Foreclosure advice?

I thought about creating a bogus screen name to post this under but what the hell.

We bought our house six years ago. At the time I was 19 and my (now) wife was 20. We were young and dumb and saw no reason we couldn't live here for five or seven years and sell the place. We figured by that time we'd either break even or possibly make a couple bucks.

Six years, two kids, and a housing market crash later here we sit. The house that we paid $74K for is realistically worth about $40K. What it boils down to is we need about $30K to get out of here. We do badly want to get out of here too. The school system is terrible, our neighbor's are epic douchebags, and I'm tired of being stuck somewhere I don't want to live. We've spent the last two years paying down debts and trying to find a way to get out ASAP.

I give up. We've lost this battle. Our mortgage is currently 50% of our income (our bring home is $1,300 a month). I'm still receiving medical care thanks to having pulmonary embolisms earlier this year and my insurance just dropped me.

I'm still current on all of my bills but I'm not sure how much longer that can keep up and to be honest, I don't particularly care what happens to the house. We want to get out of here, I'm not interested in saving it.

I suppose that makes me one of those "strategic default" people. I also suppose that makes me a terrible person who is contributing to the housing problem etc. I know this and I am not at all excited at this being the decision we've come to so please refrain from reiterating that particular point.

What I'm looking for is advice on how to get through this process with the least amount of grief. I'd consult an attorney but I don't know in what world I could afford to. I'd also like some info before talking to the bank whose prime interest is keeping us in our house. My biggest concern is the potential for a defeciency judgement once the house sells, either through short sale or foreclosure. I imagine there will be a $30K-$40K gap that someone will want. Is there a way to work out a payment plan once they want that balance? Current plans would allow us to pay them $200 or so a month once we got out of here if they wanted it. Obviously in an ideal world they'd forgive the difference, we'd deal with the "phantom income" tax bit, and move on with our lives. The loan is an FHA loan if that makes a difference.

Can anyone offer any advice as to how to survive this process? Feel free to PM me if you'd rather talk that way.

Having gone through much the same situation I can tell you, your neighbors will seem like saints compared to the douchebags you'll deal with in the banking world.
They will prove to be unwilling to help you until you are behind in your mortgage. If your mortgage is 50% of your income you have some ammo though. I think the standard is one third of you income can go towards your house.
The thing that saved us was a non-profit in Flint that helps people not get screwed too badly. No charge to us and they took over. They called the banks, stopped the B.S. game playing and got stuff done. In fact, the very first call they made they not only got things moving that we couldn't in 6 months of calls, forms, and pleading, but they also halted the foreclosure proceedings.
When I come up with the name of that organization I'll post if. Even if you aren't in Michigan, I bet they could help you find a like orginazation close to you.

I commend you for the honesty and really want to help. I too saw the similar hit just 2 hrs north of you. Bought at $160k and sold 8 years later at $125k. It hurt, but I was lucky that I had it in equity.

For your situation, is it possible that you could rent out the house? I know that too can be risky but is it possible to charge enough in rent that will allow you to use that rent to make the payment? Meanwhile, you and the family can rent something else in a different area?
This will not unburden you from the house but does get you out of the neighborhood.

i know some mortgages allow you to short sale and be forgiven the remaining balance....

^When we bought our house in '09, FHA loans would still allow a payment as large as 42-44% gross. Just for reference.

jrw1621 wrote: I commend you for the honesty and really want to help. I too saw the similar hit just 2 hrs north of you. Bought at $160k and sold 8 years later at $125k. It hurt, but I was lucky that I had it in equity. For your situation, is it possible that you could rent out the house? I know that too can be risky but is it possible to charge enough in rent that will allow you to use that rent to make the payment? Meanwhile, you and the family can rent something else in a different area? This will not unburden you from the house but does get you out of the neighborhood.

Thanks. We've thought of renting but IIRC the fine print on the FHA mortgage says it must be our primary residence. I guess what they don't know can't hurt them. Renting isn't off the table but i'd love to put this place behind me.

I do not know the rules of FHA and other who do will chime in, but...
I think there may be a time period where FHA insists that it is your primary residence. You have been there 6 years. If there is such a time limit I bet you have passed it.

A foreclosure is a pretty big scar on your credit, so it's always best to be avoided. But if you're up against the wall, I'd talk to a credit counselor and a bankruptcy attorney before settling on a course of action. It may be worth your while to consider bankruptcy to get rid of any other debt you have.

You bought high. Don't sell low. Make it work somehow. If that is different schools, cool. If it is a privacy fence, cool. If it is turning it into a rental, cool. I really don't see the upside of walking. It screws you financially, and it limits your options moving forward.

