What is worse for my future/credit ?

[Rafiki31]

A short sale? Forclosure? Or cashing out my 401K to cover the short amount on my mortgage? My husband was laid off about 7 months ago and we didnt have an emergency fund. We were both driving old cars, one is gone and we now have one that is on its very last leg.Husband finally found a job, but it is making far less than what he made before and now we need another car. I am working as much as I can, but we need to sell this house and get out of this mortgage. We also have accumulated a lot of credit card debt. I have never made a late payment on my credit cards or mortgage, or home equity line of credit. But I can't stand the stress of all this.

I just want to sell the house, use my 401K to cover the "short" of the mortgage & heloc. Then move to an affordable little apartment and work on the credit card debt. It is currently all at 0%.

Advice? Whats worse, short sale or cashing out the 401K to cover the difference? I feel like we can get out of this with both of us working if we can get rid of the house.

 

[AmberHeartsDisney]

A short sale? Forclosure? Or cashing out my 401K to cover the short amount on my mortgage? My husband was laid off about 7 months ago and we didnt have an emergency fund. We were both driving old cars, one is gone and we now have one that is on its very last leg.Husband finally found a job, but it is making far less than what he made before and now we need another car. I am working as much as I can, but we need to sell this house and get out of this mortgage. We also have accumulated a lot of credit card debt. I have never made a late payment on my credit cards or mortgage, or home equity line of credit. But I can't stand the stress of all this.

I just want to sell the house, use my 401K to cover the "short" of the mortgage & heloc. Then move to an affordable little apartment and work on the credit card debt. It is currently all at 0%.

Advice? Whats worse, short sale or cashing out the 401K to cover the difference? I feel like we can get out of this with both of us working if we can get rid of the house.

If you cash out your 401k and are under retirement age your gonna owe lots of taxes on that money. So keep that in mind as well....

As for credit i think foreclose seems the worst to me but i am not sure. Short sale you still own the difference dont you?


cant you try to refi or get a loan modification?

 

[hsmamato2]

sorry you're going through this -try googling Clark Howard .com for some real advice- or perhaps Suze orman- she knows a lot- I think you should pay minimum on cc ,pay your mtg for now till you figure out a real plan- buying a new car is not a good idea right now...try to keep your old one going- and go to those sites for help- if you haven't already, cut out all extra spending,cable,extras,etc.

 

[Rafiki31]

sorry you're going through this -try googling Clark Howard .com for some real advice- or perhaps Suze orman- she knows a lot- I think you should pay minimum on cc ,pay your mtg for now till you figure out a real plan- buying a new car is not a good idea right now...try to keep your old one going- and go to those sites for help- if you haven't already, cut out all extra spending,cable,extras,etc.

Now that we both have jobs, we NEED another car. We have one, its a 2001 has 159K and is giving us trouble. He got a new job that is a very long commute. He starts the week after next. There is no way for us to only have one car right now. But we think that him having a job will make it easier for him to find a better job, rather than be unemployed. He needs a reliable car to get there, now that he has a job he can't be latee or not show up if the car won't start. The car we do have has been in and out of the shop several times in the last 7 months. We really both need newer cars, but right now we have to buy one car for him, it will definately not be a new car.

 

[starry_solo]

A foreclosure is worse than a short sale. You need to go to HUD or speak with a short-sale/foreclosure specialist in your state because the rules may be different (yes, they all have the same federal banking rules but foreclosure rules are different by the state).

Have you stopped paying the mortgage yet? A lot of times, banks won't talk to people who aren't delinquent unless there has been a change in circumstances (your husband's loss of job 7 months ago would have been a change in circumstance that may have qualified you for the short sale quicker).

Don't cash out the 401(K) - you will owe penalties and taxes.

Run, don't walk, to the nearest specialist. See if you can get a referral. If the bank can't go after the remaining amount (in a short sale or foreclosure), it would seem prudent to save the money that you would normally use for the mortgage for living expenses.

Also, if you have massive credit card debt, you might consider speaking with a bankruptcy attorney.

Bottom line: find someone local in your area to speak with this (not the boards).

 

[WDWisTheBest]

A talk with a local bankruptcy attorney would be your best bet. Do it soon.

 

[bettymae1121]

I wouldn't touch the 401k money until all other options were exhausted first. You'll owe major penalties and taxes, plus you'll be that much further behind in retirement savings, and if things are tight you won't be able to replenish the retirement savings for quite a while. 401k's are protected in bankrupcty, even if you lose everything else, you'll keep the retirement accounts. If faced with no other option than draining the 401k, I personally would declare bankruptcy first. Not everyone agrees with that, but it's an option available to you under the law.

