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short sell and rent to get out of other debt or hold on and wait it out?

post #1 of 210
Thread Starter 
Bought our condo about 2 years ago. Put nothing down. THe place across from us is selling for 150,000 less than what we paid for ours. We have student loan debt and 2 cars to pay off.

Our main goal is to move to a city about 1.5 hours away from here. We have friends there and Love the environment (very crunchy haha) There is also a school there we would love dd to go to and I have some work ops there as well.

Is it a good idea to short sell, deal with the credit loss and rent for a lot less than our current payment? and pay down debt?

Or should we hold on and wait it out a year or two?

We are currently making our payments and stable but not doing well at all - no savings, life insurance, healthy insurance, etc. Just getting bye.

Another option I thought of is to sell for what we can get, take the debt and try to buy in the new area for cheap, then we owe less all together. But getting a loan for a place now with 0 down is almost impossible.

Also we can rent our place here out and rent there, but then we are just breaking even and is that worth it to keep this place when we can just foreclose or short sell.

just weighing the options but I feel like i am not objective enough to see clearly and this is all so out of the box for me. Things have changed so much in the past few years!

Any suggestions? Or even a yeah i would go for it or no wait it out....

so appreciative.....
I've gotten amazing advice here in the past and have really learned so much just lurking.
post #2 of 210
Quote:
Originally Posted by yukookoo View Post
Bought our condo about 2 years ago. Put nothing down. THe place across from us is selling for 150,000 less than what we paid for ours. We have student loan debt and 2 cars to pay off.

Our main goal is to move to a city about 1.5 hours away from here. We have friends there and Love the environment (very crunchy haha) There is also a school there we would love dd to go to and I have some work ops there as well.

Is it a good idea to short sell, deal with the credit loss and rent for a lot less than our current payment? and pay down debt?

Or should we hold on and wait it out a year or two?

We are currently making our payments and stable but not doing well at all - no savings, life insurance, healthy insurance, etc. Just getting bye.

Another option I thought of is to sell for what we can get, take the debt and try to buy in the new area for cheap, then we owe less all together. But getting a loan for a place now with 0 down is almost impossible.

Also we can rent our place here out and rent there, but then we are just breaking even and is that worth it to keep this place when we can just foreclose or short sell.

just weighing the options but I feel like i am not objective enough to see clearly and this is all so out of the box for me. Things have changed so much in the past few years!

Any suggestions? Or even a yeah i would go for it or no wait it out....

so appreciative.....
I've gotten amazing advice here in the past and have really learned so much just lurking.

Not sure what a short sell is, is it where you sell the house for less than the what is owed? Then do you owe the difference to the bank? In any case, you will have a hard time selling the condo because the credit is so tight, and I don't know that it will get better. You could always rent it out if you can cover the mortgage that way and just go rent somewhere in the town you want to live in, then down the road if things improve, sell the condo. Owning is pretty overrated these days. I'd rather have rented than bought my depreciated home (bought in 2005 ). You could walk away and just rent for the next 7-10 years. All I know is, happiness is more important than your FICO score. Sure it helps with some things in life, but maybe we should all save more and pay with cash for stuff anyway. Good luck whatever you do.

P.S. We are in a somewhat similar pickle and we've considered renting out our house too, but we don't relish the idea of being landlords either. If we're breaking even then we have to deal with the home wear and tear from the tenants, and in the end, is it worth it? No one knows when the market will recover and how it will look when it does. I am inclined to just sell ym house at a big loss (we put a big down payment down so unfortunately cannot just walk away). I'd rather be done with this home-ownership chapter of my life and go back to keeping it simple. I think I didn't really want to be a homeowner so much as I thought I *had* to because everyone was doing it. I know your frustration because no one knows what the market is going to do in these very uncertain times!
post #3 of 210
Thread Starter 
http://en.wikipedia.org/wiki/Short_sale_(real_estate)


I think in my area basically it means you sell the house for less than you owe and are then forgiven of the rest of the debt. The bank approves the short sale knowing that if you foreclose they will lose more money than taking the short sale.

It stays on your credit for 7 years. I have heard talk that this number is going to change based on the high number of short sales and foreclosures.
post #4 of 210
Quote:
Originally Posted by yukookoo View Post
http://en.wikipedia.org/wiki/Short_sale_(real_estate)


I think in my area basically it means you sell the house for less than you owe and are then forgiven of the rest of the debt. The bank approves the short sale knowing that if you foreclose they will lose more money than taking the short sale.

