When to walk away?

[helpme111]

My wife and I are contemplating walking away from our home and wanted some advice or info to think about prior to doing it. Here is our situation:

We purchased a home in northern Michigan about 3 years ago. Since then, things have deteriorated dramatically in this state. My wife lost her job and we had to move to another state. We managed to rent, but since pretty much every home in this area is also being rented, we were unable to get an amount which covered the mortgage. However, a year ago, just when things were most dire, her employer let her return to Michigan and work from home. We booted the renter, got back on our feet, payed off credit cards, and built up our savings.

Last month though, her employer said her position was getting cut, but she could work in another branch 3 hours away. So we have to move by the end of this month. We have been unable to find a renter since things are even worse than before. We can't sell the home since the area is saturated with foreclosures (which are also not even selling!). Jobs decrease daily with no hope of improving. Our home is worth less than we owe, and the lack of buyer's in a buyers market only propels the mess.

We feel that our best option is to just walk away and pocket the money we would pay on the mortgage. We'd basically be debt free and in a good position to pay cash for everything. Where we are moving, we can rent really nice homes for cheap (since Michigan is filled with people who left). Plus, the situation in Michigan looks dire for another 3 to 5 years at best case. And by then, our home still will probably only be able to be sold for what we owe. We feel that's basically a loss. People keep telling us to "find a buyer and sell cheap now". But there are NOT ANY BUYERS.

We are wondering if foreclosure is in our best interest? We don't care about the moral side, ethics, etc. I mean, companies and businesses do this sort of thing all the time. Why can't a person do it as a financial plan? But what are the penalties? We realize credit scores will be hit, but we'll have cash and basically do the Dave Ramsey plan. However, does anyone know how much foreclosure costs, as in what you might owe or have to pay to the banks, lawyers, etc.?

I know it was a long post, but any advice or info to help us make a decision would be appreciated. Thanks!

[PrincessPerky]

You don't care that you promised to pay the lender back?

Just because 'everyone else is doing it' doesn't make it right.

[MoneyTrev]

If you want to walk away, then do so.

I mean, sounds like you're doing everything that is good for your family.

[maat55]

As a DR fan myself, I would first survive then deal with debt next. If you are not able to survive in this home, you have to go through your options.

You have: A short sale, Deed-in-lieu of foreclosure without recourse, deed-in-lieu with recourse, foreclosure. The easiest way out is not always the cheapest way out.

This site might be helpful.

Foreclosure - Wikipedia, the free encyclopedia

[helpme111]

It's not that we don't care to pay the lender back, cause we do. But all those who got fooled by the banks and all the banks who fooled people are effecting me, the responsible home owner. Why should we continue to get hammered the next few years, only to come out even, when we can cut losses now, and come out ahead? Why care about the lender's position when the lenders didn't care about putting people in poor positions in the first place. Especially since both parties are now screwing us.

If I were a business owner, it would be a smart decision to close up shop and re-invest in another venture or another area. Why are home owners so stigmatized when business owners are not? Especially since "homes are an investment"?

Well, that's what we are weighing right now. If we would even come out ahead, equal, or at worse in 5 years by keeping the home.

[maat55]

Leaving the home because of it's investment value is immoral. Leaving because of inability to pay or BK is understandable.

Judging by your last post, investment value is your primary reasoning. Don't expect to be on Santa's good list.

[Fizgig]

I suspect there is always a buyer somewhere if the price is right. If you slashed the cost, someone would step in and grab the deal. It may not cover your note, but maybe the mortgage company will work a short sale, or at least you'll owe far less than you do now.

Forgive me if I'm wrong, but if they foreclose and can't recoup the full mortgage balance, you'll still owe the difference anyway, right?

[m.f.walters]

We had to do a deed in lieu of foreclosure almost 20 years ago when the Boston real estate market tanked. I got on the phone with the lender, told them my sad story, burst into tears and they let me sign over the deed to them. I don't feel good about it, but it happened. We have since bought and sold 2 more houses, and are responsible, tax paying citizens. Sometimes you just have to do what you need to, to survive. Besides, the mortgage companies wouldn't offer this as a potential option if they didn't expect some people to utilize it to get out of an untenable situation.

[helpme111]

We had to do a deed in lieu of foreclosure almost 20 years ago when the Boston real estate market tanked. I got on the phone with the lender, told them my sad story, burst into tears and they let me sign over the deed to them. I don't feel good about it, but it happened. We have since bought and sold 2 more houses, and are responsible, tax paying citizens. Sometimes you just have to do what you need to, to survive. Besides, the mortgage companies wouldn't offer this as a potential option if they didn't expect some people to utilize it to get out of an untenable situation.

This is exactly what I would like to know. What happens to people later on?

I mean, we are being forced to move yearly since companies keep cutting our jobs. We purchased the home after doing tons of research and figuring we would be starting a family and settling down. We had been stable in this area for 2 years prior to buying the home. But shortly afterwords, Michigan went down the tubes.

Upon purchasing the home, we didn't know all the back stories on how banks were lending to people who could not afford the homes. We got fixed rate loan after our incomes, credit, references were checked. So now, when we have to move again, we can't sell our home for even 30k less than we paid and we can't find a renter. But I'm considered immoral for trying to take control of my situation after being burned with a bad deal. Especially since the mess was created by tons of immorality in the markets, all of which my wife and I did not know was going on. Now that we do, we see that this mess probably won't be cleared up for a few years, even more in Michigan. So if business people do this all the time and are considered smart, why can't we as well?

