Foreclosure or Keep? Am I a Dirty Ratbag?

In My Humble Opinion
1

Thank you in advance for your input. I’ve been lurking on the boards for a long time, and this forum seems chock full o’ great folks. Apologies, this is a long one:

A short history: I bought my house 5 years ago at the height of the market. I bought with my partner, who left me 4.5 years ago to pay the entire mortgage; the note is 1/2 of my monthly salary. Conservatively, I am $75k underwater with what I think the current valuation of the home would be; I’m even more so in a fix because the kitchen is currently ripped apart (screwed by seller’s contractor, long story, could probably make decent for $5k).

I make good money, but the mortgage eats up more than half of my salary and making ends meet is a struggle. I’m already working multiple jobs at my campus and am at the limit of what I can earn.

Some Really Bad Things have been occurring at work over the past three years and they finally came to a head in October. I don’t want to say too much, but I am in academia and jobs are scarce; none of the issues are my fault, there’s a long-term sociopathic administrator who has been documented doing these terrible behaviors for years. Unless things radically change, staying at my current campus is not a tenable long-term option.

I have started to look for jobs in the Big City that is 75 miles away. I am ready to change my role in the academy and there are far more good opportunities in Big than there are here. A bonus is that my spouse lives in Big City; a negative is that all of my big dogs aren’t allowed by her condo association, so moving in with her is not presently an option.

Many people from this area commute to BC, it is expensive and time-consuming, but very do-able. Therefore, I could hold onto this house by my fingernails and commute until one of the dogs passes away :(, assuming I could bear the 400 extra commuting costs. I'd still be in a situation, as I can't imagine I'll ever be able to sell this house for enough to pay off the mortgage. Alternatively, I could try and rent it out, though I'd have to throw thousands of into the kitchen and probably cover $800 per month to make up for the shortfall (homes don’t rent for much around here).

Anther option is to foreclose on this house, save save save every penny and rent a small house in Big City (quick search yields that rent would be up to $800 less than my mortgage). If I have to keep the current job, I commute in reverse until I find another. I would see the spouse all of the time and we could quasi-live together.

However, even the thought of foreclosing makes me feel ratty and dishonorable (though Countrywide and Bank of America certainly weren’t so honorable). My credit is already crappy due to former partner’s issues (long, long story, won’t go into it here), but I constantly get offers for $50k car loans and credit cards.

Your thoughts greatly welcomed. Is there an angle I’m just not seeing? Many thanks, Capybara

2

No advice, but I feel for you.

3

First, I don’t think that, in your situation, you are any kind of ratbag for considering (or actually) letting the bank foreclose on the house. (This is assuming, of couirse, that your situation is actually as you have outlined it). You may have been guilty of bad judgment when you bought the house, but it sounds like your economic situation changed drastically in a very unanticipated way a few months later, so it’s difficult to blame you for where you are now.

If you decide to give up the house, there is at least one other option which you could explore with your bank, which is a short sale. In this scenario, as I understand it, the bank agrees to sell the house for whatever it will get and call it even (I am not an expert of any kind, so this is just my understanding of how this works). Obviously, they have to agree to this; but if they do agree, the advantage for you is a smaller (or maybe even no) hit to your credit score. The advantages to the bank are that the house is off their hands and they have at least most of their money back without expensive legal procedures.

Since you are apparently in Canada, I can’t speak to the possibilities of re-financing an underwater house. In the US there are federal programs which, under certain circumstances, allow mortgages to be re-financed even when the value is under water, allowing the homeowner to take advantage of current low interest rates.

Good luck, and in my opinion (since you are in that forum) I think you should do whatever works best for you, and not be too concerned with the welfare of the bank nor of the morality of a situation wherein the bank might lose some money.
Roddy

4

Thanks, Roddy. If I decide to lose the house I’ll look at short sell and deed-in-lieu. BTW, I’m in the U.S. :slight_smile:

5

Go talk to a realtor that specializes in short sales (and look for a history of it.) They can explain the pros and cons. I had it explained to me once that short sale is like being hit by a car, foreclosure is like being hit by a bus and bankruptcy is like being hit by a train.

It does take a long time, but a bonus is once you make the plunge you stop paying any mortgage and it takes forever for the bank to get around to evicting you (up to 18 months.)

With regards to the morality of the event, the economy and the housing market’s woes are tied to the misdeeds of the banking industry. And it’s not like you won’t take a hit, you will. In the end no-one will care what you did now to survive, they will care 20 years from now if you didn’t take care of yourself and they have to step in then.

6

You could make a deal with someone to exchange rent on the property for repairs. It’s a dicey proposition unless there’s someone you know and trust who could do this. You’d have to pay for any materials, and deal with the dog situation. I wouldn’t blame you for walking away from the house. Also, offers for credit cards and loans get sent without consideration for your credit score, and pre-approved doesn’t mean anything.

