Seriously considering home foreclosure

[FoolFromAZ]

In what state do you live? People living in states with so-called "nondeficiency" judgement clauses in the foreclosure law have a loophole that basically allows homeowners to buy a new home while allowing their current home to foreclose. On top of that, it effectively eliminates the bank's ability to sue you or attempt to collect the money.

WSJ Article Link: Some Buy a New Home to Bail on the Old - WSJ.com
Foreclosure Law by State: State By State Foreclosure, Deficiency and Redemption Periods

I am from gilbert, arizona. I too read the WSJ article. Infact that article too made me thinking more about this route.

[FoolFromAZ]

I sense that you "envy" your neighbors in some way for "walking way" from their homes to save money. I suspect you aren't in deep financial trouble either; Otherwise, you wouldn't be late paying bills. That's my psychoanalysis bubble take. Take it for what it is

There's actually a better options. Try to find ways to cutback on your monthly expenses. List your income/expenses. If that means no movies, vacation, or entertainment, or no new clothes for a while, maybe a year or so, your debt (except housing) could be paid off a lot sooner. By then, the "monkey" will be off your back and you can breath a sigh of relief. More importantly you'll have a new perspectives by then. Just try it.

you got it tripod.

I have already posted my income and debt few months ago. I have cut down my expenses as much as I could. We currently get around $3500 after all the xpenses and paying our CC debt. We still have over 40K of CC debt. It was over 60 some time back. I also got car loan of 24K. paying $540 everymonth.

[tripods68]

That's a good article. That's exactly what my buddy did.

I think Short Sale would work a lot better. Short Sale only stays in your record i believe 3 years correct me if I'm wrong.

[Ima saver]

I think you should stay put in your home.

[momof1in150]

That's a good article. That's exactly what my buddy did.

I think Short Sale would work a lot better. Short Sale only stays in your record i believe 3 years correct me if I'm wrong.

A short sale that deals with bank forgiveness of debt only works if you are behind on your payments. We had a real estate attorney in the office on Wednesday explaining how they work. If you aren't already behind paying your mortgage you can't do a short sale unless you have the means to make up the difference - personal loan or cash.

Some banks require you to have approval before you can list your property as a short sale. There is a very long list of requirements that the bank requires from the seller for a short sale (W2s, bank records, hardships, paystubs, etc) and if they see that you have other money and a good paying, steady job they aren't going to forgive the difference between the sale price and what you owe. The other thing is that each state has tax implications. RI doesn't tax forgiving debt but some states treat it as income and you will receive a 1099 for the difference if the bank forgives it.

Moral - talk to a lawyer or a RE agent who has dealt with short sales.

[boosami]

You could also try a deed-in-lieu of foreclosure. It's similar to a short sell in that it's a negotiation with the mortgagee. You basically give ownership of the property to the bank and they consider your mortgage partially or completely settled. It is a way to free yourself from some or all of the debt (and the property). If they sell at more of a loss than they expected down the line, however, they may be able to come after you for the difference. It shows up similarly as a short sell on your credit report.

Just like you, lenders want to avoid foreclosure--it is a time-consuming and expensive process for them to go through.

[boosami]

I think Short Sale would work a lot better. Short Sale only stays in your record i believe 3 years correct me if I'm wrong.

Short sales and deed-in-lieu will stay on your credit report 7 years, just like a foreclosure. Your score generally will recover enough in 2-3 years to be approved again for another home loan, which might be where that figure came from.

[Madwand]

Avoid Foreclosure

Find a Realtor that has experience in short sales. Selling short sale has no tax penalty at this time. The tax penaly has been lifted until our economy turns around. You will also preserve most of your credit this way.

Scott

[CCFREEDOM]

If this is any help at all. I bought a house in 1988 for $250,000..then it started declining in 1990, I live in California and in 1994 we had a devastating earthquake and I live right in the middle of it..The home next door to me sold for about $150,000...the house next to me the people just walked away after the earthquake and the bank sold it for $160,000. I was a single mom to 2 children, no child support and making $2,000.00 a month.. 10 years later that same house was worth $700,000. I could have walked way, yes..but it was my home, my responsibility. I never saw walking away as an option..

Right now the house I am living in cost me over $800,000 3 years ago, probably worth $200,000 less than that..but I like my home and its just a matter of waiting to see what happens the next 5 years. I am working on modifying my loan with the bank and paying a lower interest.

Its tough to see the way things are going and probably think to yourself that you could have waited..but its already done and we just have to sit tight and wait.

[tripods68]

I am working on modifying my loan with the bank and paying a lower interest.

With modifying your loan this negatively impact your credit also?

[CCFREEDOM]

With modifying your loan this negatively impact your credit also?

No...modifying does not impact your credit at all as long as you have not fallen behind on payments. My payment is about to readjust to a much higher rate and I want them to lower it. With the current situation now..they are very cooperative in doing that.

[Seeker]

No...modifying does not impact your credit at all as long as you have not fallen behind on payments. My payment is about to readjust to a much higher rate and I want them to lower it. With the current situation now..they are very cooperative in doing that.

I hope they would be cooperative in helping people renegotiate these higher unrealistic rates down.

CCfreedom, I cannot tell if you're still in Northridge (implication is that 3 years ago you bought a different place?), but in either case, that earthquake was a major one. It took them 6 years to rebuild the two wings of the library at CSUN after those wings of the library sheared away from the main. 6 years. There are still places not rebuilt.

[CCFREEDOM]

Seeker, I lived a couple of blocks from CSUN.. I rented my old property (I should have sold) and bought another one.

Yes, they are helping a lot of people modify their loans. I am helping out some of my old customers as well to modify their loans so they dont lose their homes.

[FrugalFish]

In the past, I have been through on a local level what the country is now facing as a whole. It is the main reason I was apprehensive about buying a home of my own, and ended up buying a major fixer upper when we finally did (we hoped that if we put cash into the repairs, that we would always be right-side-up).

Back when I was a young person, watching my community fall apart due to upside-down loans and foreclosures- and worse yet, many jobs lost, it definitely made an impression on me. What we saw often was people buying a second house elsewhere before allowing the first to fall into foreclosure- that way they were already in another loan before the bad mark hit their credit. I also saw many people who stayed upside-down on their loans for 10 years or more before the market came back and they were once again in the black. Now, nearly 20 years later, even with the market tanking again, those house values are still way up over where they were 20 years ago during the previous housing recession; the people who stayed in their homes, even when values were less than they owed, are now in good shape. It will likely be the same scenario this time around.

From a purely logical standpoint, walking away seems to make sense, but from a moral standpoint of responsibility and integrity it may not be so easy. My biggest fear has always been being upside-down on a house and HAVING to sell at any cost. If you plan to stay in this house for another 10 years, and you can afford the payments, then I would encourage you to stay put and let the market work itself out.

[FoolFromAZ]

Just checked this thread that I opened 18 yrs ago, asked for the advice. I received great advice from many here. Update is, we ended up short selling that house for 148 K in 2010. My credit went down. 2 yrs later in 2012, we bought two houses using my wife credit. agree ethically not right to use the loop hold to short sell the house and later on buying two houses for cheaper price. one for 245K and other one for 175K. I am still living in that 245K house and renting the other one. Like Debbie's story above, house price of short sold house went back up to almost 600K from 148K.