Walking away from mortgage- please no flames here just advise or experiences

[roliepolieoliefan]

I guess they have never been down on their luck.

Maybe the rest of us live within our means. DH could lose his job or divorce me( not likely, 20 years and happy ) and I could go to work full-time and afford to still make the mortgage payments.

Yea we could have afforded a way larger home but chose not to for the above reasons. When are people going to be held accountable?

As PP's have already stated sorry no hugs from me, I'm sick of people not taking responsiblity for what they created.

 

[princesslily]

It's funny to me that people are still blaming some for "not living within their means". My means for the last 10 years had always been the same until the last 2 years. The bank I purchased my home from 4 years ago helped determine my housing means. Industry has left town, jobs have been lost and housing market has bottomed out. Our house is not worth what the bank said it was worth! I think the banks should have some responsibility for that! They should be working with the op to keep her house and not walk away! Shame on them for being GREEDY!

 

[NHdisneylover]

OP--my advice is to do anything you can to keep the house (or sell it for what you owe). Rent it out, get roomates, use the 401K, sell things on ebay, etc. Also, do not limit yourself to location while looking for a new job in this economy. Okay, maybe you do not wantto move overseas as a single mother but at least be willing to go pretty much anywhere in the USA right now. You may be able to keep up the mortgage and still get a small place (apartment) where your new job is on your salary until the house sells. Once the economy is better and you are stable you can look for something in the specific location you want to be in. In the meantime relaize that teaching your son to work hard and honor your commitments even when it means sacrificing in the lon grun IS being a good mother. You can remember that when you feel badly about not being able to afford a bigger place, or the cool shoes, etc. BTW I am not flaming you for thinking about it. It is the financial advice you have been given and you are just trying to wrok through and figure out what is best. It happens that I do not think it is good advice.

Take in roommates. Dip into that 401k. Go back to court, say that the situation has changed drastically and ask for an adjustment. This isn't some disaster like a sudden illness this is someone looking to bail as a financial option. That should be a desperate last resort not a result of financial planning.

While this poster was awfully harsh in their first post's choice of words, I do agree with the overall meaning of what they say. Persoanlly, I wish the laws would change to be that you can never just be finsiehd with an unpaid debt. I think you should be able to have harrassing calls stopped and get a temporary hold on all debts (icluding not incurring additional interest) to get back on your feet in situations which would currently be allowed to file bankrupcy, but once you are on your feet again I feel you should have to repay those debts no matter how old they are. I think we would see much less reckless spending in our country if the law worked that way I am not saying OP spent reckalessly. Her mairragie fell apart and her job disappeared and you can only plan for so many catastrophes. This is where I think the law should allow people to file for some sort of temporary halt to paying some of their bills while they find a new job, lease the house, get roomates, etc, but once they do, they should be required to pay say 120% of the bill every month until they have repaid what they did not pay while things were on hold, rather than just getting to pretend nothing happened and let the tax payers cover that time period).


DH's pay was cut by 20% a little over 2 years ago and he had to start commuting to a differnt plant about an hour a day (meaning our bills for gas went way up at the same time). THEN that plant closed down and there were no jobs around. He finally found a good job (my work does not pay much, his salary is really what we rely on)--in Germany. Yep, to have a good paying job in his field we had to be willing to relocate anywhere and we did. As it turns out we are very happy to be here and enjoy it, but we would have done it regardless (pretty much to anywhere not deemed unsafe for American families to live by our own government). In the meantime, unable to sell our house in the current market we have rented. The first 8 months were a nightmare of bad tenants, eviction, etc (all the while eating up a good chunk of our 401K--but not as much as it could have becuase we got a tiny place here until we could get that straightened out and did not do anything "fun" when we could not make all the payments out of the paycheck). We kept at it and finally have good tenants (and won a lawsuit against the first ones yesterady, though I don't know if we will ever be able to get the money). It was not easy by any strech.

My point is that I have sort of been there (not in a divorce situation but with the no job and house payments and cannot sell the house sense) and I still feel that it is wrong to declare bankrupcy or walk away from the house unless you have 100% exhausted all other means. I honestly could not live with myself if I did and I would not want to set that example for my children.

