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October 17, 2011

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I thought management generally got paid MORE than the engineers...

First off, I ended up moving from SoCal back in 2005 because I could literally not afford to live there any more. However, I moved before I let things get really bad for me.

In your case, I think things have progressed beyond a simple move. You've already wiped out your 401K, so really, all you have is that house. Selling it now would be selling it at a huge loss - Not good.

So...I think you need to consider selling as much "stuff" in the house as you can. Try to clear out as much space as possible by selling things on Craig's list or having garage sales. Cancel all extraneous contracts that you don't really need (go down to bare bones on cell phone plan, cancel land line, get rid of cable, etc).

Then, take on renters (while you're still living in the house). If you can both move into one of the smaller rooms, you can rent the Master Bedroom for a larger sum. Not sure how large your house is, but if you can fill all the extra bedrooms with renters, that's a lot of extra income to help with the mortgage.

I'd like like that for a few years, until the housing market got back to a decent position in SoCal, then re-evaluate the possibility of selling the house in SoCal, and buying a small inexpensive place (perhaps a mobile home? a condo?) in a much cheaper state where you can still find work.

Other readers may have better ideas too, but this is just what I'd do.

It's hard to comment with so few details, but here are my thoughts:

You didn't mention what type of engineer your husband was, but if he is seeking a position only as such, perhaps if he lowered his expectation some he could find work albeit not as an engineer. Then again, can he take some training courses to get back up to speed? Assuming that 18 years ago he was something more like a civil engineer, rather than a software engineer, the basics haven't changed that much.

Have you tried restructuring your current loan instead of refinancing? California has lots of community-based help for struggling families. Have you checked for local resources you can tap? You might start with you county social services office.

You say the kids are grown, can they help out?

If your housing (mortgage, insurance, tax, etc) costs really are about what rent would be, IMO you should try to stay in the house. But you should look at all the costs. As empty-nesters, a smaller apartment might be a better deal.

You don't mention how much you make, and how much your monthly expenses run. Therefore I can't begin to guess how you might better make ends meet. But, if you read this column frequently, you should have picked up many frugal-living tips. Going from two incomes to one is difficult, but you have to change your livestyle. If you want to share more details, readers here might be better able to help.

Good luck to you and your husband.

THeres not a lot of detail here. We don't know what the household income is. WE don't know what the mortgage costs. We don't know other expenses.
But given the information we have it really sounds like you can't afford to live where you live on your income.

You either need to move somewhere cheaper, cut spending or make more money.

Have you cut all costs to the bone? Canceled cable TV? No eating out? ONly 1 car, etc?

Has your husband applied for ANY /every job? 2+ years of job hunting and not being able to pay your bills is the point that you expand outside your career field even if it means being a stocker at Walmart for minimum wage.

Or I'd also of course expand the job hunt outside So. CA and see if he can find an engineering manager job elsewhere.

Sorry to say you are in the same boat of a lot of people I know who got laid off 2 years ago.( around 5 people)Some found whatever job they could, Some retired at 62 and some did not even try work in there given field.

Sorry but sad truth in that a person in there 60ies can't find anything like there old job.

Not much advise here. They economy jsut plain stinks.

-- Almost 2 years of the husband being unable to find a job.
-- Unsecured debt.
-- 2 months behind on mortgage with little equity.
-- Net worth minimal.
-- Probably no healthcare.
-- Living in an expensive area.

++ Wife working full time and starting a bookkeeping business.

The only solution is for the husband to take "ANY" kind of job that he is able to find.

He can probably forget "engineering", I retired as an engineer 19 years ago and would be totally out-of-date in today's world. Maybe a hardware store might be somewhere to try since he has built a home and must know quite a bit about plumbing, electrical, and building construction and if he is a healthy looking 60 year old they might hire him.

