Foreclosure vs. short sell vs. waiting out the storm ....

[Lilith]

You guys are experts on everything from koi to cake-decorating ... anybody know finance?

Short story long, my husband and I bought a house two years ago at the peak of the boom. Then, BOOM!, my husband''s company decided to transfer us. Now we''re left trying to figure out what to do with our home ....

The house has lost about 100K in value since we bought it, so outright selling it won''t work too well. We can''t rent it out for a price that will cover the mortgage and property management: we''d need to charge something like $2300, and there are roughly comparable properties renting for $1800. As I see it, we''re left with three options:

1) Allow the house to go into foreclosure and take the hit to our credit. We have excellent credit otherwise - pay our bills on time, never pay interest on CCs, etc. - so I''m hoping we''ll be able to recover. BUT, the house is our main debt now, so I''m worried that it will look HUGE on our credit report.

2) Lose more money while we wait for the bank to approve a short sell, and hope and pray that they agree to do so in the first place. As I understand it, this will take about 90 days, so we''re looking at sinking another 10K or so that we''ll never see again into the house ... do you guys think keeping our credit/at least not harpooning it quite as badly is worth 10K?

3) Rent it out for a year at a loss of at least $500 bucks a month, maybe more, hope the market recovers a bit, and reevaluate our position then.

Thoughts? Links to good related articles/threads on other boards/assorted pertinent materials?

P.S. - I''m a regular going anon, just because I''m kind of embarrassed about this. I know, in the recession, we''re all screwed together, but, a) I feel like an idiot for buying at the peak!, and b) I feel kinda crass talking about money. Sorry, and thanks.

 

[lyra]

Rent it out as long as you can manage it. Possibly only do 6 month leases? Make a firm goal, of one year, then sell and take whatever loss there will be then. We were in a similar situation once. We didn''t stand to lose that much though, we "only" lost about $30K, but we had no choice since we had to move for a new job. In hindsight, we feel we should have rented it out for a year or more if possible, because in that time, the market shot up.

 

[steph72276]

How far upside down are you in the house? It also depends what market you are in. I think some areas like AZ and CA will take a while to recover, while I see some signs of recovery where I am in FL. I would most def. do the short sale over the foreclosure b/c depending on your state laws, they could come back and chase you for the difference in a foreclosure. I might be mistaken b/c I haven''t looked into the complete process, but don''t the banks only start looking at a short sale after you are late on payments? I could be totally wrong on that one, so hopefully someone else will chime in, but I think short sales are just "pre foreclosures" and the banks would be more likely to accept if they think you are going to foreclose. I would say if you are not that far upside down, I would rent for a year and see if the market recovers, but if you are way far behind and you see it taking numerous years to recover, I would go the short sell route.

 

[luckystar112]

I would choose option 3.
Losing 6 grand over the period of a year is better than dropping 10 grand in 3 months only to be told no by the bank, and it''s a whole lot better than having a foreclosure on your credit report! JMO.

 

[cara]

Short sales and foreclosures with both give a big hit to your credit score. Is that a concern for you? Will you need loans or good credit scores in the reasonable future?

Likelihood of short sale: did you original house purchase involve mortgage insurance? If so, you have very little chance of getting a short sale approved. The bank would rather foreclose and collect the insurance money, which they cannot do if they accept a short sale.

Are you in a state in which the bank can go after you for more than the title to the house? In CA, for example, the bank cannot go after you for more than the house, so you could go through foreclosure without having to declare bankruptcy. But in VA, for example, the bank can sue you in addition to foreclosing on the house, so you have to declare bankruptcy to fully discharge your debt.

There have actually been a couple of threads on these issues. One is neatfreak also had a thread on buying a short sale, which might have some useful info in it.

Without knowing more about your situation, I say rent it out and eat the difference ($500/mo) while you research a more permanent solution, as you want to be very careful about how exactly you unwind yourself from the situation. A lot of details matter that you haven't included in your initial post.

 

[Mara]

i would go with option 3. sure it''s not an ideal situation and yes you will be losing money but i would not take a hit to my credit OR go into foreclosure if i could in any way avoid it. to me when you buy a property you are taking a big responsibility on. that includes not making someone else pay for your problem. the problem now is you have to leave and you probably didn''t see that coming...buying at the peak is something a lot of people did but you are in an ok position it sounds like to consider diff options.

so, shoulder your responsibility, and rent it out and spend the extra $500 yourself for 6 months or a year. IMO, it will be a good lesson for when you guys buy your next property....it might make you think about it a bit harder, i know it makes us think harder.

we tried to sell our townhouse for 6 months after buying another property, and in this market we just refused to be lowballed or bargain shopped. so we spent like $15k extra on double mortgages for 6 months. not fun. but we got it rented to a great couple, and cover everything including 3/4 of prop taxes for a year. so we are happy and just figure well that $15k is our lesson learned (diamond upgrade!!!). and hopefully we can sell it in 1-2 years for what we wanted if not more and it will work out in the end. good luck!!