EDIT - That said, there are realtors/brokers who specialize in this E36 M3. An Atlanta one that I keep hearing about is http://getoutstartover.com/. THere may be a similar one local to you.

z31maniac wrote: ^When we bought our house in '09, FHA loans would still allow a payment as large as 42-44% gross. Just for reference.

Back end ratio's that big still exist but its total debt. Possible to sell the house and get a unsecured loan for the balance remaining or borrow off your Roth/401K and repay it. 40K is not a lot of money in the grand banking scheme of things.

Also did you ever refinance the house? Do you have first right of refusal in your state.

wearymicrobe wrote: 40K is not a lot of money in the grand banking scheme of things.

He mentioned his household net income is ~$1300, that makes $40k A LOT of money.

PubBurgers, You've probably already figured it out, but I think Ohio is a recourse state, ie the bank can come after you for the deficency after a foreclosure. The bank is definitely going to want to keep you in the house, if they can get you to make the payments. The HAMP program, if it is still active can get your mortgage altered, but you may need some help to push the bank along, and yes, they usually won't work with you until you're behind on payments. They have no incentive to negotiate if you can somehow mange the current payment. If you can stomach staying in the house, renegotiating the loan is probably your best option. Two points on this: 1 - Are you with BofA? They're currently negotiating a settlement that can reduce your principal. 2 - You bought the house after MERS became widespread - if your bank doesn't want to negotiate, you may be able to push them to produce the note that proves you owe them. A lot of mortgages were not recorded properly, and the bank may make concessions to get you into a new mortgage that has been properly recorded.

All of that may be irrelevant if you need to move out. You'll need to negotiate a short sale agreement with the bank, or let the place be foreclosed on. Can't help much on the short sale side, though if the mortgage was not recorded probably, you may have some negotiating room there. Please be warned, the bank has final say on a short sale - you can come up with a deal with the buyer, and the bank may sit on it so long that the buyer gives up and moves on. Its not uncommon.

If you let the place be foreclosed, the bank will eventually come after you for the deficiency. It may be a long time before they even start foreclosure proceedings, though - they don't want the house on their books.

No matter what, your credit rating will take a hit, unless you continue paying your mortgage in full. So, make sure neither you or your wife's job is dependant on your credit rating, and that you can secure housing. The one thing I'd strongly advise against is using any 401K or IRA funds to cover the mortgage. As long as there is no criminal activity, those accounts are usually pretty untouchable in a bankruptcy.

I would try to find out what you can rent the house out for, if that gets anywhere to covering the mortgage. My lender in the UK was adamant that I had to sell the house as they wouldn't allow me to rent it out, but they did change their tune when it became clear that I wasn't getting any offers on the house.

The other question you need to ask yourself is if you can rent something similar cheaper than what you're paying for this house now. Yes, you've got "too much house" but that ain't helping if you can't find a cheaper place to live in that would also satisfy your other criteria.

If you can rent considerably cheaper, I'd try to negotiate a short sale with a clause that they're not going to come after you for the deficiency. FHA is backstopped by the government so the bank isn't really going to lose out, but there might be special rules for recourse in this case. Yes, that's not going to do your credit any favors, but that's besides the point - you're trying to get out of a financially unsustainable situation. You'll probably have to be behind on your mortgage for that and given the competency levels at some banks that might lead to a foreclosure, but the time it'll take will allow you to pile up cash to move out and get another place.

BTW, you're not a "strategic defaulter" - that term (abused as it is) has a very specific meaning that boils down to "can pay easily but won't pay because of the low asset value". Most studies haven't managed to prove the existence of people like that, they seem to be mostly a myth (although the NV ass. of realtors managed to throw people who lost their jobs, ran through their savings and their 401ks to keep the house, ran out of money and got foreclosed into that category - go figure). With your income "crisis" you are well above the affordability level for your house, which is an entirely different issue.

My understanding is even if the fine print of your mortgage states that your house must be owner-occupied, your best bet is still renting it out & looking for something elsewhere.

If the lender does figure it out, they can come after you for the full balance - but what's the worst that can happen then? Forclosure - you still won't be any worse off than if you just walk away now, and you'll(hopefully) be living someplace else by then.

z31maniac wrote:

wearymicrobe wrote: 40K is not a lot of money in the grand banking scheme of things.

He mentioned his household net income is ~$1300, that makes $40k A LOT of money.

Luckily he is NOT a bank.

Here's the article on the BOA settlement they are working on.

http://www.huffingtonpost.com/2011/08/02/bank-of-america-justice-foreclosure-fraud-settlement_n_916490.html

I don't understand why people would work with entities that have a proven criminal proclivity.

Do people not understand what Too Big To Fail means? That means that whatever they do they will be propped up so it's like a license to steal.

