Short sale vs. strategic default vs. ???

[cloversandlions]

We are in a bit of a bind, and I am trying to find answers/options for our situation. I've been doing research, too, but it's not so easy to distill all of the information to what just applies to our situation.

 

We currently live in a small town in central California. Our home is worth just over half of what we paid in 2007; we are more than $100,000 under water regarding the LTV of our home/mortgage. We also live in the one tract in our entire community where the roads are semi-private, and as there is no money to fix them, the potholes are really, really awful. (UPS may stop delivering here after Christmas.) Even worse, we are among ~160 residences who are customers of a small, private sewer company; we currently pay ~$60/month, and the sewer company wants to raise the rates to ~$130/month next year, $200/month in 2013, and nearly $270/month in 2014. Not surprisingly, the renters are preparing to leave, and many of the homeowners have announced that they a) will refuse to pay the increase, and b) are willing to lose their homes because of this. Even if we could find a renter who would move here (high sewer rates + bad roads + criminal activity = not so appealing, I think), the rent would probably around $800-1000 LESS than our monthly mortgage payment.

 

We have never made a late payment, and our credit is impeccable. DH has a security clearance where creditworthiness is a consideration, though he has been told that as long as the security department knows everything that's happening, it should not be a problem.

 

DH has been offered two jobs within his company - one in Florida, and the other in Georgia. Both are aware that we are hoping to pursue a short sale; I do not know how a foreclosure would affect this.

 

We both desperately want to move back east; staying here is nearly unbearable. We have had increased criminal activity in the last few months, but mostly, we just want to leave California.

 

DH spoke with the credit union who holds our mortgage; they informed him that they won't be able to talk about a short sale until we are six months behind on our mortgage. We can pay our mortgage now, but not if we are also paying a similar amount for rent in another location.

 

I know this is a sensitive subject, and I know that there are many folks who believe that what I'm suggesting above is morally wrong. I understand that, but I'm not looking to debate. What I'm hoping is that if there is anyone here who has been in or is familiar with a similar situation, that they might PM (or share here, I suppose) me with advice on where I can seek more specific advice. I know the WTM forum is pretty amazing, but I'm hoping that there is a financial/real estate website somewhere online from which I can glean useful information. Also, I've read that it's helpful to speak to a lawyer - if anyone has done so for this type of scenario, what type/experience should I look for?

 

Thanks,

Natalie

[Liz CA]

Have you tried selling the usual way? I never heard you have to be 6mos behind for a short sale but I have heard that the property has to have been on the market for about 6 mos (time requirement may vary with different mortgage companies) and did not sell during that time.

Perhaps talking to a real estate attorney who can also advise about other consequences (taxes for instance) would be beneficial.

[acurtis75]

I helped a family member with a similar situation a few years ago after her husband died. Unfortunately it is true that the mortgage company won't really even talk to you until your six months behind. In her case she was so far upside down that she ended up doing a deed in lieu of foreclosure which basically means she gave the mortgage company the house back without going thru thr formal foreclosure process. She has to have the house on the market for 6 months before they we're willing to do that. All together it was a year long waiting process.

 

If you are planning to make a permanent move I would suggest trying to buy a new house before you get behind on the one you are in. Otherwise, you are looking at a period of at least two years after the disposition on the house is settled before you can buy one. You will also usually need a large amount down.

[bzymom]

I would advise caution. Many, many families have been devastated by this type of "advice" from their mortgage company.

 

They will often refuse to discuss any negotiation, short sale or modification, telling the mortgagor that they will only do so when payments are 60, 90, 120, 180 days late. In desperation, people have held payments thinking it would force the company into negotiation. And it does not. They are then left with damaged credit, a huge penalty from the mortgage company that they cannot pay on top of the withheld payments, and end up in foreclosure.

 

I wish I could offer some answers for you. :grouphug:

[*lifeoftheparty*]

My friend just went through something similar, in Texas.

 

She bought a brand spanking new McMansion in a really nice neighborhood. She could afford it with both her and her husband working. He had just got out of the Army. Well, he turned out to be a jerk/loser. Less than a year living in the house..... he is gone; she has to pay the mortgage, the bills and daycare for twins on her salary alone.

 

She had to stop paying the mortgage in order to afford daycare, etc. The house went into foreclosure.

