This will be the second time in my adult life that I have crawled from underneath a pile of debt. The first time was in college, too many student credit cards foisted upon me at the cafeteria, a low paying job upon graduation and high expenses, quite typical. I joined a credit counseling service, diligently followed their plan and climbed back out of my pile, learning valuable lessons about credit and debt along the way. My debt, the first time, was the result of lack of knowledge about how to budget and handle money. I thought I had learned all I needed to about how to avoid credit problems. Was I ever mistaken!
Fast forward about 20 years and I am married, with one child, one stepchild and pregnant with another. My husband had a house he could not sell from his prior marriage because it had a second mortgage on the property, he owned more then he could sell the house for. I had my own home that I had purchased when I was single with very little debt. I purchased the home for $76,000 and at the time owed under $63,000 on the property in a few short years. I was diligent about paying my bills and had a nice credit score, in the low 700s. My husband had debt from his first marriage for which he was solely responsible. I got him in touch with the same credit counseling service that helped me and all seemed well, except for his house. He desperately wanted to sell the house as he was no longer renting it and could not afford the two mortgage payments without renters. I wanted to help him and believed that we were in our marriage for the rest of our lives so I offered to take a second mortgage out on my home so that we could pay off the second mortgage on his house. He agreed and said he would take responsibility for paying off my new second mortgage. All seemed to go well at first. With the second mortgage gone on his house, we were able to sell the home and cover the first mortgage, clearing the debt in full in his name.
A few short years later, with my mortgage payments on my small two bedroom house totaling now about $1,000 per month, we now have four kids between us in a 900 sq. ft. home. My husband has returned from a long deployment a changed man. Cramped in our house, we moved into a larger home and rented out the smaller house. Still oblivious to the many bad decisions I was making financially, our marriage slowly started to unravel. Over the next three years things would go from bad to worse, and we divorced. Now I was stuck living in a 2000 sq. ft. home with a $1,500 a month mortgage, and paying two other mortgages at $1,000 a month of which only about half was covered by our renter. I was able to sell the larger home and just clear my mortgage, but I still have the smaller home. Right now the house is on the market, and my credit is slowing sliding into the tubes because I have not paid the second mortgage in a few months. Luckily my lender is local and the owner of both mortgages on the property is the same bank. The bank has agreed to give me a six month forebearance on the second mortgage, meaning right now I am not legally obligated to pay that debt. The first mortgage is covered by the renter, who is looking to move. If not for the second mortgage I could have easily sold my home several times over. As it is I stand to sell it through a short sale, meaning I will get hit with a 1099 for the difference between the sale price and the pay-off of the combined mortgages. I expect the shortfall to be about $30,000. My ex's promise to help me pay the second mortgage has long been forgotten.
If I had a chance to redo my financial decisions, I would not offer to take out the second mortgage on my home. I would have called his lender and tried to find other options for us to keep and rent his house or to return the property to the bank. My credit will now be ruined for a long time because of a debt that wasn't mine to begin with. Lesson learned.
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