 

[Blue.Fairy2]

If the bank sends you a 1099 for the foreclosure on a primary residence, you simply file a 962 to exempt that from income.

a 962 is for earned income credit and is capped

http://www.irs.gov/pub/irs-pdf/p962.pdf

I think you meant a 982, I found this:

The 1099A is to report the foreclosure. If including this with your taxes causes your taxes to go up, then you would need to use the form 982. Most people will not have to pay taxes for any foreclosure this year

http://www.debtfreedestiny.com/debt-settlement/debt-settlement-and-income-taxes/

Thank you for the information to get me started looking for this.

 

[summerrluvv]

Seriously? I would strongly beg to differ that the real estate broker makes out in a short sale. The commission is always cut at least in half and the amount of time it takes to process a short sale on the agents side is ridiculous. We are lucky if we make any money on a short sale.

Your credit is going to be damaged whether you have a short sale, foreclosure or bankruptcy. The level of damage is different with each one. In a short sale and a foreclosure, the lien holder can, and often will, issue a deficiency judgement. That means you will owe the difference between what is owed on the mortgage and what the house sells for. If you go with a bankruptcy then that debt is wiped completely clean. Keep in mind that there are tax ramifications as well. If you sell short or the house is foreclosed on and the lien holder doesn't file a deficiency judgement, you will owe taxes on that amount as if it is income. I hope that makes sense.

The tax remifications are slim. In NYS there is a law that they can't pursue you for the deficiency nor will you get a 1099 for it. I deal with people in foreclosure ALL the time and out of thousands of clients no one has ever been pursued for the deficiency, nor have they been 1099'd.

I stand by my statement that the only people that make out are the broker and the buyer, as there is ZERO advantage to the homeowner, other than maybe their pride. But then again the bank is STILL taking a loss.

 

[wdwfan16]

First off, a 401K is NOT "SAVINGS". If you've been there, you should know the difference.

Second, why do people have to make snotty comments when a person is asking for suggestions and asks specifically, "please no flames here just advise or experiences". Say something helpful and constructive or keep your trap shut. She already said she's not sure what she's going to do.

Then what is it?

 

[robsmom]

It's funny to me that people are still blaming some for "not living within their means". My means for the last 10 years had always been the same until the last 2 years. The bank I purchased my home from 4 years ago helped determine my housing means. Industry has left town, jobs have been lost and housing market has bottomed out. Our house is not worth what the bank said it was worth! I think the banks should have some responsibility for that! They should be working with the op to keep her house and not walk away! Shame on them for being GREEDY!

So, if your house had appreciated by 100,000 in the last 2 yrs instead of losing value you would have given all or at least some of that to the bank as a gift. "here you go, you should have some responsibility for my appreciation"?. The bank didn't decide what your house was worth then and it is not deciding what it is worth now - the market is determining that. I understand where you are coming from, but we can't have a market in which the individual gets all the benefit on the upside and the bank takes the loss on the downside. That is a recipe for economic collapse for the country. If someone wants a housing situation in which they have no risk, then they should be renting a property. Owning a home means you own it, the risk is yours whether the outcome is good or bad.

OP, i do feel for you. It sounds like the job loss is really your biggest problem right now. Do you like your home and do you want to stay there long term. If you got another job would you be able to pay the mortgage and still save for retirement, do other things. I guess what i am asking is "can you really afford this home even if you are working". If the divorce put you in a situation were the house is really a struggle, i would view this as a long term issue and sell the house. If the house really makes personal and financial sense to you as long as you are working, then I would view this as a temporary situation and do whatever I could to save the house and meet the responsibility.

 

[SalandJeff]

Maybe the rest of us live within our means. DH could lose his job or divorce me( not likely, 20 years and happy ) and I could go to work full-time and afford to still make the mortgage payments....

I am so happy for you that you live in an area where you can "go to work full-time and afford to make the mortgage payments". Please let the rest of the thousands in the country who have been laid off know where all these full time jobs are located and we will all move there.

Sounds like OP was living within her means before she got laid off and divorced.

To OP - I'm sorry you are going through this. Have you looked into the government's Making Homes Affordable program to see if you can have your mortgage modified. Also, have you thought about where you will live if you do leave your house...in some areas, the rents are as high as some people's mortgage payments. Good luck. This economy is forcing a lot of people to make some very difficult decisions.

