Update: Trying to avoid foreclosure by working with the bank on a quick sale #132

[jennica]

I don't know what to do. Dh and I have excelent credit, never been diliquent or late on any payments for anything. We made a big mistake three years ago. We bought a house an hour away from everyone we know, and 30 minutues away from Dh's job. Then gas prices started going up and up and up, and property taxes started rising higher and higher because this is such a growing area :

When we bought the house the lender pushed us into an ARM, so we did it, thinking "well, we'll either sell in three years or refinance when the ARM is up." Not realzing that the housing market was in for a huge downfall.

We saw this coming, the higher mortgage payment, and put the house on the market. We tried selling the house because we were already having trouble paying the old payments and we just wanted to get out of this city and move back to the area where we will be close to everyone again, and not have to pay these gas prices. Also I want to go to school and DH wants to find a new job, and we can't do those things here. DH finds out in a couple weeks if he will be one of the many people at his company to be layed off, so we are holding our breath for that too. We just want to move to the city and rent for awhile so that we can have money to spend on things again.

So, the house payment for next month is $200.00 higher. We literally can't afford it. There is nothing else I can cut out of our budget. We are already selling things on craigslist and ebay ever month to make ends meet, and poor DH is working every Saturday and some Sundays and he works at least an extra hour every day too, just to make ends meets currently. We are literally charging groceries. Every month we run out of money and start charging things, and then our debt is just going higher and higher and our credit card payments and getting higher and higher, and I just can't see any way out of this.

Yesterday we talked about lowering the price on our house to the minimum we would need to pay the realator and then pay off our debt and be done with it. We would make no profit, but we just want out if this situation. Well, we looked online at houses in this area to see if that would make a difference. And, well, no, it makes zero difference. Our house would then be priced 40,000 - 50,000 thousand dollars higher than the much newer, much nicer, bigger houses with more bedrooms. Why would anyone ever buy our house? No one has even looked at it yet and now I know why.

So our only options are these;

1. I get a part time job and work evenings and weekends while DH is home with DS.

Pro: we can possibly make ends meet enough to pay our mortgage. Con: we simply prolong our misery here, our life doesn't move in a forward motion and we don't have the opportunity to meet our goals, and DH and I will never see each other. Also, DH wont be able to work weekends if I do, meaning that I wil have to work about 8 hours and only make what he could in 2.

2. I get a full time job and put DS in daycare.

Pro: we can possibly make ends meet enough to pay our mortgage. We will all be out of the house at the same time, and will see each other at the end of the day. Con: Ds would not handle this well at all due to some things going on with him lately. I would not be able to make a lot of money (that's another story, but I grew up in a religion that was against schooling, so I have no skills), and so about half of what I make would go towards child care. There would be no time for schooling or job hunting, and our life would fall into a two income trap that we would likely not be able to easily get out of.

3. We stop paying our house payments and let the house go into foreclosure.

Pro: We get the he!! out of here! We get to move on and get away from this mistake and start fresh. We will be closer to friends, family, schooling, and job opportunities. We wont be spending as much on gas or other utilities because we will be renting. We can possibly go down to one car. Con: We damage our credit and wont be able to buy another home for at least two years.

So, what should we do? Is this plan really bad? Would it ruin our credit? Would it make it hard to rent, or just to buy? Is there anything I am not seeing, or is this the best way out? :

I just can't believe we are even considering this. I feel like it's so dishonorable or something, but I honestly just want to get out of here and I don't see any way out other than foreclosure. :

Give me your honest opnions.

[Pepperdove]

wow, mama, your breakdown makes it look pretty good to just walk away. There have to be more cons? Do you know anyone in "the biz" you could ask?

s: Hope you get out of there soon!

[alaska]

Can you rent your home for the same amount as the mortgage payment? Then you could move closer to family and rent while you wait for the market to recover enough to sell.

[happyfrog]

I would look into all else that might be affected with foreclosure. can they seize any other assets - vehicles, savings/retirement?

That's the kind of thing that would worry me.

In this current market, though, you might be able to renegotiate with the lender, though, esp since it IS hard to sell a house right now. . .. have you tried that option - BEFORE you are behind on payments? They might look more favorably on you and your situation.

i hear you on the credit card situation. we are doing that now. it's bad when you're over your credit card limit as well as nothing in checking (we don't have savings). we had unexpected house problems and had no choice but to charge that on top of the 'regular' stuff - namely groceries.

bettyann

[Arduinna]

I have no advice, I just want to say I'm so sorry you are faced with this decision

You shouldn't have any problems renting with a foreclosure, many many people are losing their homes now, most of the rental listings I've seen say foreclosure ok on them.