Google "United Way CCCS" and speak to a CCCS in your area (that's consumer credit counseling). They may be able to negotiate better interest rates on the CC's (sometimes even to 0%) so you're monthly payments are lower, that could free up some cash flow for you and make it easier to either fix your cars or buy a reliable "bondo buggy" on the cheap. Even if you can get a short sale or deed-in-leu that will take months to work out and you need some extra cash right now, this is one way to free it up. People in credit counseling take a hit on their credit but I don't think it's as bad as defaulting on your CC's (plus defaulting on your CC's will get you sued in about a year or two).

 

[happytexasmom]

I agree with others on this board speak to a bankruptcy attorney soon.......as in today if possible

I am a Realtor and have unfortunately seen a huge rise in forclosures in the last two years........so please dont wait till its to late...if you dont have any lates on CC or mortgage payments maybe you will be able to refinance

Either way good luck and I'm so sorry to hear that your going through this it must be very stressful

 

[happytexasmom]

and also, yes, forclosure is worse than short sale. But if your thinking short sale think soon because homes can sit on the market for a while trying to get sold

 

[Rafiki31]

I wouldn't touch the 401k money until all other options were exhausted first. You'll owe major penalties and taxes, plus you'll be that much further behind in retirement savings, and if things are tight you won't be able to replenish the retirement savings for quite a while. 401k's are protected in bankrupcty, even if you lose everything else, you'll keep the retirement accounts. If faced with no other option than draining the 401k, I personally would declare bankruptcy first. Not everyone agrees with that, but it's an option available to you under the law.

Google "United Way CCCS" and speak to a CCCS in your area (that's consumer credit counseling). They may be able to negotiate better interest rates on the CC's (sometimes even to 0%) so you're monthly payments are lower, that could free up some cash flow for you and make it easier to either fix your cars or buy a reliable "bondo buggy" on the cheap. Even if you can get a short sale or deed-in-leu that will take months to work out and you need some extra cash right now, this is one way to free it up. People in credit counseling take a hit on their credit but I don't think it's as bad as defaulting on your CC's (plus defaulting on your CC's will get you sued in about a year or two).

The credit cards are at 0 percent right now.

Once we sell the house, we will have about a 20 - 25K shortfall including the realtor fees. I'd hate to go bankrupt or ruin credit over that amount, because I know we could pay it if we could pay it in payments over time instead of at the closing of the house. The bank that holds my heloc was 100% not helpful. They said short sale or forclosure, they told me I was destined for forclosure. After several hours on the phone speaking with about 7 different people I was in tears. My mortgage is with a local bank. The heloc is with BOA, they have been terrible to deal with. I have spent hours on the phone trying to figure out how to get the heloc from a secured loan to an unsecured loan. I have a lot of debt right now, but have never missed any payments on anything ever. I want to pay them what I owe them, I just can't come up with it in a lump sum at the time of closing. If they would let me turn the heloc into another type of loan, I can pay it.

 

[Belle0101]

My sister and ex-DH are looking into a short sale for their home.

It's complicated in that when they got divorced 14 months ago he wanted to keep the house and the judge granted him 2 full years to obtain new financing which would then get my sister's name off the mortgage.

Since the divorce he hasn't made even 1 mortgage or HELOC payment. He's missed every payment every month. Naturally, her credit is being ruined. She filed a Rule to Show Cause because of his not paying.

The advice from the attorneys, his and hers -

His - instead of paying the mortgage, which he realized he can't afford, save all the money he can, do not keep it in a bank, keep the cash at home, not pay the mortgage and put the house up for sale. List it as a possible short sale. Banks won't work with you unless you are 3+ months behind in the mortgage.

Hers - don't file BK over just the house. Let it go as a short sale if it's possible.

They were each told that some banks, not all, when letting a short sale go through, will write off the loss. Other banks will send you a form (1099?) at next tax time and you will owe taxes on the loss.

Our neighbors down the road were able to say in their house almost 2 full years from the time of their last mortgage payment. It took that long for all the paperwork to run through the courts. They just banked all the money they could. Of course they also went to WDW, stayed at the Poly, during this time.

Best of luck to you. It's been a hard time for lots of people. I hope you are able to find a solution that works best for you family.

 

[disneychrista]

Think of it this way.

You have a bill, you can either pay some of it (short sell) or none of it (foreclosure) which is better?

Now remember your bank has to agree to the short sale, that is not an automatic thing. And even if they do, you could possible be on the hook for the difference.