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Thanks, 2gig: would you recommend hiring a real estate attorney to negotiate a short sale with the mortgager?

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Hi Tri: I wish this were feasible, but I live in a very depressed housing market and I can’t cover the $1000+ gap between rental value and mortgage note :frowning:

Also, I recently secured an auto loan that is useable for up to a year – my old jalopy is starting to die a prolonged and expensive death, and I need to know that I’m able to take care of myself so far as transportation.

9

No. If you are uncomfortable about it you can have one look over the paperwork but in reality short sale real estate agents have had a lot of practice recently.

In full disclosure I just finished the short sale of a home two weeks ago after starting the process two years ago. (Divorce / remarriage / economic tough times / etc…) I have a lot of mixed feelings about it. I started with an agent who claimed knowledge but was really inexperienced, then switched to one who knew her business and made it happen.

All in all the banking and real estate industries have had a lot of practice with short sales recently. If you find an experienced agent it should go fairly smoothly. Mine was good enough that I didn’t even have to attend closing - I signed my paperwork a few days earlier and it was all handled by proxy.

An agent will do it on commission. An attorney will want your checkbook.

10

Oh, 2Gig, I’m so sorry to hear that you’ve gone through this – and appreciative that you’re sharing your knowledge.

Would I ask the realtor to contact B of A to arrange a short sale? Or do I do that? Do I wait several months and not pay the mortgage in order to save up some $ and buy myself some time?

11

My fiancé closed on a short sell yesterday.

She got a lawyer to handle a lot of the crap, the lawyer specialized in this type of thing and charged a flat fee of around $1,000 at closing. No billable hours, no crap, just a flat fee. The lawyer was very helpful, kept track of all the paperwork, my fiancé never had to talk/negotiate with the bank, it made sure everything was above board.

That’s my advice, talk to a lawyer who specializes in this type of thing, and pay the lawyer in a flat fee at closing.

12

My gosh! Not that I’m at all happy that others on the Dope have experienced foreclosure heartache, but I don’t feel so alone and ashamed now . . .

13

Could you rent a room to ease your financial pressure?

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  1. Sell the condo.
  2. Use the money to fix up your kitchen
  3. Buy a house halfway between Big City and Small city where you can have your dogs and each have a shorter commute
  4. Rent out/sell the house in Small City

Spouse would have to commute for a bit, but that’s only temporary. On the plus side, you’d actually get to live together! There’s no point in holding on to the condo if your family can’t all live there together. Selling it frees up the money to get a house that fits everybody and also gives you the cash you need to start unloading your current house.

15

Capy: We’ve done a number of threads on the morality of walking out on your mortgage. Do a search and see for yourself, but bottom line is-- don’t worry about it. If you’re not concerned about the hit your credit rating will take, let the bank take the property back. That was the deal you made with them when you signed the contract. You get to live there as long as you make payments. If you stop making payments, the bank gets the house. They knew exactly what they were getting into when they gave you the mortgage.

16

This sounds like a good plan. You’ve mentioned that it would probably take about 5k to get your kitchen finished; would you make that money back in the sale? There are two levels of repairs for selling houses; one level is cosmetic and makes your house look pretty and attractive, and the other is the dealbreaker level of repair, and not having a kitchen is that kind of repair.

I agree that morality doesn’t really come into this, when you had such a major change in your circumstances. I think a short sale is probably the way for you to go, too.

17

Or multiple rooms. Depending on your area, you may get more rent by piecing out rooms than renting the whole unit as one. Where I live, there isn’t even a particularly hot room rental market, but I could easily rent the three bedrooms individually for $1600 or so (each slightly differently priced based on the size of the room)-- whereas the whole house would rent for like, $1250.

Now, I obviously want to use one of my three bedrooms, but I very easily could get $1000-$1100 a month by renting the top floor of my house. So yeah, something to think about.

18

Thanks for the input, much appreciated.

We need to keep the condo, as that is where I’ll eventually end up with the new job, etc. This is a place in one of the most expensive, difficult-to-get-space real estate markets in the world, so we need to hold onto it.

On renting rooms: the house doesn’t lend itself at all to that situation for many reasons and in the area I live it would essentially be inviting troubled people into my life (think drug users).

19

Due to a divorce I had to go the short sale route. It has the advantage of not being as drawn out as a foreclosure. Its over and done with and you can get on with your life. If possible I would go that route rather than being foreclosed.

Oh and the house I loved and never wanted to leave has a family living in it rather than being abandoned. Its a little annoying that they got it for a steal but I would rather have that than it rotting away.

20

Well the reason I recommend a realtor is they cost you nothing - they take a cut of the sale.

And they handle everything, all communications, short of the occasional PDF filled emails of “sign here & fax it back.” They will tell you what to do and when to do it.

I paid nothing to get out of the house, the damage is all in my credit rating, which I will work on over the next few years.

I understand many like the idea of a lawyer on their side, but like I say, a competent realtor will do the same job free of charge.