Should we walk away from our house?
August 29, 2011 7:36 AM Subscribe
Should we walk away from our house?
Here’s some quick background on my situation. About 6 years ago my girlfriend (now my wife) purchased a small house for us during the bubble. My name was not on the mortgage, and I wasn’t even present at the closing.
Fast forward to about 8 months ago, we realized that she had been paying some ungodly percentage rate (something like 9% from the original Countrywide loan) and we decided to refi the place for a smaller payment. (It’s just easier to say “we” than “her” since I’m obviously somewhat involved as her husband). Since the housing market sucks now, we were concerned that the house wouldn’t appraise for what we paid and that would keep us from being able to refi, but to our surprise it appraised for $115k and we owed $105k in it so she was able to refi to a 30yr FHA, thus lowering the payment.
A few months after the refinance we started to realized that we had outgrown this tiny place and needed something bigger so we could start a family. We found a bigger place that we liked, and I bought the new place only in MY name. So now we have TWO houses and need to get rid of the old one.
When we began the process to sell our old place we found that the comps in the area were selling for far below what our house had just appraised for (for the refi) and that it would be nearly impossible to sell the old house without taking a big loss, not even including the realtors fees. Comps in the area were selling for about $75-$80K, we owed $105k + 3% realtors fees = needed to sell it for about $112k to even break even. Impossible.
1. I don’t want to rent the place till the market “swings back”, because frankly I’m not sure it will for quite some time.
2. I refuse to lose $20k+ on this house. I think it would make more sense to screw up my wife’s credit than lose that much money.
3. How did it appraise for so much more than houses in the area are selling for? Does that seem shady?
I spoke with a real estate attorney who advised me of 2 options..
1. Find someone (anyone) who’s interested in “buying” the house, regardless of their credit status, deed the house to them and hope they make the payments
The attorney said that we’d also have to give the buyer power of atty on the house so they could deal with making the payments to the mortgage company. And that if they stopped making payments the bank would likely come after my wife.
2. Stop making the payments on the old house until the banks “begs us for a short sale”.
I guess I’m asking it anyone else has any other suggestions for us, or if these really are the only options. Like I said, I don’t want 2 house payments and I don’t want rent the place. We also don’t mind if my wife’s credit takes a hit to get out from under this. I just want to be certain that the bank can’t come after the new house that’s in my name (which I was assured by the atty. It couldn’t) .
Any help would be great!
Here’s some quick background on my situation. About 6 years ago my girlfriend (now my wife) purchased a small house for us during the bubble. My name was not on the mortgage, and I wasn’t even present at the closing.
Fast forward to about 8 months ago, we realized that she had been paying some ungodly percentage rate (something like 9% from the original Countrywide loan) and we decided to refi the place for a smaller payment. (It’s just easier to say “we” than “her” since I’m obviously somewhat involved as her husband). Since the housing market sucks now, we were concerned that the house wouldn’t appraise for what we paid and that would keep us from being able to refi, but to our surprise it appraised for $115k and we owed $105k in it so she was able to refi to a 30yr FHA, thus lowering the payment.
A few months after the refinance we started to realized that we had outgrown this tiny place and needed something bigger so we could start a family. We found a bigger place that we liked, and I bought the new place only in MY name. So now we have TWO houses and need to get rid of the old one.
When we began the process to sell our old place we found that the comps in the area were selling for far below what our house had just appraised for (for the refi) and that it would be nearly impossible to sell the old house without taking a big loss, not even including the realtors fees. Comps in the area were selling for about $75-$80K, we owed $105k + 3% realtors fees = needed to sell it for about $112k to even break even. Impossible.
1. I don’t want to rent the place till the market “swings back”, because frankly I’m not sure it will for quite some time.
2. I refuse to lose $20k+ on this house. I think it would make more sense to screw up my wife’s credit than lose that much money.
3. How did it appraise for so much more than houses in the area are selling for? Does that seem shady?
I spoke with a real estate attorney who advised me of 2 options..
1. Find someone (anyone) who’s interested in “buying” the house, regardless of their credit status, deed the house to them and hope they make the payments
The attorney said that we’d also have to give the buyer power of atty on the house so they could deal with making the payments to the mortgage company. And that if they stopped making payments the bank would likely come after my wife.
2. Stop making the payments on the old house until the banks “begs us for a short sale”.
I guess I’m asking it anyone else has any other suggestions for us, or if these really are the only options. Like I said, I don’t want 2 house payments and I don’t want rent the place. We also don’t mind if my wife’s credit takes a hit to get out from under this. I just want to be certain that the bank can’t come after the new house that’s in my name (which I was assured by the atty. It couldn’t) .
Any help would be great!
IANAL, but the situation you're describing is exactly the situation in which people walk away from homes these days. I don't know what the legal or credit ramifications are going to be, so you might want to consult with the lawyer again, but it might be time to just leave the keys in the mailbox.
posted by Gilbert at 7:48 AM on August 29, 2011
posted by Gilbert at 7:48 AM on August 29, 2011
1. I don’t want to rent the place till the market “swings back”, because frankly I’m not sure it will for quite some time.
Can you clarify this? It doesn't make sense to me at all.
posted by jon1270 at 7:49 AM on August 29, 2011 [1 favorite]
Can you clarify this? It doesn't make sense to me at all.
posted by jon1270 at 7:49 AM on August 29, 2011 [1 favorite]
Oh wait, I get it. I was reading it as, 'I will be willing to rent it only after the market swings back.' You meant something more like, 'I want to be rid of it now because later won't be any better.'
posted by jon1270 at 7:51 AM on August 29, 2011 [1 favorite]
posted by jon1270 at 7:51 AM on August 29, 2011 [1 favorite]
IANAL, but the situation you're describing is exactly the situation in which people walk away from homes these days.
I thought people were walking away from homes in desperation because they were underwater as a result of being snowed and fleeced and victims of the crash. The OP was able to refinance, had the money to buy a second home, and now wants to walk away because he doesn't want two mortgage payments anymore? The time to assess the market value of your home is before you buy another house, not after. The time to buy another house is when you are selling your current home, not beforehand.
To answer your question:
Should we walk away from our house?
No.
posted by headnsouth at 8:01 AM on August 29, 2011 [57 favorites]
I thought people were walking away from homes in desperation because they were underwater as a result of being snowed and fleeced and victims of the crash. The OP was able to refinance, had the money to buy a second home, and now wants to walk away because he doesn't want two mortgage payments anymore? The time to assess the market value of your home is before you buy another house, not after. The time to buy another house is when you are selling your current home, not beforehand.
To answer your question:
Should we walk away from our house?
No.
posted by headnsouth at 8:01 AM on August 29, 2011 [57 favorites]
I refuse to lose $20k+ on this house.
