Walking away from a Missouri mortgage?
January 10, 2015 11:17 AM Subscribe
I just found out that my house, which I have been trying to sell for a while anyway, has some sort of septic tank issue which needs repairs in the tens-of-thousands-of-dollars range. Given that these repairs factor into the effective value of the home, I'm now seriously underwater on my mortgage.
It's not a financial hardship situation; I can afford the mortgage, but I'd already decided a while ago that I wanted to sell, and I really don't want to be completely stuck here for years more.
I completely don't care about my credit score. I'd just like to do this without being hounded by a creditor for the balance of the mortgage.
I filed for bankruptcy 6-ish years ago, because of a failed business (poor timing with the recession didn't help), so I believe that I can't factor filing for bankruptcy again into any plans.
As for the moral dimension of this: if it wasn't for the just-discovered damage I'd stick it out and work on selling the place. The damage moves it into "the bank made a bad bet" territory for me.
It's not a financial hardship situation; I can afford the mortgage, but I'd already decided a while ago that I wanted to sell, and I really don't want to be completely stuck here for years more.
I completely don't care about my credit score. I'd just like to do this without being hounded by a creditor for the balance of the mortgage.
I filed for bankruptcy 6-ish years ago, because of a failed business (poor timing with the recession didn't help), so I believe that I can't factor filing for bankruptcy again into any plans.
As for the moral dimension of this: if it wasn't for the just-discovered damage I'd stick it out and work on selling the place. The damage moves it into "the bank made a bad bet" territory for me.
I think you need to talk this possibility through with a lawyer.
posted by J. Wilson at 11:30 AM on January 10, 2015 [2 favorites]
posted by J. Wilson at 11:30 AM on January 10, 2015 [2 favorites]
Response by poster: Old saw accepted: I've got an appointment with a lawyer. Personal anecdotes of experiences with such things are still appreciated.
posted by Kemayo at 11:53 AM on January 10, 2015
posted by Kemayo at 11:53 AM on January 10, 2015
I am not a lawyer and you should consult one, but the crux of this is whether Missouri is a "non-recourse" state. Quick bit of googling suggests isn't; most states aren't. That means that if you walk away from the house, after the foreclosure sale the lender can come after you for the remainder of the unpaid debt. That is, if you owe $100k on the mortgage, you walk away and the house sells for $80k, the lender can open a court case in order to force you to pay off the remaining $20k --- not sure if they can come after you for costs fees and penalties as well, talk to your lawyer about that. Presuming they obtain a judgement in their favor, you may have your wages garnished and I think they can go after certain of your assets.
Even if the lender decides you're too broke for coming after you to be worthwhile (as would be the case if you were being foreclosed on due to job loss or becoming disabled) they often have years, sometimes decades, to change their minds if your financial situation changes. Sometimes they'll go ahead and get a judgement against you and then sell off the right to collect the debt to an outside company, which are usually unscrupulous, ruthless bastards.
Of course, if I'm wrong and Missouri is a non-recourse state, then non of this applies; in non-recourse states like California the lender obtaining the house and selling it in foreclosure is considered to resolve the debt and put an end to any claim they might have. So definitely talk to a lawyer. My suspicion is that, if you have a good job and could otherwise pay off the loan, you may be running a substantial risk that they'll go after you.
posted by Diablevert at 12:58 PM on January 10, 2015 [1 favorite]
Even if the lender decides you're too broke for coming after you to be worthwhile (as would be the case if you were being foreclosed on due to job loss or becoming disabled) they often have years, sometimes decades, to change their minds if your financial situation changes. Sometimes they'll go ahead and get a judgement against you and then sell off the right to collect the debt to an outside company, which are usually unscrupulous, ruthless bastards.
Of course, if I'm wrong and Missouri is a non-recourse state, then non of this applies; in non-recourse states like California the lender obtaining the house and selling it in foreclosure is considered to resolve the debt and put an end to any claim they might have. So definitely talk to a lawyer. My suspicion is that, if you have a good job and could otherwise pay off the loan, you may be running a substantial risk that they'll go after you.
posted by Diablevert at 12:58 PM on January 10, 2015 [1 favorite]
Yes, talk to a lawyer, but the term of reference you want to look up is deficiency. According to this PDF, they can come after you. But laws change all the time and an attorney is going to be able to advise you and perhaps negotiate for you, etc.
As far as the repairs, you may be interested in this article about septic system assistance for homeowners in Missouri (not sure if available in your area). While it forgives the repair loan after 5 years, since you said you don't want to stay there, it may be some information you can offer to potential buyers, who might otherwise be scared away.
posted by Marie Mon Dieu at 1:03 PM on January 10, 2015 [1 favorite]
As far as the repairs, you may be interested in this article about septic system assistance for homeowners in Missouri (not sure if available in your area). While it forgives the repair loan after 5 years, since you said you don't want to stay there, it may be some information you can offer to potential buyers, who might otherwise be scared away.
posted by Marie Mon Dieu at 1:03 PM on January 10, 2015 [1 favorite]
Are you still in St. Louis, like your profile says? There's really not much in the way of septic systems in the city and county.
posted by notsnot at 2:11 PM on January 10, 2015
posted by notsnot at 2:11 PM on January 10, 2015
Response by poster: @notsnot: I'm still St Louis-adjacent. I'm in Jefferson Country right now.
