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home mortgage upside down/ short sale?

4K views 26 replies 23 participants last post by  kimmy4433 
#1 ·
my niece and husband bought their first home at the worst possible time and now their $140,000 3br 2ba home is worth $30,000 less. I think they should do a short sale and live in our rental for $200.00/month and start over saving for a down payment or just walk away and let the bank have it back. But, no one believes me that this is a good idea. Where do we go for advice?
 
#2 ·
Are they late on mortgage payments?
 
#3 ·
Just because the home lost value at this time doesn't mean it will never regain its value. If they are able to make the payments and live in a home they chose to purchase then why would they want to leave?


Cars drop in value the moment you drive them off the lot. Property values go up and down.

I would never short sale unless they couldn't pay the mortgage and were facing foreclosure or had to relocate due to career changes.
 
#4 ·
"let the bank have it back" ???

It was not the bank's to begin with. They bought it from another person/couple and the bank was kind enough to think they qualified for a loan to buy the house that THEY wanted and chose to move into. They borrowed the money with the original intent to pay it back so if they are not relocating because of jobs, then they should definitely not walk away.

What makes you think that they would only need to save for a downpayment if they walk away from this home? Seems to me they would have to save up for the entire cost of a home in the future because if I'm a banker and I see that they walked away while owing money on one loan, what makes me want to trust them for a different home loan???
 
#15 ·
"let the bank have it back" ???

It was not the bank's to begin with. They bought it from another person/couple and the bank was kind enough to think they qualified for a loan to buy the house that THEY wanted and chose to move into. They borrowed the money with the original intent to pay it back so if they are not relocating because of jobs, then they should definitely not walk away.
Exactly right! The bank never owned it.
 
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#5 ·
Whether or a short sale would pay off in the long run is going to be a toss up. They might come out slightly ahead if they do what you're suggesting, but if the walk away from this one and save up for another they'd probably end up buying when the economy recovers and be in almost the same financial position.

Walking away from a mortgage would trash their credit. A short sale might not, depending on how it's worked out. If they're not behind in payments then bank probably isn't going to be interested in going that route.

What it comes down to is that you're talking about reneging on a contract, months of legal issues, moving, a deal with a relative and we all know how well those work out, the stress of shopping for another loan and another house possibly with bad credit, another round of fees associated with purchasing a house, another move back into a house, and all this for a purchase that should never have been viewed as an investment at all.

I'm not saying this as a judgment on the moral implications at all because that's not the product I'm selling. It's just a bad idea.
 
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#6 ·
If they were upside down by $100,000 or more, maybe a short sale or walking would be smart. But only $30,000 is nothing. Prices could easily rebound by that amount. If they are current and can make the payments and live in the home of their dreams, then they should just continue making the payments and enjoying their home.

Another factor is "home". If they purchased with the intent to live there forever, then re-sale value is relatively unimportant in the scheme of things. In a good economy a bank could foreclose if a property becomes upside down. However, right now I think banks have enough foreclosure problems without looking for more!

We had to build a new home in 1979 after a tornado. Before the mortgage was signed, the farm economy went south along with most of the farm related jobs in our area. You could not give a house away!! So value of our home was much less than the mortgage. In 2000 the house was worth probably 40% more than what it cost. Today its probably worth less (except to the taxing authorities). Its home, its paid for, its not for sale so value is not an issue.
 
#7 ·
My neice has been living in her house for the last 10 months - payment free - while the bank is trying to short sale their house. In other words, your neice might not have to move right away and then again she might just depends on the area.

In my area there have been newspaper and tv news shows about short sales and foreclosures - they usually hilite some lawyer or cpa - I would suggest spending time looking online for this information.
 
#8 ·
My DH and I had to walk away from our home in 2005 because of health problems, we let the bank have it, our loan was an FHA? and now 6 years later our income tax has been withheld to pay toward that house. The house was sold for $28000 and the balance we owe, plus interest.

If your niece and her DH walk away, they will probably not be able to get another loan.
 
#17 ·
There are probably millions of people out there that don't realize that those homes they "let the bank have back" that were FHA Loans they got real cheap with just 3% down WILL be paid back one way or another, just the way yours will be via your tax refund year after year.

Same goes for conventional loans IF the particular bank involved decides to sue for the spread between what they were able to get for the house and what the mortgage holder who gave it back to the bank owed on it.
 