 

[fleur-de-lis]

If option 1, your creditworthiness and FICO scores will take a big hit, to the tune of around 100 points or more. Your "excellent" credit will go to "fair" for a while, installment loans like car loans will come with much higher rates for a while, and if you use credit cards or have credit card debt, those with universal default clauses have a very good chance of being rate-jacked up to a default rate of 29% or so. In the current environment, it''s possible that a few of your credit cards will also be closed by Chase/Citi/BofA megabanks. Another consideration is whether you are in a recourse or non-recourse state.

As for options 2 and 3, both depend on the financial reserves you have to ride out the storm. If your savings accounts have 6-figures in them and you need to avoid the penalties and problems of bad credit, the losses $10K in option 2 or $500/mo in Option 3 may be well worth it. With Option 3, don''t forget that there are ongoing tax considerations as well to complicate the math.

In the end, more info would be needed. For instance, is covering a $500/mo shortfall for a while something you could even afford? If you had to do it for 5 years, could you? (Or are you like most Americans and currently living on close to 100% of your net income, and that lost $500/month would break you pretty quickly?)




(FWIW, I don''t think the market is going to recover to the tune of $100,000 gain on a mid-range property any time soon. If anything, most current home owners who are underwater will have to wait for inflation to rescue them; how long that will take is anyone''s guess.)

 

[zoebartlett]

We''re in a very similar situation in that we own a condo that, if we were to try to sell right now, we''d lose a lot of money. We''re currently trying to rent it out (still no takers) and we''ve had to reduce the price a couple of times. We''re hoping that someone rents it as soon as possible. I have no real advice but I''d probably try to get someone to rent your property and get SOME help paying the mortgage that way. Best of luck!

 

[purrfectpear]

Just as an FYI and someone who now has a foreclosure on her credit report, not a single one of my credit cards (and I have available credit limits totaling $80K on about 5 cards - zero open balance, I pay in full every month) so much as blinked. No closures, no changes in interest rates, no reductions in limits.

Frankly in this climate, I''m not sure creditors really give a flip about a foreclosure any more as you are in the company of close to half a million people at this point.

That said, there IS a downside, credit wise. My FICO dropped from 820 to 680 (slowly climbing up). I would not be able to finance a new mortgage (instead I banked the money I wasn''t paying the lender and paid CASH for my new condo - mortgage free now) for at least 3 years, possibly longer. You "could" have trouble renting, though here in CALI no one cares, just give them a hefty deposit and all is good. It would affect your ability to apply for any new credit, such as VISA, car loans etc.

I knew it wouldn''t affect me as I paid cash for the new pad, the car is late model and paid for, and I have more credit than I could ever possibly need or use.

You need to figure out;

1. Are you in a non-recourse state? If the answer is no, you can probably stop reading right there.

2. How much are you under water, and how many years do you guesstimate it will take at avg. 3% escalation to get back to what you owe?

3. Over the course of those years, how much will you have sent to the lender? That''s the money you''re throwing down the toilet.

4. If you stop paying your lender, are you disciplined enough to bank the entire mortgage payment for the next 10 to 11 months that it takes for a foreclosure in your savings acct?

5. Is that enough money to make it all worth it? If so, it might be the smartest business decision you''ll ever make. Only you can answer all these questions.

 

[Lilith]

You guys are all awesome. Complicating this for me is that I'm a bit of an ignoramus when it comes to finance: my husband seems to have a decent handle on the terminology and the repercussions, but I desperately need to educate myself so that I can make an informed decision. Going in order ....

Lyra, thank you. What worries me in this scenario is that we'll rent it out, lose 6 grand or so, *than* have to do a short sell, and wind up losing more money in the long run then we would if we'd just walked away. Thank you for sharing your experience!

Steph72276, see, I don't even know what upside down means! Does that mean how much we have sunk into it/how much we stand to lose if we walk away? We're in CA, so we'd be protected from further consequences if we had a foreclosure ... we'd lose the down payment and what we've put into the house over the last 2 years. That would definitely *hurt,* but I think we could recover from it. We're actually waiting on a payment now while we negotiate with the bank (you're right, they need to see that before they consider the short sell - strikes me as being a fairly short-sighted position on their part, but, okay), and it just makes my stomach hurt to be technically defaulting on a loan. The market needs to recover by 60K for us to sell and not still owe the bank money at this point, 100K for us to recoup the initial investment.