@Marie: The assistance program looks interesting. I'll bring it up to them, but it looks like it has some income requirements which I don't meet and which I have no idea if the buyers would meet. Still, worth a shot.
posted by Kemayo at 2:18 PM on January 10, 2015
@Marie: The assistance program looks interesting. I'll bring it up to them, but it looks like it has some income requirements which I don't meet and which I have no idea if the buyers would meet. Still, worth a shot.
posted by Kemayo at 2:18 PM on January 10, 2015
I'd look into repairing the septic issue. About 20 pages of reading should cover it; and it is not rocket science to move liquids and solids down a sloping tube ( 1/4" per foot ) to a septic pond, leech field, or old school buried septic tank. Not seeing 10's of thousands of dollars in costs; I'd call some more plumbing folk in your area.
posted by buzzman at 8:39 PM on January 10, 2015
posted by buzzman at 8:39 PM on January 10, 2015
Eh, just a shot in the dark. I spent a long time researching for a book. And frankly, you need to think long and hard before you do the deed in lieu of foreclosure. If you can do anything else, it would be good. Sell it for a loss (talk to your real estate agent and a lawyer). Because a deed in lieu is some crappy shit. I am always, not a lawyer and certainly not your lawyer, this is just my personal opinion as a researcher and writer.
posted by Marie Mon Dieu at 10:20 PM on January 10, 2015
posted by Marie Mon Dieu at 10:20 PM on January 10, 2015
Best answer: So, IAL and answered a different, but related question a while ago. You might check that thread out.
http://ask.metafilter.com/147604/Help-me-default-on-my-mortgage
Also, the tax implications hinted at above are correct.
If you owe debt and bank chooses to take back the house in lieu of foreclosing the amount of hte debt over the value of the house at the moment of that event is income to you.
Hypothetical:
You owe $200k
House is work $150k
You and bank agree - "I'll give you the keys and a deed and you won't try to get any money out of me."
At the end of the year bank issues you a 1099-MISC reporting $50k of debt foregiveness as income.
Be aware of that.
Also, in many states if a lender on a residential mortgage does a non-judicial foreclosure then they cannot seek a "deficiency judgment" - a money judgment representing the debt above the value - $50k in my hypo above.
But, in many cases the bank will choose a judicial foreclosure. That results in a money judgment - $50k - in my hypotethetical above, including the bank's attorney fees incurred in the suing.
Someone above said Missouri is a non-recourse state. I assume, but do not know, that this is true. Thus, as I explain above a non-judicial foreclosure, if Missouri is non-recourse, would not result in a money judgment against you, BUT it still might result in the IRS and Missouri Revenue seeking to collect taxes on the foregiven debt.
In many states which are non-recourse states, lenders have been increasingly choosing judicial foreclosure. In the states I am aware of a lender CAN get a deficiency judgment in some instances on a judicial foreclosure.
posted by BrooksCooper at 8:32 AM on January 11, 2015
http://ask.metafilter.com/147604/Help-me-default-on-my-mortgage
Also, the tax implications hinted at above are correct.
If you owe debt and bank chooses to take back the house in lieu of foreclosing the amount of hte debt over the value of the house at the moment of that event is income to you.
Hypothetical:
You owe $200k
House is work $150k
You and bank agree - "I'll give you the keys and a deed and you won't try to get any money out of me."
At the end of the year bank issues you a 1099-MISC reporting $50k of debt foregiveness as income.
Be aware of that.
Also, in many states if a lender on a residential mortgage does a non-judicial foreclosure then they cannot seek a "deficiency judgment" - a money judgment representing the debt above the value - $50k in my hypo above.
But, in many cases the bank will choose a judicial foreclosure. That results in a money judgment - $50k - in my hypotethetical above, including the bank's attorney fees incurred in the suing.
Someone above said Missouri is a non-recourse state. I assume, but do not know, that this is true. Thus, as I explain above a non-judicial foreclosure, if Missouri is non-recourse, would not result in a money judgment against you, BUT it still might result in the IRS and Missouri Revenue seeking to collect taxes on the foregiven debt.
In many states which are non-recourse states, lenders have been increasingly choosing judicial foreclosure. In the states I am aware of a lender CAN get a deficiency judgment in some instances on a judicial foreclosure.
posted by BrooksCooper at 8:32 AM on January 11, 2015
This thread is closed to new comments.
posted by Ruthless Bunny at 11:19 AM on January 10, 2015 [1 favorite]