Negative equity on condo & can’t afford it. Should I lease it for less than my mortgage payment or short sell?

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Bought my home for $ 320K and it is worth about $ 250K. My payment is $ 2300. I can no longer afford this payment because of other bills/loans. I can lease it for $ 1400 and pay the difference of $ 900. I will live with Family for 1 yr (rent free) & payoff debt. BUT, 12 mos @ $ 900=$ 10,800. Chances are that the value of my home will not be $ 320K+ for at least 2, maybe 3 years. I hope to afford my old $ 2300 pmt after I payoff the loans/credit..but I should I do a shortsale now and cut my losses. Problem is that I would like to save my credit. I like my home but I just cant afford it right now. Should I short sell and still move in w/family then later Rent for awhile till I can get back in the market? Or what? Need help big time. I’m making pmts on time, but barely! Should I save my home & credit & live with family and payoff debt or just get rid of it (condo) all together and payoff credit/loans for a few years (since I know the short sale will ruin my credit.) Signed, Very Stressed.

I currently am going on 4 months behind on my mortgage. I just bought the house a year ago. Due to a recent job loss I put my house on the market to try to avoid foreclosure. I tried refinancing no luck there due to my recent late payments and income loss and I live in Phoenix where the market has slumped. A friend of a friend offered to do a short sale of $ 260K. I owe $ 306K. In return, he will rent it back to me for the price of the new monthly mortgage for a 2 year lease, then after 2 years, sell it and we split the profit 50/50. I have an 80/20 loan through the same lender. The short sale will take care of the 1st loan, but not the second and the mortgage company already stated that they will come after me for the remaining debt. I have been getting advice and everyone says it doesn’t sound like a good deal so I should probably just let the house foreclose. What is your advice? Any suggestions you can provide me?

  1. Reply
    February 24, 2011 at 8:33 pm

    If you can’t afford it, it would be better to sell it.

  2. Reply
    February 24, 2011 at 9:09 pm

    If you are allowed to rent then rent it furnished and when tenants are not possible stay there because you really like the condo a lot.

  3. Reply
    February 24, 2011 at 9:20 pm

    The very worst thing to do to your credit is to owe a creditor of a secured loan money. If you short sell , it does not relieve you of the responsibility for outstanding difference . Many lenders are now making other arrangements because of the huge number of foreclosures. If you contact your mortgage company and explain your situation they may have some ideas to help you. I would use a short sale as a very last resort.

  4. Reply
    February 24, 2011 at 9:22 pm

    first a short sale is not a guarantee, the bank will look at your assets and such before they will approve a short sale and what can you really get for the property? condo very hard to value in this market, if you feel you could get away with a short it may be an option

    another way is to go your route, rent for a year, pay off your other debt within the year, to the point where you can afford to live in the condo maybe with a roommate in a year I would not assume in a year your condo value will increase

  5. Reply
    February 24, 2011 at 9:53 pm

    Could you take in a room mate to help you with the payments? Moving in with your family and paying off your other bills is a definite possibility and would be better than the short sale. Once you get you debt under control you might consider adding additional principle payments to your monthly mortgage which will reduce the amount of years that you owe and help with your equity issue. One other option you might try is to negotiate your current mortgage payment with you mortgage company. Most mortgage companies are trying to help people right now so that they can cut the foreclosures they are dealing with nation wide. If you think you have a chance of getting your condo to appraise then you could refinance because rates have really changed recently and you might be able to reduce you monthly obligation. Good Luck!

  6. Reply
    February 24, 2011 at 10:31 pm

    You can’t afford the current first. You are going to take on the same first all over again and have the same 2nd to deal with, plus all the costs to be incurred around all this legal bouncing.

    Why won’t you be behind again in 4 months of not being able to make the same payments? What changes>

  7. Reply
    Mary B
    February 24, 2011 at 11:16 pm

    This is why the advice you are getting is bad: You CANNOT do your own short sale…you have to have the approval of the lender and customer service is NOT the people to call.

    Call the loss litagation department for the second lienholder and be very, very clear to them: It’s either a short-sale or a foreclosure in which they will most likely get NOTHING.

    Trust me, they will work out a deal with you so you can avoid a deficiency judgement.

    PS: I wouldn’t do what your friend is suggesting…they may monitor that address for a few years and you could wind up getting sued for tens of thousands of dollars and that is bank fraud…because you are INTENDING to defraud the bank out of money that they would initially lose in order to help you.

  8. Reply
    February 25, 2011 at 12:00 am

    You’re obviously in a position where you are going to lose the home either way correct? My suggestion would be that you take the deal. It will be less damaging to your credit if you at least pay off your first mtg. I have a lot of clients that have come to me that are in the same position. If you let the home go into foreclosure you will have to move out and both mtg’s will show up on your credit report as foreclosures verses you being able to stay in the home & only one showing up as a forcelosure & then you’ll also share in the profits when it is sold again. Make sure that whatever your agreement is with the friend of a friend is in writing and you have it notarized.

    Good Luck!

  9. Reply
    February 25, 2011 at 12:56 am

    While negotiating the short for the 1st mtge, have the buyer approach the lender who holds the 2nd. Explain to the lender that they have two options: either sell the note to the new buyer for $ 5,000 dollars (or so) or get nothing (probably) when the property goes to auction. Lenders do this ALL THE TIME if they think the house will likely go to auction. They’d rather get five grand than get nothing at all.

    Now the buyer shorts the first and pays a few grand for the second. Both notes are gone. Of course, the buyer better be very sure the bank will do the short sale or they’re going to be out $ 5k for the purchase of the 2nd.

    HOWEVER, as others have pointed out, your plan to split the profits of the later sale are illegal… like felony illegal. Let your friend do the short. But you should just walk away and start over.

  10. Reply
    Protector General
    June 10, 2011 at 2:46 am

    Abandon ship.

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