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My friend and his wife want to get out of their house and move to another state. Ideally they would move end of '10 beginning '11. Around 6/30/2010 the wife's job will be terminated--she will be eligible for unemployment, which is substantially less than her current salary. Their current cash flow is grim, barely making the mortgage and likely won't be able to make the payments when wife loses job.
They initially bought house with 0% down, interest only. They refi'd last year, 30 yr fix. They pay PMI and live in a recouse state.
Balance on loan - 345k.
Estimated list/sell price - 345k/335k
Transaction costs - 18k
Total estimated loss - 28k
It would be tough for them to bring 28k cash to the table (they might be able to bring 15k)
All-in monthly costs are about 3200. As a rental property, estimated to bring in 1500-1700/month. Net loss of approximately 1600/mo assuming full occupance and no repairs and maintennce.
Comments in general: Being 30k underwater is not bad compared to all the horror stories. I gather from them that it is more of a cashflow issue and while they can almost get by now, wife losing job and possibly out of the workforce for a time would put them in the red.
I really don't know what advice to give them other than put it on the market and hope you can get out relatively unscathed. They might think about looking into modification as soon as wife loses job (they are currently at around 31% of gross--cashflow issues primarly arise from infant child care and large school loans). Though even a mod might not solve their problems getting out and moving on. I have advised that foreclosure/shortsale is an option (and may be a necessity after her job loss).
If they are correct and they are 30k underwater, wondering if its worth it for them to try to come up with the cash versus trashing their credit and potential bk/bank or mortgage ins co coming after them. I have a bk attorney who I ran this by and his advice was the cost/benifit of a foreclosure on credit report versus 30k--he might lean toward the foreclosure.
Am I missing anything in my analysis of their situation? If their numbers are accurate, it seems they could certainly get out if the transaction costs weren't so high, but FSBO seems like a big risk in today's market.
I frequent this forum and find some very helpful answers to other issues, so thought I'd ask for some input.
Seems to me you are pretty much right on. It's been a common situation among people who put no money down and many even rolled in closing costs. We've run across quite a few this year that would like to sell but would need to bring money to closing.
People have been living on the edge the last few years with no savings, high credit and not realizing we can have a downturn. It doesn't take a lot to push them over the edge since they have no money for a rainy day.
You have covered their options and the best thing to do is sell. They can try breaking even, borrowing their shortage or trashing their credit by a short sale or foreclosure. Being a long distance landlord IMO is not desirable at all.
Hopefully many people will learn their lessons with the current recession.
Balance on loan - 345k.
Estimated list/sell price - 345k/335k
Transaction costs - 18k
Total estimated loss - 28k
Where are you getting the estimated sell price from? Are you sure that's what it would sell for, or is that what the homeowners would like to GET since that is around what they owe?
IS it safe to assume the wife is currently looking for a new job? I know it's not a great job market, but she may be able to replace her income with, if not as much as her current income, something greater than the expected unemployment payments. They say it's easiest to find a job when you have one.
Second, how accurate or reliable is that sale price? From where did it come?
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
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I'd be more interested in knowing what the local real estate market is like. Maybe a 5% increase in the value in the next 7 or 8 months would make the numbers a bit better.
If they have lost her job, if they can't afford the house and if they are going to short sale....
To short sale the home they may need to be behind on their payments. If they stop making payments on the house and put that money into a savings account, that might give them the funds to cover the shortage.
The lender will want proof that they have lost their income to do the short sale. Depending on their lender they might have 3-6 or more months of living in the house without a payment.
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A big if...