Unfortunately, there really isn't much to do besides just working hard into late 60's. To bring in the income, working is the only way. You could consider starting a new business but it could be too late for that. I wish I had better ideas... I wish best of luck and I hope you at least have good friends who are willing to support you financially. Can you at least rely on your kids since you are the one who took care of them?

Can you not afford the mortgage because you have to cover the unsecured debt also?

Sounds like a very tough situation. You could sell the house and move to a cheaper locale and rent there. You are going to have to be open minded here because your options quite limited.

Best of luck.

I would short sell the house and walk away.

And then move to a lower cost of living area.

I wish there was an easier solution than that.

Best wishes,
Brad

Unfortunately, your choices are limited, especially in SoCal, where I also live. Have you all considered a senior community? I'm not sure how much the rent is there, but it might be more affordable than your home. Try selling as much as you can. I hate that you guys went through your 401K. Any other retirement savings? You may have to seek debt counseling. This seems like too advance of a situation than us readers can truly help with. I wish the best for you both.

If you just stop paying the mortgage now, it will probably take the bank a long time to foreclose. Living rent-free for that interval would help you pay off the unsecured debt. Perhaps you'd even accumulate some emergency fund to take with you, to your rental in a much cheaper location, after the foreclosure goes through. (I'm assuming without actual knowledge that CA is a no-recourse mortgage state. If I'm wrong, ignore this.)

One bright spot is that your husband is getting close to Social Security eligibility. If there ever was a situation that calls for drawing benefits early, you're in it.

Finally, I ditto all the other advice in this thread, but especially KaseyD: reach out to the kids if they have the means to provide help. If my parents were ever in such a pickle, and pride kept them from telling me, I'd be devastated.

Unfortunately, there aren't any options you are going to like. A radical lifestyle downgrade is very likely coming your way and there's probably very little you can do about it at this point.

I think this is your opportunity to leave for a cheaper state. Of course, that's probably difficult because it will involve both of you looking for work. Maybe an intermediate step is to downgrade to a 1BR apartment and/or rent out the rooms in the house to save some cash so that you can leave in a year or two.

Lessons for others:

--DO NOT raid your 401K to pay the mortgage. They usually can not touch your 401K in the event of bankruptcy or foreclosure.

--Live VERY conservatively, financially speaking. Keep those housing costs as a % of your income to 25% or less of your gross...preferably MUCH less.

--Watch who you marry. Being in love is an essential ingredient but is never enough reason to marry someone. Divorce is costly. Look inside yourself and work on your own self destructive tendencies so that you don't marry a messed up person as it will cost you for the rest of your life, especially if kids are involved.

--DO NOT live in denial. If you're in your 50s and get laid off from a good paying job, you're probably screwed. Face the hard truth that unless you are financially independent, you're going to have to radically downgrade your lifestyle. Don't live in denial. Do the lifestyle downgrade NOW. Things are NOT going to go back to the way they used to be. This advice also applies to younger folks who lose their jobs in most cases.


I have to say I agree with 08graduate...It might be worth it to give up on the mortgage and live there until you can get some money saved to figure out your next move.

Unless you have other resources or kids that can help. Things can get dire.

I am a little younger than you but I always wondered what I'd do if in your shoes.

What about living in a mobile-home retirement resort? Check http://www.cal-am.com, where some places (in AZ for instance) are only about $25K! That gets you a home and for a about $400 a month, you get events, a pool, etc and most are 55+ so no teenagers or druggies.

Could be an adventure!

I agree with Mark's comments mostly. The upside is that you and your husband have social sucurity available in your later years. I would not take it until you both turn 70, so that translates into 25 more working years cumulative. You and your husband should look for full time work ASAP and rent for roommates quickly also. Then I would work on finding part time jobs. I would shop at the food bank and buy "nice" clothes at the Salvation Army (this means frequenting often to find good outfits). I would budget like I've never done before, saving every literal penny you can. No cable, no cell phone, no internet. You want internet? Go to the library and make those local taxes get put to your use! Same goes for loaning books, cds, dvds. The library will be the sole location for your entertainment! No vacations, and no driving trips made without a real purpose (to work, to food bank, to library, and to Salvation Army only!).

