How To Manage My Settlement?

[StressedOut]

I am getting an injury settlement in the next month. I need this money to make my familys life better in an instant.

Basically I owe $115,000 on my home. In the current market, I'd be lucky to get $80,000 for the place. I guess they call this an upside down mortgage?

I also owe $55,000 in other bills. Car, CC's, and alot of medical bills.

My settlement amount will be around $215,000 after lawyer fees.

I know I can completely zero all my debt out with this money and throw a few bucks in a Savings, but heres my problem. I am trying to raise 3 kids. The neighborhood and the schools have gotten really bad since they were born. My oldest will be going to high school next year and the schools are really bad like I said. The neighborhood itself is tuning into a pit and crime is getting way worse.

Now if I pay my house off and resell in this market, I stand to lose at least $25 - 30,000. Thats quite a big hit!!! Also to be honest, in this market my house will sit quite awhile.

How do I use this money?

My cousin suggested I buy a nice house in a nice neighborhood and just forget about this house and the payment and let them foreclose and take it. He said because this house is not worth anything close to the mortgage, dump it and take the credit hit.

But cant the bank go after the new home I buy also? Like put a lien against the home I buy? And cant they rape my savings and freeze me up?

Also, how would I handle the other bills racked up? Pay them immediately?

How do I get out of this house, which is in a bad neighborhood, manage my debt, and upgrade our lifes with my money I will be getting? I know its easy to say just pay the house off and tough the place out but we really need to get these kids in a better place. I can get them in a way better home for around $150,000 total because I will buy a foreclosure and fix it myself.

Is it wrong to be thinking about just abandoning this place and its upside down mortgage and buying a way better home in a way better neighborhood with the cash?

[MiikeB]

You have no reason to abandon the house that you agreed to pay for.

My suggestion?

Pay off the $55k in debt.

Then sell the house you are in, take lets just say a 45k hit to be conservative.

You are still left with $115k. But a house in the 150k - 165k, put 65k or so down and put the other 50k in some kinda high yield accounts, maybe some 529 plans for the kids college.

Sure you will still have a mortgage, but it will be the same or smaller than the one you have now, and you wont have the other $55k in payments to make each month.

[jIM_Ohio]

You have no reason to abandon the house that you agreed to pay for.

My suggestion?

Pay off the $55k in debt.

Then sell the house you are in, take lets just say a 45k hit to be conservative.

You are still left with $115k. But a house in the 150k - 165k, put 65k or so down and put the other 50k in some kinda high yield accounts, maybe some 529 plans for the kids college.

Sure you will still have a mortgage, but it will be the same or smaller than the one you have now, and you wont have the other $55k in payments to make each month.

I would suggest something similar.

No reason to walk away from the house you are in now. Can you rent it out before it sells?

[gamecock43]

Or rent out the house you live in after you purchase a new home.

[Ima saver]

I agree, you should not just walk away from the home.

[StressedOut]

Renting it out was an option I was looking into. Problem is, I don't think I can get $1200 a month which is what my mortgage payment is. This area has been hit hard by the recession. There's gotta be a dozen houses alone on my block in foreclosure.

Maybe just paying the house off and my debt is the way to go? Then immediately sell the house and take the loss?

[arthurb999]

Maybe your lender will let you set up a short sale on the house... although it would be difficult to sell. It couldn't hurt to ask.

[zetta]

Maybe just paying the house off and my debt is the way to go? Then immediately sell the house and take the loss?

Agree you should probably pay off the $55k of car debt and medical bills -- what kind of interest rate are you paying on all these?

Rather than paying the house off now, put it up for sale. See if the bank will let you do a short sale. If not, you only have to pay the difference between the sale price and your mortgage (rather than tying up the full $115k in the house from now until it sells). You'll still have money left over for a down payment on a new place.

Another option might be to rent out the house (even if it's for less than the $1200 needed to cover the mortgage) and rent a place in a better school district for a few years. You'd have to check out rents to see if this is cheaper than selling and buying another place.

Are the elementary and middle schools ok? What about staying in your current house, not paying off the mortgage, and using some of the settlement money to pay for private high school for the kids?

Is your current income enough to be able to continue to pay your mortgage and bills?

[mommyof4]

Can you stay in your home and either open-enroll your children into another school or school district, or send them to a private school?

Whatever you do, I think you will be hurting yourself if you just walk from your current home. I think you'll be setting yourself up for years worth of headaches.