40k upside down. Talk to me about forclosure....

[mr sarcastic]

My wife and I bought our house in the spring of 07, came into it with 20k, paid 220k plus 8k closing costs. our rate is 5.525, we pay $130 in pmi, $450 a month in taxes, plus insurance which brings our monthly payment to $1750. Our principal is currently 193k, current zillow value is 155k.....

We've been fine paying the mortgage, we've actually never missed one or been late. Our problem is that the house needs works, lots of work. Roof is leaking, the porch needs to be redone, garage is about to fall down, ect. We can pay the payment, but after having our first child, coming up with the extra money to put into the house is tight. Actually, I'd rather pay off my student loans then put money into a house that I'm 40k upside down. we have some credit card debt, a couple medical bills from the baby, no car payment or other debt.

I've been contemplating walking away for a year or so..... Our lender, NH FHA, won't work with us on a refinance (cause we're current and can/have been paying) or eliminating the pmi (cause we're upside down. Should I cut my loss's and start using the money I'm putting into my mortgage toward debt?

[NZTIGUAN]

The fact that you're upside down has nothing to do with the situation you're in, you'd be in the same situation if the place was still valued at what you paid for it.

So, I can't for the life of me see why you'd want to destroy your credit rating for many years to come just to lose money on a house that's exactly what you paid for.

The fact that the place needs repairs etc simply shows you were overextended from day one OR that you've spending on other things instead of maintenance on your single biggest asset !!

I just wish the laws were the same there as the rest of the World where there's no possibility of "walking away from it", here the debt would stay with you until you either repay it or die (and even then it would come out of your estate if you had one).

Sorry but I have no sympathy for people who have absolutely put themselves in the position they're in and now want "somebody" to carry the can for them !!

[mr sarcastic]

I'll agree that i was over extended in the first place, did I know that then? Not at all... I was under the impression that as time went on, I'd gain equity in the house and I could use it for repairs. Even that wasnt the greatest plan, this entire ordeal has been a huge learning experience in home buying.

The "somebody" to "carry the can" would be the lender, the same people won't give me the time of the day when it comes to helping me in this situation. They told me they'd drop pmi in 4 years, now thats not happening. Interest rates are currently around 3.5, I could free up some cash to put into the house if they helped me refinance, but they won't do it. It's crazy, but you need to be late on payments for them to consider working with you. So either way I'd be effecting my credit score.....

[Papa Dras]

Zillow is about the most inaccurate thing ever and you can't tell the value of your home better than throwing numbers in the air with it. Don't go making rash decisions or putting ideas in your head based on that. Talk to your lender and see about an appraisal to get a better idea of where you stand.

[hugoaswho]

just walk away you will never get that money back, and sinking more money into repairs is absurd

just rent a nice place for 1750 which should be pretty good rental depending on where you are

sorry to say but unless you need credit in the next ten years you might as well walk

[Mk3WhiteWolf]

Whoa now. Your lender won't drop PMI because of a Zillow value? That doesn't sound right at all. I know that my PMI terms are very specific about how/when PMI will drop (80% of the original loan, earlier if we pay for an appraisal and value/pay down conditions are met.)

Anyways, I'd never make a decision based on Zillow. I stopped even bothering with it when we purchased our home because it was just wrong on every property we looked at.

If the means are there, you should probably pay for an appraisal out of pocket so that you have a firm value.

[hugoaswho]

I do not agree with getting an appraisal it will most likely come in even lower then the zillow value

You are screwed the way most people are at this point

Real estate is worthless now, unless you are in demand urban area or wealthy suburbia there is a flood of properties which people are hanging on to thinking they will get their money back.

[FlashRedGLS1.8T]

I guess I'm lost here. What exactly is the reason that the house has so many issues all of a sudden and if that's true why do they need to be addressed so quickly?

[blue70beetle]

Walking away is unethical and immoral. You signed the mortgage; regardless of lending practices and the ability of those the banks qualified to actually pay, you're an adult, and when you enter into a contract, it is your responsibility to be sure you fully understand it, and this includes ensuring that you are able to evaluate any potential negative consequences.

I've felt the pain of leaving a check in the amount of 10% of my home's value at the closing table when I sold. That was ten years ago, when the first response when your home value dropped was not "short sale" and the second response was not
"walk away - not my problem."

