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I am now in "upside down" mortgage situation, as many homeowners who bought houses in 04-05. We did invest 100K in necessary structural repairs and 70K in cosmetic renovations already, and still we got one offer which is close to price we paid originally for the house. Now short offer is in the banks, and not being liked, thought no official answer from the bank has been received yet.
Agents giving us an option to go for foreclosure or upgrade things in the house more (add kitchen, landscape better, add sun room, deck/patio), then house will be more attractive. Do we need to go and upgrade even more to attract another buyer? Who has knowledge what works with banks to get short sell trough? We don't want to go for foreclosure, we still making all payments on time, but house is eating ALL of our income and pushing us to use credit cards!!!!
Thanks!
Foreclosure will affect your credit score even more and IMO the most responsible thing to do is sell your house for a low price and ask the bank to agree on a short sale or take a judgment and sell it...you better lose a little with a better chance to get back on your feet sooner.
If you had to spend $ 100 K + $ 70 K to make your house look nicer and/or structural better, you probable had a good price when you bought it or you over paid and had some bad advise or just wanted the house so badly without thinking about the future. I have way more respect for people who try to get out in the right way, by selling or doing a short sale and the once who walk away and not try anything.
I expect in the future that mortgage companies will check more when a application for a mortgage will come in and a foreclosure can be looked at different than many people think...So much will be adjusted so maybe foreclosures won't stay on your credit report for 7 years, but maybe longer...one thing they have learned...not to take the same risks.
Do not put more money into the house. Just because you put more in doesn't mean you will get more out. The market has many homes at reduced prices right now and buyers have alot of good deals to choose from. Your realtor is foolish to suggest to sink more into your home when you are already "upside down" on your mortgage. Sell it for the highest price you can get and get out of that money pit. You will have to work out something with the bank.
Wow, bad situation. Hate to be "hindsight is 20/20" on you, but what sort of things drove you to sink $170,000 into a house that STILL could use a KITCHEN? If the place had structural issues it would have been good to keep looking.
If you borrowed the $170,000 and still owe that be very careful about moving forward -- I really am not sure how even with the new federal regulations in place lenders are going to be about forgiving all associated debt.
If the deal goes through you are out. Better than foreclosure. Foreclosure tells lenders: "Something went wrong with the borrower's ability to pay, it is their fault." Short sale says "owner HAD to sell in a bad market, maybe they are still worth a risk". Big difference.
If the place is pushing you towards foreclosure, not much sense in putting MORE into it.
Really feel for you. Lesson to be learned: structural issues are pretty much ALWAYS killer. Do not do $70,000 of cosemtic upgrades unless the place has a KITCHEN that'll sell it. Upgrades on places that you cannot afford are not investments, they are GIFTS to the NEXT buyer...
ON the bright side: f you learn from this you are at least half way to being a better good real estate investor...
Yes, BentleBee, now we know that we were "used" and overpaid for the "ruin" big time. It was our first house, nspection went awesome (!), no family to advise, and we just moved from the area with much higher housing prices. But now we stuck in there. Our "ruin" now looks and feels much nicer, but VERY expensive to keep (80% of income goes to the house).
As for credit rating implications - you really think it will be tougher? or they will forgive recent short-sells and foreclosures because of massive market downfall? Big financial professional ( as Banks) can't make ends meet, how to ask small people to work it out?
I know..it is a bad excuse to fail to manage own finances. Instead of being an asset, house is bloodsucker now. We owe 680K in mortgages and recently got only(!)480K an offer after almost an year on the market. Ha! Every month shelling out money for mortgages feels like slaving for dangerous monster, who is about to eat us...
Are banks responsible for the generosity they were giving appraisals and money with (we got 700K one!)? Or just we are...
What is a % or sum banks will go for the short sells?
Can we just move out and give the key to the the bank?
Kitchen was upgraded well (but we kept an original cabinets to cut the cost)- but it is still not "eat-in" - breakfast nook is thing we are being talking into, and deck/patio from kitchen - now you step into backyard on the grass.
all 3 full bathroom got a major repair and make over, plumbing was replaced, boilers replaced and house got converted to gas, a lot of wiring replaced, full regrading(expensive thing) was done, all windows replaced, carpet trough out removed and floors repaired and refinished, insulation pored in.
All painting and tiling done ourselves.
Man, what market is this? Kitchen freshening looks OK, matching cabinets would be a huge visual improvement -- can you get them all to stain or at least paint them all? As is look halfway to no where... Bathrooms look a little too personalized, but at least clean and even hip / funky. Hard to say if that was a good idea in your price range without knowing more about the specific area.
If you pouring 80% of your earnings into this it is going to come crashing down. Have you talked directly to lender? If they recast your mortgage would you be willing to stay? I mean if they agree to a short sale for $200K less than is owed they'd be no worse off than if they just forgive the debt to YOU and you stayed put with much smaller nut...
Stop talking crazy. You have sunk a lot of money into the place -- walking away IS a foreclosure. It'll destroy your credit. At least a short sale ought to leave you with the ability to get into a more affordable house. Don't let the idiot stories on cable news fool you, you don't want to trash your credit and have no place to live. That will mess up too much.
I would NOT spend money to expand kitchen. Big project and YOU ARE ALREADY HITTING THE CREDIT CARDS, that will eat you alive!
A bit ago we got a news from our 2 lender banks that they don't want to "forgive" us more then 100K. We "came up"(my 401K ) with extra 50K and asked buyer to contributed at least something. Buyer said "no" - contract price is max for them. Now we are waiting for banks to decide if they would forgive us about 70K.
As for now we have heard (from Realtor and lawyer) that two things are harming us:
1.We are current on all payments.
2.No "real hardship" letter we can submit to the bank, but statements of income vs. expenses stating unreasonable load of house expenses.
On other hand CHASE speaking to us only because we are "honest and responsible" customers and current on payments...(go figure). For now CHASE is much more cooperative and opened to talk then other lender, but CHASE part is smaller.
Ouch. Tough to hear. What market? Any odds of things turning around? Sounds not good...
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or upgrade things in the house more 
(add kitchen, landscape better, add sun room, deck/patio), then house will be more attractive. Do we need to go and upgrade even more to attract another buyer? Who has knowledge what works with banks to get short sell trough? We don't want to go for foreclosure, we still making all payments on time, but house is eating ALL of our income and pushing us to use credit cards!!!! 
how to short sell
Ha! Every month shelling out money for mortgages feels like slaving for dangerous monster, who is about to eat us...
