I've got a situation that I need some advice on. I have two homes, one is empty and I can no longer pay the mortgage (it's an 80/15 split mortgage/home equity loan) on. I'm in Ohio. This will be the first month I miss the payments. I'm unsure what to do. Would it be best to simply stop payments and let it go into foreclosure down the road? Contact the bank now with a letter informing them I will no longer be making payments and would like to arrange a deed-in-lieu type of situation? Something else? Do I need to have the account in delinquency before I can do anything? I have very, very good credit so I'd like to minimize the damage that is going to be done.
Can't you rent it out fast? There are a lot of renters these days looking for good deals. If renting isn't an option, why not sell? Are you underwater on the home? If so, by how much? If you have equity in the home and haven't missed any payments yet, your bank will likely not be too interested in helping out at this point.
Rents in that area are going for about $300 less than I need to cover the mortgage, so that's not really doable. It's been on the market for about 20 months. The home next to me just sold for $80000 and it's the exact same size/layout. I owe about $95000 on it. I just feel completely stuck with nowhere to turn.
Taking $300 less than what you need to cover the mortgage is a better option than just foreclosing. You should be able to cut expenses/increase income elsewhere to cover the difference with some extra effort until rental rates increase. I have a rental property as well that is cashflow negative at the moment, but having a renter paying something is certainly better than nothing. Since it doesn't sound like selling is a feasible option at the moment, I would do everything possible to get it rented out fast. So many people are just walking away these days, but I would fight to hold on as long as you can. It'll be worth it in the long run, and your credit history will thank you too.
Over the years I have helped a great many people with mortgage foreclosures and I'm still doing so today. I currently have somewhere around 10 different properties in courts all across the U.S. with a couple or so here in Oklahoma. My people stay in their homes and usually win one way or another. Be that as it may, You won't find any better advice than Joshua has given you anywhere. You might be able to win a foreclosure case but at what cost? It isn't going to be free no matter what you do and your credit scores will take a terrible hit. Take Joshua's advice if you possibly can. Stay out of trouble if at all possible.
Believe me, I do not want to walk away or damage my credit, etc. At this point the only way I can continue to pay the mortgage is to make a withdrawal from my IRA, which I obviously really, really don't want to do. Would there be any sense in my contacting them just to see what they say? If a short sale is possible, etc? After having the home on the market for so long and it being empty now, I really don't feel like I have any choice beyond to land as softly as possible.
A short sale will wreck your credit just as much as a foreclosure, but it's obviously another option to get out of the house. You could always call your lender to talk it through and try to determine their position on short sales. I sense from your response that you're not willing to rent it out at a loss and do whatever is necessary (take a second part-time job, cut more expenses) to make up the difference for the time being. Can you help me understand why?
Because I don't feel I can. I am a full-time single dad to an almost 4 year old. I don't have cable TV to cut, I can't cut childcare cost (which is 25% of monthly take-home), we don't buy extravagant food. Then there's the mortgage where I live now, school loan payment, car payment, etc...bills that can't be reduced. I'm not willing to take a second job as I work a normal 8-430 job and the rest of my time is for my son - my time with him is something I won't compromise on. Then there's the issue of managing the rental - either paying some company to do so or doing it myself and having to deal with repair costs or a tenant who misses a payment meaning I can't make the mortgage that month, etc. That all scares me, as well.
I wouldn't be too scared about managing a rental. If you're careful up front and choose a solid tenant, your job as a landlord should not be that difficult. I rarely ever hear from my tenants- they just deposit their rent check each month. I can certainly understand why you're not willing to give up any more time with your son. However, I still think it would be a shame in this situation to wreck your credit and lose the home over about $300 a month. Could you sell the car and buy a cheaper one in cash so you wouldn't have any more car payments? Are you sure there are no other childcare options that wouldn't eat up 25% of your take-home pay? That's a BIG chunk of your income. I'm sure you've probably already thought all these things through. I'm just throwing out ideas...trying to help.
I appreciate your taking the time to respond thoughtfully. I need to rethink this over again and see what I can do.