 

[WDWisTheBest]

The credit cards are at 0 percent right now.

Once we sell the house, we will have about a 20 - 25K shortfall including the realtor fees. I'd hate to go bankrupt or ruin credit over that amount, because I know we could pay it if we could pay it in payments over time instead of at the closing of the house. The bank that holds my heloc was 100% not helpful. They said short sale or forclosure, they told me I was destined for forclosure. After several hours on the phone speaking with about 7 different people I was in tears. My mortgage is with a local bank. The heloc is with BOA, they have been terrible to deal with. I have spent hours on the phone trying to figure out how to get the heloc from a secured loan to an unsecured loan. I have a lot of debt right now, but have never missed any payments on anything ever. I want to pay them what I owe them, I just can't come up with it in a lump sum at the time of closing. If they would let me turn the heloc into another type of loan, I can pay it.

Here is what I would suggest. Keep those credit cards at 0 percent interest if you can; that is much better than the default interest rate if you miss a payment.

The heloc is with BOA. They are known to be terrible to hundreds of thousands of mortgagees trying to work on restructuring. You found that out during your hours on the phone.

The purpose of talking to a bankruptcy attorney would be to find workable solutions that you would control. A good local bankruptcy attorney works for your interest, not the bank. You may not have to go into bankruptcy, but consult first with a competent local attorney. I would not suggest going to a credit counseling service at this time.

 

[Kay1]

Is there any chance you could rent out a room in your house? That would ease the burden for a bit and free up some money for a new car. It would also buy you some time.

It sounds like you really want to keep your good credit and pay for what you've bought. I really respect that in a person. Best wishes to you.

 

[dakcp2001]

Hi there! Cannot offer any financial advice, but just wanted to wish you luck. The market is bad right now, I am trying to sell a home in Massachusetts, but also paying rent in the state I live in now. I am hoping to break even on the sale, but may end up paying out to get rid of it if someone does make a decent offer.

Just a few questions, have you had a recent appraisal? Can you negotiate the amount of realtor fees down a little? Without knowing your credit card debt amount, I can't say if bankruptcy is a good idea. But if you can decrease your loss by some, maybe borrow some money from family? Or take a loan against your 401K instead of cashing it out? Anything you can sell? Appliances , gold etc etc? Any credit unions you use regularly?

I dont even know if this is possible but can you transfer a balance of the heloc to a 0% credit card? Do they let you do that?

I wish you luck! I know it is stressful, but it is only money. As long as you have your friends, family, and health you are doing ok.

 

[mhconley]

Sorry you are going through this... we already have.

We cashed out a big chunk of my 401k to try and hold onto our home and we still lost it. I would not recommend stealing from your retirement funds in an attempt to hang onto your home.

We worked for 2-1/2 years in an attempt to get a mortgage modification that never materialized. All the federal programs supposedly designed to help homeowners are simply lip sevice. Research them and you'll find congress has given lenders financial incentives to short sell or foreclose, they lose money if they modify mortgages.

Consumer crediit counseling services are useless. We tried several. Every one came back with the exact same recommendation: "increase your income." Excuse me? If I could do that I would not be talking to you bozos.

We were lucky to have been approved for a short sale. A short sale will stop you from getting a new mortgage for about 3 years, a foreclosure for 7 and a bankruptcy even longer. It was the best choice for us.

Our lender sent us 1099's reporting their loss as our income but it's just paper - the federal government has excluded up to $2 million in forgiven debt between 2007 & 2012. Most states have followed suit. There was zero tax impact for us.

I'm 52 and starting over. We're now 7 months into our new lives and the day-to-day financial stress is gone.

Good luck,

Martin

 

[WDWisTheBest]

Sorry you are going through this... we already have.

We cashed out a big chunk of my 401k to try and hold onto our home and we still lost it. I would not recommend stealing from your retirement funds in an attempt to hang onto your home.

We worked for 2-1/2 years in an attempt to get a mortgage modification that never materialized. All the federal programs supposedly designed to help homeowners are simply lip sevice. Research them and you'll find congress has given lenders financial incentives to short sell or foreclose, they lose money if they modify mortgages.

Consumer crediit counseling services are useless. We tried several. Every one came back with the exact same recommendation: "increase your income." Excuse me? If I could do that I would not be talking to you bozos.

We were lucky to have been approved for a short sale. A short sale will stop you from getting a new mortgage for about 3 years, a foreclosure for 7 and a banruptcy even longer. It was the best choice for us.

I'm 52 and starting over. We're now 7 months into our new lives and the day-to-day financial stress is gone.

