I need advice on foreclosure

[ineedadvice]

Hi All, I am new to this forum. I have made some financial mistakes in the last 3 yrs and I am currently in big trouble.

About myself, I make 90K per annum, reasonably reliable job. wife is not working and I have 3 yr old daughter. I bought my house 3 yrs ago when market was at peak. I bought it for 315k ( put down 25K). house price has gone down nearly 50% in our area. house similar to our house is listed for 170K. I owe 280K to bank now.

When I bought my house I was making only 65K. I should not have bought that big a house, thats my first mistake. after moving into the house, I had to buy some furnitures, blinds, appliances, etc., so I had to put everything in my credit cards (2nd mistake). later on I got 0% apr promo offer from some of my credit cards, so I took some money and invested in stocks (thats my third mistake). I lost some of the money that I invested. finally now I have ended up around 35K in my credit cards.

I also bought a new car an yr ago (4th mistake) and I have 22K on car loan too. I have totally about 280K + 35K + 22K = 338K loan.

Now I am finding very tough on makign the monthly payments. I can only send the minimum payment on all the credit cards. I am living paycheck to paycheck. I have requested for loan modification, but i am not getting any response from the bank. some of my friends are suggesting me to stop sending mortgage payment and send that money to pay off the credit cards.

What are the problems I would face if I do that? currently my apr on credit cards are around 10%. any kind of advice is greatly appreciated.

I have cut down my expenses as much as I could.. only thing I could do is sell my car. that would reduce $500 every month. again I have to buy something smaller or cheaper car. I dont have any emergency fund.

sorry for the long post.

[momof1in150]

Once you are three to six months behind the mortgage company will start foreclosure procedures. It takes a long time for it to go through. Each state is different with their foreclosure laws so I can only speak of RI.

Call your mortgage company everyday to get them to talk to you about what your options are. You may also want to consider a short sale (this is when the mortgage company takes less then what you owe). You may still have a tax liability if you do this and they can come after you for the difference. It depends on the bank.

[wincrasher]

Once you start missing a payment on something, your rates will skyrocket, making your situation worse.

The wife needs to get a job - one that pays considerably more than the daycare expense will be.

[momof1in150]

Originally Posted by wincrasher

Once you start missing a payment on something, your rates will skyrocket, making your situation worse.

The wife needs to get a job - one that pays considerably more than the daycare expense will be.

If you have a fixed rate mortgage the rate won't go up. Telling someone to get a job isn't as easy done as said.

[wincrasher]

True. They didn't say if it was adjustable or not.

Just getting any job won't help - it could actually make things worse by adding expense of daycare.

[ineedadvice]

thanks everyone for the advice.
APR on my credit card debt is currently around 6% to 10%. My mortgage intrest rate is 6.5% 5 yr arm and i am at the end of the third year.

Do you think APR on the existing CC debt will go high? I thought only for the new purchases?

Its hard for my wife to get a job which pays atleast 25K per annum.. max she can get is 8$ per hour.

[arthurb999]

Sell your car.
Get a part time job at night to bring in more income.
Wife needs a part time job on weekends.
You can dig out of this...

[wincrasher]

Lots of people are getting jacked to 30+% overnight for no reason at all. Giving a reason by being late or in default on something you could see rates like that or higher instantly. And that's on your total balance, not just new purchases.

Not trying to scare you, but paying on time on all your debts is a big part of your credit score.

[swanson719]

6.5% 5 yr arm... I would either sell the house and eat the $110K you're in the whole on, or try to refinance it into a first and second mortgage, which you'll have to do since your so far upside down. The ARM is going to adjust, and way up, to at least 8 or 10 percent. Just because rates are down doesn't mean they will be when this massive inflation hits a few years from now.

Sell the stocks. Just because you're down some now, that doesn't mean you don't have value in them. Rather than taking a bigger loss since there is no way you're going to be making more than 10% on them, which is what your paying in interest to keep them, cut your losses and sell, then put the money from them towards your credit cards and write it off as a loss.

You also probably need to adjust your tax with-holdings if your income has changed. If you get a tax return, go talk to your human resources and get it changed so you don't. More money in the pocket now.

Sell your car, eat the difference, and go buy a used beater. You can get something reliable in the $7,500 range pretty easy these days. You're still going to eat an easy $5,000 on your car, but it will considerably lower your payments, and over-all debt.