Can you tell I don't have much sympathy for those adversely affected by the RE market? We live in a country primarily composed of children, it seems.

[dunhamjr]

I do not agree with getting an appraisal it will most likely come in even lower then the zillow value

or you could be totally wrong too.

on a whim talked to a lender about my primary (while working on a refi on my rental)... turns out zillow thinks my primary house is worth $290k, while Chase tells me it is worth $313k.

zillow is a place to start. but it is typically only in the ballpark, not an exact measure of value.

OP
before you consider a foreclosure based solely on zillow numbers. go talk to your lender. see if you can do one of the new fancy harp refi's. see if there is anything they can help you with. determine positively what terms need to be met to have PMI dropped.

[dunhamjr]

Walking away is unethical and immoral. You signed the mortgage; regardless of lending practices and the ability of those the banks qualified to actually pay, you're an adult, and when you enter into a contract, it is your responsibility to be sure you fully understand it, and this includes ensuring that you are able to evaluate any potential negative consequences.

blah blah blah.

i confronted this logic in the last housing post.

as i said their, your logic works person to person... not person to bank.

contracts are renegotiated ALL the time. stop lying to yourself that contracts are some sort of scripture of God and cannot be changed.

[mr sarcastic]

I used the zillow value purely as a number to illustrate my situation in this thread. My taxed value is higher, naturally.... But houses in my area have sold for much less then there zillow "appraisal". a house down the road from me, better condition, double lot (mine is single), larger by 300sqft, short sold last summer for 120k. That's was essentially the moment I realized I was in real trouble.

As for why I'm all of a sudden needing I get out, or why all this work needs to get done now.... I don't NEED to get out, and I've been putting off repairs cause I cant bring myself to put money into the property considering its value. I've been holding on hoping the market would change and I could get myself out of this. 2 things are kinda putting me to a decision: I'm really feeling every payment is waste of money, delaying the inevitable. I could be using that cash better else where. And the other is that I can't put off repairs any longer if I decide to stay. The roof is leaking into my attic, stuff like that gets more and more expensive to fix if i do decide to stay.

As for pmi, I actually have what they call MIP. I had never heard of such a thing until I called them trying to get it eliminated. I'm not sure how it's different then pmi, I have it cause my loan is state backed. They said I need no less then 20% equity to have it dropped. At this rate, that won't happen for a decade.

[mr sarcastic]

I acknowledge that i'm an adult and I am responsible for the position I'm in. But I also acknowledge that I'm the only one looking out for me now. I need to do what I need to do to make the best of where I'm at. Sitting back and struggling isn't it. These lenders only look out for themselves too, they knew more then I didn't that I was entering into a loan that over extended my pocketbook. I had never been there, they look at debt/equity ratios every day. Not blaming this completely on them, I signed the papers.... But just know I'm looking out for me from here on out, cause you know they arnt.

[blue70beetle]

as i said their, your logic works person to person... not person to bank.

contracts are renegotiated ALL the time. stop lying to yourself that contracts are some sort of scripture of God and cannot be changed.

Contracts are renegotiated when both parties have an interest in doing so. At this point the bank doesn't have an interest in renegotiating anything because the borrower is current. That will change once the loan is not current.

However, I say it's unethical because the only reason he's talking short sale is because the value has dropped to less than is owed.

It would logically follow that anyone upside down on a car should be able to short sell and the bank can eat the difference. The only real difference is that everyone knows cars lose value. For a while, everyone knew that homes only went up in value - and did it quickly!

And let's take the logic another step further...I buy a new computer with my credit card, and when it becomes worth less than I paid, I'll take it back to Best Buy, and the credit card company can absorb the difference.

In each of these cases, the borrower has a contractual obligation, and the fact that the asset dropped in value does not morally or ethically relieve them of this obligation! How is this different than a house, apart from the fact that a house is worth more money? This just means there's more at stake for both parties.

[FlashRedGLS1.8T]

as i said their, your logic works person to person... not person to bank.

contracts are renegotiated ALL the time. stop lying to yourself that contracts are some sort of scripture of God and cannot be changed.

This doesn't discount judgement from some sort of moral aspect.

I understand what you are saying, but there's nothing wrong with calling people out for things like this.