Well that's your problem right there. Somebody is going to take a bath here. Possibly several somebodies. You'll probably be one of them. You bought this house near the peak of the bubble. Which sucks, but it's also water under the bridge. Since then, the average home price has fallen about 40%. You're looking at a 35% hit, i.e. pretty damn close to the average outcome. Welcome to the Great Recession.
How exactly you go about taking that bath, and how bad it's going to be, are dependent upon how foreclosures work in your state, i.e. whether the bank can come after you for the difference between the amount they get for the house and what you owe. It sounds to me like you might consider talking to a different real estate attorney, preferably one with bankruptcy experience, because neither of the options you present sound particularly plausible. The rent-to-own/land-contract thing is just a disaster (where it isn't an outright scam), and I can't think of any earthly reason why the bank would want to agree to a short sale when they can just foreclose on the house and see what happens.
Then again, maybe your attorney knows something that we don't. It's possible. Either way, you need to just get it through your head that you are going to lose money here, and $20,000 may actually be on the cheap end of things. Selling the house and taking a hit will probably cost you $20,000, but your wife's credit will be intact, for what it's worth. Dicking around here could cost you far more than that and screw up her credit, which does not strike one as a desirable outcome.
posted by valkyryn at 8:03 AM on August 29, 2011 [15 favorites]
Well that's your problem right there. Somebody is going to take a bath here. Possibly several somebodies. You'll probably be one of them. You bought this house near the peak of the bubble. Which sucks, but it's also water under the bridge. Since then, the average home price has fallen about 40%. You're looking at a 35% hit, i.e. pretty damn close to the average outcome. Welcome to the Great Recession.
How exactly you go about taking that bath, and how bad it's going to be, are dependent upon how foreclosures work in your state, i.e. whether the bank can come after you for the difference between the amount they get for the house and what you owe. It sounds to me like you might consider talking to a different real estate attorney, preferably one with bankruptcy experience, because neither of the options you present sound particularly plausible. The rent-to-own/land-contract thing is just a disaster (where it isn't an outright scam), and I can't think of any earthly reason why the bank would want to agree to a short sale when they can just foreclose on the house and see what happens.
Then again, maybe your attorney knows something that we don't. It's possible. Either way, you need to just get it through your head that you are going to lose money here, and $20,000 may actually be on the cheap end of things. Selling the house and taking a hit will probably cost you $20,000, but your wife's credit will be intact, for what it's worth. Dicking around here could cost you far more than that and screw up her credit, which does not strike one as a desirable outcome.
posted by valkyryn at 8:03 AM on August 29, 2011 [15 favorites]
In your last question, about buying this new one, you said:
I did a test post on Craigslist offering to rent our current house, and got a lot of interested replies
Why wouldn't you rent it?
posted by Threeway Handshake at 8:08 AM on August 29, 2011
I did a test post on Craigslist offering to rent our current house, and got a lot of interested replies
Why wouldn't you rent it?
posted by Threeway Handshake at 8:08 AM on August 29, 2011
You need an attorney and/or accountant to definitely answer your questions. In my opinion the #1 question you need answered immediately is whether the current mortgage on your wife's house is a recourse loan or not, meaning does the bank have the ability to pursue her and her assets for any balance owed on the mortgage that is left over after a short sale/foreclosure.
If it *is* a recourse loan then "walking away" may not really be walking away as the bank will have the legal right to continue to pursue your wife for any remaining balance.
posted by de void at 8:12 AM on August 29, 2011 [1 favorite]
If it *is* a recourse loan then "walking away" may not really be walking away as the bank will have the legal right to continue to pursue your wife for any remaining balance.
posted by de void at 8:12 AM on August 29, 2011 [1 favorite]
3. How did it appraise for so much more than houses in the area are selling for? Does that seem shady?
Shady insofar as the bank used an inflated appraisal to get your business? Sure. Also irrelevant, because you already owned the house. If the bank that did the refi didn't hold the mortgage before then they've increased their own risk by overvaluing the house, but that doesn't cost you anything. The recession is what hurt you here -- not the bank.
2. I refuse to lose $20k+ on this house.
If it's any consolation, the recession undoubtedly hurt the value of the new house as well, so between them it's a wash. If your new place is bigger/more desirable than the old one, you may have saved more on the new place than you'll lose by selling the old one.
posted by jon1270 at 8:24 AM on August 29, 2011 [3 favorites]
Shady insofar as the bank used an inflated appraisal to get your business? Sure. Also irrelevant, because you already owned the house. If the bank that did the refi didn't hold the mortgage before then they've increased their own risk by overvaluing the house, but that doesn't cost you anything. The recession is what hurt you here -- not the bank.
2. I refuse to lose $20k+ on this house.
If it's any consolation, the recession undoubtedly hurt the value of the new house as well, so between them it's a wash. If your new place is bigger/more desirable than the old one, you may have saved more on the new place than you'll lose by selling the old one.
posted by jon1270 at 8:24 AM on August 29, 2011 [3 favorites]
Response by poster: Okay, since I posted this I've talked to a second lawyer who suggested either she do a Chapter 7 or a Short Sale.. He said they won't "chase" the deficiency..
*Why don't I rent it?
Why throw money into a black hole and still be responsible for a new furnace, tree roots in the sewer line, etc. All the ridiculously expensive things that can go wrong at a house. Especially since we owe more than it's worth?
*Headnsouth
Give me a break. My wife WAS completely snowed by Coutrywide and her "stated income" loan program. did you miss the part about her paying 9% for 5 years? We never ONCE were late or missed a payment on that house. Want to know why? Because she didn't buy more house than she could afford. I'm looking at this situation as a business decision, just like the bank would. She is fully aware that her credit will take a hit and is willing to chalk it up as the cost of doing business.
posted by Hellafiles at 8:36 AM on August 29, 2011 [1 favorite]
*Why don't I rent it?
Why throw money into a black hole and still be responsible for a new furnace, tree roots in the sewer line, etc. All the ridiculously expensive things that can go wrong at a house. Especially since we owe more than it's worth?
*Headnsouth
Give me a break. My wife WAS completely snowed by Coutrywide and her "stated income" loan program. did you miss the part about her paying 9% for 5 years? We never ONCE were late or missed a payment on that house. Want to know why? Because she didn't buy more house than she could afford. I'm looking at this situation as a business decision, just like the bank would. She is fully aware that her credit will take a hit and is willing to chalk it up as the cost of doing business.
posted by Hellafiles at 8:36 AM on August 29, 2011 [1 favorite]
Here's an interesting article in the most recent Notre Dame Magazine about someone facing the choice to walk away. They didn't.
