Profile picture for SanDiegoRenter

underwater and moved - what are my options

2 and 1/2 years ago we bought a condo in San Diego. We paid 450k for it. We were certain that we would stay in the house for a long time and got one of those fancy loans (interest only, no money down, 2 mortgages). Now zillow is listing it for 390k, if that estimate is correct we are about 60k underwater. The monthly expenses on that property are about  $3600 a month.

 

Last year I lost my job and was able to get another one right away, but in a different city. Since the condo was underwater we could not sell it, but we were able to rent the property for $1900. Every month we have to put an extra $ 1700 to cover all expenses. On top of that we have to pay our rent (which is more expensive in the new city), cars etc. We re basically living paycheck to paycheck. We thought we would be able to hang in there for a while but things have been tight. I would love to keep my good credit but I am not sure it is worth it. I am not sure how long the crisis will last and we dont know if we will always have tenants. We have very little savings and I am thinking about doing a short sale or giving the keys back to the bank. Any thoughts?

  • October 08 2008 - US
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Answers (26)

I doubt that the lender will agree to a short sale because you can really afford to pay the mortgage, even if it's a hardship for you. And, do you really want to have a short sale on your credit rating?

What you can do is to contact a realtor who works in that area and ask them for their estimate of value. They can do a Comparative Market Analysis for you and then give you an informed opinion of value.

If it looks like the property will indeed sell for less than you owe, you can ask the bank/lender about a short sale or you can take the loss.  The loss is a tax deduction. Even if it is a loss, you still had the time living in the condo so you got a place to live for a while out of it.

If you elect to take the loss yourself and keep your credit, you may still owe on the mortgage. If you are making enough to pay $8000/mo in mortgage & rent, you probably have some savings, investments, retirement monies. No, you wouldn't like to draw on that but to get out from under that condo with your credit intact, it may be worthwhile to you. Then, when you have saved enough for a 20% downpayment, you can buy a house/condo in a more moderate price range.

Hope this helps.

  • October 09 2008
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Profile picture for teck
  • teck
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stop paying the morgtage, keep collecting the rent, let it go into foreclosure that will buy you at least a year ...  

At which time you should have 22000 in a shoe box under your bed..

 

sounds wrong but it is what a lot of people are doing

  • October 09 2008
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teck - that is repulsive! It is spineless actions like these that have put us ALL in this economic crisis
  • October 09 2008
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I think the lender will agree to a short sale however you will have to most likely start missing payments, which will hurt your credit.

If you could hold out until the new year you may qualify for whatever package the president elect would put out for housing. They are talking about giving people loans on the new value of their house.

The other thing to think about is if you short the bank can 1099 you for the loss they take which you will have to pay taxes on. You may qualify for the mortgage forgiveness act if you do a short sale before the time runs out. But you also may not qualify since its a rental now. Something to ask a local Realtor.

I would start with you banks and call the loss mitigation department and get a short sale packet. Talk to a supervisor and see if you can't start negotiations before you miss a payment. Its possible but unlikely. Then you need to list the condo which could be a problem with your renters and depending on your lease.

Also it would be good to get a value estimate from a local Realtor because zillow can be way off sometimes. It may be you could sell and only have to bring a little money to the table. Maybe borrow from your 401k (don't cash it out but sometimes you can borrow on it and then you are at least paying yourself back), sign a note with the lender for the amount you are shorting them, or borrow from family and friends so as not to destroy your credit.

Hope that helps...
  • October 09 2008
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Wow, great advice Herrons!  I am anxious to see how the programs to refinance based on current value work out. 

I totally agree though about not letting it go into foreclosure.  I have worked with clients who didnt think they could get it sold because it would be for a loss, and it worked out.  Hang in there!

  • October 09 2008
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Profile picture for urge
  • urge
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Short sale or foreclose. Not too many options. You bought more than you could afford. You could ask Paulson if he would bail you out too.

  • October 09 2008
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Profile picture for 2 Big 2 Fail

Walk away from the house!  Southern California is in the housing toilet so there is no need to keep the house if you do not want it.

  • October 09 2008
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Profile picture for andyman68

Loans on current value?  So if the value of my home goes up, would I end up owing the government money to pay for those whose home value goes down?

  • October 09 2008
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Profile picture for SanDiegoRenter

Thanks for all the advice. I will definetly work with the renters in case the bank approves a short sale. But I am thinking I will hold tight and wait a few more months to see if the market gets a little better or there a new way to refinance on current value. How does selling at a loss work if I dont have the funds to pay the difference?

  • October 09 2008
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It becomes a short sale unless you can come up with the cash. Then it has to be negotiated with the banks and all that stuff. So if you can't make up the difference then your best to get some help.
  • October 09 2008
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Profile picture for Mark75NYC

"teck - that is repulsive! It is spineless actions like these that have put us ALL in this economic crisis"

 

Replace "22,000 in a shoebox" with "22,000 worth of crap you bought that you don't need" and suddenly Teck's hypothetical advices turns out to be exactly the type of boo-hoo sob story we keep hearing about, and how we need to help these people out.

 

This mess is caused by people living above their means, and for some reason they (and we) think people need to be helped out in doing so.

  • October 09 2008
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  • urge
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"But I am thinking I will hold tight and wait a few more months to see if the market gets a little better or there a new way to refinance on current value."

 

You have to be daydreaming. There is NO WAY ON EARTH that the housing market will improve in the nex 5 YEARS. Cut the BS and get on with your life.

