The problem started right from the beginning. My husband and I bought a small mom & pop shop in Cheboygan Michigan in the spring of 2004. We hired a financial broker to look for a bank to finance the purchase, and they found a local bank, First Federal of Northern Michigan. After more then a year of negotiations, and road blocks, we were told by our loan officer to sell our house, quit our jobs and move north, that we would be closing in 2 weeks. So, we did just that; sold our house (for $40k less then what we wanted; we were in the middle of negotiations with the buyer), quit our jobs, and packed our belongings to move north.
As the moving company was literally driving out of our driveway the loan officer called and said, "Don't come, we've run into a roadblock". We told him that he had to be kidding, the moving vans had just left, and we were on our way. There was no turning back now.
We arrived in Cheboygan late that afternoon. The current owners were supposed to have already moved out, so we had the moving vans go directly to the business/home. However, to our dismay, the current owner had not moved out, and we had no place to live; we were homeless. We immediately rented two storage units down the road, and stayed in two of the motel rooms (with no kitchen facilities) attached to the business. We lived there for greater then 4 weeks waiting to close on the business.
My family of five had to eat out for every meal, and only had access to minimal amount of our belongings. My husband finally said enough was enough and we told the mortgage broker that if we were close on the purchase of the business by the following Monday that the deal was off and we would leave. Well, it's amazing how quickly people can move when they're about to lose not only one deal, but two other deals that were contingent on ours. We closed on the purchase of the business/home that following Tuesday.
Less then a year later we approached our lending officer inquiring about expanding the business; we wanted to add on a commercial kitchen to better service our community's needs, and to increase our income. This expansion was no small task; walls had to be torn down, plumbing and electrical had to be rerun, and the ceiling had to be raised. Fortunately my husband had the knowledge and know-how to do the work. The loan officer said, that the bank would give us a loan for the expansion, and to go ahead and get estimates on the total cost, including the equipment. We told him that to get estimates that would include gutting the part of building that was going to used for the kitchen, and due to the building being as old as it was we didn't know what was underneath. We told him that we didn't want to get started, and then be told that the bank couldn't lend us the money to finish. He assured us that everything was fine, and to go ahead with the estimates, and he would see us in a couple of weeks with the paperwork for the loan.
A couple of weeks went by, we gutted the building and got all our estimates. The loan officer came out to our business, and informed us that the bank would not be able to finance the reconstruction of the building as promised, but could only lend us money to purchase the equipment. We were mortified! We argued with the loan officer; he assured us that this would not happen! He said he was sorry, and left.
Between the time we started the project and the point the bank reneged on their offer, my mother was diagnosed with cancer; she died November. As part of the settlement of her estate there was an inheritance to be divided between my sisters and me. My husband and I had no other options; we had to use some of that money to finish the project.
Our community was excited about the addition to our store, and what it would bring to our neighborhood. Some of the local contractors worked with my husband, and after long hard days, and a lot of sweat equity the reconstruction project was completed. Memorial Day (the kick off to the summer season) was moving upon us quickly, so we contacted the bank to inquire about the equipment loan that was promised.
The loan officer came out, looked at the work that had been done, commented on how wonderful it was, and proceeded to inform us that the bank was NOT going be able to lend us the funds to purchase the equipment we needed for the kitchen! We were angry, disappointed, and perplexed as to why once again the loan officer would make promises he could not keep.
We contacted the bank to discuss alternative financial options and were informed that First Federal no longer employed our loan officer. We asked who was taking his place, and was told that it was uncertain at that time. We were horrified, it was only a couple of weeks, and Memorial weekend would be upon us. With no other options available we used the rest of my inheritance from my mother's estate, and several credit cards to purchase the equipment. We opened the kitchen the week before Memorial weekend 2006.
The first summer the kitchen was open went like a whirlwind. We were extremely busy, everyone loved our food, and we could see a light at the end of the tunnel. The winter was, as winters are in Northern Michigan, slow. But that winter was worse then normal. There was no snow to bring the snowmobilers north, the ice didn't go on the lake until late that season, and by the time the ice fishermen got their shacks out on the lake there was only a couple weeks left of ice fishing, and then it was over.
Michigan's economy began to falter; the next summer was rainy and slow compared to the summer before. Gas prices were on the rise, the auto industry was threatening more layoffs, and some of our major local employers were downsizing, and some were going out of business all together. More and more small businesses were closing their doors, and we had been feeling the financial effect of it too.
We got a phone call February the new loan officer on the other end of the phone line told us that our monthly mortgage payment was going up... By $600.00 a month! We said, You've got to be kidding? There was no way we could afford to pay out an additional $600.00 per month; we were barely making ends meet as it was! We asked why our payment was being raised, and of all times during the worst time of the year... February. The loan officer told us that it was because our interest rate had gone up to 10.25% (we were on a variable rate loan). We told the loan officer that there was no way we could pay it. He asked us if we could continue to make the same payment that we had been making all along. We answered yes, and he said that would be fine, that we would be able to catch up during the summer when we had more income. My husband and I were relieved, and continued to make our regular monthly mortgage payment.
I had been watching the interest rates go up, but thought it was odd that our rate would all of a sudden jump from our original 5.25% to 10.25%, so I started investigating the situation. I discovered that our interest rate had actually been climbing since we purchased the business in 2004. Our rate and payment amount had never been adjusted, and it had finally reached the point where our payment amount wasn't even paying for the interest portion of the loan anymore. I also discovered that the payments we had been making for more then a year were ONLY paying on the interest portion of the loan, and nothing was being applied to the principle! So this meant that the bank was the only one benefiting by our payment every month for some time.
