Foreclosure or Keep? Am I a Dirty Ratbag?

[2gigch1]

@Loach

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.

Yeah same here. I tried to keep it but a single guy $150k upside down in a 5 bedroom colonial does not make sense, short or long term. I am bitterly disappointed that I lost that place but that is a sign that I get too attached to things and I need to see the big picture a bit better.

I am happy that some good people are now in it. I hope it makes them happy.

[Cat_Whisperer]

@Capybara32

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).

Hmm, it sounds like short sale is your way to go then.

[Mama_Zappa]

@Cat_Whisperer

Hmm, it sounds like short sale is your way to go then.

Another alternative is to do “deed in lieu of foreclosure” - where basically you turn the house over to the bank, and they let you off the hook.

Do look into whether you’re in a recourse or non-recourse state. That means: if the place sells for less than your mortgage balance, the bank can (or cannot) go after you for the difference. I believe this is an issue regardless of how you get out of the loan (short sale, deed-in-lieu, or foreclosure). Of course, even if they can go after you, they might not do so.

There can also be tax consequences - if the bank forgives part of the loan, they tell the IRS and the forgiven amount gets counted as income. Don’t quote me on this, but if you were to declare bankruptcy, I think that eliminates that problem. Regardless - the income tax on, say, 75,000 dollars is a lot less than the whole 75,000 dollars, and the IRS will work out a payment schedule with you.

The downside of a short sale is that it can take quite a while and banks can be real pains about approving them.

Have you looked into trying for a loan modification? Those are also pretty difficult, but might let you get your payment lowered somewhat to something in the same hemisphere as affordable.

[Mama_Zappa]

Avoiding working here - I googled and found this link on short sales / deeds in lieu:
http://www.nolo.com/legal-encyclopedia/short-sales-deeds-lieu-foreclosure-30016.html

There’s a link there to an article about the tax consequences of forgiven debt - looks like you might not be on the hook.

[Oakminster]

Yeah, one of the first things to investigate is whether you are in a recourse or non-recourse state.

Beyond that, you might want to look around for a HUD Certified Housing Counselor. They are trained professionals in dealing with this sort of situation, and keep themselves up to date on sometimes rapidly changing options available under various programs.

If you want to go it alone, call your mortgage holder and ask to speak with someone in the loss mitigation department. I’m not current on the latest stuff, but there are a variety of ways to get some help…a forbearance, a loan modification, shortsale, the deed-in-lieu, and possibly other things I haven’t heard about.

After you’ve investigated all the other options, consider bankruptcy as well. You need to do what is best for you whether that be trying to save the house, or trying to start over. Fuck the bank. Fuck the whole “moral obligation” mindset. This is a business decision. The bank knew there was some degree of risk when they made the loan, and factored that in to the terms they gave you.

[Cat_Whisperer]

You’re actually in a pretty good position, Capybara (well, at least as compared to a lot of other people who are in trouble with their mortgages). A counselor or lawyer who can guide you through a graceful dismount from this house sounds like your best bet right now.

[The_Lovely_Margo_Lane]

@Oakminster

[snip] You need to do what is best for you whether that be trying to save the house, or trying to start over. Fuck the bank. Fuck the whole “moral obligation” mindset. This is a business decision. The bank knew there was some degree of risk when they made the loan, and factored that in to the terms they gave you.

Absolutely this. See a lawyer and/or a realtor to work out potential monetary downsides to walking away (recourse vs non-recourse as suggested above) and other options, but please put your mind at ease about your ethical situation. You are under no obligation to beggar yourself to keep paying this mortgage. Even if your bank(s) were completely upstanding and responsible corporate citizens with clean hands w/r/t the current mess, you still wouldn’t owe them more than the terms of your contract - and that contract has escape clauses in the form of foreclosure etc. If you walk away, they get to keep the house - value of which they agreed with you on, back at the top of the market!! If your judgement was poor then so was theirs - it’s not as if you personally mislead them as to the value of the house.

I certainly won’t say you should walk away, but I will say it’s a fair and reasonable option that you should feel no shame in considering. Good luck!!

[VOW]

Talk to your tax advisor. Our tax guy is magnificent, and he took the foreclosure off on our taxes that year. We got screwed over, and your credit ends up down the toilet.

But you’ll live.

The bruises of the credit hit are absolutely NOTHING living with the agony of trying to pay a mortgage that you simply canNOT afford. Calls from creditors are a bitch, too.

Rip the band-aid off quickly.
~VOW