I agree with headnsouth: "The OP was able to refinance, had the money to buy a second home, and now wants to walk away because he doesn't want two mortgage payments anymore?"
Buying a second home, before selling the first does not strike me as the best move. But just because it didn't pan out the way you thought it would does not make walking away from the debt the right thing to do. If you can afford to do this on the up and up, I think you should. What's wrong with renting it until you can sell? Taking a 20K loss is not that huge in the scope of things either. Walking away damages your wife's credit and your credit standing as a couple. But it also damages neighborhoods, and our society in general. Just look around.
At a time when you are thinking about starting a family... also not a good financial foundation to lay.
Many people walk away from mortgages because it's their only choice. They simply can't pay. Seems to me you have options.
posted by ecorrocio at 8:40 AM on August 29, 2011 [1 favorite]
I agree with headnsouth: "The OP was able to refinance, had the money to buy a second home, and now wants to walk away because he doesn't want two mortgage payments anymore?"
Buying a second home, before selling the first does not strike me as the best move. But just because it didn't pan out the way you thought it would does not make walking away from the debt the right thing to do. If you can afford to do this on the up and up, I think you should. What's wrong with renting it until you can sell? Taking a 20K loss is not that huge in the scope of things either. Walking away damages your wife's credit and your credit standing as a couple. But it also damages neighborhoods, and our society in general. Just look around.
At a time when you are thinking about starting a family... also not a good financial foundation to lay.
Many people walk away from mortgages because it's their only choice. They simply can't pay. Seems to me you have options.
posted by ecorrocio at 8:40 AM on August 29, 2011 [1 favorite]
If it were me, renting would be my #1 choice. You could probably come out a few hundred bucks ahead each much and save the difference to cover the occasional expense. Eventually, the market will come back up and by then you'll probably have some equity in it. That's not throwing money into a black hole. Remember, you don't realize any loss unless you dump it for more than you bought it for.
posted by scottatdrake at 8:46 AM on August 29, 2011 [3 favorites]
posted by scottatdrake at 8:46 AM on August 29, 2011 [3 favorites]
* Oops, dump it for LESS than you bought it for.
posted by scottatdrake at 8:47 AM on August 29, 2011
posted by scottatdrake at 8:47 AM on August 29, 2011
1) sounds a lot that something like casey from iamfacingforclosure.com did.
2) sounds like it might be an option.
IANAL, IANAR (realtor), but I was under the impression that of the states that secured debtors in the event of walking away, this was only for original first mortages. I.E. with the refi you've lost protection.
Is the refi in both of your names (regardless of the title of the house)? If it is, then the two of you will have crappy credit for 7 years after this is finished (which might be 1-3 years from now).
Because of 1) I'd seriously consider a different lawyer or at least a 2nd opinion. Regardless of keeping the lawyer or going for a new one, investigate "deed in lieu" - I'd go after that before a short sale - with a short sale, the difference between what you owe and the sale price of the house gets listed as income if the bank forgives it (I.E. you owe the IRS taxes on that $20k), or the bank has the option to pursue you for that 20k. And if you have a second house, there's a chance the bank will seek to be made whole.
Usually walking away from an underwater house is best when someone is judgement proof - that second house might be a target painted on your back.
If your wife is the only one with her name in this game, what are her thoughts on having crappy credit for 8-10 years? Increasingly jobs are doing credit checks, and she will be royally screwed if you two break up. While I also don't see a quick rebound in the market, your wife might see renting for 8-10 years as better for her.
posted by nobeagle at 8:48 AM on August 29, 2011 [4 favorites]
2) sounds like it might be an option.
IANAL, IANAR (realtor), but I was under the impression that of the states that secured debtors in the event of walking away, this was only for original first mortages. I.E. with the refi you've lost protection.
Is the refi in both of your names (regardless of the title of the house)? If it is, then the two of you will have crappy credit for 7 years after this is finished (which might be 1-3 years from now).
Because of 1) I'd seriously consider a different lawyer or at least a 2nd opinion. Regardless of keeping the lawyer or going for a new one, investigate "deed in lieu" - I'd go after that before a short sale - with a short sale, the difference between what you owe and the sale price of the house gets listed as income if the bank forgives it (I.E. you owe the IRS taxes on that $20k), or the bank has the option to pursue you for that 20k. And if you have a second house, there's a chance the bank will seek to be made whole.
Usually walking away from an underwater house is best when someone is judgement proof - that second house might be a target painted on your back.
If your wife is the only one with her name in this game, what are her thoughts on having crappy credit for 8-10 years? Increasingly jobs are doing credit checks, and she will be royally screwed if you two break up. While I also don't see a quick rebound in the market, your wife might see renting for 8-10 years as better for her.
posted by nobeagle at 8:48 AM on August 29, 2011 [4 favorites]
jon1270: "Oh wait, I get it. I was reading it as, 'I will be willing to rent it only after the market swings back.' You meant something more like, 'I want to be rid of it now because later won't be any better.'"
Not if your rental income exceeds the holding costs of the house.
Landlords aren't in the business as a charity. Generally speaking, you make money when you rent a property. That's kind of the point. Even after maintenance is factored in.
Even if the market continues to tank, you'll still have a reliable (albeit small) source of income, and will slowly be paying down the mortgage as you go. Although housing prices have gone down, rent rates have not generally followed the same trajectory.
You lived in the house for 6 years, so you should know what the maintenance costs are. Do the math, and figure out what you need to charge for rent in order to keep the house in a livable condition, make the payments, and put a small amount of cash in your pocket. Then, look on Craigslist, and figure out if you can get away with charging that kind of rent for the house.
Don't write off this solution until you've done the math. If you're worried about unexpected home ownership costs, you should not have purchased one house, let alone two. There will be setbacks along the way, and you can/should budget/plan for these. (And, again, don't forget that you will be paying down the mortgage over this time. You could very well end up recovering most of that $20k "loss" over the next 5 years without having to invest too much into the property.)
Of course, it's tough to answer your question when you phrased it like "Should I walk away from my house? I'm willing to consider anything, as long as it doesn't involve the only two alternatives from walking away from the house."
Do the math, and figure out which option will cost you the least amount of money. I cannot fathom Chapter 7 being a good idea as anything other than a last resort.
posted by schmod at 8:48 AM on August 29, 2011 [8 favorites]
Not if your rental income exceeds the holding costs of the house.
Landlords aren't in the business as a charity. Generally speaking, you make money when you rent a property. That's kind of the point. Even after maintenance is factored in.
Even if the market continues to tank, you'll still have a reliable (albeit small) source of income, and will slowly be paying down the mortgage as you go. Although housing prices have gone down, rent rates have not generally followed the same trajectory.
