Tale of a Loan

I write in the book about the story of how I financed the business, primarily through a home equity loan. Over the first six years of owning the store, my home value soared to amazing heights, enough so that just making mortgage payments was enough to justify anything I was doing. Then the market crashed in 2008 and by 2010, my house had plummeted well below what I had bought it for, leaving me, as they say, underwater.

Having survived the financial crisis with the business intact, I knew everything was negotiable, including blood sworn contracts. We had re-negotiated our store lease because of a downturn in the economy. Financial institutions like Capital One were canceling business credit cards left and right, entirely based on "economic conditions." That made finances even tighter. I like to bring them up as a fair weather lender, because I have no doubt they'll do it again.

Everyone was making a deal and the companies that had done the most damage with their collateralized debt obligations were getting bailed out by the government. The homeowner? Oh yeah, screw them. Helping a home owner would be "moral hazard," otherwise known as allowing them to play by the same screwed up rules as financial institutions. We couldn't have that.

So I took it upon myself, much as I did with my lease, to renegotiate my mortgage. They wouldn't talk to me until I was far behind, so I got far behind. I stopped paying my mortgage for eleven months, with otherwise stellar credit. There were eleven months of threats, but I was willing to walk, a key point in negotiating. I offered to send them the keys; jingle mail was the term that was coined. Eventually they blinked on my first mortgage, and while I was at it, I renegotiated my second, leaving me with zero equity (which has since grown by a few hundred thousand dollars).

That was eight years ago, and what I found trying to refinance for our construction loan was I was poison. There were two parts to this. First, no underwriter knew of a homeowner who essentially "short sold" their house while keeping it. They didn't know what to do with me. There was no check box on a form to handle my situation. That meant risk, which meant they wouldn't even return my brokers phone calls.

The second problem was Citimortgage refused to formally finalize the settlement on the second mortgage. If you tried to call them, they wouldn't talk to you because you weren't their customer, yet they continuously reported payments as late. If you claimed the mortgage was paid off, they wouldn't confirm. They held me hostage out of spite. Eventually they sold off my loan, as they often do, which opened my up to the possibility of a new lender.

And that's where we are today. I just closed on a small home loan from my local credit union to pay off one of our construction lenders and put much needed cash into the business. With Citimortgage in the rear view mirror, they could no longer hold me back, and with 7 years of good credit since the re-negotiations, it was far enough in the past to not matter.

And yes, I'm both proud and a little ashamed of this whole endeavor. I have stared moral hazard in the face and in a way it has turned me into a shrewd dirtbag, much like the bankers I negotiated with. Everything is negotiable in a pinch. I'm not a serial dirtbag, burning bridges for financing on my way to the top, like some powerful people in the news, but it's in my bag of tricks. What I truly value are personal relationships, and those I can't imagine burning unless my life depended on it. My survival over the last decade has been very much about those personal relationships.