Profile picture for GSC122

Underwater, but would like to move

I purchased (along with many people) back in 2004, thinking I would never lose money on a newly built home. I am currently sitting at around $18k (my estimate) to $64k (zestimate) underwater. Taking into account that the sell of a home will have about an additional 10% in fee's related to selling I could be looking at -$37k to -$80k just to move. 
Limitations:
I cannot refinance under HAMP or HARP. My Primary lender refused to refi, and my secondary refuses to do anything unless the primary does something first. (ASC and BoA respectively.) I am not in financial distress. I live in Ohio so banks (I believe) can come after me for overages if I foreclose. I make enough to qualify for a second home if I wanted to. 
Reasons to move:
The home has been out grown. I'm literally sleeping in the unfinished basement to make room for the family. The home is also in a terrible school district, and I want to get out before my little girl is old enough for school. (still about 4 years there, so breathing room.) 
The way I see it, is I can:
1.) Save up 20% of the value of a new home buy the home, then 'walk away' from the old, or attempt a short sale. My credit is very good, and I'm reluctant to destroy it.
2.) Save up 20% for a new home + the amount to try and cover the selling of my old home, and lose somewhere around the previously listed figures.
3.) Rent out the property I currently own, and purchase new. Unfortunately my primary loan is 7/1 ARM that is flexing in the interest rates. My secondary is a heloc expected to balloon in 2015 and has a very large sum of money owed on it. I would need to pay the home down enough to refi (which I figure would cost me about the same as selling it.)
Any new idea would be helpful, or perhaps throw a vote behind which of the 3 I listed you think is the best option and why.
  • September 13 2012 - New Albany
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Answers (6)

Profile picture for GSC122
Thanks so much for the advice thus far. I've been looking into the rental market, and to provide the room (and quality of living) for my family, I would be paying near the same amount as I currently am for my mortgage.

I do have an additional question. GE3. Could this mean that sometime in the future my mortgages could end up eventually being backed by Fannie Mae or Freddie, allowing me to try and take advantage of the government refinance programs? 
  • September 14 2012
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:) sunnyview, I see and agree with your point.

I did state that this is all in theory, because practically homeowners must also make prudent financial decisions based on the prevailing market. It's just that the lenders have an upperhand in all of this because they have the power to foreclose (as agreed to by the borrower in the agreement) on the very asset the homeowner wishes to save, and in this great country of ours, foreclosures and deficiency judgments are a daily routine. But of course, there are multiple ways for homeowners to get relief too.

Raheel Shahzad, Attorney, CPA, Real Estate Agent
Chicago, IL
  • September 13 2012
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"The ugly truth is that the agreement you signed with the lender (in 2004) places responsibility on you as long as you are able to pay."

Maybe so, but we do not live a society with debtor's prisons any longer. There are often legal options that range from modification to short sale to bankruptcy that can be better than paying on an underwater asset for a decade or more. 

If that option was good enough for the banks that made the loans, it should not be dismissed out of hand for individuals in the same situation. Business is business and that should be the basis for the decision. That ARM also means that the interest rate is not stable. If you decide to stay put or rent it out, better to deal with that now than down the line when rates may be higher. Get all the facts and make the best call you can.
  • September 13 2012
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The ugly truth is that the agreement you signed with the lender (in 2004) places responsibility on you as long as you are able to pay (from making enough money). In that agreement, there is no clause which says that if house goes below loaned amount, then bank has to take that loss.

That's all in theory of course. Main idea is that deficiency judgments cannot be wiped out or avoided if the debtor has the means to pay. You have to go broke to defeat a deficiency judgment.

Seek proper legal advice regardless of which option you take.

Raheel Shahzad, Attorney, CPA, Real Estate Agent
Chicago, IL
  • September 13 2012
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Have a Realtor come over and give you an accurate Competitive Market Analysis so that you know exactly what you would be able to list your home for.  This will give you the basis you need to sort out your options.

If you have enough income I would recommend purchasing a new home and renting out your existing one or attempt to short sale.

None of the options are glamorous, but knowledge is power - find out what you can list for, and go from there!
  • September 13 2012
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Profile picture for sunnyview
If you have a young family and do not have a job that requires you to have a security clearance, I would look at playing hard ball with the bank after getting some solid advice. You need to know from several agents what the value of your house is on a 90 day sale in your area. Do not rely on Zillow for that, ask several agents for a CMA and pick the one you feel is honest and not optimistic.

Once you have that house value, you need solid legal advice in your state. Even if your state has deficiency judgements, you may be able to ask for a deed in lieu, loan modification for a lower fixed rate or negotiate walking away with no future judgements in exchange for formal foreclosure on the bank end.

If your state has judgements, I would not buy another house and walk from the first or they may be able to come after your new house. A rental will only work if you are not going into the hole each month the feed it while you support another house. Otherwise, it is slow financial death by papercuts especially with a growing family in tow.

Your best option is to get all the options and try to move forward to a different financial place with plan. That may mean renting for 2-3 years and saving for down, but doing that would allow you to buy without the albatross of the underwater house looming.

  • September 13 2012
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