You lived in the house for 6 years, so you should know what the maintenance costs are. Do the math, and figure out what you need to charge for rent in order to keep the house in a livable condition, make the payments, and put a small amount of cash in your pocket. Then, look on Craigslist, and figure out if you can get away with charging that kind of rent for the house.
Don't write off this solution until you've done the math. If you're worried about unexpected home ownership costs, you should not have purchased one house, let alone two. There will be setbacks along the way, and you can/should budget/plan for these. (And, again, don't forget that you will be paying down the mortgage over this time. You could very well end up recovering most of that $20k "loss" over the next 5 years without having to invest too much into the property.)
Of course, it's tough to answer your question when you phrased it like "Should I walk away from my house? I'm willing to consider anything, as long as it doesn't involve the only two alternatives from walking away from the house."
Do the math, and figure out which option will cost you the least amount of money. I cannot fathom Chapter 7 being a good idea as anything other than a last resort.
posted by schmod at 8:48 AM on August 29, 2011 [8 favorites]
Why throw money into a black hole and still be responsible for a new furnace, tree roots in the sewer line, etc. All the ridiculously expensive things that can go wrong at a house. Especially since we owe more than it's worth?
Well, it depends how much people are willing to rent it for, doesn't it? If you're renting it out for less than the cost of the mortgage, then, yes, you're just throwing money down a black hole. If someone is renting it and you're maybe even making a bit more money above the mortgage, then it's actually an income-producing asset that more than makes up for your as-yet-unrealized loss.
posted by deanc at 8:52 AM on August 29, 2011 [2 favorites]
Well, it depends how much people are willing to rent it for, doesn't it? If you're renting it out for less than the cost of the mortgage, then, yes, you're just throwing money down a black hole. If someone is renting it and you're maybe even making a bit more money above the mortgage, then it's actually an income-producing asset that more than makes up for your as-yet-unrealized loss.
posted by deanc at 8:52 AM on August 29, 2011 [2 favorites]
Due to circumstances beyond our control, my then fiance had to move 4 states away for his new job. He put his house on the market and a year later finally was fortunate enough to sell it at a 16k loss. I followed him to the new state a little over a year ago, and rented out my house for the first year because I knew selling would be a bitch.
I'll be closing this week at a 8K loss and I consider myself extremely lucky to get out from under it.
I hate to tell you this, but if you want to protect your credit, you have to take a loss on this. Most everybody out there is, and the rental market, at least where my old house was reflects the fact that everybody is trying to use renting as a way to hold off the inevitable. Houses that you could have easily rented out for the mortgage payment plus a bit of profit are now barely renting for the payments.
It really sucks and I hate the fact that here we are newly married and have no savings whatsoever because we've tossed it all at houses we no longer own. But that is the nature of the market right now.
posted by teleri025 at 8:52 AM on August 29, 2011
I'll be closing this week at a 8K loss and I consider myself extremely lucky to get out from under it.
I hate to tell you this, but if you want to protect your credit, you have to take a loss on this. Most everybody out there is, and the rental market, at least where my old house was reflects the fact that everybody is trying to use renting as a way to hold off the inevitable. Houses that you could have easily rented out for the mortgage payment plus a bit of profit are now barely renting for the payments.
It really sucks and I hate the fact that here we are newly married and have no savings whatsoever because we've tossed it all at houses we no longer own. But that is the nature of the market right now.
posted by teleri025 at 8:52 AM on August 29, 2011
Schmod, I think you're forgetting that a lot of people have recently become landlords as the lesser of 2 evils; they do it because they hope to lose less money that way than they would by selling -- not because it's profitable. Housing is a buyers' market right now, regardless of whether you're selling or renting. "Generally speaking, you make money when you rent a property" is only a safe assumption in a stable economy.
posted by jon1270 at 8:56 AM on August 29, 2011 [1 favorite]
posted by jon1270 at 8:56 AM on August 29, 2011 [1 favorite]
nobeagle states: "If your wife is the only one with her name in this game, what are her thoughts on having crappy credit for 8-10 years? Increasingly jobs are doing credit checks, and she will be royally screwed if you two break up."
Dead on, nobeagle. In the current economic climate, I believe there's a perception that tanking your credit is not a big thing, and is a simple "business decision". (see de void above)
That's fine if you consider what nobeagle pointed out to also be "business" matters.
posted by ecorrocio at 8:56 AM on August 29, 2011 [3 favorites]
Dead on, nobeagle. In the current economic climate, I believe there's a perception that tanking your credit is not a big thing, and is a simple "business decision". (see de void above)
That's fine if you consider what nobeagle pointed out to also be "business" matters.
posted by ecorrocio at 8:56 AM on August 29, 2011 [3 favorites]
What state do you live in?
What is the estimated rent that you would receive on the house?
What is the mortgage payment?
If you don't want to get specific, what is the ratio of the above?
posted by bq at 8:57 AM on August 29, 2011
What is the estimated rent that you would receive on the house?
What is the mortgage payment?
If you don't want to get specific, what is the ratio of the above?
posted by bq at 8:57 AM on August 29, 2011
Oh, and how does your wife feel about the fact that you want to completely screw up her credit because you don't want to lose $20k?
She may have some very strong feelings on this subject, and I'd find it hard to blame her if she chose to "walk away" from your marriage if you did something like that behind her back.
posted by schmod at 9:01 AM on August 29, 2011 [2 favorites]
She may have some very strong feelings on this subject, and I'd find it hard to blame her if she chose to "walk away" from your marriage if you did something like that behind her back.
posted by schmod at 9:01 AM on August 29, 2011 [2 favorites]
Response by poster: What state do you live in?
rather not say
What is the estimated rent that you would receive on the house?
$700-$800 max
What is the mortgage payment?
$760
posted by Hellafiles at 9:01 AM on August 29, 2011
rather not say
What is the estimated rent that you would receive on the house?
$700-$800 max
What is the mortgage payment?
$760
posted by Hellafiles at 9:01 AM on August 29, 2011
Don't be so sure that it's only her credit that will be negatively impacted. My wife bought our house before we were married, but now that we are married (and given the laws of our state) the property belongs to both of us. So, walking away from it would impact both of our credit scores.
posted by oddman at 9:04 AM on August 29, 2011
posted by oddman at 9:04 AM on August 29, 2011
Response by poster: My wife is the one who suggested this in the first place. She is fully aware of the potential credit implications. Also, she's looking at from the standpoint of US losing $20k+ not ME.
She's the one that wanted the new house. She wanted a house that we'd be happy raising a family in and living in for the next 30 years. Which we now have.
