ones wondering how much longer we can hold out. I share your concerns about what will happen in the future if we don’t deal with this problem. If prices don’t go up, will we all finally have enough and start defaulting again? If prices do go up, will we all rush to sell immediately?

That was a very long way for me to say thanks for writing that article. It resonated with me and I wish this issue got more attention in the media and the political arena. I don’t think it’s just going to go away if we just keep pretending it doesn’t exist.


[Name Withheld]

P.S. I also read the post, U.S. Attitudes Toward Strategic Defaulters vs. Non-Defaulters.  I would vote that we are neither. I think we WANTED to be heros and indeed we were naive. But now we are just a ticking time bomb. In addition to the potential supply problem we cause which you pointed out, we have jeopardized our own financial well-being for years to come. This does have an affect on society. My retirement savings will likely be less, my assets fewer, my children’s college loans greater… and on and on. I think we have contributed to prolonging the agony. I wish all the time that I had just followed my own best interests long ago.

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  1. Without a lot more information, none of us can really give this reader good advice. What is their overall financial position? Are they employed, how old are they, what are their long-term prospects? Are they contributing to retirement accounts? Are both parents working (it sounds like it if they have child care costs?) A thorough review, which I would be glad to do, would help them identify the options available.

    Unfortunately, I’ve had more than one client in this situation. Sometimes it resolves itself with time, sometimes drastic action is necessary. I appreciate the reader’s desire to make good on the loan for which they have obligated themselves, but in rare situations a strategic default is necessary. It’s not great, and it certainly isn’t pretty, but if the property is going to end up in default anyway, then there is some value in doing it earlier rather than later. I’ve seen many families who raided their retirement accounts, ran up credit card balances, and borrowed from family and friends to make payments towards a mortgage that ended up in foreclosure anyway.

    A thorough investigation of the entire situation could turn up some options that the readers haven’t yet seen, or make the choices more obvious.

    • Awesome, Kate!

      Any tips on how she can find someone who can help her make “a thorough investigation of the entire situation”?

      A local financial planner? Financial advisor?


  2. Hi John,

    I’ve been in this reader’s position — only double. My wife and I each owned our own condos when we met. Each unit was purchased in 2005, and we were reluctant landlords between 2008 and earlier this year.

    We were able to sell one of our units in 2015 for what was owed on it, but not what we had in it.

    Earlier this year, we were able to secure a line of credit to allow us to sell the second unit. Our mindset was that it would be less stressful to have a finite amount to repay (that would amount to a car payment), than to continue to be at the whims of the rental market and adjustable-rate loans that we could not refinance (because of the market value of the unit and no longer living in the units).

    We just wish we’d done this move earlier as the adage “your first loss will be your smallest” ended up being prophetic for us. If we’d sold the units in 2008/2009, our total losses would have been much smaller.

    Thus, based on my experience, my recommendation is to work to sell the unit by securing financing for the difference between the amount owed on the mortgage(s) and the market value. Approach community banks and credit unions as these will be the most intelligent in discussing the loan. You may also want to approach the current lender(s) about a short sale in which you agree to repay the difference over time. Yes, this means that they would be agreeing to an unsecured loan, but in reality the amount you are underwater is already unsecured.

    All scenarios will be easier to arrange if you have assets to use as collateral.

    Yes, it won’t be fun. But the key to success here is to fix and minimize your financial exposure (selling the condo). You should also be prepared to be patient. It may not be ideal to live with parents/in-laws, but rushing to move out (by purchasing or renting something else) will only increase the financial pressure you are under and delay your ability to financially move forward.

    All the best.

      • No worries, John. I look at them as expensive life lessons. A little patience and listening to the advice of others would have helped. Just hoping to help others learn from our mistakes.

        I did learn that being a landlord is a great business to be in if one is in the business of being a landlord. We didn’t get into our properties with that aim, nor were we experienced at it. Sounds like your reader is in that same boat, so hopefully my experience can benefit them.

        If they want to know more, or share more of their details, I’m happy to exchange emails. I believe you have that with the comments registration.

  3. I agree with a previous comment, the first loss is indeed the smallest.

    The family should have asked the lender for a short sale and walked away a few years ago.

    Now, it’s harder to say what the right action should be. It depends on the value of their property, their financial situation, and their willingness to be long term landlords.

    As a financial advisor, as well as a previous condo owner in San Diego and real estate investor, I would be happy to take a look at their situation.

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