 

[BellePrincessBelle]

So, if your house had appreciated by 100,000 in the last 2 yrs instead of losing value you would have given all or at least some of that to the bank as a gift. "here you go, you should have some responsibility for my appreciation"?. The bank didn't decide what your house was worth then and it is not deciding what it is worth now - the market is determining that. I understand where you are coming from, but we can't have a market in which the individual gets all the benefit on the upside and the bank takes the loss on the downside. That is a recipe for economic collapse for the country. If someone wants a housing situation in which they have no risk, then they should be renting a property. Owning a home means you own it, the risk is yours whether the outcome is good or bad.
OP, i do feel for you. It sounds like the job loss is really your biggest problem right now. Do you like your home and do you want to stay there long term. If you got another job would you be able to pay the mortgage and still save for retirement, do other things. I guess what i am asking is "can you really afford this home even if you are working". If the divorce put you in a situation were the house is really a struggle, i would view this as a long term issue and sell the house. If the house really makes personal and financial sense to you as long as you are working, then I would view this as a temporary situation and do whatever I could to save the house and meet the responsibility.

Finally someone with common sense when it comes to the housing market! I am so sick for people boo hooing over modifications.

 

[Colleen27]

It's most likely a recourse loan. Non-recourse loans are generally very hard to get. I know as my IRA invests in real estate and non-recourse loans are the only kind I can have without running afoul of the IRS.

It really depends on the state laws. In Michigan, the most common type of foreclosure is a non-judicial process that doesn't allow for deficiency judgments, so regardless of how the loan is written most become non-recourse loans in practice. Lenders seldom opt for the longer and more expensive judicial foreclosure process that would allow them to pursue the difference in value.

We have had several friends walk away from their homes due to job loss and prolonged unemployment. The foreclosure process is a slow one - you'll have anywhere from 6mo to a year or more (depending on the lender and your state's laws) from the time you stop paying until you actually have to move out. We know a number of people who used that time to save for a down payment or deposit for somewhere else to live, once they determined that there was no way to keep their home. None have faced deficiency judgments or lenders pursuing them for the remainder of the amount owed (which would be disastrous - many of these homes were purchased for around 100K 5-10 years ago and are selling for 25K now), and the IRS rules specify that debt forgiven because of foreclosure is not considered taxable income.

 

[mnrose]

So, if your house had appreciated by 100,000 in the last 2 yrs instead of losing value you would have given all or at least some of that to the bank as a gift. "here you go, you should have some responsibility for my appreciation"?. The bank didn't decide what your house was worth then and it is not deciding what it is worth now - the market is determining that. I understand where you are coming from, but we can't have a market in which the individual gets all the benefit on the upside and the bank takes the loss on the downside. That is a recipe for economic collapse for the country. If someone wants a housing situation in which they have no risk, then they should be renting a property. Owning a home means you own it, the risk is yours whether the outcome is good or bad.

Clap. Clap.

There's ALWAYS been a risk that your house would go down in value, that you would lose your job, that bad things would happen. Just as there's also always been the chance that your house would appreciate in value, and that you would see windfall profits. Why people don't get this is beyond me. We are now in a period where values have declined. I don't get why the banks, and ultimately all other consumers, have to pay for this decline.

 

[Marymom]

I would contact a realtor who specializes in short sales and get a market analysis on your house. I think your 401K is safe but you can ask the question. You can always try to short sale and then walk away if the house does not move. You will be responsible for the difference either way but a short sale could be less costly. When a home is foreclosed on, legal fees, document fees will add up. Not to mention that when a bank owns the house, they will sell it for significantly under the actual value, which will be billed to you. Good luck!

Mary

 

[roliepolieoliefan]

I am so happy for you that you live in an area where you can "go to work full-time and afford to make the mortgage payments". Please let the rest of the thousands in the country who have been laid off know where all these full time jobs are located and we will all move there.

Sounds like OP was living within her means before she got laid off and divorced.

To OP - I'm sorry you are going through this. Have you looked into the government's Making Homes Affordable program to see if you can have your mortgage modified. Also, have you thought about where you will live if you do leave your house...in some areas, the rents are as high as some people's mortgage payments. Good luck. This economy is forcing a lot of people to make some very difficult decisions.

Well DH and I made compensations incase something does happen. His job is not secure as like alot of peoples. I am lucky to have a career that is still in demand , so yes I could pick up more hours or work full-time if need be.

Mortgages don't just go upside down. This takes time. I would think I would try and sell my home before I would just walk away. Did the OP's ex not have to buy her out? Is his name not on the mortgage?

I understand there are many people down on their luck, but defaulting mortgages hurts everybody.

