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Long story short, we are looking into moving back to Upstate NY within a year. We are upside down on our house like everyone else. We currently owe $214,000 and it is worth maybe $170,000. Should we keep faithfully paying every month up until we are ready to move and then short sell or stop paying now and save the money every month for moving expenses. We've never been late or missed a payment but everyone says to think of it as a business decision instead of a moral issue.
Being that real estate prices do seem to be moving upward and you are so close to seeing the end of the slide, I would hang on to the home and salvage your credit. Is there any means where you could rent the home for a few years? We just witnessed a friend and ex neighbor short sell their beautiful home that they were underwater on, but not by much, only to have a flipper buy the home then sell it for more than they owed the bank. Screwed them up for years and they should have rented it for the 6 months.
Long story short, we are looking into moving back to Upstate NY within a year. We are upside down on our house like everyone else. We currently owe $214,000 and it is worth maybe $170,000. Should we keep faithfully paying every month up until we are ready to move and then short sell or stop paying now and save the money every month for moving expenses. We've never been late or missed a payment but everyone says to think of it as a business decision instead of a moral issue.
You may benefit from the HARP program that helps underwater homeowners. Find out if your loan is owned by Fannie Mae or Freddie Mac.
Rates are at an all time low today actually - high 3's would be very possible in your situation.
This may help you be able to rent it out down the road and ride out the market.
It's really hard to say as there is so much that could come into play given your individual circumstances
Would you qualify for any modification programs? - you are close to 80% LTV so there may be some that could work that would allow you to lower your payment and have you at least be neutral with a rent situation.
Without modification is there any potential to rent it out? Accounting for property management, home warranty, service fees, etc how would the costs going out relate to the money you could bring in as a rental.
Where are you on your amortization schedule? Are you payments still primarily interest in the early parts or are your payments actually knocking down some principal?
It isn't that far underwater - however, I wouldn't expect the market to rise to meet you anytime soon ....... $44k is a pretty big jump, but as mentioned you may be able to bridge it.
If you can't bridge it and must sell then it comes down to your lender, what you can work out, etc.
Keep in mind that AZ is a non-recourse state for foreclosures. If you have a good understanding and a good lender you can usually get the banks to waive their recourse in a short sale situation.
It's possible to short sell without being late on a payment - this is nice in that it will minimize your credit hit. I've seen short sales have pretty minimal credit hits when the seller was able to avoid missing payments. You can also negotiate how it's reported to the credit agencies.
However, some lenders make the process very difficult or will require some contribution to get a favorable release.
If you short sell or foreclose you will get a 1099c for the amount of the loan that is being forgiven. This will start as income on your federal taxes.
In this case you'll need to file another form with the IRS to explain why that shouldn't count as income. There is a program that will expire at the end of the year which will excuse qualified principal residence indebtedness - check with the IRS for full details, but I believe the main elements are that the property needs to be your primary residence and that the debt forgiven has to be the original note with no cash out refi's, etc. If you did take cash out and can track those dollars specific to improvements within the home there is a chance you can get that money forgiven as well.
If it is rented and you have a $214k liability, would that make it more difficult to get a mortgage for a house in NY? . I guess it may not make any difference because if you short sale or foreclose, you probably won't get a new mortgage anyway.
Interested to know what you have waiting for you in NY. That may be a big factor in your decision (Im sure you have already done your dillegence on that consideration). Is it a time sensitive opportunity or a better opportunity in general that is worth a few years of bad credit?
If you short sell or foreclose you will get a 1099c for the amount of the loan that is being forgiven. This will start as income on your federal taxes.
In this case you'll need to file another form with the IRS to explain why that shouldn't count as income. There is a program that will expire at the end of the year which will excuse qualified principal residence indebtedness - check with the IRS for full details, but I believe the main elements are that the property needs to be your primary residence and that the debt forgiven has to be the original note with no cash out refi's, etc. If you did take cash out and can track those dollars specific to improvements within the home there is a chance you can get that money forgiven as well.
The other is the insolvency exception.
