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My Predicament

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    My Predicament

    I've posted about my situation from time to time, but I'll start with a brief refresher.

    I took a job closer to where I grew up 4 1/2 years ago. We put our house on the market as we were moving. The value of the house has done nothing but drop since we moved. About a year after we moved we had an opportunity to move into my family's original farmstead home. We borrowed 70K from family members (30K from my aunt/uncle and 40K from DW's parents) to renovate the house. The original agreement was to pay back family after we sold our other home. Just during the last 4 months we have begun to pay them back slowly. $90/mo. to aunt/uncle and $120/mo. to in-laws. These are interest-free loans.

    During this time we have had three different families rent our original house. At no time has rent matched our $1,026 monthly mortgage payment. The current renters expressed interest in buying the house when they moved in last July. We were going to rent the house for $800/mo., but we reached an agreement where we collected $900/mo., and the extra $100/mo. was their cost for us to take the house off the market for a year, to give them time to save/line up financing.

    To no one's surprise, the renters are not in a position to buy the house. So, we reduced rent back to $800, and put the house on the market. We listed it for $69.9K, or 1/2 of what we bought it for in 2005. As far as I can tell, this price is reasonably close to market value. It's hard to tell because the market is so slow, There aren't really any comps. We owe $103K on the house. This will leave us in a short sale situation.

    Here are my 4 options as I see them:

    1. Continue renting the house at a loss until the market turns around, and we can sell the house for what we owe on it (that was our strategy up until now).

    2. Continue paying the mortgage. Go the short sale route.

    3. Quit paying the mortgage. See what happens first - foreclosure or the house sells as a short sale.

    4. Get a commercial loan against the house we're living in. Set aside $30 - $35K to make up the difference between what we owe and what the house will sell for.

    I'm honestly leaning very heavily toward option 3. Be done with it, and let the chips fall where they may. As I understand it, our credit will be trashed whether we go option 2 or 3.

    My aunt has expressed her interest in helping us out. So, option 4 is possible. We would owe her a lot of money for a long time. I hate the idea of that, and hate the idea of not meeting our mortgage obligations.

    We are working on getting a commercial mortgage on the house we're living in. The question will really be - should that money go to family, or be put on hold to shore up the difference when house 1 sells.

    I've posted very recently about my other debts, but in case you are interested:

    We owe about $7.4K in credit cards
    We owe about $5.2K in a vehicle loan
    Monthly net income is about $5.4K
    Small $1.1K emergency fund

    I would take it off the market and keep renting it out until the value raises again. You can rent it for 13 years before you'll pay the $37,000 you'll lose by selling it right now.

    Do you have a mortgage on your farmhouse or only owe the 70k to family? With an income of $5400 a month it shouldn't hurt to pay $435 a month for home loans. You need to look at your spending and cut out wants so you can attack your debt, see if you can find $1k or $2k to throw at your debt every month.


      I personally don't like options of foreclosure or short sale being you have the means to meet mortgage obligations.

      How much does the farmhouse appraise for?

      What if you sold the rental house for say, $65,000 which leaves you $38,000 short. Borrow that $38,000 from aunt to close and payoff rental property. You would then owe your aunt about $107,200. Take out a commercial loan on the farmhouse and for whole amount if it appraises for such or you would owe your aunt / parents the remainder if short. Use commercial loan to pay back at least parents in full.

      You get rid of rental, and you reduce amount you owe to aunt / parents.

      I dont see your option 1 working in short as you purchased at peak bubble. House prices are now where they should be except for some local bubbles that still are somewhat inflated compared to national. Housing will increase, but not at rate of bubble, more like even with inflation or so.
      Last edited by Xtreme Thunder; 06-12-2012, 06:38 AM.


        You're in a tough spot, Bob. I wish I had some wonderful advice for you, but I don't.

        Please be aware that since this is a rental property, any forgiven debt will be taxable income to you. The Mortgage Debt Forgiveness Relief Act of 2007 applies only to primary residences. I'm not saying you shouldn't choose the foreclosure/short sale route, I'm just saying be aware of the tax consequences.

        How does your family feel about waiting to be repaid? If it were me, that would be a primary factor in my decision.


          I personally, would either sell the house you are in and move back into the other house(if it is in the same area), paying back your relatives or take out a mortgage on the house and pay back your relatives.

          I would not make longterm payments at no interest. Either way, this is your problem, not your relatives.

          Your income seems high enough to make good payments towards your CC debt and to payoff your auto note.


            I like the idea of continuing to rent the house for a while. And in the mean time, it looks like you need to focus on paying off the CC and auto debt and then try and pay down some of that family debt. I think any option that is going to screw up your credit for years to come, should always be a last option.

            I'm not sure how refinancing on an upside down mortgage works, or if banks even do it, but what's your interest rate looking like? Any chance you can refinance to bring the rate down and make your payments at least closer to what rent is?