If you do what is scripted here and you and your husband can manage to each make 30K per year and save 18K per year, you would have $450,000 of uninvested cash by the time you are 70 and he is 75! Yes you can retire is the great news and living the life like you mean it would add more value between now and then than in the previouse 55 years of your life! Yes it can be done! So no need to sulk, see the bright light and move towards it! Good luck!!!!!

Tough situation- nearly 3 years of looking for work is far too long. Keep up your businesses and each try to find more work. Rebuild savings for the next 10 years.

Seriously consider moving to a cheaper area.

I wish you the best of luck.

-mike

I think the house payment is likely killing you. It is not an asset if you have almost no equity. If rent is equivalent to the house payment, you are not going to be able to afford either payment, so I don't see how you are going to get out of moving.

You say you the mortgage is less than what the house is worth, so you have no barriers in selling it. I would do so. In the meantime, have your husband expand his employment search nationwide, preferably in locations with lower costs of living. Once he finds something, move there instead.

I also second the suggestions on cutting all expenses to the bone if you haven't already. No land lines, prepaid cell phones only used for work and important communications, essential trips via car only, no more than 1 car (or car-less, if possible), etc.

This guy lives in the Bay area for $7000/year - look to him for inspiration: www.earlyretirementextreme.com

It seems like he is looking for professional work. Try going to Home Depot. They pay well and look for former engineering types. Costco is also a great company to work for and has great benefits.

I would also seriously consider moving out of state. He needs to devote his time to looking for jobs everywhere. You can walk away from the house or try to short sell. Bottom line is do what you can to get out.

The rest was covered by the previous comments.

Ditto to refer to www.earlyretirementextreme.com for inspiration.

"Extreme" is just a relative term to how most Americans live. If you haven't yet cut expenses to the bare bones, you may need to break some phycological barriers.

Good luck!

Wow, I am blown away by all the great comments/suggestions. Thanks to everyone. I will give a few more details here, to help clarify our situation.

Our net monthly income is:
$2720 (my fulltime job)
$750-$1000 (Husband has just closed two accounts this month, so will receive commissions on those for the next 3-6 months - Praise God!!)
We have a renter in one room for $450.00
Our Total income is approx $3950.00

As I mentioned, I have started my own bookkeeping business on the side, just finishing up courses now and have one account so far. That will bring in an additional $300 gross per month, starting in November.

Expenses: First mortgage is $1300 including taxes and insurance
Second mortgage is $619.00 Total $1919
Unsecured debt: $18,000 Minimum payments are $450.00

We have two vehicles, both of them paid for. Mine is a 1993 miata, his is a 2006 Matrix. Both cars are excellent on gas and my husband is very good at mechanics, so keeps them in great condition. We don't feel it would be helpful to sell one car, as I have to drive to work and he is working very hard in the day to find new clients and accounts.

We do not subscribe to cable or satellite TV. Our recreation is to watch Netflix and go for walks and drives and visit friends.

We both have cellphones because of our businesses, but I think we will consider dropping our landline.

We have a renter now and have considered possibly having another one, which would mean moving out of our master bedroom and into our office, which is small. Still thinking about that.

We keep our grocery bill fairly tight, shop for specials and eat clean. No packaged processed foods. This is particulary important now as we do not have health insurance and are trying to stay as healthy as possible.

My family is in Canada and Seattle, so we have both been applying for jobs in Washington for the last year, to be closer to family. I would love to move back to Canada, but that would mean having to apply for a Visa for him to get a job, which takes lots of time and money. (We know because we went through that for me to move to the USA) His kids live close to use in So Cal. None of them are in any kind of financial position to help us at all.

Some options we are pursuing:
1) Have been working with our first mortgage company to see if they can refinance our mortgage. However, our payments for the first are already less than the 39% of our income, so they may not be able to do anything. We hope to have an answer from them in the next few weeks, although we are told it could take much longer.

