Should I allow my home to go to foreclosure?

[slam]

Strangely enough, when I need advice about anything in life, I come to celticsblog

So here’s the deal:

I owe $180,000 on my home, and can’t afford to make the monthly payments of $1100 due to a chance in circumstances which includes divorce and having to pay loads of child support every month.  I have 2 x interest only mortgages: 6.5% fixed ($140,000), and a variable, currently at 4.725% ($40,000)…. yeah, so I’m not paying any principle, and have no equity.

My house has been on the market for almost 3 years, and is currently listed at $169,900, so including real estate agent fees, and a lower offer by the buyer, let’s say I’m losing ~$30,000 when it sells. Unfortunately, this money will be coming from my 401k plan, which becomes a ~$520 per month payment to pay back.

My plan is to rent an apartment if it ever sells, and let’s even say say I get a steal on rent at $650 per month.

Even with that, my overall financial situation does not change significantly from how it is now, due to that 401k loan to pay each month.

On top of that, there are other compelling reasons to consider foreclosure besides financial ones. Namely, that it is an hour from where my life actually is (girlfriend, job, etc), I don’t have time for the maintenance of it, and in general, it’s causing copious amounts of stress in my life.

I have no interest in renting the house. Properties in that area are not renting for anything close to my monthly mortgage payment and I don’t have the time to deal with that, nor do I want that added stress.

I understand that for seven years, foreclosure will negatively impact my credit, my ability to get a car loan, another mortgage, possibly renting an apartment, etc, but I think I can live with that - I don’t even think that I will need anything involving credit besides an apartment to rent, but a lot of renters won’t check credit for that anyway I’m guessing.

So in short, my three most compelling reasons for my interest in foreclosure, is I can’t afford to live with the expense of this house, I’d really like to avoid the burden of a ~$520 per month payment, and it is causing unmanageable amounts of stress in my life.

Should I do it?

And if so, how do I go about it?  I don’t necessarily want to or need to stop paying my mortgage.  I’ve heard that makes the affect on your credit so much greater than foreclosure alone.

[Roy Hobbs]

If you're going to pursue that right, you might want to check your promissory note / the laws of your state to see if the bank has the right to seek a deficiency judgment from you.  In that scenario, the bank could still pursue you for any shortfall on their loan after the property sells at auction.  Thus, you could still be stuck with a judgment against you for tens of thousands of dollars.

It's not my field of law, but you may want to look into bankruptcy, since the overall effect on your credit probably won't be much different.  However, I'd recommend speaking with a financial consultant before making any decisions like that.

[Kwhit10]

Sorry to hear your situation, you never want to see this happen to people.  My parents rent out a few properties and I knew they check credit reports and back ground checks, the places I've rented did they same, but that's not to say everyone does it.  I was also going to suggest declaring for bankruptcy, but I'm not sure how that would work as opposed to foreclosure.

I wish you the best.

[Greenbean]

What about a short sale? Would the bank agree to this? From what I understand it impacts your credit less than foreclosure and costs the bank much less money if it is an option. I am actually in the market to buy a home right now and the majority of houses I am looking at are short sales.

Edit: If you are not familiar, a short sale is when the bank takes control of selling the house and would allow acceptance of an offer that was lower than what you still owed. The motivatino for the bank is avoiding the high cost of foreclosing a house.

[gaceltsfan]

I would suggest you take a look into a company called naca.  website is naca.com they work with thousands of homeowners to help keep their homes at a payment they can afford.  I also believe that due to a federal bill homeowners are not responsible for losses from foreclosure sales.  I used to be in the business and i know the bill was passed I'm just not sure if it is still in force.  I hope this helps with your decision.

[Brickowski]

You need to talk with a good debtors' rights attorney.

[JSD]

One or two solid roommates could significantly lower your monthly expenses to the point where you can pull through. Have you considered this as oppose to a flat rent?

In what city is your house located?

[slam]

Roy - thanks for that tip about checking the promissory note / laws of my state (NH).  I'll look into it.  If I can't find that information on my own, who should I contact?

I don't know if bankruptcy would really help.  I have no other debt besides this house, and can't really reduce my monthly expenses any further.  It's just the child support which kills me, which is more than 1/3 of my take home pay.

Kwhit10 - Thanks for your post.  I'm sure the majority of thorough people do check credit reports etc, but I'm confident I'll find something.  I've read of a few instances where I'd just have to double my security deposit, which would be fine with me.

Greenbean - I don't know a lot about short sales (or any of this for that matter), but I have read that I could be taxed for the difference between the sale price (after foreclosure), and what I owe on it, so I'd rather avoid that of course.  Also, it seems there's little difference in terms of how your credit is impacted between a foreclosure and a short sale.  And finally, it seems a short sale can be infinitely more complicated than foreclosure.

gaceltsfan - just had a quick look at the naca.com homepage, and that does look interesting.  Will definitely look into that further when I have more time (like when I'm not at work where I should be doing other things).  And if that federal bill is still in effect, that's good news for me.

Brickowski - I don't want to get involved with paying an attourney at this point, unless you have some compelling reason at this point.  Basically, I don't have the money for that.

Jsaad - The roommates option doesn't really work.  I still use the house on the weekends when I have my kids, and the extra bedrooms in the house are their bedrooms.  The house is in a very rural area - 35 minutes to the nearest city, though it is just off a lake, so it has that going for it   Unfortunately, everyone on the lake is also selling.