LuckyStar, thanks! I am just worried that we'll be delaying the inevitable if we rent, and that maybe the market will get worse - I haven't seen any clear pattern in the news stories about the economy yet. Do you know how badly a foreclosure can hit ones credit score?

Cara, good question ... we'll need okay credit, or we won't even be able to *rent,* so I'm hoping we can maintain a reasonable score, at the very least. We're not planning on buying again in the near future, but I'm still concerned about worst-case scenarios. We're in CA, so the bank would not come after us for our organs ... but I do still hate this scenario. We're trying to renegotiate our loan so that we can afford to rent the house out without losing too much, and it's very frustrating: it'll take 3 months just for them to decide, all the while costing us more money while we wait and try to figure out what we'll do if they say no, and I doubt we can find a short-term 3 month renter in the meantime. Sorry about any missing information, and thanks for trying to respond despite it. I hope I've provided more here .. and, thank you for the links! I will peruse them carefully.

Mara, I agree with you - the morality of this troubles me. But the fact of the matter is, we can't afford to maintain two residences on separate coasts, and we can't afford to take a loss of 100K and keep making payments to the bank while living elsewhere, so ... we have to figure something out. That said, I don't think anyone saw the recession coming, and in this economy, my husband can't exactly quit his job so that we can stay in the area ... so I'm a little more inclined to rage at the system then I am to don sackcloth and ashes for making the egregious error of buying a home that was well within our means, barring the completely unforseen circumstances. Very glad to hear that you rented your townhouse - both for you, and because it gives me hope! - and I really do appreciate your sharing your perspective.

fleur-de-lis, this is *exactly* the kind of information I was hoping for - thank you so much! Covering a $500 a month shortfall for the near future would be doable. For 5 years? I ... don't know. That's what makes me so nervous about all of this. Because of my husband's situation, my own employment is sort of up in the air, and it makes everything feel even more urgent than it would otherwise. You've given me a lot to think about. Again, *thank you.*

Thanks again to all of you, and in advance to anyone who I'm cross-posting with ....

 

[Mara]

Lilith..also re renting, are you sure you can't get a bit more than you think for your place? I ask because we were not sure how long it would take for us to rent and we were asking a bit more but our place was really nice, nicer than other ones out there...and we got it rented in one weekend. We have a management company which obviously helped, but I am SOOO happy we managed to get what we did for it. Also it is in an area that these renters particularly wanted to be in. They actually love our place. I am hoping maybe they'll want to buy it in a year! So you might try to rent before considering option 1 if it comes down to it. Maybe ask for what you would really want and see. People will negotiate if they want to.

Also please don't feel like you have to don sackcloth and ashes (though that would be picture worthy) for the situation you are in. While I think that we saw a correction coming, you obviously didn't see your husband being transferred.

One other thing, PP put a lot of great Q's out there...but also think about shorter term too. Like...could you cover $500 extra a month for 2 years to recover lets just say 30-40k in the market. Are you comfortable doing that? Could you also save the extra to pay the bank? Would you even want to?

I know there is smart 'business' decision to consider as PP did...but honestly I don't know that I could even consider that. I would just feel so guilty for defaulting. I'd feel like 'well maybe 30-40k is the cost for me being a dummy'. But I know not everyone would agree.

 

[TravelingGal]

lilith, you have to do the math. Other people have given you good advice. What area to you live?

100K is a lot. People think homes will appreciate 50K a year. They do not in a NORMAL market. The usual rate of appreciation might be 3% a year. On a 200K house that''s about 6K a year. On a 500K house that is 15K a year. And this is assuming it will appreciate in the next 1-3 years. Chances are that it will not.

Judging from what you need to cover, I''d say your mortgage is about 350-400K? (I''m not a math wiz though.) If it lost 100K, let''s say it''s worth 250. You''re looking at a LONG time to make up the difference. Are you willing to pay 6K a year in overage for the next 5-10 years?

Obviously I don''t have a crystal ball, but I do think many homeowners are in denial. Even if the market doesn''t continue to go DOWN, it will not CATAPULT up. Appreciation will be slow in most markets. I think it will be an "L" shaped thing for awhile, and not a "V" shaped recovery.

 

[purrfectpear]

BTW, for those who might have been curious (I know I was!); the studio condo that I walked away from was just listed at a $154,000 LOSS from the 2006 selling price. I bet they don''t even sell it at $68,000. The only guilt I feel for being a dummy was the idiocy of overpaying by about 200% in 2006.

 

[TravelingGal]

Date: 7/29/2009 5:54:41 PM
Author: purrfectpear
BTW, for those who might have been curious (I know I was!); the studio condo that I walked away from was just listed at a $154,000 LOSS from the 2006 selling price. I bet they don''t even sell it at $68,000. The only guilt I feel for being a dummy was the idiocy of overpaying by about 200% in 2006.