Before I even bought this place we discussed worst-case scenarios.
posted by Hellafiles at 9:06 AM on August 29, 2011 [1 favorite]
She's the one that wanted the new house. She wanted a house that we'd be happy raising a family in and living in for the next 30 years. Which we now have.
Before I even bought this place we discussed worst-case scenarios.
posted by Hellafiles at 9:06 AM on August 29, 2011 [1 favorite]
I would rent it out in a heartbeat rather than walking away. Trashing your credit is such a bad idea if you don't have to.
posted by rabbitrabbit at 9:08 AM on August 29, 2011 [3 favorites]
posted by rabbitrabbit at 9:08 AM on August 29, 2011 [3 favorites]
I just want to disagree that all rent to own deals are scams -- Craigslist can be a place to find people who don't have the credit to buy, but are looking for long term rentals that can turn into sales. If you can rent the place for $800 a month to people who are looking to buy, you may have a way to break even on the house until your renters can buy it from you. $20k seems worth the research.
posted by freshwater at 9:11 AM on August 29, 2011
posted by freshwater at 9:11 AM on August 29, 2011
Best answer: Your state of residence is pertinent; state law differs on whether a bank is legally allowed to come after you for the balance of the mortgage. Here is a brief explanation of recourse and a list of recourse states. It's not clear from your second response whether your lawyer told you the bank 'can't' come after you for the balance, or if he thinks they won't. If it's the second, I would take that with a grain of salt.
It's true that is a thin margin between rent and payment. But compared to a $20k loss it doesn't look so bad. If you lose $1k a year renting it out, it would take you 20 years to be better off taking a loss. And you should compare that $1k yearly loss to the cost to you of ruining your wife's credit. That will increase your costs for future borrowing. To me this is looking pretty close to a wash.
posted by bq at 9:26 AM on August 29, 2011 [3 favorites]
It's true that is a thin margin between rent and payment. But compared to a $20k loss it doesn't look so bad. If you lose $1k a year renting it out, it would take you 20 years to be better off taking a loss. And you should compare that $1k yearly loss to the cost to you of ruining your wife's credit. That will increase your costs for future borrowing. To me this is looking pretty close to a wash.
posted by bq at 9:26 AM on August 29, 2011 [3 favorites]
Best answer: If you're actually interested in the math, you should check out the tax implications of rental property. You could save a BIG amount on your taxes by having rental property, and it could be a much better deal than you think.
posted by cyndigo at 9:34 AM on August 29, 2011 [4 favorites]
posted by cyndigo at 9:34 AM on August 29, 2011 [4 favorites]
Some friends of mine did your option #2--stop making payments to force a short sale--when they were in a similar situation, and it worked out very well for them. The one difference is that they were a same-sex couple, and not legally married, so the credit rating hit was completely limited to one of them. I'm not sure how that would work out for you, but on the other hand: you already have your new house. If you don't expect to have to borrow for anything big in the next few years, you could probably ride out the credit ding.
posted by not that girl at 9:37 AM on August 29, 2011
posted by not that girl at 9:37 AM on August 29, 2011
If you're actually interested in the math, you should check out the tax implications of rental property. You could save a BIG amount on your taxes by having rental property, and it could be a much better deal than you think.
Yes. I don't have time to go into all the pros and cons, but DO sit down with an accountant and at least do the math and think it through before tossing out the idea of renting. Even at a slight monthly loss, renting can be a very good thing as a long-term investment that can also provide retirement income. (Someone else is making your mortgage payment; once paid off, you have equity and an income stream.)
I've rented out several houses in my life, and will just say that with proper care in choosing renters (application, credit check), and some common sense, it's really NOT the horrible experience some people think it is.
posted by The Deej at 9:41 AM on August 29, 2011 [1 favorite]
Yes. I don't have time to go into all the pros and cons, but DO sit down with an accountant and at least do the math and think it through before tossing out the idea of renting. Even at a slight monthly loss, renting can be a very good thing as a long-term investment that can also provide retirement income. (Someone else is making your mortgage payment; once paid off, you have equity and an income stream.)
I've rented out several houses in my life, and will just say that with proper care in choosing renters (application, credit check), and some common sense, it's really NOT the horrible experience some people think it is.
posted by The Deej at 9:41 AM on August 29, 2011 [1 favorite]
Best answer: Maybe your lawyer will give you different advice. I am not a lawyer and I don't have your interest at heart.
I would be inclined to rent it. Why? Because if you break even on mortgage/rent or even bring in a few bucks you're fine. If you have to spend money on the rental property, it's a tax deduction. In all of that, as long as you're paying your mortgage(s), your credit is fine. And quite honestly, even if you lose some money every year, would you rather lose $50/mo (pulling this out of my ass) or $600 a year for 33 years or $20,000 in one fell swoop? Me? I'd take the $600. Why? It's a small amount that you can plan for pretty well and it will likely get better over time as the market recovers and as you pay off the principal and as you are able to raise the rent over time (depending on the rental market).
Just make sure you check your tenants well before they sign a lease.
If you're not the renting kind, you can look into property management, but they usually take 10% off the top, which you are not it a position to spare.
posted by plinth at 10:04 AM on August 29, 2011 [1 favorite]
I would be inclined to rent it. Why? Because if you break even on mortgage/rent or even bring in a few bucks you're fine. If you have to spend money on the rental property, it's a tax deduction. In all of that, as long as you're paying your mortgage(s), your credit is fine. And quite honestly, even if you lose some money every year, would you rather lose $50/mo (pulling this out of my ass) or $600 a year for 33 years or $20,000 in one fell swoop? Me? I'd take the $600. Why? It's a small amount that you can plan for pretty well and it will likely get better over time as the market recovers and as you pay off the principal and as you are able to raise the rent over time (depending on the rental market).
Just make sure you check your tenants well before they sign a lease.
If you're not the renting kind, you can look into property management, but they usually take 10% off the top, which you are not it a position to spare.
posted by plinth at 10:04 AM on August 29, 2011 [1 favorite]
About 6 years ago my girlfriend (now my wife) purchased a small house for us during the bubble. My name was not on the mortgage, and I wasn’t even present at the closing.
Did she really do this without even consulting you, or had you agreed that she would buy the house? I ask because you make it sound as if buying this house was just an impulse buy on her part.
Fast forward to about 8 months ago, we realized that she had been paying some ungodly percentage rate (something like 9% from the original Countrywide loan.
Wait, you've been paying for over 5 years and you didn't know the % you were paying?! Was this misrepresented, or was te mortgage an ARM that went up after the first few years? Or did your girlfriend/now wife not tell you the true interest? I'm seeing some real red flags here in her financial dealings. And, if you either didn't know or chose not to find out, in yours as well.