[wjb3000]

Strangely enough, when I need advice about anything in life, I come to celticsblog

So here’s the deal:

I owe $180,000 on my home, and can’t afford to make the monthly payments of $1100 due to a chance in circumstances which includes divorce and having to pay loads of child support every month.  I have 2 x interest only mortgages: 6.5% fixed ($140,000), and a variable, currently at 4.725% ($40,000)…. yeah, so I’m not paying any principle, and have no equity.

My house has been on the market for almost 3 years, and is currently listed at $169,900, so including real estate agent fees, and a lower offer by the buyer, let’s say I’m losing ~$30,000 when it sells. Unfortunately, this money will be coming from my 401k plan, which becomes a ~$520 per month payment to pay back.

My plan is to rent an apartment if it ever sells, and let’s even say say I get a steal on rent at $650 per month.

Even with that, my overall financial situation does not change significantly from how it is now, due to that 401k loan to pay each month.

On top of that, there are other compelling reasons to consider foreclosure besides financial ones. Namely, that it is an hour from where my life actually is (girlfriend, job, etc), I don’t have time for the maintenance of it, and in general, it’s causing copious amounts of stress in my life.

I have no interest in renting the house. Properties in that area are not renting for anything close to my monthly mortgage payment and I don’t have the time to deal with that, nor do I want that added stress.

I understand that for seven years, foreclosure will negatively impact my credit, my ability to get a car loan, another mortgage, possibly renting an apartment, etc, but I think I can live with that - I don’t even think that I will need anything involving credit besides an apartment to rent, but a lot of renters won’t check credit for that anyway I’m guessing.

So in short, my three most compelling reasons for my interest in foreclosure, is I can’t afford to live with the expense of this house, I’d really like to avoid the burden of a ~$520 per month payment, and it is causing unmanageable amounts of stress in my life.

Should I do it?

And if so, how do I go about it?  I don’t necessarily want to or need to stop paying my mortgage.  I’ve heard that makes the affect on your credit so much greater than foreclosure alone.

Slam, sorry to hear about your situation.  Before you do anything, make sure to audit (or have someone else do it) your loan. 

Give the next couple links a read, as the provide some great information into predatory lending/truth in lending act.  I'm not saying that your loan(s) fall into this category, but you would be shocked at the amount of loans that do.  The Marie McDonnell in the first article is actually my aunt, and she specializes in stuff like this (because of this I have a basic knowledge of predatory lending).  If you have any specific questions I'm sure I could help to track down the answers for you. 

http://www.businessweek.com/magazine/content/06_52/b4015147.htm

http://en.wikipedia.org/wiki/Truth_in_Lending_Act

Not all of the info may be relevant to your situation, but its worth a shot.  If a loan is in fact predatory there are some serious positive financial implications for you.  Good luck!

[Brickowski]

I have one final suggestion: offer the house to your ex wife.  Tell her its hers for free, so long as she assumes the mortgages.

But maybe she is too smart to fall for that.

And lastly, don't be penny wise and pound foolish.  Anyone who represents him or herself in a legal matter has a fool for a client.

[Roy Hobbs]

You can always apply for a modification of your child support obligation based upon changed circumstances, although that's always an uphill struggle.

[Greenbean]

Yeah short sales are a big hassle that I am sure you don't want to add to your stress levels. It could be a last resort type of thing if you are forced to foreclose though.

Without diving too deep into personal stuff, isnt child support supposed to be a reasonable amount based on income? If it is forcing you to foreclose on a house, one that your children use on the weekends, is it possible to re negotiate that amount? You don't have to answer that question but it just seems unfair to me.

[Brickowski]

You can always apply for a modification of your child support obligation based upon changed circumstances, although that's always an uphill struggle.

Yes, although it's easier to get a modification in MA these days. Alot of the old sexist male probate court judges have retired, and there have been changes to the child support guidelines.  I don't know about NH.

Let me add self help as a possibility.  Call your ex and tell her that you will pay what you can actually afford given your mortgage situation.  If she balks, tell her you'll see her in court and request a modification.  But you had better have your financial ducks in a row before you do, because the judge will clobber you if he or she thinks you are misrepresenting your financial situation.

[slam]

wjb3000 - had a look over your links.  I'll try and figure out this at some point.  Thanks

Brickowski - I don't think I could get my name off the mortgage, and have only hers remain - she wouldn't qualify to get the mortgage in her name based off her income.  However, this opens up the other question of how this would impact her.  Her name is on the mortgage.  I wouldn't want to screw up her credit too.

Love your last sentence.  That's going on my list of classic quotes

Regarding child support:

Child support is based primarily on the Obligor's income (me).  I'm paying $1144 per month for child support, and she's currently in school full time.  Once she finishes school (in May '10), and let's say she makes $60,000, my child support is only reduced by $121.  And unfortunately, it is very rare that a court takes other factors into consideration.

I have no interest in going back to court.  Finally things are amicable between us, and I'd like to keep them that way.


Keep in mind, I'm more interested in getting rid of this house without a loss that I can't afford than I am in finding some way to financially afford to continue to live there.

[rickyfan3.0...]

I once had a guy in the know tell me that if you are in a situation where you are developing negative equity or even worse, the best move might be get extremely liquid, stay in the house rent-free for as long as possible and move when you are absolutely forced out. That way you can save up some dough. I think it might be important to not have you're money anywhere the Gov't can find it though... So yank you're money out of your accounts, stuff it under your mattress and find an Apt. you can take at a moments notice.