Tough Mortgage Situation

[Hoops02]

I'd like to hear some advice from all of you finance pros on a tough situation my wife and I have found ourselves in.

About 8-months ago I took a great job one state over that promised more pay and great benefits. My salary and benefits package was much better and I love my new job.

We placed our home on the market in September 2012. Right after that two things happened to affect that sale. 1.) The two largest employers in our small town of 30,000 laid off a total of 2,200 people. No one is moving here. And 2.) a four-lane highway bypass is being built behind our house where the fields and trees we once loved used to be. We have priced our home at $35,000 less than market value, $10,000 less than we paid on it, and only $3,500 more than we owe on it. We fired our Realtor and are selling it by owner in order to price it as low as we can.

The entire 8-months I have been commuting back home on weekends. I have been staying in a very small place while in the new state. My wife homeschools our three kids and holds a part time job a few evenings a week, so we have not moved yet. So, we have been apart quite a bit, which has been very hard on us both. (The new job is a 3-hour drive from our old home).

Having grown very tired of this I have just purchased a home in the new state. We need to be together as a family. So, I am about to start paying two mortgages. I can just barely afford this by the skin of my teeth without my wife's part-time job.

Ultimately it looks like I would need to drop the price about 10-15K below what I owe on it in order to generate interest from prospective buyers, but it is no guarantee it would sell. We have had NOT ONE person come see our house since October 2012. It is a nice, 2800 sq ft, 4 bed 3 bath home with a huge bonus room in a horse farm type community on 3/4 an acre. Not a cookie-cutter neighborhood. Very pretty area. I have had lots of calls on it from the adsbut once they discover the highway is 50-feet behind my property line they instantly lose interest.

We thought about renting and asked three property management companies what the home would rent for. All three were within $50 of each other. Our mortgage payment is $150 higher than that estimate. So, I really don't want to pay $150 per month or so to rent my home to someone.

My thought is to walk away from the property. My credit score is 764, so I know I would take a beating of about 140 - 160 points on it if we foreclose on the home. My wife and I have no debt, own both of our cars, and try to buy everything, including new(er) cars in a couple of years with cash. Other than buying a new home again, which we hope to not do for another 6-years or so, we really have never needed credit before since we did the Dave Ramsey thing 10-years ago. I estimate that if we didn't have the old home we could pay off the new one in full in 8-9 years.

So, any advice is appreciated.

[~bs]

Not a real big fan of walking away from an ethical point of view. .. You signed the contract, so you should fulfill your obligation. If you are looking at banktupcy, that may be your only option though. And from what I Understand, walking away doesn't work in all states depending on the individual laws.

[Like2Plan]

We thought about renting and asked three property management companies what the home would rent for. All three were within $50 of each other. Our mortgage payment is $150 higher than that estimate. So, I really don't want to pay $150 per month or so to rent my home to someone.

My thought is to walk away from the property. My credit score is 764, so I know I would take a beating of about 140 - 160 points on it if we foreclose on the home. My wife and I have no debt, own both of our cars, and try to buy everything, including new(er) cars in a couple of years with cash. Other than buying a new home again, which we hope to not do for another 6-years or so, we really have never needed credit before since we did the Dave Ramsey thing 10-years ago. I estimate that if we didn't have the old home we could pay off the new one in full in 8-9 years.

So, any advice is appreciated.

Do you think the prospects for the town might turn around in the next 12-24 months or were the layoffs permanent?

My advice would be to consult with an attorney prior to making any irrevocable decisions. You could have the bank foreclose on the house, take a beating on your credit rating and still owe the difference between what the bank eventually sells your house and what you owed on the mortgage. The bank could still come after you.

[TBH]

Yeah, it makes me uncomfortable to think about walking away. I would personally rent the home and pay the extra $150 on the mortgage. If you can just barely cover both mortgages without renting the old house, then you should be able to get by just fine with rent coming in. I'd do that rather than abandon a house I had loved (sentimental reason, I know, and sentimentality can be bad for the pocketbook) and I'd do that because I don't think it's ethical to renege on your agreement with the bank if you can avoid it. And I'd do it because I wouldn't lightly trash my credit.

If things are so bad in the local economy, will you even be able to rent the house, though? If you can't rent it you may be forced to walk away.

[syracusa]

Let me just give you the 2 cents you asked for, as subjective as it might be:
drop the price as much as you can and if you can do a short-sale, do it sooner rather than later. Once you drop the price enough, someone will buy your house.
Yes, you might go under - but you might not have a better choice anyway.

We were in a very, very similar situation to yours four-five years ago, (except that husband lost the job and we were forced to move cross-country for another one, or else, we would have lived in the street); the only thing we ended up regretting was that we did not attempt the short-sale quicker. We tried to do "the-right-thing" for months and months at a time and take the beating ourselves, until it became literally non-doable. All we managed to do in the end was to postpone the inevitable.
We did receive a "hardship" from the bank because my husband had lost his job - but they may not be willing to give you this so you can do a short sale - given you were not laid-off.It is my understanding that in order for people to be approved for a short sale, they need proof that they are going through some kind of hardship.

