Hello Forum! Long time watcher, first time poster.
I need some expert advice on a situation that i have gotten in to. About a year ago, i lost my job. I have since gained employment but at a much lower salary than i had previously. Needless to say the bills are getting behind and have destroyed my credit. The mortgage for our house is far more than we can afford and based on the numbers we are upside down on the mortgage, anyhow. The house is in desperate need of a new septic system and some interior updating.
My wife wants to list the house with a realtor. i don’t think that will do us any good with us being upside down. Property values in our area, like most, have decreased.
Would it make sense to allow bank to foreclose?, file for bankruptcy?.. I would appreciate any and all input.
You’ve got several options that result in your credit being damaged, and a couple that are iffy.
Without knowing how far upside down you are, which could be so far under that none of these next options are viable, but here goes…
Move out of your house and rent it out. The rents in most areas of the country are higher than the mortgage payment, including taxes and insurance. It doesn’t mean you’ll have positive cash flow, it just means you’ll have enough to cover everything, but management and maintenance.
Seller finance a buyer who would like to own your house today, but can’t get financing anytime soon. You would collect a down payment (over and above the loan balance), and charge a little more interest than what you’re paying, and finance him for several years, or until the house is worth roughly 10% more than what is owed, so he can theoretically refi the loan. BTW, “Owners don’t expect you to do repairs, but renters do.”
Move out. Rent the house. Continue paying the taxes/insurance, but skim the rents indefinitely. (It’s technically illegal for a defaulter to pocket the first 12/mos worth of rents, but I’ve never heard of a bank suing for past rents paid.) Also, if the house/taxes/insurance/hoa, etc. are all being maintained, the bank becomes incredibly slow at foreclosing. One of my defaulted “friends” sat in their defaulted home for nearly four years, but paying the taxes, insurance, HOA, and mowing the lawn, etc. before the bank finally took the house back, left all nice and sparkly. From what I’m able to determine, the only thing that puts a fire under the bank’s feet to foreclose today, is if the asset is being destroyed.
Apply for the HARP loan modification, or any of the half-dozen federal/state, underwater, homeowner loan mod programs available, (most of which require you to miss payments before they’ll help you, and you’ve screwed your credit).
Offer the house on a short sale, stop making payments, wait, and pocket what you would be paying the bank.
Let the house foreclose, squat, wait for cash for keys offer.
Issue: Scheduling your credit damage and restoration. You can get a new home loan after 24 months of a full-on foreclosure today. It’s not like the old days. So, you need the foreclosure to happen asap, if that’s the route you must go.
Issue: If you want to get a new, cheaper home loan, do it before you default on your current home loan, and/or chase a short sale, or your rent-skimming default scenario.
Frankly, I would lease out the old house, buy a ‘new’ affordable one, and then weigh my options on whether to let the rental house default, or not.
We looked at HARP, but the only thing are current lender was willing to do was offer to take any any arrears payments and add them to the end of the mortgage. I tried explaining that if they could lower us from our current 9.5% to even a 6.75 - 7% it would help tremendously. They said that they couldn’t do that.
If we allowed bank to foreclose, wouldn’t we be responsible for what ever difference there would be on what we owe and what they resell it for?
We have been able to maintain a “rolling 30” on the mortgage, but i will not be able to keep it up much longer.
You need to check for other loan modification alternatives available to you through the state. Just moving the arrears to the backend of the loan is ridiculous, without also lowering the interest rate, which by the way is atrocious, beyond words.
Before we go further, we need to know:
Current loan balance
Latest arrears balance
Market value of house
Cost to upgrade and repair house to saleable condition
Market rent “as-is” without making a bunch of repairs/upgrades
Since your credit is ‘destroyed’ (from credit cards?) anyway, and so a mortgage default is beside the point in that case, then it’s time to get ornery. I will say more once I have a better numbers picture.
Pay-off – Approximately $231,000
Tax value of property – $121,010 (I know this isn’t market value but not sure what recent sales are in my area.)