Every week there are articles about how the TBTF banks are taking advantage of people. Wells was just fined $85 million for a pattern of putting borrowers into worse loans than they could have gotten so Wells could make more money on the loan. They also were caught falsifying income documentation.

The FTC is sending out checks totalling $108 million for BOAs wrongdoings and that's settled down to less than $00.10 on the dollar.

‎Here's a quote from the article I linked - "But the options under discussion with Bank of America go beyond what's on the table in the larger group talks. Justice is pursuing an agreement that would have the bank forgive what participants described as a significant amount of mortgage principal owed by distressed borrowers in exchange for receiving an effective grant of immunity from government prosecution related to mortgage and foreclosure wrongdoing."

It's not just Wells and BOA, here's another quote from that same article ‎"The other banks targeted by the government -- JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial -- are engaged in similar individual negotiations with prosecutors."

GET OUTTA JAIL FREE CARDS ARE BEING ISSUED.

Over and over there are stories like this. If a mortgage company did 1/10 of what the TBTFs are doing they would lose their licenses, be shut down, be prohibited from ever dealing in any venue of real estate again and they would be sent on vacations to places like Alcatraz and Sing Sing AND YET the protected class called Too Big To Fail gets their knuckles rapped and sent along their merry way.

This is one time the OP should hope that his mortgage is held by, not just serviced by, BOA.

If you have a 75K note your payment should be around $350-400 range. Will you be able to rent for less than that? Is the house big enough that you could rent out a portion of it for a year to get some $$ together to pay down the note. Do you have any Assets that you could sell to get the note down? I'd hate to see you ruin your financial future over walking away from a 30K shortfall. I can't provide any advice on how to navigate the forclosure and if that's the route you chose I understand and hope it works out for you. That said there are some really smart people here who have been through a lot and perhapse they could help figure out how to help you navigate you way out.

Thanks for the advice everyone. Once out of here affordable housing is not likely an issue, and gladly won't involve government assistance or moving in with people. As a matter of fact, if the theoretical deficiency judgment didn't occur until three years after the first missed payment, I could probably afford to pay the bank (or whoever) $300-$500 a month if need be.

We never refinanced and have no other liens on the property. As far as other debts, I have a student loan (negligible) and one remaining credit card we're working on paying off. We're really good at living on very little but things are starting to get pretty tight.

Ironically, a 200 point credit hit would put me right back where I was when we bought the house.

In reply to nocones:

Actual mortgage payment is $435 a month. With property tax and insurance it comes to about $645. No assets, just the plan jane Focus to get us around and the scooter that saves more money than it costs. Sold everything else of value to pay down the credit cards a couple years ago. Nothing to really rent out with us here as a 980 sq ft house with four people doesn't leave much room.

I'm not overly concerned about my credit. It's spectacular right now so even a major hit won't completely ruin me. Also I've come to the conclusion that anything worth having is worth being paid for outright.

Our mortgage is held by Chase FWIW.

$1300 a month? It might be time to start job hunting, for both of you.

It would also give you a 3-8 year term before you could buy another home. Strategic defaults (and they are quite real and common in some areas) give you the 7-8 year terms.

That's not to mention deficiency judgements that can garnish wages in some states and the credit hickey.

this is really the wrong forum for this kind of advice. We may know a lot of minutia about miata.. but you are best going to a professional in the state you live for advice

He definitely needs more advise than he can get here, but here he can get some ideas of options or find others who have gone thru it as well.

You've got to start someplace.

Keep up the fight man. I know it is not easy but I'll be damned, this adulthood thing sucks. I see a little contradiction so I thought I might ask.
You wrote:
The school system is terrible, our neighbor's are epic douchebags, and I'm tired of being stuck somewhere I don't want to live. .
You also say that your total payment is $645.
What I wonder is can you spend less than $645 renting a new place and still get a better neighborhood?

jrw1621 wrote: Keep up the fight man. I know it is not easy but I'll be damned, this adulthood thing sucks. I see a little contradiction so I thought I might ask. You wrote: The school system is terrible, our neighbor's are epic douchebags, and I'm tired of being stuck somewhere I don't want to live. . You also say that your total payment is $645. What I wonder is can you spend less than $645 renting a new place and still get a better neighborhood?

The idea is to purchase something like this outright in the not too distant future via tax return money and perhaps a small amount of borrowed money from family.

http://cincinnati.craigslist.org/reo/2455939407.html

My current job allows me to transfer very easily so work wouldn't be a problem. At this point our bills would be very small, ideally allowing us to deal with foreclosure fallout. It wouldn't be a fancy life but it would be cheap enough for us to blow away debts and get our feet under us in fairly short order, relatively speaking.