JGuy - to offer a different perspective..how much is your credit worth to you? We were in a similar situation. We had several rental properties. A few years later - we now have a 5 year old..and some pay cuts at work, and it was no longer something we could do. We had credit scores over 800 but at what price? The rentals were causing stress and costing big money. We lost about $300 per month on each one also. We talked to a financial advisor, our tax guy, and a good real estate attorney. We made the decision to walk away. Our 3rd and final foreclosure takes place tomorrow. Our credit is still in the low to mid 600's (Transunion currently 635). Of course, we kept paying everything else. We have peace of mind now for our financial future. It was worth it and the only regret I have is not doing it sooner. Before making this decision there are many things to take into account. Research the foreclosure/deficiency laws in Ohio. It may also be a good idea to pay a few hundred dollars and talk to a real estate attorney in your state. They can review your loan documents and educate you on the laws in your state so you know exactly what you are up against. It's a big decision to make. There is also a forum called loansafe.org. It has great forums that will educate you all about this stuff. There are tens of thousands of people on it all over the country trying to make the same decision as you are..and some like me who have already made it. Best of luck to you!
Hi JGuy, I'm with Calicat. My situation was a little bit different than yours. I was upside down in my principal residence and exhausted an IRA and savings because of guilt of not paying my mortgages. I consulted a lawyer who said not to spend another dime of my retirement and just let my place go. I also consulted an short sale realtor and ended up doing a short sale. We had exhaused all other avenues including renting a room to help with the mortgages. Calicat is right, there are many many people in your situation. I wish I could offer some advice but can only speak from my situation. A short sale will hit your credit score but won't be as devestating or last as long as a foreclosure. Best of luck!
There is a valuable lesson that it is highly unlikely any of you on this forum would ever have had a chance to learn because it is an expensive lesson and a very time consuming one to learn. Here it is. Those who stay and fight keep their homes and usually get a better interest rate and maybe even better terms on a newly rewritten contract. Those who pack up and go lose every time. Now how did I learn that lesson? I spent loads of time every day going through court records to find people who had been foreclosed on. Latest information available. Then I spent time and money printing up sales letters and more time and money mailing out those letters. I was sending out as many as maybe 59 to 100 letters a week an getting almost no returns. So I bought a good GPS unit and started hand delivering those letters. And what I found out was that most of the houses had already been vacated long ago. No wonder the results were so bad. Those who stayed and fought won their battles every time. I went to court with some of them and sat through their hearings. So far, and I'm still working with foreclosures today not one has had to take the lender to federal court. Not one. It has usually taken about 2 years to get to a settlement that was acceptable to both parties. In the meantime the homeowners were able to save up several thousands of dollars they could pay towards their new closing costs and maybe even a small down to go towards the new contract. ,br/>I've seen lots of things happen over these last 4 or 5 years but the only losers I have seen are those who just simply gave up, filed bankruptcy , went for short sales or other things such as loan modifications. They lost every time.
The credit hit for short sale vs. foreclosure is debateable. On your FICO score, its almost identical. If someone reviewing your credit report takes the time to look at foreclosure vs. short sale, it may be a little better. It's also better if you plan on trying to qualify for a mortgage again in the next couple of years. Billbauer - I would like to respectfully disagree with you on the "loser" label. Owning a home is a business decision and walking away is sometimes, in fact, often times, the smartest thing to do. Big businesses do it every day and it's considered "smart business." There is no reason a family should be looked upon any differently. WHen you buy a home, you sign a contract saying you will pay or they will take the home back. I just dont agree with the stigma that the banks have created..where people have some "moral obligation" to pay their mortgage. AND there are VERY few GOOD loan modifications. They are hard to get and most of the time not that beneficial. THe banks have created this environment and that is one of the reasons why foreclosures are still so high...
I too have done some research on foreclosures, short sales and loan mods. Loan mods seem to only work for people with short losses of income and who are not upside down or just barely upside down in their mortgage(s). For some homeowners it will be some time before the value of their homes reach the level it was a few years back. Also too factor in some HELOC with variable aprs. When interest rates rise so will monthly payments. Banks won't refi if your home is worth less than what your balance is on your mortgage. I have a friend with a steady job, paid off 1/3 of his mortgage after he sold his first home and his bank still won't let him refi to a shorter term mortgage at today's low interest rates. Other things that don't seemed to be mentioned are HOA fees, extremely high insurance costs and EVER increasing property taxes. These factors alone can raise monthly mortgage payments a few hundred or so a month. Also what about maintainence costs for appliances that break down, roof replacement, heating and cooling systems that can run upwards to 6K or more. So I agree with Calicat I don't see a lot of losers who go through foreclosure, short sales and who may actually qualify for loan mods. Just my 2 cents.