That''s a huge loss PP. Strange, considering where you lived wasn''t exactly a ghetto (I don''t think it is anyway) but I guess condo sales are the first to go...

 

[Mara]

damn now might be a good time to snap up that waterfront condo!!! 68k?!?!?

 

[TravelingGal]

Date: 7/29/2009 6:12:14 PM
Author: Mara
damn now might be a good time to snap up that waterfront condo!!! 68k?!?!?

It''s a studio Mara, and the waterfront is LONG BEACH. (No offense PP).

 

[Dancing Fire]

Date: 7/29/2009 4:15:06 PM
Author: Mara

I know there is smart ''business'' decision to consider as PP did...but honestly I don''t know that I could even consider that. I would just feel so guilty for defaulting. I''d feel like ''well maybe 30-40k is the cost for me being a dummy''. But I know not everyone would agree.

i never agree with Mara on anything,but in this case i''d agree with her. Ooops,did i really say that ??

 

[Dancing Fire]

Date: 7/29/2009 5:21:37 PM
Author: TravelingGal

Obviously I don''t have a crystal ball, but I do think many homeowners are in denial. Even if the market doesn''t continue to go DOWN, it will not CATAPULT up. Appreciation will be slow in most markets. I think it will be an ''L'' shaped thing for awhile, and not a ''V'' shaped recovery.

agree 101%. in some areas in Cali it''ll take 15 yrs or more before we see 2006 prices again.

 

[purrfectpear]

Date: 7/29/2009 6:14:44 PM
Author: TravelingGal

Date: 7/29/2009 6:12:14 PM
Author: Mara
damn now might be a good time to snap up that waterfront condo!!! 68k?!?!?

It''s a studio Mara, and the waterfront is LONG BEACH. (No offense PP).

None taken

Ocean Blvd is full of what used to be expensive condos. The two new towers just next door completed construction in 2008. They were taking presales starting somewhere around $600K and the penthouse flipped three times before it was even occupied (last flip was $2mil). By the time the occupancy was ready people were bailing on their contracts in droves (better to lose the earnest money, than your entire shirt

). They held an auction in Dec 2008 trying to close some sales and the starting was around $330K. They sold a few, but again not everyone closed and some didn''t hold up to appraisal. They held another auction in May 2009. Starting was $275K (probably close to what they''re worth - sweet amenities, but the HOA is around $600/mo). There were two new towers scheduled for construction a couple of blocks further east. The financing tanked and the developer is just holding the land. LB on Ocean would be a pretty decent deal if the HOA''s weren''t so crazy. Developers need a reality check IMO. Downtown LA is also tanking pretty bad. There are a lot of new loft conversions that sold for $500K and up, that are barely worth $200K now.

Sucks to be a condo owner that bought in 2005-2007.

 

[steph72276]

Knowing more about your situation, I would honestly try to work on the short sale. Do you have a realtor yet? If not, I would get moving on getting one that specializes in short sales, get the property listed at a REALLY good price, and then hope for interested buyers. The bank will be more likely to approve the amount if they have a ready and willing buyer ready to take it off their hands. It stinks, but if you rent it out, you could be losing $500 a month for years on end until the value raises back not to mention having to be a landlord from another state. Are you willing to do that?

 

[TravelingGal]

Date: 7/29/2009 4:08:48 PM
Author: Lilith
You guys are all awesome. Complicating this for me is that I''m a bit of an ignoramus when it comes to finance: my husband seems to have a decent handle on the terminology and the repercussions, but I desperately need to educate myself so that I can make an informed decision. Going in order ....

Lyra, thank you. What worries me in this scenario is that we''ll rent it out, lose 6 grand or so, *than* have to do a short sell, and wind up losing more money in the long run then we would if we''d just walked away. Thank you for sharing your experience!

Steph72276, see, I don''t even know what upside down means! Does that mean how much we have sunk into it/how much we stand to lose if we walk away? We''re in CA, so we''d be protected from further consequences if we had a foreclosure ... we''d lose the down payment and what we''ve put into the house over the last 2 years. That would definitely *hurt,* but I think we could recover from it. We''re actually waiting on a payment now while we negotiate with the bank (you''re right, they need to see that before they consider the short sell - strikes me as being a fairly short-sighted position on their part, but, okay), and it just makes my stomach hurt to be technically defaulting on a loan. The market needs to recover by 60K for us to sell and not still owe the bank money at this point, 100K for us to recoup the initial investment.