We got our next month mortgage statement and I discovered that even though our loan officer said to continue to pay what we had previously been paying, we were accumulating late fees and penalties because we were not paying the extra $600.00 per month.
I called the loan officer to inquire about this, and my other findings with regard to the interest rate increase, and he responded by telling me that we had a contractual agreement that we were bound to, and had to pay it. He said that the bank only raised their customer's loan payment amounts once per year (in February) to account for the raising interest rates. I informed him that according to my records our payment amount had NEVER been raised, and now suddenly we're expected to come up with an additional $600.00 per month in the middle of the winter when sales are at their worst. I asked him why are payment amount had never been adjusted. He responded by saying that it was an oversight on the bank's part, and repeated that we had a contractual agreement that was binding.
I read through our loan agreement, and the contract with the Small Business Administration (SBA), and discovered that that the bank was misappropriating our payment funds. The contract stated that any payments received by the bank were to be distributed in the following sequence: principle, interest, and then bank fees. With every payment we made the bank took their fees out first, then the interest amount, and if there was anything left after that applied the balance to the principle. Of course this would make our principle payment short, and we would be charged additional fees. Eventually our fees were charged fees, and so on.
I called the bank day after day trying to get in touch with our loan officer; he would never return my calls. I finally called our local branch, and spoke with the Assistant Manager. She informed me that our loan officer no longer worked for First Federal. I asked whom I was supposed to speak with. I was informed that I would have to contact the main office in Alpena. I called the Alpena office, made an appointment with the VP of Commercial Lending, and the President of the bank. My husband and I went to Alpena for the meeting with the bank officials.
After we explained everything that had taken place over the previous years, we were told that they would not take responsibility for anything that transpired between someone that no longer worked for them and us. My husband and I were dumbfounded by their response. We asked them how they could NOT take responsibility for people represented their institution. They said our situation was unfortunate, and repeated that they would not take responsibility for someone else's actions. We asked them to please look into restructuring our loan. They said they would look into it, and get back with us.
Weeks went by, the summer of 2007 came and went, and we received no contact from the bank. Phone call after phone call was ignored. Our financial situation had become urgent. We consulted with others banks, financial advisors, and the Small Business Development Corporation (SBDC -a division of the SBA). They each looked over our financial reports, and all told us the same thing... They didn't understand why the bank wasn't helping us. Other banks said that if we had gone to them sooner they might have been able to help, however our debt to income ratio was now too high, and even though they wanted to help us, their hands were tied. The financial advisors we consulted, and the SBDC analyzed our business and came to the same conclusion; our financial situation was not a result of anything we did or did not do, and there wasn't anything they could suggest that we had not already tried. We made one last attempt to contact the bank.
Fall of 2007 the VP of Commercial Lending came to our business. She told us that after considering all things, they would not be able to restructure our loan. I asked her why, and she said that the SBA had strict guidelines regarding restructuring, and it would be viewed as the bank bettering their financial position, instead of helping the customer better theirs. I said that was ridiculous. She concluded by saying that they would not be able to help us. She said maybe we should try to refinance through another bank. I told her that if First Federal had gotten back with us months ago, when we first inquired about our situation, it would've been possible, but now it was too late. She said that was unfortunate, and left.
Distraught over our situation I contacted the SBA myself. I explained our situation, and the SBA informed me that the bank had several options available to them; refinance the loan, wipe out the bank charges, defer our payments up to one year, or a combination of any of the above. After hearing this I was hopeful (and puzzled), and contacted the VP of Commercial Lending, and told her what the SBA told me with regard to the bank's options. She said that they couldn't help us, and that we had a contractual agreement that was binding. That was the end of the conversation, and the end of our business.
December 31 was our last day of business. We lost our business, our home, all the equipment we purchased with my inheritance from my mother ($160,000.00), and everything except our personal belongings (cloths, furniture and each other).
Long before our financial situation became drastic my husband and I tried to find work outside of our business. All attempts were made in vain. So many people were out of work. For every one job available there were over 200 applicants. I applied for over 500 jobs in less then one year; I received many well-written and thoughtful rejection letters. Michigan's economy was worse then it had ever been. Unemployment had risen to over 13%, and more and more business were either cutting back on hiring, or closing their businesses all together; entire communities were disappearing. Some people were fortunate enough to find work out of state. However, with the home market being devastated they weren't able sell their homes, or even rent them out, and therefore just left them abandoned.
I had the opportunity to work part-time for a while in the St. Ignace area, and happily took that job.in the meantime I continued to look for work, but focused my efforts for out of state employment. The job market wasn't quite as tough, but the rest of the nation's economy was catching up to Michigan's. I applied for another 200 jobs across the nation, and ended up getting a phone from the Department of Veterans Affairs in Togus Maine. I had a lengthy phone interview, and four days later was offered the position. I, of course, without hesitation took the job, and within 4 weeks my eldest daughter and I moved to Maine. My husband and youngest daughter stay behind in Michigan to pack up what was left of our lives, and joined us in Maine one month after.
We, as you can guess, lost our business and home to foreclosure, and had to file for bankruptcy. This past September we made a trip back to Michigan for the bankruptcy hearing. It's been over a year since we closed the doors to our business. We occasionally get phone calls from old customers, and friends wondering how we're getting along. We would move back to Cheboygan in a heartbeat, if the conditions were right. We didn't just lose our business and home, which are material things, but we lost a place in a community where hearts were open, warm, and welcoming. We lost a place where people truly cared about us, a place we still call HOME.
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