[texmati]

hugs mama! ARMs suck, they're mean!!! How's your credit? Is refinancing to a fixed rate (rates are pretty low right now) an option?

I don't know if this is the best decision, but the guy we bought our house from refinanced to an interest only while it was on the market. It would make your payments really low until the market picked up enough to let you sell. And if it's a growing suburb, you might even make a profit depending on your location.

[Om Girl]

Get yourself to the bank that holds your mortgage, or to whomever you negotiated your mortgage through. Ask to speak to the mortgage consultant who "sold you the deal" or the manager/supervisor. (I really hope you guys went through a bank!)
Then explain your situation and they may be able to help you out, especially if you get there before you start defaulting on payments. Bring income statements and bank statements and your budget, so that they can see the breakdown.

Foreclosure is never a good thing, and yes the housing market right now sucks pretty bad, especially for sellers. Can I ask what part of Minnesota you're located in?
Here's a couple of other options (without going into foreclosure):

• Find a child to take care of in your home, the extra money could make a huge difference. (Typical rates are $30.00/day)
• Go back to school, take out student loans and use them to pay schooling, debt and make your housing payments. The interest on student loans is negligible compared to APY on cc and mortgage or second lines of credit.
• Rent the house, find a rental for yourself and still make the mortgage payments.
• Rent out a room or portion of your home. Post listing on craigslist, in coffee shops and at the local universities, ymca's etc. Then screen all applicants VERY WELL!
• Take in a local foreign exchange student for extra money.

[savithny]

You don't just get to walk away, though..

Forgiven debt, which is what a foreclosure is, is considered taxable income by the IRS. The lender will sell the house for whatever it can get, and issue a tax statement for the difference. Since you say that your house is 50K more than newer, nicer, houses, figure that the bank will probably get 60 or 70K less than that, and you will be responsible for paying the income tax on whatever the difference between that and your outstanding mortgage is.

And the IRS never forgives anything.....

[Staceyy]

Maybe you can talk to the bank and give them the deed in lieu of foreclosure. I just heard on the news that Countrwide Mortgage is going to work with a lot of borrowers to refinance to a lower rate in order to help people keep their houses. I don't know who your lender is, but I imagine a lot of other lenders will follow suit. Give you lender a call to see what your options are. If a lender knows you're in trouble, they generally try to offer options to help if you haven't let the payments get too far behind.

[beansavi]

Originally Posted by mamalotusyoga

Get yourself to the bank that holds your mortgage, or to whomever you negotiated your mortgage through. Ask to speak to the mortgage consultant who "sold you the deal" or the manager/supervisor. (I really hope you guys went through a bank!)
Then explain your situation and they may be able to help you out, especially if you get there before you start defaulting on payments. Bring income statements and bank statements and your budget, so that they can see the breakdown.

Foreclosure is never a good thing, and yes the housing market right now sucks pretty bad, especially for sellers. Can I ask what part of Minnesota you're located in?
Here's a couple of other options (without going into foreclosure):

• Find a child to take care of in your home, the extra money could make a huge difference. (Typical rates are $30.00/day)
• Go back to school, take out student loans and use them to pay schooling, debt and make your housing payments. The interest on student loans is negligible compared to APY on cc and mortgage or second lines of credit.
• Rent the house, find a rental for yourself and still make the mortgage payments.
• Rent out a room or portion of your home. Post listing on craigslist, in coffee shops and at the local universities, ymca's etc. Then screen all applicants VERY WELL!
• Take in a local foreign exchange student for extra money.

Wow! This is good information!

[momto l&a]

From some program I was listening to on the radio said to call your lender and talk to them. They loose money if you go into foreclosure so often time will work to keep you in the home.

[jennica]

Thanks everyone. We haven't missed any payments yet. I called the bank today and after navigating through the automated system I got a real person who transfered me as fast as she could to another real person. That person was not sympathetic at all. She told me that there was nothing that she could do for me since she is a "collection agency". I thought I was talking to the bank She said that I would need to start missing payments before she could offer me anything, and then the offer would be to tack on more money to the current payment in order to catch up, so not such a great offer. She said "I don't know what you expect me to do for you". I told her that I thought that banks were trying to work with people, and she said, "well how, what do you suggest I do for you?" She was very condesending. I said, "I don't know, should I just stop paying and let it go into foreclosure?" and she said, "Well why would you want your house to go into foreclosure?!?" and I said, "um, because we can't afford to live here anymore, like I've been saying." She just repeated that there was nothing she could do for me. Our mortgage was sold to some big bank that doesn't know who we are.