2) We have been told to look at bankruptcy on our second mortgage and unsecured debt. It is very tempting, but we both feel that we are responsible for our debts and will do everything we can to pay them.

3) Moving to Washington is definitely part of the plan, but at this point there is no money to consider even going to look for jobs. We have been applying online to everything that looks applicable.

4) Canada has many jobs,especially in Alberta - but I would need to apply for US citizenship before we move to Canada as well, which costs $700 and will take 6 months or so.

5) Husband could look at taking a job for minimum pay, but the commission work he is doing looks like it might do well over time. He also just talked to a guy that asked him to help sell Verizon packages at football games on a part-time basis which he readily agreed to, but we don't know how many games they will have him do. He is very, very good at sales and I think that is where he should focus his time. He is doing everything he can, but I worry about his health - blood pressure, heart, etc. We both have strong faith that God is looking after us, we just need to do everything we can as well.

I will keep checking back, thanks again for all the great suggestions.

What is the total remaining balance on the second mortgage and at what interest rate? What is the balance on the first mortgage? This will help us with advice to give you about the bank's proposition.

You should cancel the landline today. Do not waste time considering the move, like I said keep an "every penny counts" mentality.

Dropping the land line and adding a renter would give you $400-500 /mo to work with.

Have you looked at selling the house yet? You said the mortgage is less than its worth, so you have some equity.
If the plan is to move to Washington or Canada then you'll need to sell eventually.

Have you tried doing anything with the credit card debt? You might be able to move it around to lower interest rate cards or something. You could also call the banks and see if theres anything they can do to help you.

If the husband gets some sort of part time flexible job on the side that would help and allow him to continue to pursue his contract job at the same time.

Also, when did you draw from your 401K? If you just did it then you can reduce the income taxes you owe on them by spreading 1/3 of the income on the total draw out for three consecutive tax years. You will save considerably on taxes doing it this way. If you already filed those taxes and it happened within the last three years, you can then do a modify using the 1099X form.

@Luis. Thanks for agreeng with me. I have to disagree on the internet thing though. You really shouldn't rely on the library for the internet. The hours are often too limited thanks to budget cuts and they often limit the amount of time you can spend on their computers....Since you apply for jobs online most of the time now, you really need internet 24/7. It is not a luxury any more.

@Brenda That's not as bad as I thought from your original post. Your budget is very nearly balanced. Once you cut the landline and start earning the extra $300, I'm guessing you'll be cashflow positive.

Also importantly, it sounds like your husband has attracted some fairly serious customers. $1k/month isn't enough to live on, but it's huge as a vote of confidence. Knowing that, I now agree with you that he should stick with it. Do an outstanding job for those clients, get referrals, raise the rates, repeat. Ramit Sethi has spent the past year writing about how to do this right; I highly recommend taking a look at his blog.

I retract my advice about ditching the mortgage. Stick with the plans both of you have for earning more, cut the remaining extraneous costs, and I believe you'll get through this!

Thanks everyone, you have given us more good things to consider, as well as hope that it may not be as bad as it feels right now.
To address some of the comments:
Luis - Our second mortgage balance is approx $64,000 at 7% interest. The first mortgage is $165,000 at 5.75%. We are in communication with both banks to see if they can help us, but so far they are not sounding too positive. The second mortgage is waiting for the first mortgage to come up with an answer before they address the situation, but want us to make our payments on time in the meantime, which we cannot do.
I am interested in what you are saying about drawing out the 401K. We withdrew the first half of it in the first year he was unemployed (2009 tax year) and the second half in the second year (2010 tax year). Can we still file a 1099X tax form?
As far as our landline, our accountant advised us to keep it (at a cost of $10.00 per month) so that we could use our cellphones as deductions in our business. Do you still advise cancelling it? What did you mean about not wasting time considering the move? That we should not consider it, or just do it quickly?