[dunhamjr]

Contracts are renegotiated when both parties have an interest in doing so. At this point the bank doesn't have an interest in renegotiating anything because the borrower is current. That will change once the loan is not current.

However, I say it's unethical because the only reason he's talking short sale is because the value has dropped to less than is owed.

It would logically follow that anyone upside down on a car should be able to short sell and the bank can eat the difference. The only real difference is that everyone knows cars lose value. For a while, everyone knew that homes only went up in value - and did it quickly!

And let's take the logic another step further...I buy a new computer with my credit card, and when it becomes worth less than I paid, I'll take it back to Best Buy, and the credit card company can absorb the difference.

In each of these cases, the borrower has a contractual obligation, and the fact that the asset dropped in value does not morally or ethically relieve them of this obligation! How is this different than a house, apart from the fact that a house is worth more money? This just means there's more at stake for both parties.

cars and computers are not a market that banks helped to inflate.

purchasing cars and computers is not hundreds of thousands of dollars, which really when improperly bought can ruin your financial situation.

banks basically talked people into buying. they led buyers into bad loans. they handed out more money then people could realistically manage to pay back comfortably. people rely on banks/bankers to be the experts and offer then knowledge and advice. banks were unethical and unmoral in the advice they gave.

the hurdles to selling an underwater house are VASTLY different then selling ANYTHING else you will ever buy/sell. car, computer, mongoose breeding operation... etc.

if the OP wants to short sell his house. his credit will be wrecked for a couple years. he will be completely out of any downpayment made. he will be completely out of all payments on the mortgage to this point. he will be completely out of all moneys paid in upgrading and maintaining the property to this point. that is the punishment. that is fair.

the punishment does not need to be 'ethically and morally you must pay the bank'... banks can sell their loans out to other lenders. why cannot individual people pass the buck as well?

and again. banks got bailed out with my tax money. why can't i get bailed out?

[dunhamjr]

This doesn't discount judgement from some sort of moral aspect.

I understand what you are saying, but there's nothing wrong with calling people out for things like this.

calling people out.
telling them to think twice.
suggesting that they evaluate other options...

that is one thing.

bashing people. calling them immoral. unethical. and a child.
that is something completely different.

[mr sarcastic]

you jumped in and said everything i wanted to say. comparing my situation to buying a computer is pretty insulting. i've been upside down on a car before, got into a accident that totaled it, and paid on it for over a year after it was gone. thats nothing when compared to being upside down on a house for more money then you make in a year. you expect me to have ethics and morality? the lender never had any, and still doesnt so why should i? they sold me into a load that i couldnt afford, i've been scraping by, doing the "right thing". and now they wont work with me till i miss payments and start to erode at my credit score..... thats moral and ethical.

[FlashRedGLS1.8T]

calling people out.
telling them to think twice.
suggesting that they evaluate other options...

Agreed,

bashing people.

Agreed,

calling them immoral. unethical.

Not using the OP as the basis for this.
Unless there are absolutely no other options, I don't see an issue with this.
We judge morality and ethics on our own scales, many different approaches to morality can be used here.

and a child.

Agreed,

[FlashRedGLS1.8T]

they sold me into a loa(n) that i couldnt afford...

You signed a loan that you could not afford.

[mr sarcastic]

I know that, but when you talk about ethics and morality, I have no sympathy. They gave out mortgages that they knew were sketchy, then sold them off.

I'd never made a purchase of this scale before, lots of assumptions we're made and I trusted them as professionals that they we're doing what was best for both party's involved. Obviously they were only thinking about themselves and making the sale. I was naive in thinking that they truly had my interests in mind... Hell, I still remember the phrase the loan officer said, "we want to make sure that the payment isnt so much that you can't afford pizza and beer on a Friday night. I'm confident you'll comfortably make this payment." that was a bunch of bull****, they'd seen people like me before, they knew what they were doing.

[mr sarcastic]

When it comes to this morality issue, let's all agree to disagree. Either way, morality and ethics won't change the position I'm in. I've learned a lot about money and RE, and I'm just looking for the best solution financially. The biggest lesson I've learned is that I have to do what's best for myself and my family. Sitting back and waiting for the market to come around isn't gonna get me anywhere. I guess my first move is to see what it'll take to get an appraisal.

