May 2010: Cover Story Preview

The View from Underwater

One homeowner's tale of woe
By Andisheh Nouraee

I owe $115,098.53 on a mortgage for the home above in southwest Atlanta’s Capitol View neighborhood. Problem is, the house is worth only about $40,000 today. In real-estate-speak, owing more on your mortgage than your house is worth is called “being underwater.” I owe 287 percent more than my house is worth. I’m so deep underwater I need more than a loan modification; I need a marine biologist.

I bought the home in August 2004. To be clear, I was not a flipper. I rented a house on the same street during the prior two years and fell in love with the neighborhood. Owning a home in Capitol View seemed like a no-lose bet to me. During the five years prior to purchase, housing prices in Capitol View—and throughout the 30310 zip code—soared. Buyers who were priced out of tree-lined, bungalow-packed intown neighborhoods such as East Atlanta, Kirkwood, and Oakhurst were moving into the equally arboreal, bungalow-dense Capitol View every week. Though the neighborhood lacks yuppie retail amenities, it’s only one exit south of I-20 on the Connector—which means it’s about a fifteen-minute drive to intown leisure and shopping hubs such as Atlantic Station and Piedmont Park.

When my landlord offered to sell me her house for $165,000—the same house she’d paid $62,900 for just five years before—I saw dollar signs in my future. I wanted in on what looked like a never-ending neighborhood boom. I couldn’t afford my landlord’s place, but I found one on the same street for $118,000—a two-bedroom, one-bath brick ranch shaded by giant pecan trees. It’s small, but thanks to my wife’s good taste, the interior is charmingly color-coordinated. And thanks to Ikea, the kitchen is bright and new. People who’ve been inside invariably describe it as “cute,” “very cute,” or “so cute.”

Unfortunately, a home’s value isn’t determined by its cuteness but by the average value of the houses surrounding it. When the real estate market collapsed and took the U.S. economy with it, the value of my home went into a free fall. The recession hit many metro Atlanta neighborhoods hard, but few areas have been hit as hard as Capitol View. A 2007 FBI report shows Atlanta had the second-worst mortgage fraud problem in the nation—a problem concentrated on Atlanta’s west side. Rampant mortgage fraud artificially inflated the area’s property values for years. The bigger the bubble, the bigger the mess when it pops.

And crime is prevalent. After years of steady improvement, property crime in Capitol View and surrounding neighborhoods began to spike in 2007. According to the Fulton County prosecutor’s office, burglaries in 30310 jumped 44 percent between 2007 and 2008. Finally fed up, my wife and I moved to Decatur three years ago.

After spending two months and $7,000 prettying it up, I put the Capitol View house on the market for $149,000 in March 2007. At that point, I had no clue the subprime spigot that had fed sales in Capitol View for so long had been switched off. I not only didn’t get an offer, no one even came to look for months. By midsummer, I’d lowered the price to $129,000—my break-even price after renovations. Only two people came to look at the house.

I managed to rent the house successfully for two and a half years, but the area’s still-dropping property values make it increasingly difficult to find a good tenant. If you have decent credit and can afford $700 each month, why rent from me when you can buy a renovated house down the street for $40,000, or a fixer-upper for just $15,000?

I’ve never been late on a mortgage payment, but if I can’t modify my loan soon or find a paying tenant, I may just mail the keys back to the bank. It makes little sense for me to keep paying $877.92 each month for an investment property worth a third of what I owe on it. At this point, I feel no moral or ethical obligation to pay my mortgage. The financial industry’s lazy and fraudulent practices got us all into this mess, so I’m fine letting them find their way out of it.

The only compelling reason I have to keep paying the mortgage is my credit score. My now excellent credit will be tarnished for up to seven years if I default, making it difficult for my wife and me to buy a bigger house when our family expands. I accept it as reality, but it’s still galling.

A low credit score is the lending industry’s way of calling someone a deadbeat. If defaulting on a $115,098.53 mortgage makes me a deadbeat, what do banks call the people who built the Mansion on Peachtree in Buckhead—a $197 million luxury high-rise that sold in a foreclosure auction in February for $66 million?

They’re still called businessmen.

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