How to walk away from a House (Minneapolis Edition)?
August 23, 2014 5:41 AM   Subscribe

After watching our house not sell for 3 months (with one offer that would require us to bring 40k to the table!), we think it might be time for more creative solutions. Tell me about Strategic Defaults in Minnesota.

(previous AskMe: underwater-mortgage help-me-default)

(usual disclaimers: you aren't my lawyer, tax professional, doctor, or paranormal investigator. If I need a pro, please tell me what kind and specialty! Specific recommendations welcome.)

1. How do you actually execute a strategic default?
- a. Does one tell the bank? Or does that tip their hand?
- b. Any good benefit to (not) continuing payment on the mortgage?
- c. The internet claims that MN has protections on assets around foreclosure. Can the bank sue us for the difference when they sell it? (magic words: non-recourse)
- d. Will our mortgage at our new house be affected? Our other existing lines of credit (credit cards)?
- e. We both have good credit (780+), and are willing to trade reputation for cash here, if it's a good deal. 40k for 100 points seems like a good trade. Is 100 points a good estimate?

2. Other ideas? We've considered:

a. renting: ("accidental landlord"). In Minneapolis, this seems hard, given the $750 or $1000 property inspection fee.
Also, we would prefer not to be landlords!

b. selling for "contract for deed"? It sounded like a good idea on first hearing, but the internet finds it creepy.

c. New realtor? If so, how do we get out of our current contract?

d. Short sale? (Same questions as with default)

e. AirBNB (we are in a not-touristy area, and would need 6-10 stays per month to make it profitable).

f. (some wonderful other solution, that allows us to turn this into money, or wait out the dead market a year or two)

3. Details:

- Minneapolis, Minnesota, United States
- We are current on payments.
- house is on the market for sale.
- house is in sellable (very good) condition, 5br, 2.5ba.
- 280s purchase, 269 owed, 1 offer at 235.
- already have new mortgage on new house.
- no new loans to be applied for in the new few years. (New house already bought.)
- can swing payments for a while (low fixed mortgage).

4. Out of scope:

- morality of walking away. I think that's well covered: previously on the blue. The bank made a bet on my house going up in value faster enough to secure the loan. It was a bad bet.
posted by anonymous to Work & Money (9 answers total)
Hie thee to a bankruptcy attorney. You don't want to get hit with a tax liability. Also, you want to protect your current mortgage.

You're going to mess up your credit any way, so you might as well do it right and protect everything. You can bounce back from a bankruptcy VERY quickly, a foreclosure, not as much, oddly enough.
posted by Ruthless Bunny at 5:46 AM on August 23, 2014 [3 favorites]

Not in MN, but I know a few people that have short sold a home and it doesn't seem to have ruined their lives. I would think that is the least painful solution for you. Just make sure you work with a Realtor that is very experienced at short sales.

However, I would drop a $200 on a 1 hour appt with a bankruptcy or real estate attorney to talk through your options.
posted by COD at 6:10 AM on August 23, 2014

I know this situation inside and out. Memail me so we can be in touch.
posted by littlewater at 6:46 AM on August 23, 2014

What does your current contract with your realtor say? Does it specify some sort of penalty if you find another agent? Do you feel like your agent isn't doing enough to sell it? What does s/he say about the three months - is it normal to take more than three months? That doesn't seem all that long when you are talking about a significant hit on your credit. And as someone who had terrible credit for more than a decade, I'd encourage you to make this option a last resort. Yes, you own a house now and have credit cards but no one can predict the future. What if you need to move? Buy a new car? Apply for jobs that require a background check?

I think I'd start with a meeting with the agent. Tell him/her you are feeling the need to expedite the sale. Ask if there is anything you can do easily to make the house more sellable - street appeal, new coat of paint, staging, open houses.

If you can swing the payments for longer, I'd say wait it out for as long as possible. When you get to that make or break point and are have decided to defaulting, it's not like you will keep paying your mortgage anyway.

Good luck.
posted by Beti at 8:56 AM on August 23, 2014

Is there a rental/management agency that can be a landlord on your behalf? You'd at least be getting something back, while waiting for the market to someday turn around.
posted by Huffy Puffy at 12:32 PM on August 23, 2014 [1 favorite]

Why isn't your realtor helping to arrange a short sale? Surely he or she has connections. We were referred to the right people by our realtor, fortunately we sold break even so we didn't have to execute on the advice we received.

Have a candid discussion with your realtor and if he or she isn't willing to help then you might come to a mutual agreement on terminating your contract.

A regular sale is the best outcome for everyone so continue to work that until advised otherwise by an attorney.
posted by crazycanuck at 3:08 PM on August 23, 2014 [1 favorite]

I short sold a house a few year ago. This is a much better situation for everyone involved than any kind of "strategic" total default. It was still a pain in the butt, but it is better for your long-term credit, better for the bank, and better for the neighborhood you left behind.

We had to work directly with our bank quite a bit to make it happen, and the buyer had to be willing to work through the short sale process. It sounds like you need to have a frank conversation with the realtor about what the next steps are, what you can do to move the house, and why she thinks it isn't selling.

I don't know the market there, but three months doesn't sound like a TERRIBLY long time. If you can afford both mortgages, your efforts are probably better spent figuring out what you need to do to get the place sold.
posted by jeoc at 4:42 PM on August 24, 2014

What is the rental market like in the area? The $750 inspection fee might be enough to put enough potential landlords off, making the only rentals on the market longterm rentals that are probably not in good condition. I think it's worth looking into, $750 isn't really that much money in the scheme of things. It'd pay itself off fairly quickly, and certainly cheaper than buying furniture for a 5brm house in order to do airbnb.
posted by kjs4 at 8:34 PM on August 24, 2014

Is there a rental/management agency that can be a landlord on your behalf? You'd at least be getting something back, while waiting for the market to someday turn around.

Renter's Warehouse runs ads on local radio nonstop. I have no experience with them, but their commercials make it sound like you can get a free estimate from them and they will guarantee your renters for 6 months. They will just find renters for you and/or they will manage the property for you.

If you are interested, I'd check around for people who have used them and see how the reviews are. I'm sure there are other companies who do the same thing.
posted by soelo at 8:25 AM on August 25, 2014

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