It stays on your credit for 7 years. I have heard talk that this number is going to change based on the high number of short sales and foreclosures.
Ok, thanks. Honestly, dh and I have discussed the same thing, that is, selling our house at a loss and focusing on paying down debt. What we were thinking of doing is living with my parents for a year while paying down debt which would help offset some of the loss from the sale of the house. It would save us around 1k a month not to have to pay rent or utilities (which my parents are fine with paying while we live there). That is 12k in one year and enough to get us out of credit card debt. We'd essentially be starting over with nothing, but also with a clean slate, and there is something very appealing to that in these rough times. It's financial freedom and we look very much forward to having that again. We might also walk away with 10k, having lost 30k, and we will use that to buy a nicer car and trade in our beaters, so we'll have zero debt and a good car. Personally I think life may be much more difficult financially for a long time to come so I am focused on getting my finances in order and at least have some peace of mind. We also own a piece of land we might someday build on so admittedly that makes it easier to give up our house at such a loss, because at least we have something, however small. Anyway, let us know what you decide. I imagine there are a lot more people out there in our shoes than we realize.
post #5 of 210
A bank will only approve a short sale if you are behind in payments and foreclosure is iminent. Even then, you have to be approved for a short sale. If your financials show that you can still afford your note, you will not be approved.
post #6 of 210
Here's my perspective, and I'm only saying it because you asked. You chose to purchase your place, you chose not to put money down. You're able to make payments but would rather not, so you can move somewhere else. Obviously money is lost when doing a foreclosure or short sale. Banks are losing money and getting bailouts, stocks are going down. Who is paying for all this? The rest of us.

If you had lost your job, unable to make payments for some reason, a tragedy happened, etc. it would be another story. But I can't imagine walking away from debt that you willingly entered into for (IMO) no good reason. If the market had gone the other way you would be laughing all the way to the bank. IMO, it's your responsibility now and if you can continue to make payments, you should.
post #7 of 210
Quote:
Originally Posted by Ola_ View Post
Here's my perspective, and I'm only saying it because you asked. You chose to purchase your place, you chose not to put money down. You're able to make payments but would rather not, so you can move somewhere else. Obviously money is lost when doing a foreclosure or short sale. Banks are losing money and getting bailouts, stocks are going down. Who is paying for all this? The rest of us.

If you had lost your job, unable to make payments for some reason, a tragedy happened, etc. it would be another story. But I can't imagine walking away from debt that you willingly entered into for (IMO) no good reason. If the market had gone the other way you would be laughing all the way to the bank. IMO, it's your responsibility now and if you can continue to make payments, you should.

I see your POV, but sometimes circumstances change, people want to move, etc. I don't think she wants to get out of her obligations so much as she just wants to relocate, which is where I am at. We didn't intend to sell our house 3 years later but we now want to, and we can't sell it without getting totally hosed. In my case, we have a lot of money in the house so it hurts, but the OP doesn't have any money in the home, just her credit score to worry about. However, she isn't happy where she's at which happens, and I think it's harsh to say she should stay there just because she now owes more than the house is worth. I'd hate to want to move and not be able to for that reason. It sounds to me like they should not have been given the loan in the first place. People living paycheck to paycheck should need a good 20% down payment. That is what we did. The banks are to blame bigtime. The buyers are as well, but this could have been prevented by the banks. Now I cannot even get a 10k heloc on my house that I have 30% equity in because of the credit crisis. I don't blame people who bought with no money down as much as I blame the banks who happily and blindly wrote the loans. Yes there were people who just thought values would keep going up and wanted in only out of greed, but some of us actually bought homes to live in and decided we wanted to or needed to move somewhere else. I guess I just don't equate that with wanting to walk away "just because".
post #8 of 210
Quote:
Originally Posted by mar123 View Post
A bank will only approve a short sale if you are behind in payments and foreclosure is iminent. Even then, you have to be approved for a short sale. If your financials show that you can still afford your note, you will not be approved.
This....
post #9 of 210
Quote:
Originally Posted by yukookoo View Post
Is it a good idea to short sell, deal with the credit loss and rent for a lot less than our current payment? and pay down debt?

Or should we hold on and wait it out a year or two?
It is not going to be better in a year or two. The going prediction is that real estate is going to bottom out sometime in late 2010 or 2011, and that values are going to remain pretty stagnant after that for some time. It is very, very likely that we will never see the prices we saw in 2005 again -- not only in our lifetimes, but in several lifetimes. If you are waiting for home prices to rebound, I would stop waiting and make your decisions based on prices staying where they are or declining further.

That said, if I owned a condo right now and knew I wouldn't/couldn't stay in it long term, I would talk to your bank about a short sale and if they wouldn't work with you (and they may not) I'd send the keys to them as a deed in lieu of forclosure. I realize that seems extreme and have already applied my asbestos panties. But if you are going to move and you know you're both never going to get what you owe on the home if you sell it and you can't bring enough cash to closing to make up the difference, you don't have a whole lot of choice.
post #10 of 210
I am in a similar situation.

