(Bloomberg News) Army Staff Sergeant Robert Bales took one of his first steps toward financial ruin while on a second tour of duty in Iraq. The man now accused of killing at least 16 Afghan civilians agreed to repay more than $500,000 in mortgages on two properties he owned in Washington state.
It was 2006, when many Americans thought the rise in home prices would never end. Bales's wife, Karilyn, was working as a project manager at Washington Mutual, whose later collapse would be the biggest U.S. bank failure in history. The Bales family found subprime lenders who financed their two homes on terms that included balloon payments and floating interest rates starting at 8 percent.
Six years later, the houses are worth $148,000 less than the initial loan amounts. The couple defaulted on one mortgage in 2009 and recently attempted to sell the second property for less than they owe on it. For Bales, 38, it was a double nightmare of being ensnared both in unpopular wars in Iraq and Afghanistan and a housing-market meltdown at home.
"It's not an unfamiliar story, but it's sad," said Richard Eastern, a co-founder of Bellevue, Washington-based Washington Property Solutions, which negotiates short sales. "We're going to send you off to war but we're going to foreclose on your home." He said many lenders offered loans they knew borrowers couldn't repay. "And it's not just soldiers, it's everybody. We set them up."
The scenario is especially common in an area of Washington where almost half of property sales are either short sales or foreclosures, according to Washington Property Solutions.
Bales's money problems went beyond mortgage debt, to the time when he worked in the financial-services industry, records show.
He owed an Ohio couple about $1.3 million in damages, plus interest, for defrauding them in 2000 when he served as their investment advisor, according to the Financial Industry Regulatory Authority, which oversees the industry.
An arbitrator found that Bales "engaged in fraud, breach of fiduciary duty, churning, unauthorized trading, and unsuitable investments," according to a 2003 report on the Finra web site. Bales, who grew up in Ohio, worked in the industry there from 1996 to 2000, according to Finra records.
Bales never paid the money and the couple could never find him, one of the victims, Gary Liebschner told WCPO TV, the ABC affiliate in Cincinnati.