[blue70beetle]

purchasing cars and computers is not hundreds of thousands of dollars, which really when improperly bought can ruin your financial situation.

the hurdles to selling an underwater house are VASTLY different then selling ANYTHING else you will ever buy/sell.

And this is why it is so important for people to consider their purchase before they agree to buy. If they can't effectively do this, or if the don't have the financial means to deal with the potential downside of the investment, there are houses and apartments for rent in every town or city in this country.

the punishment does not need to be 'ethically and morally you must pay the bank'... banks can sell their loans out to other lenders. why cannot individual people pass the buck as well?

You mean why can't individuals sell an investment for a profit or a loss? They can, and they do. For you to make this parallel indicates that your understanding of the mechanics of selling a loan is as follows: bank A has a loan. This loan is costing them more money (or is earning them less money) than they are comfortable with. They pass it to bank B and let bank B eat the loss, giving bank B no choice but to take the loan.

In reality, bank B will take the loan if they choose to take the loan. It's a transaction between two willing participants who are generally not forced to enter into it.

Banks agree to short sales because it's better than the alternative, which is foreclosing. They issued the loan to generate interest income, not to get in the business of selling distressed properties.

banks got bailed out with my tax money. why can't i get bailed out?

http://money.cnn.com/2011/03/30/news...gram/index.htm

So that was free money? According to this article, no. If you want a loan (and based on the context of your comment, apparently you do), there are lenders all over the place. If you actually want a "bailout" - as in free money - well, don't we all?

[AIRider]

Learn how to do the repairs yourself!

[mr sarcastic]

Just found info on another house that sold on the street next to mine... My house is taxed assessed at 163k, zillow at 155k. This past April a house of similar size and age, tax assessed at 165k, zillow at 157k, sold for 132k after 6 months on the market (price started at 145k). Fair to say 130-135k is a ball park market value of my property? I haven't seen a house in my area sell for more then that since we bought ours...

[mr sarcastic]

Learn how to do the repairs yourself!

Still have to spend money for materials. Not once have I paid anyone to works my house.... I have a wrap around porch, 25ft across the front and 30ft down the side. The roof was sagging and after a close inspection I found that the 3" pipes pounded 2ft into the found was the only thing holding it up. Ripped it all out, most was rotten and not to code. Found free pressure treated 2x6's on Craigslist, just needed to pull the nails.... But the posts cost money, footings, nails, screws, ect. Still had to spend $2000 and I haven't gotten the decking down yet.... Have you looked into the cost of roofing shingles lately?

[hugoaswho]

Your house is probably worth less then 100k if it's in condition you are saying it's in (leaking roof etc)
...there's nobody that is going to buy your house for even that...the only thing you can do is walk away or invest the money into the repairs which you are not going to get back, but might atleast be able to sell the house.

The banks and gov have refi programs (HARP) to address this, if you do not qualify all you can do is walk away now and lose all the $ you paid so far or keep paying and hoping your roof wont cave in.

The bright side is that after you walk away and they foreclose the house there is a chance you can bid on the forclosure and buy the house for 1/10 of what you owe now

[mr sarcastic]

haha! i was hoping for that so i didnt need to move. my father in law said he would buy it and when my credit came around i could buy it back off him.....

[Mr Roo]

Personally, I would think long and hard about what you thinking about doing. I would call your lender and ask what programs they have or find out who your investor is. Someone already mentioned Harp program earlier. If you do walk away just know you wont be able to buy a pack of pensils without paying through the nose. I work with a lady that is going through a short sale, possible foreclosure(bank hasnt approved her short sale yet). She missed a payment on her first and second and her credit fell like a rock. During this process, her car died and she went to get a loan. Lets just say her rate is through the roof. Basically unless your home is a death trap, find a way to get it fixed. Second job, steal, kill, or borrow, cut off everything you dont need that you pay for monthly. Also if it were not for the repairs, would you even be thinking about walking away?

[mr sarcastic]

I don't qualify for the government programs because my loan isn't backed by Freddy Mac or Fanny May.
And what you were saying about your friend that missed payments. that's the killer for me, they need me to miss payments before they're willing to work with me. So my credit would be effected either way....
If the property didn't need so much repairs, I'd probably not be thinking about walking as much, but I'd still not be comfortable in my situation. every time I think about putting the money into the repairs I get discouraged. I don't think you can understand the feeling till you've been there. For at least 2 years I've had the weight of this on my shoulders, every time I come home from work all I see is the work that needs to be done. Then I start thinking about the money, it's a ****ty way to live.

