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

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#1 of 210 Old 01-10-2009, 06:00 PM - Thread Starter
 
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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.
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#2 of 210 Old 01-10-2009, 06:24 PM
 
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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!
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#3 of 210 Old 01-10-2009, 06:31 PM - Thread Starter
 
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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.
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#4 of 210 Old 01-10-2009, 06:44 PM
 
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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.
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#5 of 210 Old 01-10-2009, 06:51 PM
 
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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.
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#6 of 210 Old 01-10-2009, 08:04 PM
 
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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.
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#7 of 210 Old 01-10-2009, 08:25 PM
 
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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".
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#8 of 210 Old 01-10-2009, 09:15 PM
 
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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....
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#9 of 210 Old 01-10-2009, 11:05 PM
 
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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.

Spending all of my money and time on this wild, wild life.
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#10 of 210 Old 01-11-2009, 12:20 AM
 
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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?

Happily married to DH for 6 years, in process to foster-adopt 3 children DD4, DS3 and DS2. We may be bringing half brother age 9 one day as well! We are not infertile, we just have decided that since there are precious children who need homes there is no need for us to have biological children.

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#11 of 210 Old 01-11-2009, 01:16 AM
 
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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.
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#12 of 210 Old 01-11-2009, 02:37 AM
 
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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.
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#13 of 210 Old 01-11-2009, 03:45 AM
 
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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.
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#14 of 210 Old 01-11-2009, 12:01 PM
 
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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.
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#15 of 210 Old 01-11-2009, 04:00 PM
 
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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.

Happily married to DH for 6 years, in process to foster-adopt 3 children DD4, DS3 and DS2. We may be bringing half brother age 9 one day as well! We are not infertile, we just have decided that since there are precious children who need homes there is no need for us to have biological children.

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#16 of 210 Old 01-11-2009, 06:11 PM
 
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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.
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#17 of 210 Old 01-11-2009, 07:08 PM
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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?
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#18 of 210 Old 01-11-2009, 08:29 PM
 
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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.
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#19 of 210 Old 01-11-2009, 08:34 PM
 
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I realize that seems extreme and have already applied my asbestos panties.
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#20 of 210 Old 01-11-2009, 08:53 PM
 
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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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#21 of 210 Old 01-11-2009, 11:14 PM
 
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i notice you are living in the SF Bay Area (I used to). If you bought at the top or close to the top of the market, I doubt home prices will once again rise to the high levels of just a couple of years ago. So waiting it out may not see a high enough recovery to get close to what you paid. I was trying to guess the 1.5 hour away cheaper city you refer to. Is the cost of living there really cheaper?

Since you can presently afford the house you are in, perhaps it would be best to stay as trying to sell for less than you owe can wreak havoc with your credit and financial situation.
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#22 of 210 Old 01-11-2009, 11:59 PM
 
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Speaking from experience, I would not do it unless you are in a position where you are behind on the mtg and the cc bills and you have no income coming in. And like pps have said, you won't be approved unless you're behind and maybe not even then. Even though that was our situation, we didn't just jump into a short sale, we did everything we possibly could first. We cut things out of the budget to the extreme, we got pt jobs, we went through CCCS, we sold things, etc. When all that still didn't work we put our house on the market. We were finally looking at a short sale 10 mo in, but my dh had no choice but to file bankruptcy so we lost the house anyway.

Trust me, to have a short sale on your credit for 7 years will not be a picnic. Not as bad as bankruptcy of course, but you will have a hard time renting. The only reason we were able to rent was because we moved just before the bankruptcy, so it wasn't on my dh's credit for the landlords to see until well after we moved in. You will get crummy rates on car loans, even with large downpayments (we just bought a car last week - very depressing rate considering I have a credit score of well over 800, but dh's is abyssmal). And I don't see home ownership in our future at all because of his credit.

So, just my opinion, but don't do it unless you're in a very desperate situation.
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#23 of 210 Old 01-12-2009, 12:25 AM
 
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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.
I don't want to sound harsh, but while you say that the bank should not have given you a loan, why did you take the loan knowing that you couldn't afford it?
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#24 of 210 Old 01-12-2009, 11:33 AM
 
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I've been doing just a little bit of research on short sales because of the financial position we're now in. Hopefully we won't have to "go there" but I've been doing research just incase.

From what I've read, it's not easy to be approved for a short sale and you have go through TONS of paperwork and it sounds quite complicated and time consuming. Doesn't mean it won't be worth it, but I'm just saying that's what I read. I also read that it's really not a huge deal to have on your credit report. Not near as bad as a foreclosure. I read that it's just a little "ding" on your credit report. Now, I don't now how true this is. It's just what I came across as I've googled and read different sites on short sales.

However, I've also read about renting a property and wow, that's not something I'm sure I'd want to get into either!

And as I've been doing research on foreclosures (at least in my state), what happens is that the when house goes up for auction, if t's not purchased for what you owe to the bank, you are still responsible for the difference. It's considered debt you owe, just like on a cc and they can come after you for the amount you owe. So, if you foreclose, be praying that it sells for what you owe or you will still have the difference to be responsible for! Yikes! Unless you file for bankrupty of course.

Seems there just aren't any "good" options out there. Y'know?
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#25 of 210 Old 01-12-2009, 12:06 PM
 
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Op- Has your financial situation changed since you bought the condo? Have either you or dh lost your jobs? You say you have 2 car payments and student loans to pay off. I am guessing you had them when you bought the home since it was only 2 years ago.