We just want to know, what will our futures hold if we did this? Why keep paying on a home which is losing value when the money could be put in our savings, retirement, more education, etc. MFWalters, it seems you have prospered since doing it, so maybe we could as well?

[pearlieq]

Why keep paying on a home which is losing value when the money could be put in our savings, retirement, more education, etc.

Possibly because you comitted to doing it? I don't think there was any clause in your mortgage that said "Only if it's convenient for me and I feel like doing it." Oh, but right. You don't care about the "moral side". Ick.

The way you're putting out there, you're not considering walking away as the absolute last resort or because you have no choice. You're doing it because you feel entitled to profit on a house and are OK with letting other people pay for your financial comfort. That's just disgusting.

[Smelly_Cat]

This is great post, I'm on the fence on this one, Folks who got the great house with a zero interest loan got to live like kings for a year, then can't pay the note and foreclose, The realtors got rich selling and advising buyers that what they were doing was safe, Not to mention the mortgage brokers who smiled as buyers signed up for payments they could not afford or bent the application with 2nd mortgages based on the future value of the home.

I spoke with a mortgage broker who made a ton of money and he practically called the home buyers suckers and held them in contempt like he had nothing to do with the problem after he worked the system to get them the home of there dreams.

So I guess I am mad at these middle men and want them to pay, On the other hand the Big banks who bought the mortgages are collapsing because all the home buyers are giving up and walking away. Which is ruining my 401K and the economy.

So morally I think foreclosing does not hurt the people that caused this mess and makes me pay for it indirectly. SC

[momof1in150]

This is great post, I'm on the fence on this one, Folks who got the great house with a zero interest loan got to live like kings for a year, then can't pay the note and foreclose, The realtors got rich selling and advising buyers that what they were doing was safe, Not to mention the mortgage brokers who smiled as buyers signed up for payments they could not afford or bent the application with 2nd mortgages based on the future value of the home.

So morally I think foreclosing does not hurt the people that caused this mess and makes me pay for it indirectly. SC

Realtors don't put people in houses they can't afford. Banks/Mortgage companies and those borrowing money put them in the houses. There is personal responsibility to living up to your commitments. Too many people bought when they shouldn't have or should have bought a less expensive house. People need to stop sticking their head in the sand and start educating themselves before they make a 30 year commitment. I am tired of people playing the victim when many of them knew that they shouldn't be buying as much of a house that they did.

[helpme111]

I see that most of you still look from the moral side.

What if you were a business owner whose place of business was located right across the street from a factory. Then one day, the factory closed and all your customers were gone. Is it morally wrong to close shop and move? That's all I'm considering. If homes are an investment and that investment tanks, why don't you have the right to get out. I'm fully well willing to pay the costs. I just want to know what those are going to be and people's experiences about if they went through that process.

We aren't one of those cases where people lived like kings in huge homes. Our house is very modest and within our means to pay. But after paying a mortgage and rent for a year, only to barely scrape by, then returning to the home only to see the value deflate, then having to move again with times being even worse and renters not available, I'm not sure what is the best route to take. So if I can take control of the situation, rather than the situation control me, that is the route I would like to take.

And do I feel bad for all my neighbors whose prices would also be effected? Sure I do. But guess what, they are all getting screwed right now with me still paying my mortgage and staying put. We all are. The difference is that they are all staying in their homes (pretty much my entire neighborhood are retirees) while we can't since the jobs are depleted and we are getting transferred, again.

[m.f.walters]

This is exactly what I would like to know. What happens to people later on?

I mean, we are being forced to move yearly since companies keep cutting our jobs. We purchased the home after doing tons of research and figuring we would be starting a family and settling down. We had been stable in this area for 2 years prior to buying the home. But shortly afterwords, Michigan went down the tubes.

Upon purchasing the home, we didn't know all the back stories on how banks were lending to people who could not afford the homes. We got fixed rate loan after our incomes, credit, references were checked. So now, when we have to move again, we can't sell our home for even 30k less than we paid and we can't find a renter. But I'm considered immoral for trying to take control of my situation after being burned with a bad deal. Especially since the mess was created by tons of immorality in the markets, all of which my wife and I did not know was going on. Now that we do, we see that this mess probably won't be cleared up for a few years, even more in Michigan. So if business people do this all the time and are considered smart, why can't we as well?

We just want to know, what will our futures hold if we did this? Why keep paying on a home which is losing value when the money could be put in our savings, retirement, more education, etc. MFWalters, it seems you have prospered since doing it, so maybe we could as well?

I think people are confusing hardworking people who got qualified for reasonable mortgages, and those who took advantage of low rate ARM's with no money down. Seems like this poster has gotten caught in a downward spiraling situation that is somewhat out of his control. When we had this problem in the early 90's in Boston, we tried renting out our condo (we were in another state), and we tried to sell the condo for LESS than our mortgage for over a year. At some point we couldn't keep making payments, condo fees and our rent in another state. I suppose we could have hung on until we were foreclosed on and gone into bankruptcy. The outcome to the bank would have been the same-they would own the deed, but have had to pay foreclosure expenses, and the outcome to us would have been far worse. And the bank agreed to the negotiation. If both parties agree to the deed in lieu, then I say go for it.
We rented for about 5 years, then applied for a mortgage with a company that worked with people with bad credit, got a mortgage at a higher rate, then refinanced a few years later after making our payments on time.
It was painful and embarrassing and I'm still not proud that our first home purchase ended in failure, but I'm a wiser borrower now. And for the record that mortgage company is still in business, too.

[ScrimpAndSave]

: : passes the popcorn : :