Best of luck.
I did this in 2010 and 2011 (1st and 2nd mortgage). It was no big deal at all! One form, that's all and it didn't count for anything.
We've never been late or missed a payment but everyone says to think of it as a business decision instead of a moral issue.
This brings to mind what my mother always told me when I was young: If everyone else jumped off a bridge...
I think it's both a business decision and a moral issue.
Unfortunately, the way the housing market crashed, you're underwater. In hindsight, that made your purchase a poor business decision. However, you signed on the dotted line with your eyes wide open, no? This makes your responsibility to pay for what you purchased your moral (and legal) obligation. Regardless of what your house is worth today, you agreed upon what price you would pay at the time you bought it. I'm sure nowhere in your purchase contract does it say you will only pay for it if the value remains unchanged or appreciates. In other words, if you can continue to pay for it, you should continue to pay for it, since you knew what the terms were and agreed to them.
I don't understand why some people think it's perfectly okay for other people to pay for their bad decisions.
With all that said, my understanding is AZ is only a non-recourse state until the end of this year, (unless there's a vote to extend the temporary law). This would mean if the bank forecloses after 12/31/2012, you may be liable for the entire difference that you owe. It's also my understanding that the bank can't even begin foreclosure proceedings until you're at least 90 days past due. There are many stories around of people waiting a long time to be foreclosed upon after they stopped paying, while others seem to go quickly after the 90 days pass. If you're one of the former, that may put your foreclosure after the end of this year and again, that may mean there is recourse and you'd be responsible for all you owe. If it occurs before the time you're ready to relocate, do you have a back-up plan? You won't be able to remain in the house after foreclosure and your credit is going to take a huge hit; it may be difficult to rent a place, even if you have cash to pay for a rental.
I'm neither an attorney nor a real estate professional. The above is only my interpretation of things I have casually read, so please don't take any of it as anything more than something worth investigating.
Unfortunately, the way the housing market crashed, you're underwater. In hindsight, that made your purchase a poor business decision. However, you signed on the dotted line with your eyes wide open, no? This makes your responsibility to pay for what you purchased your moral (and legal) obligation. Regardless of what your house is worth today, you agreed upon what price you would pay at the time you bought it. I'm sure nowhere in your purchase contract does it say you will only pay for it if the value remains unchanged or appreciates. In other words, if you can continue to pay for it, you should continue to pay for it, since you knew what the terms were and agreed to them.
Both parties have rights & remedies - short sales are typically a more desireable outcome for the lender than their given recourse of foreclosing on a property
In one case it's an agreed upon, negotiated termination of the contract - on the other hand it's the previously agreed to remedy within the contract
That's it from a contractual standpoint
Frankly no one asked for your opinion on if this is a moral issue or not and there are remedies in every contract in the event of non-performance ...... banks short sell and foreclose on their property holding all the time ...... you can't use the contract as the basis for a moral obligation when the clauses within that very contract are evoked
Quote:
Originally Posted by CheyDee
With all that said, my understanding is AZ is only a non-recourse state until the end of this year, (unless there's a vote to extend the temporary law).
There is no temporary law in place and the above is completely false.
I think what you are thinking about is the federal provisions in regard to the tax implications for primary residence indebtedness - this is between the federal government and the individual taxpayer - which has nothing to do with the property holder/bank relationship
You are right about it being a business decision, so consider the angles. You are not THAT upside down. There is a very real possibility that you will be even within three years and an even better one that you will be significantly above water in 5-10 years. You should look into HARP refinance if it is possible in your case. You can cut the payment quite a bit and make it profitable to rent the house while you await appreciation and enjoy the tax savings of a rental property. I know several people in similar straits and most have done this. Credit is tough to live without in our world.
Since you are not too far underwater, I would only foreclose as a last resort.
The HARP 2.0 thing won't work for you since it is a refinance and you are moving.
But Short Sales are getting easier and easier. You would be crazy not to short sell the home. Not familiar with your particular situation, but if at all possible do the Short Sale.
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HARP Program