Septic tank replacement – $12,000.00
Front porch repair - $1200.00
It needs a complete kitchen renovation, but $1200-1300 would make it a little more up-to-date. (last remodel in the 70’s)
I think the rent option is off of the table as I will probably not be able to get the Septic Repairs done very soon.
I am not overly concerned at this point about my credit. If i have to “rip the band-aid off” then so be it.
If it helps, the Zestimate is $163,697 and the eappraisal is $177,511. The septic will require a complete new system. The leach bed has collapsed and is not repairable. So it is currently, in essence, just a holding tank.
We’ll go with market value of $170k for giggles.
$170k market value
$231k less balance $ 13k less repairs
-$74k equity
$ 17k cost to sell conventionally
-$91k gross equity
So, effectively you are upside down $90k, give, or take.
The house is toast, and not worth fighting for.
The bank is too institutionally incompetent, if not stupid, to figure out how to negotiate themselves out of a foreclosure/default. So, go with it.
First: Stop making payments to the bank.
Second: Explain to the bank, that you plan to squat there until moses comes back, and/or until they drop the interest to market value, or 5%, whichever is less, forgive the outstanding payments, and create a performing, portfolio loan.
They won’t agree.
So, you continue squatting in the house, and using all the money you were spending on loan payments, and creating a down payment kitty for yourself.
You will continue paying the insurance and tax bills as usual. You will mow the lawn and keep the place clean on the outside.
Meantime, you list the house as a short sale, and do your worst to market the house, because you’re not interested in actually short-selling it, you’re wanting to live payment-free for as long as possible.
You’re not going to fix anything, but you will drain the septic tank until your toilet flushes one direction again.
BTW, you will not be hit with a deficiency judgment, unless you’ve got assets the bank knows about. Most states are limiting deficiency judgments in the first place, to protect “bubble” borrowers, which appears you’re included.
I would simply ask a real estate agent, or attorney, or anyone familiar with foreclosures, if deficiency judgments are common in your state, and/or with your lender, or both.
If not, then you’re options are wide open.
My first choice would be to rent the house on a five year lease; ask for $2,000 as a security deposit; inform the renters that the house is a short-sale listing, and any new buyer will have to honor the lease, and/or pay him to move, anytime before the next 60 months is up.
The rent is set at a bargain, because of the short sale hassle, but otherwise is legal, and binding. And then I would start skimming and saving rents like a banshee.
As far as the credit cards, these won’t keep you from finding a place to live.
If you can possibly save 10% of whatever price-point of a house you believe you can afford, you’ll find a significant number of sellers willing to finance you, in return that 10% down. Even sellers who hadn’t thought of financing anyone, will say yes, if they get some money up front. It’s all negotiable.
BTW, you’ll have to find these deals on your own. Nobody searches for flexible sellers with no equity (except for me), and provides you with a selection to choose from.
So if i decide to “ride out” a foreclosure, do i have to offer it as a short sale? Should i contact the mortgage company to let them know what you recommended (Explain to the bank, that you plan to squat there until moses comes back, and/or until they drop the interest to market value, or 5%, whichever is less, forgive the outstanding payments, and create a performing, portfolio loan.)? Obviously less the squatting and Moses part.
I really hate to leave, but the repair costs are not recoverable and are not something i want to continue putting into an old home. (1915)
Looking forward to responses and i really appreciate your advice.
Yes, do the short-sale thing, regardless if you move out, and rent the house, or squat in the house, until you’re bought out, or kicked out. The short-sale slows everything down.
Meantime:
Issue: You’re not going to ever be able to talk with anyone who has the authority to forgive balances, and adjust interest rates, short of the influence of external pressure from a state-regulated loan mod program administrator.
I can’t advise you on what’s available, and I don’t have any idea which way to direct you, except to contact the state, and follow the bread crumbs where they lead from there. Or perhaps contact a real estate attorney, and/or pick the brain of a mortgage broker, who may know something. I’m just throwing stuff out here.
Issue: The trustee of the loan (loan servicer), has an incentive to foreclose on you, and generate misc. fees, and not to negotiate anything with you. So, don’t expect much movement there. They are however, subject to lender requirements and limits …and is the only reason the bank doesn’t just expedite a foreclosure.