I know it's not an easy thing to do, but you've got more month than money. You're not too far in over your head, but the first step is stopping the slide. With a little due diligence and determination you can be out of this and completely debt free in 7 years. $90K a year, x 7yrs = $630,000. You have $338,000 in debt now. Live an average life on $40K a year, 7x40K = $280K. $338K + 280K = $618k. So that leaves you an extra $12K to start investing then. Good luck, and just realize there is light at the end of the tunnel.

[wincrasher]

What kind of advice is that?

You don't know that his ARM will reset higher. 6.5 is already pretty high in this market. His problem isn't mortage debt - it's credit card debt.

Selling the car at a loss and buying a $7500 beater is a tough recommendation when he says he has no savings. If he can't sell the car for what is owed (and take the bus), then he needs to hang on to it.

Definately sell the stock, if he hasn't already, and pay down credit card debt. Look into refi if possible. Look for a 2nd job.

[tradelines]

Modifying your loan is one of the best things you can do. You have to keep pushing for the bank to modify that loan to lower the payment and get you back on track. I have seen many people go through the same thing but banks are just playing hard. Don't give up.

After that modification you will then be able to pay your credit cards faster because you will have that extra income.

There has to be a reason why and right now it looks like that mortgage is what's really holding things up.

Originally Posted by ineedadvice

Hi All, I am new to this forum. I have made some financial mistakes in the last 3 yrs and I am currently in big trouble.

About myself, I make 90K per annum, reasonably reliable job. wife is not working and I have 3 yr old daughter. I bought my house 3 yrs ago when market was at peak. I bought it for 315k ( put down 25K). house price has gone down nearly 50% in our area. house similar to our house is listed for 170K. I owe 280K to bank now.

When I bought my house I was making only 65K. I should not have bought that big a house, thats my first mistake. after moving into the house, I had to buy some furnitures, blinds, appliances, etc., so I had to put everything in my credit cards (2nd mistake). later on I got 0% apr promo offer from some of my credit cards, so I took some money and invested in stocks (thats my third mistake). I lost some of the money that I invested. finally now I have ended up around 35K in my credit cards.

I also bought a new car an yr ago (4th mistake) and I have 22K on car loan too. I have totally about 280K + 35K + 22K = 338K loan.

Now I am finding very tough on makign the monthly payments. I can only send the minimum payment on all the credit cards. I am living paycheck to paycheck. I have requested for loan modification, but i am not getting any response from the bank. some of my friends are suggesting me to stop sending mortgage payment and send that money to pay off the credit cards.

What are the problems I would face if I do that? currently my apr on credit cards are around 10%. any kind of advice is greatly appreciated.

I have cut down my expenses as much as I could.. only thing I could do is sell my car. that would reduce $500 every month. again I have to buy something smaller or cheaper car. I dont have any emergency fund.

sorry for the long post.

[b4freedom]

Whatever you decide to do keep one thing in mind: If you reach the point where you think you’re going to start defaulting on anything then you should start liquidating all of your assets and start hording cash. When I say liquidating, I mean that you call the bank and ask them to pick up the car (and buy a used one with cash), call the mortgage company and demand to renegotiate the debt, and stop paying all credit cards. Then sell off anything you can to get cash. Cash is king. If things go from bad to the worst, it’s just a matter of time until the sheriff shows up to kick you out. If you save your cash up front then you’ll be better off. The number of Americans facing eviction is staggering, so you’re not alone.

With that said, you need to seriously figure out how upside down you are. You’re 338k in debt with only 170k in assets. And, that’s not including all the fees you’d have to pay in order to offload that asset. The likelihood that you can refinance is next to nil. The likelihood that they’ll renegotiate isn’t much higher, but it’s something to try. The worst that can happen if it doesn’t work is that you’re eventually homeless and/or bankrupt. So try but prepare for the worst.

How long will it take you to recover the $168k hole that you’re in? 5 years? 10 years? 15 years? 20 years? Do the math. Is that timeline shorter then walking away and/or doing a bankruptcy?

I’m currently not in your situation. But, if I was, I’d walk away after liquidating everything. Basically, live a cash lifestyle for a few years and then when the bankruptcy laws became more favorable, consider filing and/or renegotiating my debts with all the cash that I saved.