A few months after the refinance we started to realized that we had outgrown this tiny place and needed something bigger so we could start a family. We found a bigger place that we liked, and I bought the new place only in MY name. So now we have TWO houses and need to get rid of the old one
When we began the process to sell our old place we found...Comps in the area were selling for about $75-$80K, we owed $105k + 3% realtors fees = needed to sell it for about $112k to even break even. Impossible.
Aaargh. Okay, so after 'discovering' the interest rate, you went through all the time, trouble and fees to refinance that house, then bought another house just a few months afterward, when you can't afford to pay for both and had no offer on the first one?
Okay, my advice is to get a recommendation for a good, fee-based financial advisor and to retain a lawyer. That's not going to be cheap, but I think it is essential here. If you "refuse" to lose money, NEED these people!
The lawyer can advise you in this house situation right now, sit down with you and make sure you BOTH read what you are signing and UNDERSTAND the financial commitments you are making upfront.
Your financial advisor can then go over whatever long-term financial commitments ensue so you and your wife can BOTH figure out how to meet them. I would also advise you to speak with your advisor before making any major purchases (car, major renovations, appliances,etc.), and take some courses in economics if possible.
I am not saying this to punish you or tie any morality to your quandary at all. I feel it is in your best FINANCIAL imterest for you to take these steps. You have a habit of making major purchase decisions impulsively, without looking at the big picture and thelong-term view, and then regretting them later once you've already taken a serious financial hit. If you and your wife don't get that tendency under control, this will not be the only major hit your credit will take.
Personally, I would re-consider selling or renting the house, even at a loss. The fact that the banks can get away with financing risky loans and still remain solvent has nothing to do with this. No one is going to give you and your wife a bail-out when you take on a financial commitment you can't meet. You will take a hit on this, either in $20K now or in several years of credit hassles.
posted by misha at 10:09 AM on August 29, 2011 [11 favorites]
Did she really do this without even consulting you, or had you agreed that she would buy the house? I ask because you make it sound as if buying this house was just an impulse buy on her part.
Fast forward to about 8 months ago, we realized that she had been paying some ungodly percentage rate (something like 9% from the original Countrywide loan.
Wait, you've been paying for over 5 years and you didn't know the % you were paying?! Was this misrepresented, or was te mortgage an ARM that went up after the first few years? Or did your girlfriend/now wife not tell you the true interest? I'm seeing some real red flags here in her financial dealings. And, if you either didn't know or chose not to find out, in yours as well.
A few months after the refinance we started to realized that we had outgrown this tiny place and needed something bigger so we could start a family. We found a bigger place that we liked, and I bought the new place only in MY name. So now we have TWO houses and need to get rid of the old one
When we began the process to sell our old place we found...Comps in the area were selling for about $75-$80K, we owed $105k + 3% realtors fees = needed to sell it for about $112k to even break even. Impossible.
Aaargh. Okay, so after 'discovering' the interest rate, you went through all the time, trouble and fees to refinance that house, then bought another house just a few months afterward, when you can't afford to pay for both and had no offer on the first one?
Okay, my advice is to get a recommendation for a good, fee-based financial advisor and to retain a lawyer. That's not going to be cheap, but I think it is essential here. If you "refuse" to lose money, NEED these people!
The lawyer can advise you in this house situation right now, sit down with you and make sure you BOTH read what you are signing and UNDERSTAND the financial commitments you are making upfront.
Your financial advisor can then go over whatever long-term financial commitments ensue so you and your wife can BOTH figure out how to meet them. I would also advise you to speak with your advisor before making any major purchases (car, major renovations, appliances,etc.), and take some courses in economics if possible.
I am not saying this to punish you or tie any morality to your quandary at all. I feel it is in your best FINANCIAL imterest for you to take these steps. You have a habit of making major purchase decisions impulsively, without looking at the big picture and thelong-term view, and then regretting them later once you've already taken a serious financial hit. If you and your wife don't get that tendency under control, this will not be the only major hit your credit will take.
Personally, I would re-consider selling or renting the house, even at a loss. The fact that the banks can get away with financing risky loans and still remain solvent has nothing to do with this. No one is going to give you and your wife a bail-out when you take on a financial commitment you can't meet. You will take a hit on this, either in $20K now or in several years of credit hassles.
posted by misha at 10:09 AM on August 29, 2011 [11 favorites]
Best answer: I would be inclined to rent it. Why? Because if you break even on mortgage/rent or even bring in a few bucks you're fine. If you have to spend money on the rental property, it's a tax deduction. In all of that, as long as you're paying your mortgage(s), your credit is fine. And quite honestly, even if you lose some money every year, would you rather lose $50/mo (pulling this out of my ass) or $600 a year for 33 years or $20,000 in one fell swoop? Me? I'd take the $600. Why? It's a small amount that you can plan for pretty well and it will likely get better over time as the market recovers and as you pay off the principal and as you are able to raise the rent over time (depending on the rental market).
This is what I came to say. I feel like you're not figuring in the tax implications of holding rental property, which can make the deal much sweeter than the $800 income/$760 outlay ratio you note above.
Also, is $800 really the true rental value? Typically you can charge a premium for renting a whole house, because it's, well, a house. When looking at comps for rental price comparisons are you looking at apartments or other rental houses?
posted by anastasiav at 10:18 AM on August 29, 2011
This is what I came to say. I feel like you're not figuring in the tax implications of holding rental property, which can make the deal much sweeter than the $800 income/$760 outlay ratio you note above.
Also, is $800 really the true rental value? Typically you can charge a premium for renting a whole house, because it's, well, a house. When looking at comps for rental price comparisons are you looking at apartments or other rental houses?
posted by anastasiav at 10:18 AM on August 29, 2011
Response by poster: Misha,
You have no idea what you're talking about. I can afford to make both payments, I just don't need TWO houses and don't want to deal with renting the other one or losing $20-30k by selling it. Does this not make sense?
After making 2 house payments I just don't have $20-30k sitting around that I can LOSE on a house that's upside down.
posted by Hellafiles at 10:18 AM on August 29, 2011 [1 favorite]
You have no idea what you're talking about. I can afford to make both payments, I just don't need TWO houses and don't want to deal with renting the other one or losing $20-30k by selling it. Does this not make sense?
After making 2 house payments I just don't have $20-30k sitting around that I can LOSE on a house that's upside down.
posted by Hellafiles at 10:18 AM on August 29, 2011 [1 favorite]
Well, here in CA, this is one anecdotal example: the borrower defaulted on an underwater mortgage and manage to get a private loan to buy another house at lower market price. The bank was able to get a deficiency judgement on the foreclosure, found out the new purchase and placed a lien on the new property. That person now ends up with more negative equity on the new house, paying high interest rate for the private loan, and the bad credit. FAIL.