Oh, and we live in the northwest area of MN, about an hour from the cities.

[Usually Curious]

When we sold our last home, at a loss, the bank essentially said the same thing. They don't really care and they have no interest working with you.

By the way, congress is looking to change the tax law so that forgiven mortgage debt is not considered taxable any longer.

[heatherdeg]

Originally Posted by momto l&a

From some program I was listening to on the radio said to call your lender and talk to them. They loose money if you go into foreclosure so often time will work to keep you in the home.

This is absolutely true; and many of the lenders are now willing to negotiate a new interest rate with you to prevent foreclosure. BANKS DO NOT WANT YOUR HOUSE. It is a nightmare for them.

If they won't renegotiate a rate with you (and I highly doubt that--it's becoming ridiculously commonplace now with so many potential foreclosures that they risk going bankrupt) then you might ask them to "recast" the loan. Recasting is when they take the existing principal and spread it out over a new loan period. So if you were 6 years into a 30 year mortgage, you'd take the remaining balance and spread it out over a new 30-years... essentially starting the mortgage over.

You're more likely to get them to renegotiate the rate. Either is worth a try!!

[my2girlz]

Wow, I learned a lot from this thread! I hear you on the market though. I'm in MN too and it sucks right now.

[MissMommyNiceNice]

YOu need to look into refinancing ASAP. This is really bad for a lot of people right now, many of them much worse off than you are. The biggest mistake people make is waiting until the last minute and then losing their home. If the first person youtalked to at the bank wasn't responsive, call again. And again, and again, until you find someone. Seriously, don't ruin your good credit over this! Fix it now, while you still can.

good luck!

[normajean]

Have you looked into refinancing? ARM rates are higher, but a fixed rate loan right now is probably lower than what you have. My SIL bought a house about 2 years ago at 7% and she's being offered a refi that is lower than that, lower enough that the mortgage company is saying she could get several thousands in cash out and also have a lower house payment. I know her credit is not great either....it's not listed on your options, its at least worth looking into to see if you can get a more affordable payment.

While doing that, can you also possibly sell the second car now, and have your DH use public transportation to work?

Another option is to sell the house for less than its worth, which you can do with the banks approval in some cases. But in the market right now, you could have a beautiful, large, NEW house and have it sit for months & months because the market is flooded.

[lovebug]

make a deal with the bank and do a short sell. most bank wont dock you for it and then you can sell your house for less. you wont come out ahead $ wise but its better then a bad credit score.

i would also think about calling a lender that works with "B" paper loans. there are programs for problems JUST LIKE yours

s this has to be so hard!

[jennybear]

I'm sorry you're in this situation--it sounds stressful.

My opinion: aside from significant tax/credit/financial consequences for you, I simply think that going into foreclosure is unethical if you can avoid it. You were aware of the loan terms when you signed and now, as unfortunate as it is, you'll need to make some tough choices (like working f/t) to make this right.

While I think that some lenders were certainly predatory, I also think that people who took on dangerous I/O or ARM mortgages should accept some responsibility too.

[CathMac]

I agree in theory with the PPs who say that it is more expensive for the bank if the property goes into foreclosure. However, the reality is that you are dealing with a beaurocracy that won't deal with "Y" until "X" happens. Basically it's an assembly line of paperwork.

Keep in mind that some banks and mortgage companies are probably cutting personnel to make up for their losses due to bad loans. Unfortunately that means less people to actually sit down and analyze your situation and see if you really are on the verge of not being able to make a payment or whether you are just trying to cut yourself a deal.

My father is a lawyer/CPA and tells me that he's had clients in similar positions that retain him to negotiate with the bank. They'll send him a big stack of forms to fill out. Of course if they can't afford to pay the mortgage they can't afford to pay him to help them with the forms. Additionally, my impression is that they don't necessarily process the forms once you fill them out. It's just some pencil pusher's way of buying time before he actually has to invest any energy in dealing with you.

Having said that, I'm sure there are some people out there that have had success in dealing with banks but I think it involves a lot of trial and error and a lot of phone calls and the right personality. Not to mention a little bit of luck. If you're up for it I'd start with the original phone number you had and make sure you don't get forwarded to "Collections". Just keep going up the chain until you get someone that's willing to send you the package of forms my father mentioned. Ultimately you may find out that you have to miss a couple of payments first and then you'll have a tough decision to make.

In the meanwhile have you considered trying to find someone to rent a room from you? And am I safe in assuming that you have tried to re-finance through other lenders?
~Cath