2008-08-18

Ed McMahon Personal Finance Fairy Tale?

This past Saturday, the Wall Street Journal ran an article on Donald Trump riding in as a white knight trying to help Ed McMahon avoid foreclosure of his home. If you're not familiar with the general story, the longtime television personality and Tonight show mainstay lives in a six-bedroom house in Beverly Hills—and has defaulted on his mortgage. Specifically, it sounds like he defaulted on the $4.8 million mortgage in first position on the house—though he apparently owes a total of about $7 million on the house, which I take to mean he has several mortgages. I wasn't all that familiar with the story myself, other than the headlines, so I checked briefly for some more details.

According to an MSNBC article, McMahon was $644,000 behind in the payments on his first mortgage, as of back in February. And according to a more recent Chicago Tribune article, another lender has filed a lawsuit against McMahon for failing to pay a $250,000 loan, also secured by the house. This follows a July lawsuit filed against by McMahon by his own lawyers (or ex-lawyers, one would think), for payment of $275,167 in legal bills.

McMahon has been trying to sell the house for over two years, starting with a list price of more than $7 million and recently reducing the asking price to $4.6 million.

It's sadly not news that some celebrities—even longtime ones who've presumably made tons of money through their careers and who presumably have access to good advice—may not be so great with their personal finances. McMahon and his wife apparently bought more house than they could afford, used it as an ATM by taking out personal loans secured by the house, and did not have much in the way of reserve funds—and were essentially living paycheck to paycheck. McMahon reported he first fell behind on payments after a neck injury interrupted his work making television commercials—which indicates to me that he had little in the way of savings. As McMahon himself put it in an interview:

If you spend more money than you make, you know what happens. A couple of divorces thrown in, a few things like that.
Trump has apparently stepped in to try to help negotiate a deal that would allow McMahon and his wife to keep their home—possibly to be structured with Trump buying the first-lien mortgage of $4.8 million. Trump is quoted as saying, "Even a man who hadn't had such a great career shouldn't have this happen to them in their later years. I'm doing my very best, but this is a very difficult situation." But when asked whether Trump might help others, his spokesperson replied, "I really can't answer that…"

The bad part of being a celebrity with personal-finance trouble is, it would seem to me, having your troubles plastered all over the paper. The good part is that someone might read it and want to ride in as a white knight, like Trump for McMahon.

Perhaps the U.S. government will do something that may be effective in helping folks facing foreclosures, with one estimate that 1.65 million homes will be lost this year. But most people can only wish for white knights.

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