LuckyStar, thanks! I am just worried that we''ll be delaying the inevitable if we rent, and that maybe the market will get worse - I haven''t seen any clear pattern in the news stories about the economy yet. Do you know how badly a foreclosure can hit ones credit score?

Cara, good question ... we''ll need okay credit, or we won''t even be able to *rent,* so I''m hoping we can maintain a reasonable score, at the very least. We''re not planning on buying again in the near future, but I''m still concerned about worst-case scenarios. We''re in CA, so the bank would not come after us for our organs ... but I do still hate this scenario. We''re trying to renegotiate our loan so that we can afford to rent the house out without losing too much, and it''s very frustrating: it''ll take 3 months just for them to decide, all the while costing us more money while we wait and try to figure out what we''ll do if they say no, and I doubt we can find a short-term 3 month renter in the meantime. Sorry about any missing information, and thanks for trying to respond despite it. I hope I''ve provided more here .. and, thank you for the links! I will peruse them carefully.

Mara, I agree with you - the morality of this troubles me. But the fact of the matter is, we can''t afford to maintain two residences on separate coasts, and we can''t afford to take a loss of 100K and keep making payments to the bank while living elsewhere, so ... we have to figure something out. That said, I don''t think anyone saw the recession coming, and in this economy, my husband can''t exactly quit his job so that we can stay in the area ... so I''m a little more inclined to rage at the system then I am to don sackcloth and ashes for making the egregious error of buying a home that was well within our means, barring the completely unforseen circumstances. Very glad to hear that you rented your townhouse - both for you, and because it gives me hope! - and I really do appreciate your sharing your perspective.

fleur-de-lis, this is *exactly* the kind of information I was hoping for - thank you so much! Covering a $500 a month shortfall for the near future would be doable. For 5 years? I ... don''t know. That''s what makes me so nervous about all of this. Because of my husband''s situation, my own employment is sort of up in the air, and it makes everything feel even more urgent than it would otherwise. You''ve given me a lot to think about. Again, *thank you.*

Thanks again to all of you, and in advance to anyone who I''m cross-posting with ....

Well, actually, plenty of people saw the recession and housing bust coming. I''ve been reading blogs and charting our area since 2005 - good thing too as I did speak to some RE people in 2006 who encouraged us to buy. I stuck to my gut and the hard facts.

I didn''t see your post earlier, but now I see you are in CA and how much you are upside down on your house.

You husband''s company wants to transfer him. If this is by THEIR choice and not his, you could take this up with your husband''s company. If they want him bad enough, they may pay the shortfall on renting or selling the house. I''ve heard of stuff like this happening before.

Are you SoCal? If so, inland empire or LA? IMHO the inland empire is near the bottom but will stay there for awhile. LA and OC, not so much. I don''t know SD or NorCal real estate.

Honestly, in your situation, it sounds to me like you guys will be walking. You can''t afford to take a 100K hit and you can''t afford to pay 500 a month for any extended period of time. If you have PMI on your place (which you probably do if you bought in CA) the bank isn''t going to agree to a short sale.

And guess what? You''re not alone. There are PLENTY of people like you in the wings right now, which is why the market isn''t going to improve any time soon. Shadow inventory!

 

[Lilith]

Just finished reading the loooooooooong thread that Cara recommended (thanks, Cara!) - well, *that* was educational.

Hitting the most recent posters first, and filling in the blanks later ....

Zoe, you have all my sympathies. I remember you were in NE, right? It sounds like we''re living parallel lives on our respective coasts. You''re definitely right about renting it out to offset costs, I think: this thread is inspiring me to start pursuing that more actively. See, we''d been trying to renegotiate the loan for 2 months now, and they''ve *only just* informed us that it will take 3 months to reach a decision on that ... for some reason, I''d idealistically been operating under the belief that it''d be decided already by now.

PP, damn, but that is a good list of questions. We are in a non-recourse state, we''re now about 100K behind in terms of current sale value (which implies a really frightening period for it to get anywhere near the value we bought at), which ... implies a whole hell of a lot of throwing good money after bad UNLESS we can renegotiate and rent it out at a sum sufficient to cover our tushes. Which is, I know, a long-shot. Which, in turn, is why the short-sell/deed to lien option is so tempting. Sure, we''ll eat the 40K sunk cost ... but the prospect of how much we could lose otherwise is really disheartening. We don''t have any problems with fiscal discipline generally (just with unpredictable employers), so we''d definitely bank the money. Also, for lack of a better phrase, !!! on the revised value of your former home. That is just *unbelievable.* Looks like you definitely made the right decision ....

