Popping in to say that all else aside, it’s just dishonest to let a house go to foreclosure when you can afford the payments.
You could ask the bank about doing a short-sale, where it sells for the current market value and the bank forgives the rest. There may be tax consequences for that (for the forgiven amount of the loan) but it’s not going to hit your credit the way a foreclosure would.
However, banks are not especially in a hurry to approve short-sales.
If the garage is attached, finish it and use that space for extra bedroom(s).
Or, as others have said, add an addition onto the house. You’ll still benefit from the location, you’ll have increased the value of the place, etc.
Just to throw out a whole new data point… I’m about $260,000 upside-down and thanks to the equally rotten job market, we’ve been a one-income home for the entire year. We’re looking at two foreclosures and two Chapter 7’s in short order as it’s been a monthly juggle to see who gets paid and on what credit card.
We did get a loan mod, but $200 less a month just isn’t enough to make a difference when unemployment pays about six bucks an hour.
If someone throws us a free $75,000, we can get caught up, but we’ll still be upside-down, like 46% of all homes in this county. Even our neighbors who bought their house 20 years ago, and watched our house being built are more than $20,000 upside-down.
This is my thought too, if you can afford it. The yard is big enough, and the construction business is tough so you can get a good deal on an addition.
If you can’t afford an addition, is the garage attached? It wouldn’t cost much to convert one stall into a bedroom, and there are viable options for heating and air conditioning one room.
I am an attorney, but I’m not your attorney. I agree with those that said you should talk to an attorney, particular with regard to two issues.
First, some states have anti-deficiency, or non-recourse, statutes, which can prevent the bank from going after you for the difference between the loan amount and how much they get in a foreclosure sale. In California, for instance, and with some exceptions, if you have only 1 mortgage, and it’s a purchase-money mortgage, you can walk away and not be liable for the deficiency no matter how upside-down you are on the house.
Another thing, that is less important to you since you’re worried about your credit, is that the foreclosure process can be a lengthy one – and until you’re evicted, you’re living rent-free. In California, for instance, foreclosures are taking an average of 8 months - and banks don’t generally start the process until several payments are missed. So in California if you stopped paying today, you could potentially live rent-free for a year.
Again, that doesn’t help much if you’re worried about your credit score taking a hit. And more importantly, I don’t know the specifics of your situation or what state you live in, so be sure to talk to an attorney before you walk away from your house.
On preview: I see you’re in Minnesota. I did see MN on a list of non-recourse states, but it was just some internet list so I can’t vouch for its accuracy, and the specifics of the statute may greatly affect your liability.
Sorry, but it drives me crazy when people say this, and I used to think the same way you did. However, this isn’t defaulting on Dad when he loans you money, this is a bank. They are in the business of loaning you money. And likewise, if the loan no longer makes sense for the consumer, then the consumer has every legal right to tender the collateral (the house) and walk away from the loan.
If the bank wants to avoid the headache of a foreclosure, then they need to realize that as a business asset, they are holding a pig in a poke; THEY decided to loan the value that they did on the house that currently isn’t worth it. They need to work with the buyers and renegotiate a fair rate.
Think of it this way:
You owe $270,000 on an asset that is worth $170,000. Does it make financial sense for you and your family to keep making those payments? I worry more about MY financial security than I do about an institution that should have known better than to make those loans anyways.
Here in South Florida, they couldn’t wait to sucker people into loans with ridiculous terms knowing damn well that it wasn’t a good deal for them financially, but they front loaded low payments to make it attractive. Now they are reaping what they’ve sown. Maybe after this wave of foreclosures there won’t be any bailouts and they can fail like they deserve to.
Was it the consumers’ fault as well? Of course. But we should all make the financial choices that benefit our families and not the global banks.
Sorry, jtgain, I cannot agree. We’re not talking about someone taken advantage of in a predatory loan. Clivas bought the house, and now the family feels it’s too small. That to me is insufficient reason to stop paying on a mortgage.
Value of the house doesn’t mean anything if you’re not planning to sell. My 401k and IRA have taken a bath, but does that mean I’m going to cash out? No. I’m going to keep making contributions because I know eventually it will go up again. Same with a mortgage. Unless you’re trying to sell, the value of the house is unimportant.
On second read, yeah, being $15k upside down is not very much money to consider trashing your credit over. Plus, I’m sure that the OP has over $15k invested in the home already.
Value of the home does mean something if you could be in a similar home for $X less per month, though. I still don’t think it is a moral issue.
Another consideration. It costs just to move. And having bad credit might actually cost you significant money down the road. And having bad credit can get you in real bind down the road that might end up costing you dearly if the stuff hits the fan lifewise.
Could those amounts come to what you are “loosing” due to percieved reduced value. Also note that you dont actual actualize that loss until you sell or default on the loan.
At least in some places, if you default they will take their security and have a claim against you for the difference. If you are solvent, just walking away isn’t necessarily a good financial option, whatever the morality of it may be.
Hmm, that’s a good question, and I’m not sure. I suspect that the insurance company’s right to sue is based on the mortgage holder’s – so since the bank can’t get a deficiency judgment in a non-recourse state, then the PMI company couldn’t either.
You did sign a promissory note - i.e. made a promise - to pay back the amount of money you borrowed - not the amount of money the house was worth when you decided to bail. And while I think the mortgage industry as a whole has a lot of culpability in the real estate bubble, there is enough blame and guilt to go around and adequately cover both predatory lenders and idiot consumers - with some to spare.
I have to agree with those saying that just wanting a bigger house is not a good reason to default on your mortgage. You and the bank made a deal in good faith (since you don’t seem to be a victim of the real estate bubble); because your circumstances have changed doesn’t mean that you should renege on the deal you made. I’m an old-fashioned gal; don’t make deals and then walk away from them for not a great reason. You gave the bank your word that you would pay them back.
I also agree that if you hold on another year or two, you’ll see things differently. A bigger house isn’t going to fix anything. Also, we are just in the middle of changing houses right now, and it is a HEEEEEYUGE pain in the ass, without any loan defaults mixed in. If all you need is one more bedroom, I whole-heartedly advise you to just sit tight.
When you say you need more room, have you maximized the room in your existing house yet? Bunk beds, Ikea spaces savers, everything like that?
I think the above quote should be the most important factor in your decision. There’s a lot of good advice in this thread about alternatives to foreclosure, and maximizing your use of space in your house. But I think the absolute worst thing to do is make a decision based on some feeling of moral propriety, or for fear of being part of the real estate problem. Words like “dishonest” and “good faith” and “promise” are all well and good, but they don’t put a roof over your family or food in their mouths.
You should make a decision based on what makes economic and practical sense for you and your situation.
Good point, but where should he draw the line for what he sacrifices for himself and his family just so he can do right by the bank? Is it okay for him to renege in order to barely feed his family, but not to provide three square meals for them? Okay to renege if the alternative is to get a third job, but not if the alternative is only to get a second job? Okay to renege if he has to relocate for a better job, but not if he wants an extra bedroom? Pardon me, but I put more value on his desire to better his family’s life than some promise he made to the bank.
KidScruffy - What’s wrong with doing what’s right and moral and taking responsibility for your decisions? Part of being an adult is honoring your obligations.
We don’t steal from the grocery store because we don’t feel like paying, we don’t dump our pets in the country when it’s time to pay for shots, we don’t turn our kids over to children’s services when thye’re a grade behind in math.
I don’t see anything in the OP about not being able to afford the current mortgage or otherwise having money issues. The only issue is not wanting to take a loss on the current house.
