What happens if I abandon a house with ~19 years left on the mortgage?
March 12, 2020 8:09 AM Subscribe
My wife and I bought a house in Carbondale, IL, in 2009 and lived there for ten years. At the time we bought it, we were concerned with what the market would be like when it came time to sell, and we were right. We moved to Florida last summer, put the house on the market, and have had no action; it's now listed at about 75% of what we paid for it. The sale market in Carbondale is bad, but the rental market is also bad, and we wouldn't be able to rent it for what we're paying in mortgage and insurance (Southern Illinois University has more or less been destroyed in the last decade, and it's taken the town with it). If we abandon it, what's the credit hit we would face?
We can afford to stick with it through the summer, but that's about it. As I see it, our options at that point are trying to sell it to one of those We Buy Ugly Houses places for way less than we owe, or simply abandoning it. We have strong credit right now, and I don't anticipate any big purchases in the near future, but I have no clue what ramifications this might have.
We can afford to stick with it through the summer, but that's about it. As I see it, our options at that point are trying to sell it to one of those We Buy Ugly Houses places for way less than we owe, or simply abandoning it. We have strong credit right now, and I don't anticipate any big purchases in the near future, but I have no clue what ramifications this might have.
If you stop paying, eventually the mortgage holder will foreclose, and you'll have a foreclosure on your credit for a while, and then you won't.
The mortgage holder has some recourse that may be additionally legally unpleasant, and that's where you want to find out some details before you make a decision. You could end up on the hook for the tax value of the mortgage write-off, you may have property the lienholder can go after. You want to research that before you decide, and it's probably worth a few hundred to a lawyer for that and some assistance trying some kind of Plan B with the mortgage company.
posted by Lyn Never at 8:51 AM on March 12, 2020
The mortgage holder has some recourse that may be additionally legally unpleasant, and that's where you want to find out some details before you make a decision. You could end up on the hook for the tax value of the mortgage write-off, you may have property the lienholder can go after. You want to research that before you decide, and it's probably worth a few hundred to a lawyer for that and some assistance trying some kind of Plan B with the mortgage company.
posted by Lyn Never at 8:51 AM on March 12, 2020
Illinois IS a "recourse" state, so there is no such thing as strategic default, here. You could be sued by your lender for the difference between the auction price and the mortgage balance.
posted by hwyengr at 8:53 AM on March 12, 2020 [3 favorites]
posted by hwyengr at 8:53 AM on March 12, 2020 [3 favorites]
Yeah, this is not legal advice, but in IL the mortgagee is allowed to recover from any of your other assets any remaining balance on the mortgage not covered by the sale of the property (and believe me, they will add on as many costs as they can to that balance). You'll end up with another lien on your current home, assuming you own it. Get some proper advice, for God's sake.
posted by praemunire at 8:56 AM on March 12, 2020 [9 favorites]
posted by praemunire at 8:56 AM on March 12, 2020 [9 favorites]
Working with the bank is better than abandoning the house. You may be able to work out a compromise with some mechanism like a quitclaim deed. Talk to the lender-- they have encountered this situation many times in the past and may have options you don't know about. And they are probably encountering this with hundreds of their mortgages. Being willing to work with them puts you ahead of the people who are thinking of just "walking away" and not even informing the bank. If in the end they are unhelpful, you have lost nothing by trying, and can still abandon the property if you feel you have no other option.
posted by seasparrow at 11:29 AM on March 12, 2020
posted by seasparrow at 11:29 AM on March 12, 2020
Definitely get proper advice and ask about a deed in lieu of foreclosure - basically skipping the foreclosure process and giving the house to the lender to save everyone the hassle and hopefully walking away without any lingering concern.
posted by hankscorpio83 at 11:39 AM on March 12, 2020 [1 favorite]
posted by hankscorpio83 at 11:39 AM on March 12, 2020 [1 favorite]
Rent it out for as much as you can get. Appeal the property tax valuation and get your property tax lowered. Refinance to get your mortgage payments down, as rates are so low right now.
You may not end up breaking even but I bet you won't be that far off, and on track to own that house.
posted by w0mbat at 11:55 AM on March 12, 2020 [7 favorites]
You may not end up breaking even but I bet you won't be that far off, and on track to own that house.
posted by w0mbat at 11:55 AM on March 12, 2020 [7 favorites]
I have started and stopped this reply over and over because I have a bit of experience in biting it on selling a house. I did a deed in lieu of foreclosure in 2011 on a house in Michigan (moved away, rental market collapsed, property manager went out of business) and then a short sale in 2012 for my primary residence in Texas. The short sale was done at a time when (due to the economic situation with housing), deficiencies in short sales were not considered "income."
If the economy gets bad enough, I don't think it's out of the question that this type of forgiveness will happen again, but if it doesn't I assume you don't want to write a check to the owner of the Mortgage for $50k or whatever the difference would be. It looks like they won't always pursue you for the deficiency depending on how much it is. You can attempt to negotiate that with the lender (see the link) as part of deed in lieu.
I agree with the previous commenters suggesting to maybe take a little less on rent for the time being.
Also, I'd investigate if doing a land contract is an option for people with less than ideal credit that want to buy a house.
I'm sorry that you haven't been able to sell even at the peak of the market. It's a terrible feeling.
posted by getawaysticks at 7:39 PM on March 13, 2020
If the economy gets bad enough, I don't think it's out of the question that this type of forgiveness will happen again, but if it doesn't I assume you don't want to write a check to the owner of the Mortgage for $50k or whatever the difference would be. It looks like they won't always pursue you for the deficiency depending on how much it is. You can attempt to negotiate that with the lender (see the link) as part of deed in lieu.
I agree with the previous commenters suggesting to maybe take a little less on rent for the time being.
Also, I'd investigate if doing a land contract is an option for people with less than ideal credit that want to buy a house.
I'm sorry that you haven't been able to sell even at the peak of the market. It's a terrible feeling.
posted by getawaysticks at 7:39 PM on March 13, 2020
Sorry, I forgot to mention - the foreclosure in 2011 and the short sale in 2012 have now fallen off of my credit and my credit scores are now >=800. But if you have to buy a car or refinance your primary residence do that now before the foreclosure/short sale happens. To do a short sale you're going to have to miss some payments and that's not going to be great for a few years.
posted by getawaysticks at 7:42 PM on March 13, 2020
posted by getawaysticks at 7:42 PM on March 13, 2020
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There's nothing magic about rent covering 100% of your costs. Right now, the rent you're getting is covering $0 of your costs. While you're figuring this out, could you rent it just to get some income? If you're still hoping to sell, you might have to specify that it's a month-to-month rental contract. Or if the rent would cover a substantial portion of your costs, you could rent it for a year and then put it back on the market. (E.g., if you're currently paying $1000 and getting no rent, and you could rent it for $900, then a year of rent would result in about the same loss as letting the house sit empty for a month.)
posted by Mr.Know-it-some at 8:43 AM on March 12, 2020 [30 favorites]