Mara, thanks for coming back. You make a really good point that I hadn''t thought of - when I talked to a local property management company, they were like, "Ma''am, there are HOUSES renting for $1600!," with the implication that a house was indubitably better than a townhome. But our townhome is in a really pretty gated complex with a pool, it''s got high ceilings and a dressing area the size of small child''s bedroom, the patio is slate-paved and Mediterranean-feeling, it''s two blocks away from our pretty, tourist-attraction main street with its weekly farmer''s market (can you tell I love this house?), and I''m hoping that there''s at least *one* other couple out there that would think all of that outranked not having to share walls with your neighbors.

Re: the $500 extra to recover 30K or 40K ... that would definitely be worth it. But I really don''t think that the market is going to recover to that degree in 2 years. *Maybe* in 10 ... and we''d hold out for that long if the bank could renegotiate our terms so that we were at least breaking even on the mortgage, but practically speaking, we just couldn''t justify 60K across 10 years on the distant hope that maybe the economy would recover. I''m not one of those who thinks of real estate as an investment: we didn''t go into this expecting to make money. But if the difference between doing a short sell now and waiting is the difference between losing 40K and losing 100K (one way or another) ... well. It makes options 1 and 2 look considerably more palatable, even if it does sort of make me cringe. We''d be paying the 30K "dummy tax" anyway: by the time it gets to 100K, I sort of feel like its cost outweighs the benefit of having a good credit score, feeling morally impervious, etc.

TGal, we''re in SoCal, out by Pasadena, and you are indeed a math wiz - you have our circumstances pretty accurately pegged. And, no, 6K a year for 5-6 years on the off-chance the economy will recover is ... unacceptable. We''ll do it if we can rent the house out for a sufficient sum to cover the mortgage, outright (as Mara above gave me hope for) or if the bank can renegotiate our terms, but if it''s a case of consistently bleeding money ... it''s not tempting. That''s when it comes down to the short-sell at a slightly higher cost, or the foreclosure/deed in lien (see? I told you that thread was educational ...) and taking the hit on our credit.

DF Heh, and thanks! But, see, your 2nd post makes me so much more leery about your 1st, for the reasons I listed in my response to Mara ....

Steph ... and last but not least, thanks for checking back in! I didn''t even know what you were saying were possible - I thought it would have to be this long and arduous process of *first* getting approval for the short sell, and *then* finding a realtor and *then* trying to find a buyer. If we could do it this way, it sounds like it would save a lot of time (and money) ....

 

[Lilith]

And now, a plan:

See, after all of your advice and after reading the various threads that Cara pointed me to, I figured my ideal timeline would go like this:

1) Rent the place out for as much as we can get WHILE waiting for the bank to decide on the renegotiation

2A) The bank renegotiates, we keep renting, everyone is happy

OR

2B) The bank says no, we stop paying the mortgage, get their attention for the short-sell, that takes another 3-6 months, leading to

3A) They approve the short-sell, we have three months or so to sell it while still under the one year rental agreement

OR

3B) They reject that option, too, in which case we go into foreclosure, knowing we''ve exhausted all of our options (and, in the worst case scenario, at least covering some of the costs with the rent).

The only real downside is if we can''t find a renter ... but if we try Steph''s plan in conjunction, hopefully we will be covered from all angles.

Aside from the perspective that we took on this responsibility and just ought to suck it up (which I have mixed feelings about, but don''t really want to argue in this thread), given that we *can''t* do that indefinitely ... do you guys see any flaws in this plan, or better ways to handle it?

 

[TravelingGal]

Date: 7/29/2009 10:42:19 PM
Author: Lilith
And now, a plan:

See, after all of your advice and after reading the various threads that Cara pointed me to, I figured my ideal timeline would go like this:

1) Rent the place out for as much as we can get WHILE waiting for the bank to decide on the renegotiation

2A) The bank renegotiates, we keep renting, everyone is happy

OR

2B) The bank says no, we stop paying the mortgage, get their attention for the short-sell, that takes another 3-6 months, leading to

3A) They approve the short-sell, we have three months or so to sell it while still under the one year rental agreement

OR

3B) They reject that option, too, in which case we go into foreclosure, knowing we''ve exhausted all of our options (and, in the worst case scenario, at least covering some of the costs with the rent).

The only real downside is if we can''t find a renter ... but if we try Steph''s plan in conjunction, hopefully we will be covered from all angles.

Aside from the perspective that we took on this responsibility and just ought to suck it up (which I have mixed feelings about, but don''t really want to argue in this thread), given that we *can''t* do that indefinitely ... do you guys see any flaws in this plan, or better ways to handle it?

Again, have you brought this up with your husband''s company? If they are wanting to transfer him, it is costing you guys money.

Secondly, as a renter, I do have a problemw with your plan is that you are potentially shafting your renter. Who is going to want to move and rent when they can be punted at any moment?