Jim - again, not sure if dropping the landline would be a good idea, as we are both using our cellphones to support our businesses and need the deductions for that. Landline is only $10.00 per month. We are starting the process of finding another renter, hope to bring in $500 per month for that. Although we have found that our current renter has given us an increase in our utilities of about $100 a month over what we typically use. So, the $450 we get from him is more like $350. Our mortgages are about $230,000 and we may be able to sell the house for $250,000. Any money made would go to the expense of selling it. We feel it would be better to rent the house out when we move rather than trying to sell now in such a down market. We also need flexibility as my husband's accounts that he is working on now will need for him to be back in So Cal to service them approx once a month. We have tried to work with our CC companies, so far they have been extremely difficult to work with. We consulted with a lawyer who is going to help us with the wording, etc that we can present to the CC companies.

Mark, I agree with the internet decision. Both hubby and I spend a lot of time on the internet (I am working on online accounting courses right now and he is constantly working on the internet to find new contacts) Besides, his business is digital marketing and social media, he needs constant access to them both.

08graduate - thanks for the vote of confidence, I sure appreciate that! Yes, we believe that if we can hang in a little longer, he will pick up more accounts and within 2-3 months we should be able to meet our monthly expenses. Hopefully the banks and CC companies will allow us that amount of time. The need to move to Washington is becoming much more important, we need to find a way to finance the move. My mom's health is declining and I want to be closer as soon as possible, while being able to meet our expenses.

Where can I access the blog by Ramit Sethi? We have great books from Mary Hunt and Dave Ramsey, plus have learned so much from FreeMoneyFinance.

Thanks again!

I would say to keep a line outside of your business account but please be shrewd in selecting the cheapest service, whether landline or cell.

You have time to refile 09 taxes, have a tax preparer work with you on that. You will still pay 10% penalty but at least you will be in a lower tax bracket.

I wish you luck, you may be able to keep your home after all.

Ramit Sethi: http://www.iwillteachyoutoberich.com/

The name sounds like a scam, but it's not: he just has a very direct style. The free material is extensive and very helpful, including a lot of posts about starting and growing a consulting business. Admittedly, there are also some posts that just promote his premium services - I skip past those.

Please look into the making home affordable program. Your case sounds like one that would qualify for a mortgage readjustment. Ditto with credit card debt consolidation. Dave Ramsey's book has some resources that may be of help to you. Hope these bad times go away soon.

An update from Brenda:
Wow, they just don't want to work with us. Our first mortgage company has requested all our paperwork, etc but still insists on us coming up with our monthly payments while they work on our application. The second mortgage is the same, not willing to take smaller payments or make any kind of concessions and have demanded we get caught up right away. Also the credit card company won't consider bringing down the interest and wants their payments. My dear husband is trying so hard to make them all happy, so he is paying all of our income to them, which is still not enough to make them happy, as we are two months behind.

We have had no money for food, for utilies, for fuel in the car but somehow we are getting by. But I understand what he is doing, and why. Hopefully we will have an increase in our income soon, I am almost finished my bookkeeping classes and have an appointment to meet my first possible client next week. But I am working full-time at least for now. My job is very unstable, the company has been running in the red for two years and it can't go on much longer unless we get more work in.

Hubby did speak to someone from Making Home Affordable, but it didn't sound like they could help us. I think it complicates it because we have a fairly small first mortgage, as well as a fairly small second mortgage. Together they are too much for us, but they only look at the first mortgage and if we qualify for that (which we don't because we have defaulted on our mortgage the last two months) then they would ask the second mortgage company to comply.

I have been reading Dave Ramsey's website which is very good, but most everything he suggests we would already do, if there were enough income coming in to do it. We have learned so much through this downturn. Even the credit card debt we have is all from three or more years ago, we have not been adding to it, just trying to cover the minimum payments.

Just wanted to update everyone, please pray for us, that God would give us wisdom and discernment and that my husband will not lose heart. Thanks.

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