Now you want to sell the condo dirt cheap and make the bank eat the rest of the mortgage because you want to move now.

I really don't want to sound harsh. It is just that buying a home is a major investment that really needs to be thought through. You knew what your finances were. You knew what your savings was. You knew how much the mortgage was. You chose not to put any money down. You knew how much you felt comfortable paying a month. What the bank is willing to give you and what you are comfortable with are two completely different numbers. You need to take reponsibility here. You made all the decisions that got you here. I am really sorry this sounds so harsh. But sometimes there is no easy way out.

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#26 of 210 Old 01-12-2009, 11:18 PM
 
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Quote:
Originally Posted by 1growingsprout View Post
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.
Actually, this is mostly not true anymore. In the past, banks would make mortgages and hold on to them until they were paid off. This gave them an incentive to only loan to people who could pay back their mortgage because if they made bad loans they lost money.

However, in the late 1990's banks started securitizing their loans -- that means they sold them off as investments and didn't keep them on their books. The loans were divided up into risk 'tranches' and sold like any other security on the market -- these are the CDOs that you hear about on the news, and are a big part of why we had loans for 100% of the purchase price without income or asset controls.

So, no. When people default on their mortgages your husband's bank doesn't lose money. Some large collection of investors -- likely pension funds, cities and counties, hedge funds and foreign investors -- lose money.

Quote:
Originally Posted by nicolelynn View Post
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?
Since you have time, I'd wait before you worry about foreclosure or short sales or bankruptcy. It's likely that as a part of either the Stimulus package or the TARP Program reauthorization there is going to be an amendment to the bankruptcy act to allow something called "Mortgage Cram-Downs". What that means, basically, is that if you go into bankruptcy the judge can force the holder of your mortgage to renegotiate the loan so that you no longer owe more on your house than it is worth. It would be something worth investigating, if you're in a situation where you would otherwise be filing for bankruptcy.

Quote:
Originally Posted by greenegirl View Post
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.
I believe that forgiven mortgage debt is going to be tax free for 3 years from the passage of the bill, so about 2.5 years from now. But they may end up reupping that if we're still in the midst of a crisis... which we likely will be, with all the Option ARMs that are resetting into 2010 and 2011.

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#27 of 210 Old 01-13-2009, 02:01 PM
 
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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".

Couldn't agree anymore!

To add to that... When we bought our home in 2006, our plan was to only live here for 3-5 years, then "upgrade". Now, nearly three years later, we cannot make the decision to just sell (and at least just break even) even though this was our original plan. This isn't fair to us. Yeah, it's not fair to the bank either, but I feel as though (actually, I know!) we got screwed when we bought this house. Looking back, we were so naive! Most banks and bankers are simply just downright greedy. Think about it. Why should everyone else do "what's right" for the bank, but not for themselves and their families??? The poster that said your happiness is more important than your FICO score was right!! We came up with a plan to get out of the house we're in and into another one, but I'd rather not discuss it via public forum.

I guess the varied opinions on the topic of deciding to "let a house go" are a result of different beliefs about this place we live in called the world. I am NOT a slave to my society.

Erica, wife to Jason (March 2002) . Mama to Ava (June 2003) , Jason Jr. [AKA JJ] (August 2004) , Lila (January 2009) , Maura (October 2010) , and a new person in December 2012!
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#28 of 210 Old 01-13-2009, 02:03 PM
 
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Another similar situation here.. I am working to pay my bills and each penny of my paycheck is going to some bill (living paycheck to paycheck). I don't have a penny to myself but it's the path I chose and now I'm literally paying for it. I have no emergency fund, my family has no health ins (I make too much to qualify for state), no savings and really nothing in my checking. I know it's temporary and I'm fighting to keep everything. ONE day this will be reversed and I can stop working as much but that day isn't today. Plus, it can take years for a foreclosure or short sale to happen. By the time you are late on payments, the bank deals with the countless other number of cases, court dates ect.. that can be years down the road and your credit will be affected for 7 years from then too.. I'm not willing to accept that. Now, if something happens where I can't physically work, or we get a crazy bill, we will be in deep crap.

I think you should stay put OR rent it out for as much as possible and find a really cheap place to live until the economy turns up.
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#29 of 210 Old 01-13-2009, 02:13 PM
 
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You know how we try to teach our children natural consequences?

A child who continually blames others and thinks the rules do not apply to him will often find that other children do not want to play with him. That is a natural consequence

The natural consequence of a short sale or foreclosure is that financial institutions will not want to play with you for the next 7 years, because your credit report will show that you did not keep the terms of your mortgage. Landlords will be very wary of renting to you - if you had no qualms about not paying a mortgage, why would they trust you to pay rent?

There will be serious, long term natural consequences to this, just as you are suffering the natural consequences of taking on a loan you could not afford without considering how you would have to sacrifice to pay it. Think long and hard this time before you make a decision that will affect your family for years to come.
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#30 of 210 Old 01-13-2009, 02:52 PM
 
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I agree with the "harsh" posters.

Quote:
Originally Posted by belchers1 View Post
Now, nearly three years later, we cannot make the decision to just sell (and at least just break even) even though this was our original plan. This isn't fair to us.
Yes, it is. It's what happens when you buy a house. You "put down roots." It's not like renting. You don't get to just leave whenever you want. But hey, you get to paint your walls whatever color you desire!


Quote:
Originally Posted by belchers1 View Post
I am NOT a slave to my society.
I think this is silly and besides the point. You chose to take the loan, you have to deal with what that means. You put yourself in this position.
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