 

[PatsMom]

OP, have you contacted your mortgage company to see if you are eligible for some type of work-out on the loan? There are a couple of government programs around right now that could actually help to reduce your payment to something that you can afford. Of course, you still have to have the means to make that payment. But it could be an option to ruining your credit by walking away.

I do somewhat have to agree with those who say it is just wrong to bail out and let others pick up your burden. If you can keep the house and sell it under better circumstances, you would be better off most likely. And for those reading, I must say that the most common financial mistake women make in a divorce is to hold onto the house. It represents stability to them and they tend to give up other assets to keep a house that they really can't afford.

I certainly wouldn't walk away while I still had other options. And if you have savings (and a 401k is savings) you have other options. Also, have you reviewed your cash flow for cuts?

 

[kim929]

My friend had to do this last year when her husband walked out on her. The house went into foreclosure, she walked away not owing anything. The bank wrote off the hole thing, she didn't have to pay the diffrence of what was owed and what the house sold for. On top of that, they paid her to move out of the house so they didn't have to evict her. As long as the house was "swept cleaned" as they called it, the company that handled the properties for the bank handed her a check and I believe it was for about 2500.00.

Good luck, I know all about nasty divorces. Mine took 2 yrs and almost 20,000.00 and that was over 10 yrs ago.

 

[bettymae1121]

But the banks know the risk when they write the mortgage, it's factored in. They know (or should know) that there is always a chance that a home could at some point become worth less than is owed, and the buyer is unable to pay the mortgage and default. The bank is making an investment like any other, it may lose value just like investing in a stock or bond. If a person is unable to continue paying a mortgage and doesn't have the means to to pay the difference if the house is underwater, then the bank loses on the investment, just like my 401k lost money when the mutual fund I invested in went down. Vanguard didn't cover my 401k losses, why should a buyer cover a banks losses? Why should a bank have a guaranteed return no matter what when the rest of us take all the risk?

I'm not saying people should walk away from mortgages just for the heck of it, but if a person is on hard times has no other good options, I don't have a problem with people walking away. Bankruptcy, foreclosure, short sales, are all legal ways for people (and companies and corporations) to recover from bad financial situations. Why shouldn't people take advantage of legal recourse? Why is it immoral for a person to walk a way from a financial disaster, but not a company/corporation? Corporations file bankruptcy all the time, they walk away from bad debt all the time. No one questions their morals. But when an individual does the same, all of a suddden they are deadbeats living off the system. I don't get it.

 

[summerrluvv]

You will be responsible for the difference either way but a short sale could be less costly.

Mary

Once again, most likely NOT.

 

[Colleen27]

Maybe the rest of us live within our means. DH could lose his job or divorce me( not likely, 20 years and happy ) and I could go to work full-time and afford to still make the mortgage payments.

Yea we could have afforded a way larger home but chose not to for the above reasons. When are people going to be held accountable?

Things like this don't ONLY happen to people living beyond their means. Most of the people we know who have lost homes were two-income families who bought modest (under 150K) homes. But when those jobs go away and we're living with a 25% local unemployment rate, there aren't good answers and it ceases to be as simple as "I could go to work full time and afford the mortgage)". I can understand the resentment/anger towards those who bought into the ARM merry-go-round, but not everyone in dire straits with their mortgage got there via irresponsibility. Bad things DO happen to good people.

 

[Heidijs]

I have a friend who lived in GA and did this on a newer home that ended up upside down due to the economy. They tried to sell but it never happened. Due to financial hardship from layoffs to very sick baby, they had to move. She basically called the mortgage company and said they could no longer make payments, handed over the keys and everything else and that was it...basically they know their credit will be destroyed but what else can you do...

 

[Hannathy]

Things like this don't ONLY happen to people living beyond their means. Most of the people we know who have lost homes were two-income families who bought modest (under 150K) homes. But when those jobs go away and we're living with a 25% local unemployment rate, there aren't good answers and it ceases to be as simple as "I could go to work full time and afford the mortgage)". I can understand the resentment/anger towards those who bought into the ARM merry-go-round, but not everyone in dire straits with their mortgage got there via irresponsibility. Bad things DO happen to good people.

Yes they do but it angers me when people don't even try to do the right thing and live up to their obligations that they entered in of there own free will. The poster does have options other than sticking the rest of us with her bills. She has money saved!!!! She just doesn't feel like using it because then oh my she will have to save it all over again, or when she retires or maybe not retire as nicely.

She has money and should pay her bills not walk away and expect the rest of us to give up things so she doesn't have to.