home mortgage upside down/ short sale?

**pianalto4** · 10-30-2011, 03:37 AM

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?

**pollypurebred39** · 10-30-2011, 03:52 AM

Are they late on mortgage payments?

**Ceashels** · 10-30-2011, 08:33 AM

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.

**Sumacaroni** · 10-30-2011, 09:29 AM

"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???

**Nishu** · 10-30-2011, 12:26 PM

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.

**Anna43** · 10-30-2011, 01:35 PM

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.

**ddmartin** · 10-31-2011, 09:53 PM

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.

**mh3rdwheel** · 11-01-2011, 04:47 AM

Originally Posted by pianalto4

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?

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.

**stinkbug** · 11-01-2011, 08:39 AM

Actually, you state that *you* think this is what they should do.....why do you think that? This is not your decision. And renting to family is never a good idea. Ever.
I see no reason stated that they need out of their home.

**OOwl** · 11-01-2011, 08:52 AM

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.

**brennasmom** · 11-01-2011, 09:38 AM

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.

**khaski** · 11-01-2011, 10:05 AM

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!

**GirlBoyGirl** · 11-13-2011, 11:22 PM

Just because it is upside down doesn't mean it isn't livable, lol!

**Greebo** · 11-14-2011, 08:20 AM

Originally Posted by pianalto4

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?

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.

**Greebo** · 11-14-2011, 08:20 AM

Originally Posted by Sumacaroni

"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.