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You are not in bad shape. A lot of people are in far more trouble due ot the crash.
We are underwater over $100,000 and stuck with an expired construction renovation loan that had an APR of 9.786%. Our house is unfinished and recently incurred some new additional expensive problems (water flowing into the basement, insulation guy never put insulation in some of the walls, just pretended to.). We also have about $35,000 credit card debt that we ran up trying to get the house finished in order to get a temproary C of O, so we woudl have a place to live.
We are really stuck in a mess. No one will fund a refinance since we are so far underwater and the house is incomplete. Our credit is less than ideal due to the $30,000 credit card debt. The original bank went out of business and an investment group bought the loan for pennies on the dollar, but they will not negotiate with us.
The loan for renovations expired long ago, but there is no way to do anything with it.
Oh and I forgot to mention we invested $300,000 - $400,000 of our money into the house all of which is lost, gone and will probably never be recovered.
It may be our best option is to let them take the house and sell it (it will sell for nothing because it is unfinished, we are $100,000 updside down based on appraisal, but in a forced sale, our guess is that it will bring about $265,000 less than the loan amount), try to get a relative to try to buy it in a foreclosure sale and rent it back to us and then eventually allow us to buy it from them for what they pay (or maybe for what they still owe on the loan since rent payments will have brought down the balance). We would then have to declare bankruptcy if the investment company went after us for the difference in a sale price and the loan amount (at a guess, this will probably be in the realm of $265,000).
The only other option is to move our family of 7 into my fathers basement and pay the investment company most of my income for the rest of my life so that they can realize a 450% profit on their purchase of the loan.
We did a lot of the work ourselves and added some neat upgrades, but they add essentially no value. All the appraisers do is measure and compare recent sales on a square footage basis.
I have yet to meet anyone who got more beat up by the market crash on a percentage basis.
Any suggestions?
Have you had the current mortgage holder produce the original loan documents? According to the scuttlebutt IF they cannot produce the original note you signed the mortgage is forfeit. Check with your attorney.
GL2
1. Yes, it would be foolish to walk away. You signed a contract and as long as you can pay it you should honor your word and be an ethical human being. If you lose your income & run through savings, that's another matter altogether. But you're not $100k's underwater like most of the people who are "strategically defaulting".
2. Don't trust Zillow - in many areas of the country, it's just plain off. Especially in non-disclosure states where sales prices aren't public record. Not sure if NJ is or not. Plus, you said you've made multiple improvements, including adding square footage. Zillow obviously has no knowledge of this. If you want to know the true market value of your home, call several local real estate agents and say you're thinking of going on the market. They'll pull comp solds for you & help you figure out what appropriate list & sell prices are in your market. It may be much better or much worse than the Zillow.
3. if you were 25 years into your mortage & in a falling market (but still nice place to live), why in the heck would you think of walking away at that point? 5 years away from your monthly carrying costs dropping drastically with a paid off house note. At that point, it doesn't matter what it's worth. It's PAID FOR.
Walk away to what, an apartment, a rental somewhere? You would still be making rent payments, probably close to what your house payment and you would NEVER get anything out of that. You still need a place to live. Walking away will ruin your credit for 10 years-why??
It would be different if you had a job transfer and HAD to move and couldn't sell the house but if you don't have to move, it makes no difference right now if you are $40K underwater of have $100K in equity--they are just numbers on paper until you go to sell.
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