Financial advice/short sale/etc. help PLEASE!

[jyam]

I have searched so many web sites and forums and cannot find a place to just get some other peoples' opinions on this. I am really hoping this will be a good place for that!! Please let me know if I should post this on a different subforum.

So my husband and I bought our house 3 years ago. We're in Michigan and house values are way down. We owe $160k on our house and could get maybe $130 or $140k for it now. $150 if very lucky, doubt this would happen. We have ~20k in savings but this includes emergency fund. No other access to cash/no borrowing from family available/etc. So when you add on realtor fees and other fees we're talking about needing $40k+ to close.

Renting not an option as we could not ask enough to cover our payments or even close.

We have an 80/20 loan and I talked to the bank that owns our 20% loan, talked with loss mitigation negotiator person and he talked about short sale or renegotiation being our options. By renegotiation he said for this loan for example they would take $8-10k cash for a $35k+ loan. But it is bad for your credit similar to a short sale he said. He said talk to a credit counselor for more info on that.

So which is worse for our credit? Is there any way a bank would negotiate a solution that is NOT going to destroy your credit?

THANKS!

[scfr]

Is there any reason why you have to sell the house right now? Any reason why you can't just keep on living in it and making the payments?

[jyam]

We are moving and also need to downsize big time. After some savings are gone we will not be able to make the payments soon.

[MYOM]

You have three options. 1. Forget moving and continue to live in the home and make payments as you promised to do. 2. Sell the house and take a loan for the difference. 3. Keep the house, rent it out, and continue to make payments. Short of these three, you will lose everything including your kitchen table. You will face bankruptcy in which no one will loan you so much as a penny for at least 10 years and maybe even longer. The days of easy credit are gone. Don't make Financial Failure an option.

Dan Clemons retired Certified Financial Planner

[jyam]

Thanks so much for your advice -What type of loan could one get to pay the difference? I've never heard of a loan for something like this. ?

[tripods68]

Your Options - Take your pick

1. Stay - keep paying the mortgage
2. Rent and pay the difference
3. Short sale - Bank must write off the losses if agreed through HOPE FHA
4. Foreclosure (hand the keys to the bank and walk away)

[maat55]

Why not try to sell the home FSBO? If you sell the house for a loss, the second mortgage should be motivated to settle a new loan with you. I would talk to them now and tell them your plans. You may have to use some of your EF to make this work, but not all.

The second mortgage only has rights to the difference left after the first mortgage is satisfied. I'm not sure if the second mortgage can stop a short sale.

You should talk to the second mortgage to make arrangements for the difference owed and try to sell FSBO first. IMO.

[kork13]

Your Options - Take your pick

1. Stay - keep paying the mortgage
2. Rent and pay the difference
3. Short sale - Bank must write off the losses if agreed through HOPE FHA
4. Foreclosure (hand the keys to the bank and walk away)

My parents just finished arranging #2 for themselves. They bought a home they like about 3 years ago, and this summer they moved again to follow my father's job. However, rather than sell the home at a significant loss, they found a family who will rent it for about 70-80% of the mortgage, and my parents are covering the difference. Yes, they're paying for a home they can't live in right now, but over time, it's still going to be THEIR'S to come back to. Plus, the family is a very responsible one, and they will take very good care of the house. My mother will be returning to a full-time job (previously part-time substitute teacher) to cover the overage, but they considered all of their options and found this to be the best way to go by far.

[rizzmo]

You have three options. 1. Forget moving and continue to live in the home and make payments as you promised to do. 2. Sell the house and take a loan for the difference. 3. Keep the house, rent it out, and continue to make payments. Short of these three, you will lose everything including your kitchen table. You will face bankruptcy in which no one will loan you so much as a penny for at least 10 years and maybe even longer. The days of easy credit are gone. Don't make Financial Failure an option.

A few words here

1. This is a viable option, just not for the OP as he stated they will not be able to afford it once savings are gone.
2. You could sell the house, but taking a loan for the defieciency seldom makes sense. If selling is the route you choose to go it is better to short sale the house, but get in writing from the bank a release of deficiency (difference between what is owed and what it sells for). They will issue you a 1099 for the amount forgive. This means you will pay taxes on the amount forgiven. So it will cost you something in taxes, but a lot less than owing the debt. Yes this will hurt your credit, but the trade off of having no additional debt is well worth it. You can find websites that will guide you step by step through the process.
3. Renting and covering the difference is by far the best way. You become wealthier, and give your home value time to hopefully recover at which point you can sell it. You did not state if this is financially feesabile for you.

You will not lose your kitchen table, wtf. I personally am about 3 years out of chapter 7 bankruptcy, have a credit score of 708, just purchased a home (I put 20% down and 6.125% mortgage), have a credit card at 11% interest (never use it though), and bought a car at ~15% interest (paid off in a year). My parents are 5 years out of chapter 7 and own three homes they bought the last one 2 months ago (20% down and 6.75 mortgage).

Don't make Financial Failure an option. This is good advice.

[jamiefic]

My parents just finished arranging #2 for themselves. They bought a home they like about 3 years ago, and this summer they moved again to follow my father's job. However, rather than sell the home at a significant loss, they found a family who will rent it for about 70-80% of the mortgage, and my parents are covering the difference. Yes, they're paying for a home they can't live in right now, but over time, it's still going to be THEIR'S to come back to. Plus, the family is a very responsible one, and they will take very good care of the house. My mother will be returning to a full-time job (previously part-time substitute teacher) to cover the overage, but they considered all of their options and found this to be the best way to go by far.

We just did something similar to this. My husband is going to grad school and we are renting an apartment that is school housing (way cheaper than normal housing in this area). We were having trouble selling our house and with the housing market so low right now, the rental market in our area was doing much better than what we had originally thought. We are getting just enough from rent to cover the payments. I don't think we'd have rented it out and then bought another place - that would have been too risky for me. Plus, we also feel really good about the couple living in the house - so that helps a lot! It can be hard deciding what to do with the economy and all right now!