Frankly, I don't know why more banks don't do this for recourse loan. It's ridiculously easy to file for a lien if you have a deficiency judgement, even two-bit contractors can do it. Also, the argument that the mortgage under your wife's name can't follow her into marriage sound thin. I'd take the advice "the bank may not come after you" with a bit of salt.
posted by curiousZ at 10:19 AM on August 29, 2011
Frankly, I don't know why more banks don't do this for recourse loan. It's ridiculously easy to file for a lien if you have a deficiency judgement, even two-bit contractors can do it. Also, the argument that the mortgage under your wife's name can't follow her into marriage sound thin. I'd take the advice "the bank may not come after you" with a bit of salt.
posted by curiousZ at 10:19 AM on August 29, 2011
Best answer: Not a lawyer, just speaking from observation of others in the process:
If you can't tell people what state you are in, it's going to be hard to tell you what the legal options are. States vary quite a degree on what options there are, and there are state laws in motion in every state to strip or reinforce protections, so depending on where you are and the timing you may or may not have protections available to you.
For example, if you live in a state that support trustee sales, 99% of the foreclosures/etc are through the trustee sale process governed by the state laws and specified in the contract. Especially if that state is a single action state and is non recourse for purchase money loans. But it all varies significantly.
20k or 20% under water is bad but not horrible. I've seen and experienced 300k and 70% under water. There are a couple of options to push for:
1) Short sale, find a real estate agent who specializes in short sales and get them to work a price and aggressively show and reduce the price (and document it every month) and repeatedly submit paperwork every time you get an offer.
2) Deed in lieu, but most banks don't do this until they have to show another foreclosure on the books, so you're at the point where several payments are missed and the bank smells foreclosure.
3) Walk or serially apply for the mortgage relief programs while you walk. Any of the options above may still be an option.
Now, should you walk away? Who knows, you have to decide what the risks and benefits are. Depending on where you live I'd check out what the foreclosure laws are before providing any information in any form to anyone.
Personally if you're in the area and can keep an eye on things I think I'd rent it out and take a wait and see approach or at least plan on doing the rental for a year to see how things look and then maybe you'd have a stronger case for a hardship if the property didn't rent/etc.
Loansafe.org has sometimes good, sometimes horrible information in their forums.
posted by iamabot at 10:38 AM on August 29, 2011
If you can't tell people what state you are in, it's going to be hard to tell you what the legal options are. States vary quite a degree on what options there are, and there are state laws in motion in every state to strip or reinforce protections, so depending on where you are and the timing you may or may not have protections available to you.
For example, if you live in a state that support trustee sales, 99% of the foreclosures/etc are through the trustee sale process governed by the state laws and specified in the contract. Especially if that state is a single action state and is non recourse for purchase money loans. But it all varies significantly.
20k or 20% under water is bad but not horrible. I've seen and experienced 300k and 70% under water. There are a couple of options to push for:
1) Short sale, find a real estate agent who specializes in short sales and get them to work a price and aggressively show and reduce the price (and document it every month) and repeatedly submit paperwork every time you get an offer.
2) Deed in lieu, but most banks don't do this until they have to show another foreclosure on the books, so you're at the point where several payments are missed and the bank smells foreclosure.
3) Walk or serially apply for the mortgage relief programs while you walk. Any of the options above may still be an option.
Now, should you walk away? Who knows, you have to decide what the risks and benefits are. Depending on where you live I'd check out what the foreclosure laws are before providing any information in any form to anyone.
Personally if you're in the area and can keep an eye on things I think I'd rent it out and take a wait and see approach or at least plan on doing the rental for a year to see how things look and then maybe you'd have a stronger case for a hardship if the property didn't rent/etc.
Loansafe.org has sometimes good, sometimes horrible information in their forums.
posted by iamabot at 10:38 AM on August 29, 2011
Best answer: I'm going to chime in as another voice in favor of renting, particularly if you've got the scratch to cover both payments anyway.
I'm a landlord too, in a situation where the rental income puts us just a little in the black compared to mortgage, management, expenses. We still come out ahead in the long run due to the tax treatment and the asset which is being paid for by someone else's money.
You can write off property management costs, too. That'll save you a lot of headache.
Also: rentometer.com can be a little more scientific/enlightening than trolling Craigslist.
posted by Sublimity at 10:49 AM on August 29, 2011 [2 favorites]
I'm a landlord too, in a situation where the rental income puts us just a little in the black compared to mortgage, management, expenses. We still come out ahead in the long run due to the tax treatment and the asset which is being paid for by someone else's money.
You can write off property management costs, too. That'll save you a lot of headache.
Also: rentometer.com can be a little more scientific/enlightening than trolling Craigslist.
posted by Sublimity at 10:49 AM on August 29, 2011 [2 favorites]
de void: "Not paying the mortgage and letting the bank take the house is a VALID and LEGAL option, and an option that businesses exercise all the time, ( including the Mortgage Bankers Association themselves!)."
Huh? They did no such thing according to the article you linked to. They made a short sale, and appear to still be on the hook for the remaining outstanding balance on their loan (although that information isn't public).
If what you say is true, then real estate would literally be a risk-free investment. Buy a house, take on a ridiculous mortgage, and walk away the moment that the property begins depreciating faster than you can make payments on it, with no major repercussions. I'm no expert, but I'm having a really tough time believing that this can be true.
posted by schmod at 11:14 AM on August 29, 2011 [3 favorites]
Huh? They did no such thing according to the article you linked to. They made a short sale, and appear to still be on the hook for the remaining outstanding balance on their loan (although that information isn't public).
If what you say is true, then real estate would literally be a risk-free investment. Buy a house, take on a ridiculous mortgage, and walk away the moment that the property begins depreciating faster than you can make payments on it, with no major repercussions. I'm no expert, but I'm having a really tough time believing that this can be true.
posted by schmod at 11:14 AM on August 29, 2011 [3 favorites]
800 for a whole house? That seems pretty low, unless you're in the middle of nowhere or it's a very tiny house. Look at Craigslist for similar sized houses.
Our 1971 3-bedroom in the DFW TX suburbs rents for more than that, and it's not at the highest end, at all. Newer/larger houses are easily 1200 and up a month.
It sounds like part of the issue is just not wanting to be a landlord, which is understandable, but still may be less hassle than dealing with lawyers and credit hits.
posted by emjaybee at 11:17 AM on August 29, 2011 [1 favorite]
Our 1971 3-bedroom in the DFW TX suburbs rents for more than that, and it's not at the highest end, at all. Newer/larger houses are easily 1200 and up a month.