 

She worked(s) for the Govt., in Intelligence and holds a TS/SCI Clearance.

 

She told the security dept. what was going on and was open with her boss.... it worked out. She ended up asking to be transferred to Virginia and was approved. She's now renting a nice townhouse in VA and is very glad to be done with all the house mess.

[Tess in the Burbs]

will PM you. just did this. same situation with security and all.

[AlmiraGulch]

Oh, man....I feel your pain. I REALLY need a bigger house, but I'm also about $80,000 upside down (I bought at the peak of the market) and I'm stuck.

 

I honestly don't care if I can buy another house. I'd be happy to rent forever if I have to. I just want to do the least amount of damage.

 

Fortunately I don't have the security clearance issue, but I do hate to trash my credit.

 

If anyone has anything to share, please do.

 

Best of luck to you in your situation!!!

[4wildberrys]

So stressful! We went through this...with 2 homes in 2009 :glare: If you are that far underwater, a short sale or foreclosure if you need to move really are your only options. We tried working with our mortgage company for a YEAR trying to do a Deed in Lieu---they are very, very difficult to arrange. Especially in these times. And no, the mortgage companies generally won't have anything to offer until you are behind in payments. You could talk to a realtor to find out real estate activity, especially for a short sale. Not making payments and saving that for a purchase in another town in an option. But honestly, you couldn't pay dh and I to own a home anywhere for at least another 4 years or so. This ride down isn't done yet. And please don't feel guilty----in the world of business, what you are proposing is called 'Strategic Default'---but for us working folks, it's considered morally wrong?

[athena1277]

When we moved 2 years ago we had trouble selling our house (and we were not underwater). The bank gave us a ton of run-around. We got told things like "you have to be X months late to do Y", but by the time X months passed, it went into foreclosure, and at that point they won't let you do a short sale (or anything else). Every time we talked to the bank we were told something different. We finally gave up and let them foreclose on it. We didn't have the $ to do anything else. I think it was about 6-7 months from our first missed payment to foreclosure being finalized.

[forty-two]

:grouphug: We are in a similar spot - horrifyingly underwater, been on the market for a short sale for 2 years. We moved before selling, though (dh got a much better job out-of-state while simulanteously losing his current crappy job, and we decided to just all go), and have been paying both the mortgage and rent for our house here. Our mortgage company has been willing to work with us with a short sale - cut a deal to forgive half the difference and write a seven-year note for the other half - but it just. won't. sell. We can just swing paying for two houses, but haven't been able to save anything but retirement, and there's a good chance dh's salary will have to be cut (and I don't blame them, they pay us extremely well - we *can* pay on two houses - and they've cut everything but salaries and workers and still are in trouble), in which case we will have to default (as opposed to seriously thinking about it but still chugging along). Worried about the credit hit, though.

 

WRT the moral issue, my dad pointed out that most mortgages are basically "pay or lose/give-back the house", so there's nothing wrong with choosing the "give back the house" option. :grouphug:

[cloversandlions]

Have you tried selling the usual way? I never heard you have to be 6mos behind for a short sale but I have heard that the property has to have been on the market for about 6 mos (time requirement may vary with different mortgage companies) and did not sell during that time.

Perhaps talking to a real estate attorney who can also advise about other consequences (taxes for instance) would be beneficial.

 

No, we've not tried to place it on the market because we were not sure if or when the offers would come through. They both just did - this week. (One is actually a counter from dh's current division in an effort to keep him.) I don't know how we'd expect to sell it - even if it were to sell at market value, we'd be short by ~$130,000 plus realtor's commission.

 

You're right, though - it sounds like we need to consult a RE attorney.

 

I helped a family member with a similar situation a few years ago after her husband died. Unfortunately it is true that the mortgage company won't really even talk to you until your six months behind. In her case she was so far upside down that she ended up doing a deed in lieu of foreclosure which basically means she gave the mortgage company the house back without going thru thr formal foreclosure process. She has to have the house on the market for 6 months before they we're willing to do that. All together it was a year long waiting process.

 

If you are planning to make a permanent move I would suggest trying to buy a new house before you get behind on the one you are in. Otherwise, you are looking at a period of at least two years after the disposition on the house is settled before you can buy one. You will also usually need a large amount down.

