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Old 11-21-2009, 08:10 AM
 
98 posts, read 328,898 times
Reputation: 50

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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.
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Old 11-21-2009, 08:19 AM
 
Location: Maryland
298 posts, read 951,595 times
Reputation: 238
Good question. I have been thinking of the same thing in case my husband or I lose our job. I wonder what the experts have to say about this.
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Old 11-21-2009, 08:29 AM
 
Location: DFW - Coppell / Las Colinas
38,511 posts, read 43,259,507 times
Reputation: 48079
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.
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Old 11-21-2009, 08:43 AM
 
93,122 posts, read 90,772,896 times
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the people we bought our house from had to bring a check to closing , they owed more then they got from us. i felt bad for them...

NOT!!!!!!!!!!!!!!!
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Old 11-21-2009, 10:04 AM
 
Location: Charlotte, NC
2,193 posts, read 4,775,941 times
Reputation: 1075
Quote:
Originally Posted by mr aztec View Post

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?
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Old 11-21-2009, 10:26 AM
 
Location: Salem, OR
15,021 posts, read 37,017,578 times
Reputation: 15640
Sheenie beat me too it. Just because they owe that it doesn't mean it is worth that. They may be more underwater than that.

If they know her job ends then, why would they wait so long to move?
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Old 11-21-2009, 10:51 AM
 
Location: Martinsville, NJ
6,163 posts, read 12,167,432 times
Reputation: 3978
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?
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Old 11-21-2009, 10:58 AM
 
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
6,958 posts, read 20,884,383 times
Reputation: 6432
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.
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Old 11-21-2009, 11:28 AM
 
Location: Barrington
60,592 posts, read 41,518,176 times
Reputation: 19545
A 7 month lead time on a job loss, is a lot of time.

Is the wife actively looking for a job or hanging on waiting for benefits to kick in?
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Old 11-21-2009, 03:28 PM
 
Location: DFW - Coppell / Las Colinas
38,511 posts, read 43,259,507 times
Reputation: 48079
Default A big if...

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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