[blue70beetle]

This is a perfect example of the point I made earlier. You bought the house, it was going to need repairs of some sort at some point, it dropped in value, and now you are seriously considering just walking away from it because you don't like the situation you're in.

What in the world entitles you to a different situation?

This sort of crap is the reason I made the "childish" comment early on in the thread. Don't like your situation? Don't worry about it...walk away and let someone else deal with it! (I don't let my kids do this, btw - if they commit to something, they are required to finish. I don't want to take a chance that one day they might, for example, buy a house and then just decide to walk away when they don't like the way it turns out!)

Some people dislike my analogies in here, but I'll toss out another just for fun. If you got pulled over for DUI, whose fault would it be, the cop or the bartender? Obviously the bartender, since he gave you the drinks. Oh, and because of this, he loses his license and goes to jail because it sure would be an inconvenience for you.

[dunhamjr]

Some people dislike my analogies in here, but I'll toss out another just for fun. If you got pulled over for DUI, whose fault would it be, the cop or the bartender? Obviously the bartender, since he gave you the drinks. Oh, and because of this, he loses his license and goes to jail because it sure would be an inconvenience for you.

again no.

its the bartenders fault if he hands you the bottle and tells you that no matter how much you drink that you will not get drunk... and beyond that no cop would ever pull you over anyways.

[mr sarcastic]

This is a perfect example of the point I made earlier. You bought the house, it was going to need repairs of some sort at some point, it dropped in value, and now you are seriously considering just walking away from it because you don't like the situation you're in.

What in the world entitles you to a different situation?

This sort of crap is the reason I made the "childish" comment early on in the thread. Don't like your situation? Don't worry about it...walk away and let someone else deal with it! (I don't let my kids do this, btw - if they commit to something, they are required to finish. I don't want to take a chance that one day they might, for example, buy a house and then just decide to walk away when they don't like the way it turns out!)

I feel bad for your kids then. Your teaching them to continue no matter if they made the wrong decision, even if they recognize it and have a way out. I was taught to always assess what I'm doing, if it's right for me then keep going and if not, make the best of it any way you can. Your talking like I owe so much to the lender, who are you kidding? They're in it for a profit, and they'll always do what's best for their bottom line. If they were to act towards me they way you describe i should act, I wouldn't have had a reason to make this thread. Your completely out of touch with the reality I'm in, it's easy for you to sit there and lecture when your not the one in the hole.

[eluwak]

A couple of things as we have been recovering from a short sale ourselves:
- If you can make the payments, and have had no major changes to income, then it is unlikely you will be able to short sale it. Maybe the bank will work with you, but not likely if you went to sell strategically.
- A strategic default will be a target for the bank to seek a deficiency judgement if your state allows. So don't think by walking away that you get off scott free (you could be lucky depending on the state laws though).
- A short sale/forclosure will blacklist you from obtaining a mortgage for at least two years. At two years you can get a mortgage if you have 40% down. At four years if you have 20%. At three years you qualify for FHA at 3.5%. You might weasel a local bank to give you one earlier, but it's usually based on extenuating circumstances that you clearly don't have (I was laid off and had to relocate for work and still didn't qualify).
- If you short sale the house a family member is not allowed to purchase it. If it goes up for auction I don't know, but depending on where you are banks tend to buy the house for sale using the "auction" as a front for writing off losses.

I'm sorry you don't like your house anymore. I thought about strategically defaulting once when my wife's income is reduced. When I got laid off though there was no "strategic" about it with the payments being more than my wife brought home. Think long and hard about it because the consequences suck, especially if your wages get garnished for walking away when you could have afforded it.

[mauslick]

40k isn't so bad..........think of all those that have lost millions.......

for sale lahaina maui: 800k purchase price 2009 bunch of improvements for sale 2012 765k

sold 600K

owner carrying the paper, probably will recover his cost in interest if the new owner actually pays him

I guess it's all relative as to what a big loss it.......\\

the lesson here for me is: maintain the house