You may receive good advice here but also be prepared to get venom from a few self-righteous heads who believe there is no such thing as misfortune for anyone - only irresponsibility on their part; so you will hear lectures and you will see wags of the finger about how you should have had at least 20% down when you bought, as well as mountains of savings, so you can continue to pay two mortgages or whatever, for however much it takes, for as long as it takes, regardless of whether or not you lose a job, regardless of whether the jobs you've had before could have ever allowed you to save any decent amount, etc.

After all, it's all your fault that your house has depreciated, that a high-way is being built nearby, that you did not have 20% down, that you never earned enough to pile up a mountain of savings, or that you did not live on Ramen noodles and sunshine so you can save a lot even out of a miserable salary - and pay for the high-way being build right next to you.

Do ignore such hypocritical approaches and wags of the finger and DO WHAT YOU NEED TO DO - fast. In such situations, the more you postpone simply because you are shamed into taking the beating for as long as it takes, the more you will have to lose over the long term. Credit scores can always be built back up - ours is absolutely stellar after only 2 years since the closing on the short-sale.

The Powers that Be who pull the strings of the global economy and get so many average Joes in the streets, literally without mercy, do not apparently worry too much about what's "ethical" and what's not. They seem to be sleeping pretty well at night - and so should you.


Best of luck to you and I hope you are able to figure out a way as soon as possible!

[creditcardfree]

I would not walk away either because I find the morally wrong, but would definitely rent the property and even if I still had to put in money...the renters would help make it feasible to keep the house but you wouldn't have to put as much of your money into it. Military have to do this all the time! Please try this option before you ruin your credit.

[syracusa]

We thought about renting and asked three property management companies what the home would rent for. All three were within $50 of each other. Our mortgage payment is $150 higher than that estimate. So, I really don't want to pay $150 per month or so to rent my home to someone.

You might still want to try this option first though - if your only option is foreclosure and you could not do a short-sale.
The difference you would be paying above the break-even point is not that horrible. Ours was much worse and we could not have continued to lose so much money every month.

Just imagine that you would have a little larger house payment/rent in your new place.

[LivingAlmostLarge]

Talk to a lawyer. Are you are sure a bank couldn't come after you?

Why did you rush to buy when your family hadn't moved yet?

Fwiw I couldn't foreclose knowing I had just bought another house. But its a personal responsibility issue and I don't know what your state laws are for the bank coming after you.

[siggy_freud]

Renting at a loss of $150 isn't really that bad. You're still gaining a lot of equity in the properly. Rent it at a loss for a year or two and see where the property values go. $150 a month is only $1,800 a year to sit on it. Sounds like you'd lose more selling it, and you'd certainly lose more walking away from the equity within it.

Don't look at the $150 as a loss. Look at it like you're paying $150 a month to let someone else put $1500 (or whatever) worth of equity in your home for you. Besides you'll probably save nearly that much by deducting your mortgage interest and lowing the amount of taxes you pay on the rental income.

[syracusa]

Renting at a loss of $150 isn't really that bad. You're still gaining a lot of equity in the properly. Rent it at a loss for a year or two and see where the property values go. $150 a month is only $1,800 a year to sit on it. Sounds like you'd lose more selling it, and you'd certainly lose more walking away from the equity within it.

Don't look at the $150 as a loss. Look at it like you're paying $150 a month to let someone else put $1500 (or whatever) worth of equity in your home for you. Besides you'll probably save nearly that much by deducting your mortgage interest and lowing the amount of taxes you pay on the rental income.

I agree.

[Slug]

What's the timeline on the highway? Are you outside of the bounds of the eminent domain the state will clearly have to use to build this thing?

In terms of the other advice, I think renting for a loss, a short sale, as well as walking away are all viable options, probably in that order. You might even find a renter that would enjoys it and would like to buy it.

[feh]

Not a real big fan of walking away from an ethical point of view. .. You signed the contract, so you should fulfill your obligation.

Ditto. You can make things work by renting the house, even it it doesn't cover the mortgage.

[disneysteve]

Ultimately it looks like I would need to drop the price about 10-15K below what I owe on it in order to generate interest from prospective buyers

We thought about renting and asked three property management companies what the home would rent for. All three were within $50 of each other. Our mortgage payment is $150 higher than that estimate. So, I really don't want to pay $150 per month or so to rent my home to someone.

Renting at a loss of $150 isn't really that bad. You're still gaining a lot of equity in the properly. Rent it at a loss for a year or two and see where the property values go. $150 a month is only $1,800 a year to sit on it. Sounds like you'd lose more selling it, and you'd certainly lose more walking away from the equity within it.

siggy is absolutely correct. You need to compare your two options:
1) sell at a loss of $10,000-$15,000 or
2) rent at a loss of $150/month.

You can rent for 100 months before it would cost you as much as selling at a 15K loss.

I'd absolutely take the rental option. And I'm with the others. I do not consider walking away to be an option at all. The choices are sell or rent and rent is the better choice here.

[Baby_nurse]

Oops, I should have read all the way through...Disney Steve had the same comments I did.

[JoeP]

Just curious: Why did you buy a second house before the first one sold? Could you have rented?

In any case, I agree with those who suggested you rent out your previous house until it sells.