We can afford our payment and credit card bills right now with me working FT. But at our current rate it will take 6 years to pay off our credit cards.

We don't have DC yet but I am not getting any younger and feel very strongly that we should TTC or adopt soon. Not 6 years down the road because we made a mistake in buying a house. Our $17,000 credit card debt wasn't frivolous, either. It was badly needed dental work, massage school tuition and car repairs.

I want to be a SAHM, but even if I work FT I will only make $1000/mo take home pay after taxes and infant daycare for 1 child. Make that only $200 take home per month with 2 children in daycare. We've compromised on the plan of me working PT and bringing home a mere $500/mo (I will be infinitely happier being away from DC only 4 hours per day rather than 8) until the arrival of DC2 when it won't even pay. But we can't TTC for 9 more months for #1 (due to a drawn out dental implant procedure that will require xrays at every step. And I have digestive issues and am underweight and want to get that under control), so DC2 has likely at least 4-5 years before he/she arrives..so we have time.

Point being, we can't afford our mortgage if we are making any less than we are now. Or our credit card bills- we'd have to pick one.

It is true, the bank shouldn't have given us a loan. All the mortgage calculators I found online said you needed at least like $85,000/yr to afford a $200,000 home. We got a $230,000 home on $68,000/yr...and our mortgage is half of our income, not 30% like the old standards dictated.

What do you think it worse, foreclosure if we can't get a short sale, or whatever chapter bankruptcy that will allow us to keep our home but will relieve our credit card debt? We are going to pray DC gets this promotion with a $10,000/yr raise first and foremost, and then try to short sale and get debt reduction for our credit cards if he dosn't. But if no one will work with us..is there a second best option?
post #11 of 210
Talk to a CPA about your options. I've heard something recently that the IRS will change the rules on a short sell - that the difference the bank forgave on a mortgage was considered taxable income but it won't be now??? Talk to someone in the know about this. Also, find out what type of impact it really will have on your credit.

Also, if you don't qualify for a short sell then talk to real estate pros in your area about the possibility of renting - what could you reasonably expect, how to find good renters, etc. Then, if you decided to rent it take a class or two on how to be a good landlord (or find a company to manage it for you - shop around for the rates they charge).

I'd listen to the suggestions here but I'd also make sure I had some face-to-face time with professionals in my area who know the market and can walk you through all of the possible tax implications on the options you are considering.
post #12 of 210
Quote:
Originally Posted by freespirited View Post
Yes there were people who just thought values would keep going up and wanted in only out of greed, but some of us actually bought homes to live in and decided we wanted to or needed to move somewhere else.
I guess I see a big difference between "want" and "need" to move.
post #13 of 210
Quote:
Originally Posted by nicolelynn View Post
I am in a similar situation.

We can afford our payment and credit card bills right now with me working FT. But at our current rate it will take 6 years to pay off our credit cards.

We don't have DC yet but I am not getting any younger and feel very strongly that we should TTC or adopt soon. Not 6 years down the road because we made a mistake in buying a house. Our $17,000 credit card debt wasn't frivolous, either. It was badly needed dental work, massage school tuition and car repairs.

I want to be a SAHM, but even if I work FT I will only make $1000/mo take home pay after taxes and infant daycare for 1 child. Make that only $200 take home per month with 2 children in daycare. We've compromised on the plan of me working PT and bringing home a mere $500/mo (I will be infinitely happier being away from DC only 4 hours per day rather than 8) until the arrival of DC2 when it won't even pay. But we can't TTC for 9 more months for #1 (due to a drawn out dental implant procedure that will require xrays at every step. And I have digestive issues and am underweight and want to get that under control), so DC2 has likely at least 4-5 years before he/she arrives..so we have time.

Point being, we can't afford our mortgage if we are making any less than we are now. Or our credit card bills- we'd have to pick one.

It is true, the bank shouldn't have given us a loan. All the mortgage calculators I found online said you needed at least like $85,000/yr to afford a $200,000 home. We got a $230,000 home on $68,000/yr...and our mortgage is half of our income, not 30% like the old standards dictated.

What do you think it worse, foreclosure if we can't get a short sale, or whatever chapter bankruptcy that will allow us to keep our home but will relieve our credit card debt? We are going to pray DC gets this promotion with a $10,000/yr raise first and foremost, and then try to short sale and get debt reduction for our credit cards if he dosn't. But if no one will work with us..is there a second best option?
Yes right now since you dont have children your BEST option to get 2nd jobs and pay down your debt. No, its not fun but its the best option.
post #14 of 210
From all the research I've done lately, it seems that a short sale or deed in lieu isn't any better on your credit than a foreclosure.