 

We'd be game to list it, but we won't be able to maintain payments on it, which make it virtually impossible to buy. We'd thought that dh's company would offer rent differential assistance, which would have given us that option, but it seems that they've removed that from the relo offers.

 

It would be so tempting to do a DIL, but as with all of the options, there are implications that could be problematic. Of course, reneging on a mortgage should come with some implications - I get that - but we would love to honor our commitment if that were an option. The only way to meet that obligation is to stay here, and that's not happening. Sewer fees are going up 2-4x the current cost, roads are likely going to cost $7K per property owner to repair, etc. The neighborhood is declining, and it's already on just about every realtor's black list.

 

I would advise caution. Many, many families have been devastated by this type of "advice" from their mortgage company.

 

They will often refuse to discuss any negotiation, short sale or modification, telling the mortgagor that they will only do so when payments are 60, 90, 120, 180 days late. In desperation, people have held payments thinking it would force the company into negotiation. And it does not. They are then left with damaged credit, a huge penalty from the mortgage company that they cannot pay on top of the withheld payments, and end up in foreclosure.

 

So I have heard. :( In fact, in the past few days, I've talked to a surprising number of folks who tried to get the bank to agree to a short sale, but in the end, the bank pursued foreclosure. We financed through a credit union, so I think the options may be even more limited than a bank.

 

I'm going to ask around for recommendations for a real estate attorney - it seems like the wisest next step.

 

My friend just went through something similar, in Texas.

 

She bought a brand spanking new McMansion in a really nice neighborhood.

 

(snip)

 

She told the security dept. what was going on and was open with her boss.... it worked out. She ended up asking to be transferred to Virginia and was approved. She's now renting a nice townhouse in VA and is very glad to be done with all the house mess.

 

Thanks for sharing that; it gives me hope that at least dh's clearance can be safely preserved. Ours isn't a McMansion - the lots in our community are mostly all build-your-own, with a few spec homes that are similar. Our house is about 12 years old, and too small for us, really, but if that were the only problem - if we loved the neighborhood and the area, and if dh's job could be done here as easily as other (non-California) locations, we'd just stay here and keep paying. As it is, it's rather like a perfect storm of events that combine to give us few options. While talking with a friend tonight (about the roads and sewer problems), she said that this whole area will be a ghost town soon if it continues. And she's right.

[cloversandlions]

will PM you. just did this. same situation with security and all.

 

Thanks! Received your PM; will respond in a few minutes. :)

 

Oh, man....I feel your pain. I REALLY need a bigger house, but I'm also about $80,000 upside down (I bought at the peak of the market) and I'm stuck.

 

I honestly don't care if I can buy another house. I'd be happy to rent forever if I have to. I just want to do the least amount of damage.

 

Fortunately I don't have the security clearance issue, but I do hate to trash my credit.

 

If anyone has anything to share, please do.

 

Best of luck to you in your situation!!!

 

Thanks. I hope you're able to find a solution that works for you, too!

 

So stressful! We went through this...with 2 homes in 2009 :glare: If you are that far underwater, a short sale or foreclosure if you need to move really are your only options. We tried working with our mortgage company for a YEAR trying to do a Deed in Lieu---they are very, very difficult to arrange. Especially in these times. And no, the mortgage companies generally won't have anything to offer until you are behind in payments. You could talk to a realtor to find out real estate activity, especially for a short sale. Not making payments and saving that for a purchase in another town in an option. But honestly, you couldn't pay dh and I to own a home anywhere for at least another 4 years or so. This ride down isn't done yet. And please don't feel guilty----in the world of business, what you are proposing is called 'Strategic Default'---but for us working folks, it's considered morally wrong?

 

Gosh - twice?! Ouch! I was wondering if we should go to the credit union/mortgage company anyway, but now I think perhaps I should meet with a lawyer first. I guess I have some information to gather this weekend. I do feel guilty, though. Or rather, I see both sides of this issue with sparkling clarity; it's a lot more complicated than just stating that buyers who seek strategic defaults are morally wrong. There has been a whole lot of wrong happening, and not that any individual buyer is completely blameless, but buyers didn't create this mess without a whole lot of help from the mortgage and securities industry.