Do you have PMI? If so, skip #2 completely.

 

[TravelingGal]

And I hate to tell you, but all those things that make your home great? Well, cost is king, and it won''t really matter to most people. You might get lucky, but let me tell you, I am looking to move right now and townhomes that are as much as homes...well, I am thinking those people are on drugs, period.

 

[Lilith]

Date: 7/29/2009 10:38:25 PM
Author: TravelingGal

Date: 7/29/2009 4:08:48 PM

Author: Lilith

Mara, I agree with you - the morality of this troubles me. But the fact of the matter is, we can''t afford to maintain two residences on separate coasts, and we can''t afford to take a loss of 100K and keep making payments to the bank while living elsewhere, so ... we have to figure something out. That said, I don''t think anyone saw the recession coming, and in this economy, my husband can''t exactly quit his job so that we can stay in the area ... so I''m a little more inclined to rage at the system then I am to don sackcloth and ashes for making the egregious error of buying a home that was well within our means, barring the completely unforseen circumstances. Very glad to hear that you rented your townhouse - both for you, and because it gives me hope! - and I really do appreciate your sharing your perspective.


fleur-de-lis, this is *exactly* the kind of information I was hoping for - thank you so much! Covering a $500 a month shortfall for the near future would be doable. For 5 years? I ... don''t know. That''s what makes me so nervous about all of this. Because of my husband''s situation, my own employment is sort of up in the air, and it makes everything feel even more urgent than it would otherwise. You''ve given me a lot to think about. Again, *thank you.*


Thanks again to all of you, and in advance to anyone who I''m cross-posting with ....

Well, actually, plenty of people saw the recession and housing bust coming. I''ve been reading blogs and charting our area since 2005 - good thing too as I did speak to some RE people in 2006 who encouraged us to buy. I stuck to my gut and the hard facts.


I didn''t see your post earlier, but now I see you are in CA and how much you are upside down on your house.


You husband''s company wants to transfer him. If this is by THEIR choice and not his, you could take this up with your husband''s company. If they want him bad enough, they may pay the shortfall on renting or selling the house. I''ve heard of stuff like this happening before.


Are you SoCal? If so, inland empire or LA? IMHO the inland empire is near the bottom but will stay there for awhile. LA and OC, not so much. I don''t know SD or NorCal real estate.


Honestly, in your situation, it sounds to me like you guys will be walking. You can''t afford to take a 100K hit and you can''t afford to pay 500 a month for any extended period of time. If you have PMI on your place (which you probably do if you bought in CA) the bank isn''t going to agree to a short sale.


And guess what? You''re not alone. There are PLENTY of people like you in the wings right now, which is why the market isn''t going to improve any time soon. Shadow inventory!

We cross-posted, right and proper.

Soooooo ... you''re right. We did see it coming, but when we bought we (more fools we!) thought it was close to being over, because it was after that first little hiccup when the real estate market looked like it was starting to stabilize. We just didn''t imagine it could get this bad. Also, we feel like complete and total idiots - in the other thread, when PP was going on about how everybody who bought during the peak should get a tee-shirt that advertised their complete and utter lack of brain cells? Oh, yeah, I was nodding.

It ... hadn''t occurred to me to try taking this up with my husband''s company. That, I will have to try.

And, as for where we are ... we''re right out by Pasadena, which we also thought would protect us a little, given how desirable Pasadena real estate has been for the past, oh, 20 years, but ... we were wrong. So now, we have to try to craft a cunning plan to get out of this without completely losing our shirts.

And, honestly? Thanks. It''s *nice* to hear that we''re not alone. It sucks for everybody else who''s in our situation along with us ... but what''s that old saying? Misery loves company? I think what it really loves is the affirmation that it''s not completely stupid on top of being unhappy ....

 

[Lilith]

te:[/b] 7/29/2009 10:47:59 PM
Author: TravelingGal

Again, have you brought this up with your husband''s company? If they are wanting to transfer him, it is costing you guys money.


Secondly, as a renter, I do have a problemw with your plan is that you are potentially shafting your renter. Who is going to want to move and rent when they can be punted at any moment?


Do you have PMI? If so, skip #2 completely. [/quote]

Simultaneity ... haven''t brought it up with his company, but WILL, believe me. And, as a long-time renter myself, I would definitely NOT shaft the renter ... from the timeline PP described, I''m imagining that if they say no to the new terms, and no to the short-sell, the renter''s lease will be well up by then. And if they say yes to the short-sell ... I''m not imagining the house being snapped up like a hot-cake, sadly, but more of our nicely and humbly asking the renter if the unit can be shown on alternate Thursdays, or something (I am imagining this is not crazy/rude, since I''ve seen a lot of private landlords do it before). If we sold the house while they were here, it would be conditional that either the new owners not take possession until the lease was up, or that we''d cover their moving costs.

