What should I do with my home? Sell? Foreclose?

Deal Score0

I bought a home in Raleigh, NC for $ 260K four years ago. The original mortgage broker tried to screw us and the deal fell through. We used the builder’s mortgage company, who provided an 80/20 interest-only loan, just to get us in the house. We were going to re-finance, but the credit crunch came full-speed. We’ve now paid $ 100K in interest. Our home is valued at $ 30K LESS than what we paid for it.

Do I let the bank foreclose on it and simply walk away? (Why keep paying on something that won’t be of any value for years to come?)
Do I try to sell it at $ 30K less than what we paid for it?

I was 700 miles from ‘home’. All my belongings in a moving truck. It was Friday at 6:00pm when the deal fell through. I was desperate. Not an excuse, but call it a learning experience.

  1. Reply
    April 30, 2011 at 12:41 am

    Whoa! You bought the big one. What the H were you thinking buying with interest only? You could just pay rent. This hole is too big to crawl out.

  2. Reply
    Michelle S
    April 30, 2011 at 1:23 am

    Foreclose. Here is a great article that will make you feel better about walking away.


  3. Reply
    April 30, 2011 at 2:21 am

    The bank didn’t screw you. You made a choice because you wanted the house which is how life works and it is okay. Look at your responsibility too. Admittedly, banks shouldn’t have lent money to people who couldn’t afford the payments on a conventional mortgage but to be honest, in this amount of years, on a conventional mortgage, you would have paid only a few thousand dollars toward principle anyway.

    Crunch the numbers and see how much of the loan you could repay if you sold at about $ 30,000 + all the charges and negotiate with the bank. Did you know that if you are otherwise credit-worthy, the bank doesn’t have to let you off the hook in a foreclosure. They can still bill you for anything they lose in a foreclosure sale. In reality, they usually don’t because most of the people in this circumstance have no assets.

    Forget what you paid in. Call it “rent.” If you can sell for a net of about $ 210,000, what do you owe the bank? If it is close, dicker with them to let you off the hook for that amount. If they foreclose, they hav to start paying the taxes until they sell. That can be a drain in their cash. And, foreclosure sales rarely get more than 50 cents on the dollar. Also, how much equity do you have in the property?

    YOu are fairly lucky that the property hasn’t lost much value. Last year, I bought a condo in Miami Beach that sold for $ 489,000 in 2006 for $ 269,000 on short sale which is what you would have to do if you owe more than the house will bring. You cannot sell without permission from the bank if your debt exceeds your mortgage. How would the new owners make settlement? The bank normally has to be paid off before they get title. So, if the net sale price is less than you owe the bank, you can’t sell without them signing off.

    Check with a lawyer. I am a real estate investor, not a lawyer so I know these things from experience but a lawyer will also negotiate with the bank for you. Many banks would rather have an 80% return than a foreclosed property they may be stuck with for years. Banks are not in the real estate business nor do they want to be.

    Hope this helps a little. Sorry you are in this bind but don’t waste energy pointing fingers. Find the best way out of it and move on with your life.

  4. Reply
    April 30, 2011 at 3:04 am

    Shawn your first step is to contact the lender to see if you qualify for a loan modification. You can’t skip any steps this is very important. You’ll need to prove a hardship. And there are three tiers from what I am told.

    If they deny your request for loan modification, then go to the loss mitigation department and begin the process for getting approval for a short sale. Once the short sale is in place and you need it in writing, then list the property with an agent who is familiar with the process, this is critical. And in this process you have to realize, the market has declined, you have no equity in the property and must let it go. It’s an emotional thing, but work on that now. In a short sale, you will get to approve any offers, but final say comes from the lender. You also want to talk with a tax accountant about your potential liability for any difference.

    If you can’t short sale, you have no alternative but to try “deed in lieu of foreclose” with lender. If they still say no, then they will take the house back in foreclosure.

    First find out what the law’s are in your state regarding foreclosure and any redemption period. Timing is key. You need to know what the timing is potentially on each step, so that you can make good choices.

    You may have to share in the loss with the lender, meaning they could place a personal judgment against you for their losses. Or they can file a 1099 A or C to the IRS grossing up your income taxes for that year. So if you aren’t in default now, follow my suggestions to prepare yourself as best you can.

  5. Reply
    April 30, 2011 at 3:49 am

    What are you gonna do if you simply walk away from your obligation? You have to pay either rent or a mortgage payment. Which benefits you better?

    If you decide to rent you are not building any potential equity.

    If you decide to remain in the property you are gaining possible equity in the next 3-4 years.

    You should make contact with your lender immediately. They might have programs that will assist you where you could remain in your home.

    There are a few possible options

    #1. Short sale (You need a competent real estate agent to assist you with this procedure through your lender for their approval.) If approved you would not have additional monthly mortgage payments, also this would reflect negatively on your credit report.)

    #2. A deed-in-lieu of foreclosure ( You would apply for this procedure through your lender. If this procedure is approved you would no longer have any financial obligations. This too would reflect negatively on your credit report)

    #3. Loan modification (You would need to get a loan modification application from your lender. You might complete this application yourself with the help of your lender. There are companies that are available to assist you. They are third party individuals that can not predict the outcome nor guarantee you that your application would be approved. Even if the outcome is not in your favor you would still be required to pay this third party.)

    #4. Sell the property (If you sell the house and the sale price is less than the loan amount you would have to make up the difference with your funds.)

    I hope this has been of some benefit to you,good luck.

    “FIGHT ON”

  6. Reply
    Doctor Deth
    April 30, 2011 at 3:59 am

    most of the houses in the country with a mortgage are worth less than the mortgage balance – including mine – I figure I’m 30K under water and my house only cost $ 152k
    I seriously doubt your house has only gone down 12% in 4 yrs – 20-30% is low average
    walking away will ruin your credit for many years and you may have to pay tax on any forgiven debt if they don;t come after you for the unpaid amt

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