Even today, most banks are slow to foreclose, because it represents an actual, recorded loss, and prior to that they can lie about the asset’s value on their books. That’s over once they put the house to auction. That’s your saving grace, if there is one, regarding skimming rents, etc.
Issue: A short sale effort brings the loan to the attention of someone other than the loan servicer, and it’s a gamble whether, or not, the bank will discount the price far enough to make it worth it for an investor (for which this will only be attractive), to screw with.
Issue: Once you have the house listed as a short sale, and you’ve stopped making payments, but ARE maintaining the house, this would be the time to present the house at its worst.
Any short-sale buyer worth his salt will …produce photos of bug infestations, stains, leaks, roof damage, backed up plumbing, a nice stool-filled toilet would be nice, along with giant skid marks (you know for impact), missing knobs, weedy lawn, dirty windows, dark and dingy interior shots, and whatever makes the most convincing Munster house, hell-hole it can be made to show …without actually breaking or damaging anything.
Then once the appropriate ‘short-sale’ decision makers at the bank (which technically remains as ‘just’ the loan servicer, since the loan was sold to Fannie Mae or Mac), see the reports with photos, that’s when you make your offer to discount the loan and lower the interest rate, and create a performing “portfolio loan,” and/or threaten to squat in the house until Moses comes back, if they don’t say “yes.”
Timing is everything. However, I make the threat simply to justify my rent-skimming, because I know the bank isn’t gonna budge with the current default victim, short of an auction.
BTW, it’s not uncommon for short-salers to bribe a default victim on the side, (illegally) with a cash-for-keys offer. Just saying (not recommending).
I remember a short-sale victim telling me she wanted $30,000 to accept my short sale offer. I laughed, but that was a great starting point. I walked from that deal, because the bank was never gonna accept the price I was willing to pay.
As an aside, the broker’s opinion of price, or “BPO” will have a significant influence on the short-sale price the bank is willing to accept.
Issue: The bank will not allow you to be connected to any principal, or participate in any way as a principal in a short-sale, just in case, you thought Uncle Henry, whose into real estate, was thinking about making an offer, and selling the house to you…
That probably doesn’t help a lot, but at least you get a little better idea of what to expect will happen.
In your case, assuming you planned to stay in the house for as long as possible…
You find an incompetent, lazy agent, who hates showing houses, and doing paperwork, and sign them up to represent you in a short-sale.
I’m sort of kidding.
In any event any agent familiar with short-sales is your best bet.
The issue is finding an agent willing to screw with it. Short sales can result in extraordinary work, and months spent advertising and negotiating back and forth with banks, buyers, and clients, and not get paid a dime more for doing it.
I know several agents that refuse to mess with them, because they don’t close. Well, that’s kind of your goal.
So …you just need someone available, and understand it’s NOT the time to explain to your agent that you want to stay in the house, and you’re just trying to buy time to pad your wallet by not making payments.
Since this house is upside down it would take lender approval to sell it "Short Sale" and the lender would never approve a wholesale deal!
The thing a short sale does for you is limits the amount the loan is short, however since there is a waiver of owner occupied 1099 income for shorting the lender it does not much matter financially, but the short sale keeps a foreclosure off your credit report.
I would short sale it if possible, I think that’s best in the long run!
First of all advertising on the forum's is not allowed, so probable tomorrow your posting will be removed.
If your running a business first and foremost we want to know the name of the business? We want to know what country and city your in? Your exact location? We want and have to have a phone number? (Now were big kids and know how to dial a foreign country phone number!) We want to know your registration and licensing in your country? We need to know that your a business so business license? Corporation filing? History in business? References?
Now 99.99% of all the people here probable don’t use bank instruments of any type! They have no idea what arbitrage is! They don’t structure deals using bank guarantee’s, letter of credit’s or use or lease funds!
Using G-mail and Skype is a pretty sure sign your a scammer as you have no history in this forum!
So don’t try to rip off my friends and don’t scam our website! Every one of your postings is an advertisement for the same thing!