 

When we moved 2 years ago we had trouble selling our house (and we were not underwater). The bank gave us a ton of run-around. We got told things like "you have to be X months late to do Y", but by the time X months passed, it went into foreclosure, and at that point they won't let you do a short sale (or anything else). Every time we talked to the bank we were told something different. We finally gave up and let them foreclose on it. We didn't have the $ to do anything else. I think it was about 6-7 months from our first missed payment to foreclosure being finalized.

 

Wow, that was fast! And discouraging. I'm sorry that you and so many others have BTDT already. I mean, it's helpful to those of us who are just now dealing with this, but still...this is tough stuff.

 

:grouphug: We are in a similar spot - horrifyingly underwater, been on the market for a short sale for 2 years. We moved before selling, though (dh got a much better job out-of-state while simultaneously losing his current crappy job, and we decided to just all go), and have been paying both the mortgage and rent for our house here. Our mortgage company has been willing to work with us with a short sale - cut a deal to forgive half the difference and write a seven-year note for the other half - but it just. won't. sell. We can just swing paying for two houses, but haven't been able to save anything but retirement, and there's a good chance dh's salary will have to be cut (and I don't blame them, they pay us extremely well - we *can* pay on two houses - and they've cut everything but salaries and workers and still are in trouble), in which case we will have to default (as opposed to seriously thinking about it but still chugging along). Worried about the credit hit, though.

 

WRT the moral issue, my dad pointed out that most mortgages are basically "pay or lose/give-back the house", so there's nothing wrong with choosing the "give back the house" option. :grouphug:

 

Oh, that's awful - all this time paying on the note and still, it could come to your losing the house anyway?! I should be giving you a :grouphug:! The credit hit is especially painful, I know. That's a pretty good deterrent, when this sort of thing can be avoided. I don't see how we can avoid ours unless we stay here, and I'm not going to stay here. There is a part of me that is just so angry about the sewer company - too long of a story to write out, but the foundation of it was based on defrauding customers and the current head of the company continues to rack up violations (they currently have $3M+ in fines accruing). :banghead:

 

My thanks to each of you for your responses - here and via PM. I suppose we'll come through it eventually, but I do so dread the next several months...

[Catwoman]

I don't have any advice for you, Natalie, but I hope it all works out for you. It sounds like you have done all the right things for years, but now you're stuck between a rock and a hard place with the house. I hope you're able to find a solution that doesn't end up costing you a fortune, just to get out from under that house and into a new place.

 

:grouphug::grouphug::grouphug:

[4wildberrys]

It IS very tough Natalie, but the beginning of the whole process is the worst part. Trust me, once it's over a HUGE burden is magically lifted from your shoulders and as time passes, you realize it is just a short phase of tension. Again---don't get caught up in the guilt. In these times, it's obvious that if some of us need to move or work slows, these choices are necessity and not a moral slip. ;)

[Renee in NC]

 

So I have heard. :( In fact, in the past few days, I've talked to a surprising number of folks who tried to get the bank to agree to a short sale, but in the end, the bank pursued foreclosure. We financed through a credit union, so I think the options may be even more limited than a bank.

 

 

Our bank turned down a short sale, foreclosed, then sold the house to the same people for the same price.:glare: I don't understand it, but it is over and done with - we are almost 3 years past the official foreclosure (the moratoriums kept pushing it off.) I don't know that my dh will ever get over it - that was our forever house that we built ourselves.

 

Hindsight is 20/20 - we let the house go so we could try and save the business, but ended up losing both in the process. I can look back now with some sort of detachment, but the *pain* of the situation was almost unbearable. For most people, foreclosure is not the "easy way out" and anyone who thinks that either hasn't been through it or just has a totally different perspective on life than I do.

 

ETA: The first foreclosure date was 5 months after our first missed payment. We had *never* been late on a payment up until that point. The actual foreclosure came 5 months after that.

Edited October 29, 2011 by Renee in FL

[JessieC]

We're in a similar situation--really want to move but owe more than what the house is worth, and houses here aren't selling at all. We would be happy to rent for a few years if we could just get out. I've heard though, that foreclosure could go after your retirement and affect your children's ability to get college loans--has anyone else heard this? We've always had perfect credit, and now we see it all getting washed away...