#10 ·
My husband and I bought our first home in the early '80s and were very soon thereafter upside down. Many in our new little neighborhood just walked away, but we had jobs and a way to make the payment (interest rate was about 12% then, too!), so we stayed. It was over 10 years before it was right side up again so we could even refinance it, but we worked hard to pay it off quickly as possible. The house was sold 20 years after purchase, for a $40,000 profit, so not a HUGE profit but probably better than some other investments, and our credit rating was stellar! So things DO end up turning around if you're just patient and wait it out. I often think of those other young homeowners that just walked away from their houses back then. I wonder if their credit was ruined or they ever recovered from the financial mess that created. While living in a house that we owed more on than it was worth, and seeing larger/nicer houses sell for much less than we owed on our smaller, plainer house, made me feel sad sometimes back then, I see the wisdom in staying put and being patient now. Hope it works out for all the new homeowners in today's mortgage environment.
 
#11 ·
I think it's best to just wait it out... hopefully they are current on the mortgage. Our house has lost alot more than $30k since we bought it and we are staying here for now and waiting for the market to come back.
 
#12 ·
We bought our house for about $204k in 2003...it's now worth roughly $140k ( 2 foreclosures on our block didn't help!) and we're down to abut $169k on the mortgage, so we also are roughly $3ok
'upside down'. We're not panicking, talking abut selling or walking away, hubby has a steady job, we can afford our mortgage...those #s are just 'on paper'. The only # that matters is what it's worth when you need/want to sell.

If they can afford the mortgage, woudn't it be irresponsible and unethical to encourage them to duck out of a legal contract and obligation they agreed to enter into? I know there are situations when people MUST foreclose or short sale....but if that's not them, they should honor their obligations and do the right thing!
 
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#14 ·
Well, first question is - are they having trouble making their payments?

If no - the second question is - when you buy a car using a loan, the car loses value immediately. Does that make it ok to try to short the bank the amount owed?

See - IF they're able to make their payments without difficulty, then they've made a commitment - and the value of the home NOW isn't a factor in whether that commitment is still something that should be honored.
 
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#18 ·
You would absolutely lose your mind if you say some of the things on this other forum I was on! It is FULL of very wealthy people who have decided to "walk" away from their homes, that they can very well afford but just don't want to pay for them anymore. And what is even worse is that they then RENT those pre-foreclosure homes out to unsuspecting tenants so the house can net them "positive" cash flow until the bank takes it back. Crazy! :furious:
 
#19 ·
They are not "wealthy". They are completely upside down in debt. If they can afford the payment they should stay. Tell them to put the difference of what the house is worth and what they bought it for on the snow ball and pay it off. Then no more underwater. If they did a short sale they would get sued for the difference from what the bank could get for it, then good luck getting another house. Just don't panic and work throught it. It's their moral obligation.
 
#20 ·
I don't understand the problem. In this case you didn't mention anything about them being out of work or otherwise having difficulty making payments. That being the case, why in the world would they want to short sale or otherwise "walk away". They chose a home to live in, they're currently able to live in it from a financial side and the fact that it's apparently a decent house because they're living there. Who cares what anyone else values it at? They agreed to a price they though was fair with the previous owner, and couldn't have been unhappy with the deal or they would have passed and kept shopping. They made a deal with a bank who let them borrow the money to buy it. I don't see the problem.

If they want to sell now, they'll either be unable to or they'll lose money. So don't sell now unless there's something real promising on the horizon (house they like better, relocate for much higher paying job, etc.). In the case of the latter, renting is always an option until the market rebounds or they have equity in the house and can sell in this market. I just don't understand why act so irrationally about home values. Don't buy a home as an investment, you buy a home as a place to live. Values change over time, that's life.
 
#21 ·
As long as they are able to pay the bills, what difference does it make if their home is worth less? If nothing else, it lowers the taxes paid each year. I guess if something happens to the house, and insurance has to pay out, they wouldn't get as much. But, again, if they get enough to put in a new comparable house, what difference does it make?
 
#23 ·
My house is now currently worth 60K and I bought it for 130K. I am $70k upside down and I never once thought about "Giving it back to the bank" either by foreclosure or short-sale.

In fact I did a modification to my loan to lower the monthly payment when both DH & I were out of work so I could KEEP my home. The Mod did not lower the balance either it increased it by $5k.

So your advice is really Sh!ty advice IMHO. Sounds more to me like you want them to walk away from their house, so they will rent your house out because you can't find anyone to rent it. Shame on you!
 
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#24 ·
My house is also down about $30K since we bought it. It has never occurred to me to walk away. I love my house and we can easily afford it.

Besides hassle of "giving it back" (LOL) would cost me a HECK of a lot more than 30K in the long run.
 
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