It sounds like part of the issue is just not wanting to be a landlord, which is understandable, but still may be less hassle than dealing with lawyers and credit hits.
posted by emjaybee at 11:17 AM on August 29, 2011 [1 favorite]
Reconsider renting it. There are downsides, but if you get a good tenant you can go make out well in the end. If the purchase price doesn't rebound then at least someone else will be paying your mortgage and the delta will be smaller.
posted by dgran at 11:40 AM on August 29, 2011
posted by dgran at 11:40 AM on August 29, 2011
Best answer: I am a landlord.
While I would certainly chime in favoring walking away if you were in a precarious financial position -- unemployed, underwater by tens of thousands or more, unable to see a way out -- that isn't your position. You've got jobs, you've got excellent credit, and that's no small thing in this economy. You'd be throwing away something of real value.
Renting is, as noted above by many, likely a very viable option. You need to talk to an accountant (with rental market experience) before taking this dangerous step (walking away). Run the numbers. Find out what your expenses will be, find out what your cash balance EOY will be, but also find out what your deductible losses will be. You can deduct every penny you spend on the property, including mortgage interest and yes, property management company charges. In fact, even if you "lose" money on the rent vs. mortgage and whatnot, you can still come out ahead because of the tax advantages. Real estate is a commonly used tax shelter for this reason precisely. Throw in a vehicle mileage deduction, a phone usage deduction, and even a home office deduction for toppers. Heck, if there are more losses than you can use in a given year (there's a cap for most taxpayers), you can roll over the overage!
Because of your situation you obviously have a substantial income. Now imagine reducing your taxable income by $10K to $20K. You like, right? Call that accountant. Know the numbers. I bet you come out ahead.
posted by dhartung at 12:01 PM on August 29, 2011 [10 favorites]
While I would certainly chime in favoring walking away if you were in a precarious financial position -- unemployed, underwater by tens of thousands or more, unable to see a way out -- that isn't your position. You've got jobs, you've got excellent credit, and that's no small thing in this economy. You'd be throwing away something of real value.
Renting is, as noted above by many, likely a very viable option. You need to talk to an accountant (with rental market experience) before taking this dangerous step (walking away). Run the numbers. Find out what your expenses will be, find out what your cash balance EOY will be, but also find out what your deductible losses will be. You can deduct every penny you spend on the property, including mortgage interest and yes, property management company charges. In fact, even if you "lose" money on the rent vs. mortgage and whatnot, you can still come out ahead because of the tax advantages. Real estate is a commonly used tax shelter for this reason precisely. Throw in a vehicle mileage deduction, a phone usage deduction, and even a home office deduction for toppers. Heck, if there are more losses than you can use in a given year (there's a cap for most taxpayers), you can roll over the overage!
Because of your situation you obviously have a substantial income. Now imagine reducing your taxable income by $10K to $20K. You like, right? Call that accountant. Know the numbers. I bet you come out ahead.
posted by dhartung at 12:01 PM on August 29, 2011 [10 favorites]
Rent. Oh my goodness, rent. Rent rent rent. Rent. Did I mention rent? Rent.
Rent.
posted by davejay at 1:19 PM on August 29, 2011
Rent.
posted by davejay at 1:19 PM on August 29, 2011
I also think you do need to reconsider the rental option. Tax laws are crazy in favor of property owners.
But you have another option. You can lease-purchase the house. There are many homebuyers these days who can't qualify for a bank mortgage due to the current conditions. If you lease-purchase, then you might not have to do the maintenance as with a rental, depending on how you write the contract. You would basically be reselling the house while still keeping the mortgage. Here are a few explanations. There are many more available.
posted by raisingsand at 1:22 PM on August 29, 2011
But you have another option. You can lease-purchase the house. There are many homebuyers these days who can't qualify for a bank mortgage due to the current conditions. If you lease-purchase, then you might not have to do the maintenance as with a rental, depending on how you write the contract. You would basically be reselling the house while still keeping the mortgage. Here are a few explanations. There are many more available.
posted by raisingsand at 1:22 PM on August 29, 2011
da void is exactly right:"Not paying the mortgage and letting the bank take the house is a VALID and LEGAL option, and an option that businesses exercise all the time."
For the prime example, see what Tishman Speyer did in NYC: this giant firm walked away from not one but ELEVEN THOUSAND properties simply because it didn't like the mortgage payments. (It could pay; it just didn't want to.)
It was simply a business decision — just like yours or mine should be.
posted by LonnieK at 2:10 PM on August 29, 2011
For the prime example, see what Tishman Speyer did in NYC: this giant firm walked away from not one but ELEVEN THOUSAND properties simply because it didn't like the mortgage payments. (It could pay; it just didn't want to.)
It was simply a business decision — just like yours or mine should be.
posted by LonnieK at 2:10 PM on August 29, 2011
Leaving aside the ethical considerations, although the homebuying market in the States is terrible right now, the rental property market is heating up. So you may be able to make enough money on rent in order to avoid a loss.
posted by KokuRyu at 4:25 PM on August 29, 2011
posted by KokuRyu at 4:25 PM on August 29, 2011
As an aside---bank appraisals of the value of your house are not equal to the market value. It has more to do with figuring out what kind of property taxes you're going to be paying. In my state, houses routinely sell under or over the assessed value.
posted by vitabellosi at 4:19 AM on August 30, 2011
posted by vitabellosi at 4:19 AM on August 30, 2011
I don't consider this an ethical issue at all. If you decide to walk away and trash your credit, it's a business decision. Your credit is worth $20,000, or it's not.
If you are in a non-recourse state, the bank cannot come after you for any deficiency. If the home was your primary residence 3 of the last 5 years, you will not owe tax on anything that the bank forgives. If I were you, I would just let it go (if a quick short sale doesn't happen). I just went through a foreclosure in a recourse state and am waiting the devastation (on a former primary residence that I tried to sell for 8 years). Check with your lawyer, but you might be able to get out of this relatively unscathed - your wife's credit will still get hit, but it won't be as bad (IMO!) as paying $20k out of pocket.
posted by getawaysticks at 7:36 AM on August 30, 2011
If you are in a non-recourse state, the bank cannot come after you for any deficiency. If the home was your primary residence 3 of the last 5 years, you will not owe tax on anything that the bank forgives. If I were you, I would just let it go (if a quick short sale doesn't happen). I just went through a foreclosure in a recourse state and am waiting the devastation (on a former primary residence that I tried to sell for 8 years). Check with your lawyer, but you might be able to get out of this relatively unscathed - your wife's credit will still get hit, but it won't be as bad (IMO!) as paying $20k out of pocket.
posted by getawaysticks at 7:36 AM on August 30, 2011
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posted by TheBones at 7:39 AM on August 29, 2011 [5 favorites]