Foreclosure and CC debt...

[FoolFromAZ]

One of my friends who has house in same neighbourhood where I live. I am asking this question for him. He bought his house 2 yrs ago for 320K.But he did not put down any money. when he bought his house he and his wife both were working and together they were making nearly 140K. They thought paying around 2200K every month was not a problem as they get some tax benefit as well. They also had around 10K as credit card debt when they bought the house. After an year, his wife fell sick and her docter adviced her to quit the job and stay home. So she quit the job and she has been staying home for the last yr or so. My friend has been struggling to make the payment for the last one yr with the single income, also some medical expenses, etc., now he feels he cant do it anymore as the house price too has gone down and similar house was appraised recently for 175K. he feels there is no point in paying mortgage and he is thinking of letting the house forclosed. Problem for him is his cc debt went high in the last yr or so, due to medical and other expenses. now he says he has around 35K as cc debt. his question is if he let the house foreclosed and when CC companies hike the APR, will they increase the APR for the existing CC debt as well or only for the future purchases? Anyone here has gone through the situation like this?

[tripods68]

My wife's coworker went to the whole process, except the medical part. They bought too much house and now they can't afford the jump on interest rate. They foreclosed eventually but not until they were able to secure another cheaper home before it hit their credit report.

[Uneventoast]

Your friend may want to consider a short sale if he can find a potential buyer, not only that but he may want to consider doing a deed in lieu for the home so he doesn't have to go through the foreclosure process. Both are dings on the credit report but it will allow him a much faster chance to get back on his feet.

Remember though he should pay for his mortgage first and cc last.

[FoolFromAZ]

Originally Posted by Uneventoast

Your friend may want to consider a short sale if he can find a potential buyer, not only that but he may want to consider doing a deed in lieu for the home so he doesn't have to go through the foreclosure process. Both are dings on the credit report but it will allow him a much faster chance to get back on his feet.

Remember though he should pay for his mortgage first and cc last.

He is not worried about credit score. He is ready to live on cash rest of his life. he works in one of the leading chip making companies. his job is kind of safe. He does not want to do bancrupcy as he feels he may find problem in finding a new job incase if he lose this job due to current situation in the job market. thats why he wants to pay off the cc debt but let the house foreclosed.

[swanson719]

The CC Debt is easy to fix if you let it go. It will hurt the credit report, but after 6 months of non-payment, CC companies will accept 50 cents on the dollar. The mortgage, there is no sense in letting it get foreclosed. It would make a lot more sense to short sell it, re-negotiate the difference into an unsecured loan for a little while, buy an affordable house - HUD has thousands of listings - and then put the unsecured loan as a second mortgage on the house. He'd come out about $125K upside down on the current mortgage, plus the new house, and probably $18K worth of CC debt. That's $143K of bad debt, not counting the new house/apartment, which is a heck of a hole to dig out of. Letting the house get foreclosed on, he is still liable for the difference of the price the bank sells for and what he owes in some states. All it is is a bank done short sale, so he might as well do it himself as opposed to the major hit on the credit report.

[boosami]

Originally Posted by FoolFromAZ

his question is if he let the house foreclosed and when CC companies hike the APR, will they increase the APR for the existing CC debt as well or only for the future purchases?

If he goes through foreclosure, his creditors will absolutely hike the rates to 29%+, lower the limits as much as possible, or even cancel or close his accounts to further spending. It will apply to the existing debt, and if he is allowed to make future purchases, those will have the high rate as well. With a recent foreclosure on his credit report, he will have no room for negotiation at all. Avoid it if at all possible.

And why is he worried about "future purchases" on his credit cards AFTER foreclosing?

[FoolFromAZ]

Originally Posted by boosami

If he goes through foreclosure, his creditors will absolutely hike the rates to 29%+, lower the limits as much as possible, or even cancel or close his accounts to further spending. It will apply to the existing debt, and if he is allowed to make future purchases, those will have the high rate as well. With a recent foreclosure on his credit report, he will have no room for negotiation at all. Avoid it if at all possible.

And why is he worried about "future purchases" on his credit cards AFTER foreclosing?

no he is not worried about future purchases. he says he will not use his CC at all. but only worried about existing cc debts. he is currently paying $2200 towards mortgage payment every month. if he moves to the apartment, he wud only pay around $800 per month and send $1400 to his cc debt payment and finish off the cc debt in 2 yrs. then he can live on cash without looking for credit.