Good luck,

Martin

Martin, this is a very helpful post, not only to the OP but to others. Let me highlight some of your helpful tips.
1. You didn't steal from your 401k.
2. Don't count on mortgage modification to work. Those federal programs are primarily lip service. 60 Minutes had a great piece last weekend about unqualified hourly workers signing thousands of documents as Vice-Presidents of mortgage processors who then went out of business, thus causing foreclosures of hundreds of thousands of homeowners.
3. Consumer credit counseling services don't work.
4. Short sales may be approved. But, one has to sell the house and that is very difficult at this time.
My tip. Talking with a local qualified bankruptcy attorney may offer information that the OP does not have.

Thank you, Martin.

 

[ccgirl]

A short sale? Forclosure? Or cashing out my 401K to cover the short amount on my mortgage? My husband was laid off about 7 months ago and we didnt have an emergency fund. We were both driving old cars, one is gone and we now have one that is on its very last leg.Husband finally found a job, but it is making far less than what he made before and now we need another car. I am working as much as I can, but we need to sell this house and get out of this mortgage. We also have accumulated a lot of credit card debt. I have never made a late payment on my credit cards or mortgage, or home equity line of credit. But I can't stand the stress of all this.

I just want to sell the house, use my 401K to cover the "short" of the mortgage & heloc. Then move to an affordable little apartment and work on the credit card debt. It is currently all at 0%.

Advice? Whats worse, short sale or cashing out the 401K to cover the difference? I feel like we can get out of this with both of us working if we can get rid of the house.

DO NOT touch your 401K!!!!

As far as credit, the short sale and foreclosure are the same. They both stay on your credit reports and will prevent you from getting a mortgage. The foreclosure will stay on your report longer.

Again, don't touch your 401K. After working your butts off for so many years do you really want very little money to retire on??

Stay in the apartment. Pay off all debt, get 3 - 6 months of salary in savings and then think about buying a house. By then, the short sale/foreclosure will probably be so behind you that you should have no problem buying the house.

As far as realtor commissions, my DBil sold his house and the buyer used the same real estate office. As a result, they let them make payments on the commission rather than take it out of the house price because it would have been a short sale. In that case, realtors make very little commission.


Good luck!

 

[mhconley]

Martin, this is a very helpful post, not only to the OP but to others. Let me highlight some of your helpful tips.
1. You didn't steal from your 401k.
2. Don't count on mortgage modification to work. Those federal programs are primarily lip service. 60 Minutes had a great piece last weekend about unqualified hourly workers signing thousands of documents as Vice-Presidents of mortgage processors who then went out of business, thus causing foreclosures of hundreds of thousands of homeowners.
3. Consumer credit counseling services don't work.
4. Short sales may be approved. But, one has to sell the house and that is very difficult at this time.
My tip. Talking with a local qualified bankruptcy attorney may offer information that the OP does not have.

Thank you, Martin.

Thanks for the kind words!

Here is our timeline:

• Started working on our mortgage modification in February 2008.

• Stopped paying the mortgage in October 2009.

• Listed the home for sale in December 2009.

• Lender approved the short sale in April 2010.

• Submitted multiple offers in June 2010.

• Short sale closed the last day of August 2010.

There are still homes in that neighborhhod that are for sale either as foreclosures or short sales that were listed before ours.

We got VERY lucky and are thankful every single day.

Martin

 

[Jennabeth]

A short sale? Forclosure? Or cashing out my 401K to cover the short amount on my mortgage? My husband was laid off about 7 months ago and we didnt have an emergency fund. We were both driving old cars, one is gone and we now have one that is on its very last leg.Husband finally found a job, but it is making far less than what he made before and now we need another car. I am working as much as I can, but we need to sell this house and get out of this mortgage. We also have accumulated a lot of credit card debt. I have never made a late payment on my credit cards or mortgage, or home equity line of credit. But I can't stand the stress of all this.

I just want to sell the house, use my 401K to cover the "short" of the mortgage & heloc. Then move to an affordable little apartment and work on the credit card debt. It is currently all at 0%.

Advice? Whats worse, short sale or cashing out the 401K to cover the difference? I feel like we can get out of this with both of us working if we can get rid of the house.

Honestly, I would stop paying the credit cards and try to keep the house current. Once you miss a payment on the house or cc's those 0% rates are gone and in order to do a short sale you will need to miss payments.

I would put the house on the market, stop paying the cc and try to save as much money as I could, either for a "new to you but still old" car or to get out of the house. Your 4 walls are the most important thing, pay them (food, water, shelter & transportation), the rest of the people can take a place in line until more money is coming in.