What was foreclosure like for you?

October 3, 2010 1:54 PM

Financial-Trainwreck-Filter. What was your foreclosure experience like? What about your experience with just having bad credit? Where could I get inexpensive legal foreclosure advice? Is there a good repository of people's foreclosure stories on the web somewhere?

My story is like so many other people's, and I don't think I can hold onto this house unless I want to start sacrificing my (even-)long(er)-term financial future. I'm trying to find out what it would be like to go into foreclosure and have bad credit for the next five years or so.

Relevant details: Bank of America, HUD/FHA loan, in northern California. I owe $155k on the loan but could probably sell it for only $60k-$80k (given the repairs needed). I lost my job, and by the time I found another, most of my savings were gone. This new job pays less. So I'm current on all accounts, but now my income barely exceeds minimal expenses even after taking on roommates, and cutting and deferring everything I can. (My student loans, for instance, can only be deferred for five more months before I have to pay them again.) After one emergency repair, I now have $10k in credit card debt that is starting to drag down my otherwise good credit score and that I'm itching to pay off (I had no debt for several years leading up to the purchase). I could catch up within a year if I went back to renting, but being underwater, I can't sell. My small cash reserve could easily be gone if I were to lose my job or have some other additional emergency (and already there are house repairs needed that I cannot afford), so this is not sustainable over the long term. I'm starting to think I have to use the cash I have left to get through a foreclosure.

What was your foreclosure experience like? Did you just send them the keys? How long did it take for them to foreclose on you? I've heard of banks refusing to foreclose -- did that happen to you, and was there anything you could do, or were you stuck in a long-term limbo? Did you pay your property tax and home insurance during the limbo time? What was the credit score hit? When did it hit your credit report in relation to the different phases in the foreclosure timeline? How fast did your credit rebound? I know my credit card lines will be slashed, and that I should secure a place to rent before the credit hit happens. I don't need a good credit score for my employment. Will this affect my ability to get student loans in two or three years? I want to sell my (old) car to partially pay off the debt, as I live somewhere with good public transit, but would bad credit impact my ability to rent a car when I do need to drive for work? Were there any consequences that you did not foresee?

Did you find other good resources to learn about the foreclosure experience and consequences? Ideally, in addition to hearing your stories, I'd like to find some real-life sliding scale or free legal advice, a good web forum with people discussing the experience, and a "Strategic Foreclosure For Dummies" guide. (This is not a strategic foreclosure if you consider that term to refer to foreclosures done solely because the house is far underwater, but I would be going into it deliberately and do have enough latitude to approach this carefully.)

You can send your private stories to me at [e-mail]. I appreciate hearing anything you can share.

posted by anonymous to work & money (4 answers total)

Could you email the mods with some more details? Things that would be helpful to know:

(1) current monthly income
(2) monthly bills (including student loans)
(3) possible tax deduction from mortgage payments
(4) possible rent from renters
(5) condo? house?
(6) what part of California -- this is important for determining whether your underwater property comes back (the central valley is a lot different than SF for example)
(7) What kind of repairs and how expensive
(8) how much of an emergency fund do you have now

W/O this info, it's hard to know whether foreclosure is really best....
posted by bananafish at 2:36 PM on October 3, 2010

I have never had a foreclosure but I have foreclosed on a number of houses.

First, foreclosure will effectively destroy your credit for about 24 months and do serious damage for several more years after that. Make sure you have the credit cards you want, that you won't need a car loan anytime soon, and some plan for living arrangements prior to physically leaving your home. Maybe get your lease signed on the new place you are renting before you start to default. Oh, and don't tell your new landlord that the reason you are moving is because you plan on defaulting on your mortgage. They might assume that your willingness to walk away from a house suggests a willingness to bail on a lease. And a private student loan in two years-forget it. You can get the non credit dependant ones, like Staffords, but anything private-no way will they lend to you within 36 months of a foreclosure.

Second, regarding the foreclosure process... this may be a little out of date-it's been a few years-but it'll take a while and it doesn't really matter how you do it. I've received housekeys in the mail as a way of "giving the house back" sorta speak. I even had a lady send us the stopper from her sink as a way of communicating she couldn't make payments any longer. But most people stop making payments, stop communicating, and let the silence do the talking. In that case, the mortgage company will try to contact you, with increasing urgency, start trashing your credit at the 30 day mark, and start contacting the sheriff to get you out after probably 90-120 days. Maybe longer since right now lots of banks are forebearing in circumstances they wouldn't normally due to the economy. So there is a bit of conundrum there-you'll still have a house to live in but your credit will be deteriorating by the week, making a new lease potentially complex.

I don't know if bad credit impacts your ability to rent a car, but it will impact your insurance rates so if you need auto insurance to rent a car...I guess I don't know how that works really. Home insurance-I'd pay this until the property changes hands because if you don't and vandals break into your empty house and set it ablaze, you'll be the proud owner of a pile of rubble and still have the mortgage. I'd also continue to pay property taxes as a tax lien would be a disaster on top of the foreclosure.

I can't help you with resources except to warn you to be careful of scams-a lot of bad people are trying to take advantage of desperate homeowners.
posted by supercapitalist at 6:45 PM on October 3, 2010

See a HUD adviser. It's free and they'll walk you through the process. You'll likely have many months after you stop paying before you'll need give up the house, which will give you opportunity to save up some money.
posted by Wordwoman at 7:34 PM on October 3, 2010

From the OP:

Here is a correction to the email address: [e-mail]. Thank you to those who have answered. This is very helpful information. bananafish, I appreciate your desire to help evaluate the decision. As the situation is very complicated, it won't be possible for me to post enough details online for a good evaluation of the decision. Feel free to email me if you'd like. Thanks again to all of you.

posted by jessamyn at 7:58 PM on October 3, 2010