I think that a lot of us are in similar situations where looking back we made some mistakes buying our homes. But now there is no good out. We can't sell our homes and we can only tread water or slowly sink staying in them. Like many members on this thread, I incurred cc debt after buying my home on home repairs or more recently living expenses when dh has been laid off. And now my dh has been laid off for 3 1/2m and we've fallen way behind. And it's almost a relief that we'll be out of our house by foreclosure. As long as I could pay, I would, but not being able to and seeing an end to this predicament is a relief.

We met with a credit counselor and it was a big help. He didn't give us any magical answers but it was good to talk to someone impartial. He looked at all of our finances and laid it all out. He told us all the options and the potential consequences of them all. I really recommend anyone in this situation do the same.
post #15 of 210
I did a second job for several months. The toll it took on my stress levels wasn't worth it for the sake of my health.

Even if we had another $600 per month, it would take us 3 years to pay off our credit card debt. Again, we feel very strongly we are not supposed to wait that long to have DC. I believe God has a certain spirit to be birthed into the world to us at a certain point in time, bad financial situation or none. If mine and DH's parents waited until they were debt free or well enough to have us neither of us would ever have been born. Both sets of parents are still in debt (and are both facing bankruptcy and foreclosure as well). I'm also 28 so don't want to wait much longer.

Renting our house is not an option. Our mortgage with taxes comes to $1900/mo. That's not including mortgage ins and homeowner's ins, another $150/month, or upkeep. We could only rent this place out for $1200/mo at best.

I was wondering what sort of professional to talk to. I will have to get in touch with a CPA.
post #16 of 210
Just a PSA.... Please remember when you short sale or let your property foreclose the bank is loosing money. That all starts to trickle down to the employees at the bank, there is less $$ to pay the employees and people like my DH are faced with the real possibility of loosing yet another job because of a direct relation to the mortgage/credit industry.

So while something may benefit 'you', it may be harmful to many many other families.

The losses the bank faces from the credit crisis affects the amount they can pay for deposits, (savings accounts, CD's fixed investments etc) the amount they have to charge on credit cards etc...

No one forced you to buy the property, no one forced you to sign the mortgage papers and put nothing down for the contract. That was a conscious choice you as an adult made. Ignorance is not an excuse.

3 yrs to debt free is not that long. Adulthood is 'stressful' and not fun at times.

Sorry but it just really bites when people think they can just 'walk away' because it will be better for them with out seeing the full picture.

Ok Im going to stop now before i get banned.
post #17 of 210
Have you had it appraised yet? Talked to a realtor? Tried to sell it yourself? I don't understand going to the extreme of a short sale before you've done that and more. If your credit gets shot on a short sale (I don't know that it does, I"m in Canada so its different here) how will you rent a new place?
post #18 of 210
I have a friend who has been trying to short sell her house for nearly a year. The process is not easy. When someone makes an offer on the house, the bank has to approve it. They lost the first potential buyer because the bank took so long to get back to them (more than 3 months before the buyer finally said enough and bought another house). Part of the problem was that the bank which owned the mortgage went under and the mortgage was now subject to a new bank's internal process.

Also, someone upthread mentioned potential tax ramifications, and this is definitely something important for you to look into. In the past, any amount written off by the bank could be considered taxable income to you and you would have to pay income taxes on that amount. I had this happen to me (on a significantly smaller scale than what you are talking about) with some credit card debt after my first husband left. My friend had her CPA check into how this works for a short sell and part of the consumer debt relief package did change this rule so the write-off amount would not be taxable income. However, I believe she was told that this had only been changed for a limited amount of time, unless Congress votes to extend it. I don't know when it is supposed to end. You might be able to find out on the IRS's website.

Obviously, if you were going to have $150,000 forgiven, and that counted as taxable income, you are talking about a hell of a lot of income tax -- and not just on the $150,000 write off but also on the income you and your husband earned from your jobs since your tax rate would be bumped up all the way around. I'm not sure how the short sell compares to a foreclosure in this regard.
post #19 of 210
Quote:
Originally Posted by Belleweather View Post
I realize that seems extreme and have already applied my asbestos panties.
:
post #20 of 210
We are in a similar situation. We desperately want to move closer to family. I also want to quit my job and become a SAHM. Neither of these things can happen if we can't sell our current home. We have been saving up some cash. We just dropped the price of the house to a level such that if it sells for that much, we can manage to pay the bank the remaining balance out of our savings. If we can't sell the house for this price, then we just won't be leaving. There is no way I'd jeopardize our financial future by walking away from a debt like this.
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