And, no, no PMI.

 

[Lilith]

Date: 7/29/2009 10:49:17 PM
Author: TravelingGal
And I hate to tell you, but all those things that make your home great? Well, cost is king, and it won''t really matter to most people. You might get lucky, but let me tell you, I am looking to move right now and townhomes that are as much as homes...well, I am thinking those people are on drugs, period.

Gah, screwed up the quotes on the last one - sorry.

And ... really? Huh. Different mentalities, I guess: when we bought this place, we had actually been intending to rent, and we were just so FRUSTRATED with how crappy all of the rental properties in SoCal were that we bought instead. I''m a city-girl, so I *really* do not see the joy of the postage-stamp lawn and the glory of one''s own free-standing structure: I''m all, "My own house with a pool would cost a mil, this costs less than half and I feel safer ... score!" So I guess I would be looking for very *specific* renters ... which is a potential flaw. Thank you for pointing that out.

 

[TravelingGal]

Date: 7/29/2009 10:50:22 PM
Author: Lilith


We cross-posted, right and proper.

Soooooo ... you''re right. We did see it coming, but when we bought we (more fools we!) thought it was close to being over, because it was after that first little hiccup when the real estate market looked like it was starting to stabilize. We just didn''t imagine it could get this bad. Also, we feel like complete and total idiots - in the other thread, when PP was going on about how everybody who bought during the peak should get a tee-shirt that advertised their complete and utter lack of brain cells? Oh, yeah, I was nodding.

It ... hadn''t occurred to me to try taking this up with my husband''s company. That, I will have to try.

And, as for where we are ... we''re right out by Pasadena, which we also thought would protect us a little, given how desirable Pasadena real estate has been for the past, oh, 20 years, but ... we were wrong. So now, we have to try to craft a cunning plan to get out of this without completely losing our shirts.

And, honestly? Thanks. It''s *nice* to hear that we''re not alone. It sucks for everybody else who''s in our situation along with us ... but what''s that old saying? Misery loves company? I think what it really loves is the affirmation that it''s not completely stupid on top of being unhappy ....

I feel bad for you. The same belief (some may call it arrogance or delusional thinking - not saying that you are this, but I see this a lot) that affluent areas won''t tank is a big time factor in our area. I grew up in Manhattan Beach. VERY affluent area. They said it couldn''t happen. Well, in 1995 we could not sell since the market had tanked and we lost our house there. And yet still, the wealthy in this area think think they won''t be touched. The top areas are the last to fall, but they DO fall.

You must have bought in the spring? Things always look like they are going to stablize in the spring. Look at all the "yay, housing is turning around" headlines you are seeing now. Nope, duh, it''s peak selling season.

It''s tough for many in Gen Y and some in Gen X. We grew up in boom times. Big bull markets. We have never seen anything like this and didn''t think it could happen. Most of the people in trouble are in this generation. Or are out of towners that underestimated how crazy Cal RE is (right PP?)

Anyway, water under the bridge. Go have your husband discuss this with his company. Even if they were to give you 300 a month toward this, it really helps it sound more manageable. Most working professionals can cover $200 a month by cutting some things here and there.

Good luck! If if you wanna sell your house for 100K loss, let me know, I''m the market to buy - but will probably wait 1-4 more years!

 

[TravelingGal]

Date: 7/29/2009 11:00:07 PM
Author: Lilith

Date: 7/29/2009 10:49:17 PM
Author: TravelingGal
And I hate to tell you, but all those things that make your home great? Well, cost is king, and it won''t really matter to most people. You might get lucky, but let me tell you, I am looking to move right now and townhomes that are as much as homes...well, I am thinking those people are on drugs, period.

Gah, screwed up the quotes on the last one - sorry.

And ... really? Huh. Different mentalities, I guess: when we bought this place, we had actually been intending to rent, and we were just so FRUSTRATED with how crappy all of the rental properties in SoCal were that we bought instead. I''m a city-girl, so I *really* do not see the joy of the postage-stamp lawn and the glory of one''s own free-standing structure: I''m all, ''My own house with a pool would cost a mil, this costs less than half and I feel safer ... score!'' So I guess I would be looking for very *specific* renters ... which is a potential flaw. Thank you for pointing that out.

It''s possible you might find that renter. How big is your place? 2 bedrooms or 3? You''ll stand a better chance if it''s two, IMHO because the bedroom folks are usually familes, who will appreciate that postage stamp yard, believe me.

Young professionals may not care for the hassle of a house and like the proximity of old town. So there''s hope there.