  • October 09 2008
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Sure why don't we all not pay our mortgages! Just get behind a few months and the taxpayers will bail us out and lower our monthly payments. Let me get out my magic wand and make everything better.

 

This does such a disservice to the homeowners who make sacrifices every month to make sure their bills are paid on time. To make matter worse, they won't get any relief from the mortgage company, and they will pay for the current bail out and subsequent ones in the future. Unfortunately, there are way too many spineless owners who are in over their heads. It is time to grow up because there is not a money fairy who will solve your financial woes.

  • October 09 2008
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and strangely, when i used to advise people to compare price to rent, everybody said I was crazy... Buying when the mortgage is about the rent would have left you with the option of renting it out forever...

 

there is absolutely no way in hell, an out of state non occupant owner gets bailed out, I don't care if Mickey Mouse wins the presidential election. McSame's Mclame proposal was roundly ridiculed today, by every single person the media could interview who got a C or better in econ 101.

 

The san diego market is in free fall, don't base any decision on it getting better any time soon.

Your options?

1. try to go for a short sale.

2. let it foreclose

3. keep losing 20+K a year on an asset that will be down in value for a decade or longer.

4. sell it, take a promisary note, and pay the bank back, or borrow money somehow to pay the difference.

 

sorry, that is all the honest information there is.

  • October 09 2008
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  • teck
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"teck - that is repulsive! It is spineless actions like these that have put us ALL in this economic crisis"

 

I apologize, shoe box was a poor choice in words, maybe a Lock box or Safe...   :)

  • October 10 2008
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I just read in a different thread someone was asking if he should buy in a depressed market. The perk was that the house had a big yard for planting fruit trees and a garden in case things got really bad. Greg1231 - instead of a money wand we can just plant money trees in our backyard. If you live in a condo you are just SOL!

Teck - have you ever owned a house?
  • October 10 2008
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I'm not endorsing Teck's point, but a lot of people have chosen to do it, so it is important to be aware this behavior can (and does) go on.

  • October 10 2008
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Profile picture for sunnyview
Teck said nothing wrong. His suggestion just mirrors what the banks have done. Taken their fees upfront, bought company retreats complete with spas, packed their massive golden parachutes full of money and then whined to Congress about not having enough money to run their company.

The banks were not ethical, why should their customers be expected to be more responsible than they were? Banks are the root of this problem, not borrowers. Banks knew they were loaning to deadbeats, they didn't care. My advice is do what is best for you and your family. Let the banks eat your loss. It's their turn.
  • October 10 2008
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I sympathize.  I have a friend/ client in a very similar situation and I don't have any solutions other than what has already been mentioned.

 

Teck's solution is certainly in the realm of possible.  It does happen.  It lacks honor and, depending on foreclosure law in CA, the bank may be coming after you for any deficiency anyhow.  The unfortunate fact is, you obligated yourself to the note and have the moral responsibility to make good if you have the ability to do so. (BTW, I'm not accusing you of looking for the easy or unethical way out - from what I hear you saying you're not that person). azrob's remaining 3 options are difficult but honorable and what is left.

 

If you have other property (I don't think so from what I've read, but) your bank may be willing to move their lien or the portion that can't be paid to that other property.  That, at least, gets you out from under your old property on which you will continue to lose money for the forseeable future.  Of couse, an unsecured note for any deficiency is better for you than a collateralized note, if you can get it.

 

You're really at a point where you need input from a good agent in your area who has experience in closing (not just listing) short sale transactions in your area and/ or an attorney who knows CA foreclosure law and can give you sound advice on all the ramifications.  Good luck.

  • October 10 2008
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Sunnyview - it sounds like you and teck are on the same page and this is basically what I am hearing you say...

They (the banks) did something bad so I (the borrower walking out on his mortgage) have the right to act the same.

I have a six year old and teaching her life lessons helps put life in a new perspective. We have certain 'bad' words in our house that I don't like her to use. Her friends say these words and my daughter doesn't understand why they use them. I explained to her that we can have our own thoughts of what is the proper way to act but we can not force these ideas on others. We can only act the way know is good and hope others will follow our example.

It is a shame that too many people are following what I feel is a bad example. Too me it is all about honing up to your responsibilities ...WWGD - what would grandpa do:) (you have to read earlier in the thread to understand)
  • October 10 2008
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Whoops... the WWGD was in the economic thread - Dow down 30% since the beginning of the year
  • October 10 2008
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  • teck
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Rachel, yes me and sunnyview are on the same page..

 

while you are teaching your 6yr old about life you might want to add that - Money makes good people do bad things... 

 

In the banks/ lenders case it made Bad people do really bad things....

  • October 10 2008
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Wait just a second.  When a person takes a mortgage, it is simply a loan secured by the house.  Simple deal, pay the loan or lose the house.  There is nothing unethical about choosing the other side of that deal, i.e. don't pay the bill, turn in the keys.  Either way the bank is made whole, as they end up with either the cash or the house.

 

As for the renters you have, I would make sure give them as much warning as you can of whatever you plan to do.  If you do stop making payments, please let them know and get sound LEGAL (not an agent's, a lawyer's) advice as to how to proceed.  This may mean escrow of rent payments/deposits, or ending their lease/rental on amicable terms early.

 

  • October 10 2008
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You are right. This is a lesson she is learning. She is also learning responsibility, the value of a 'hard-earned dollar' and not to do something stupid just b/c your friend did. Remember when your mom asked 'if he jumped off a cliff would you do it too?' I feel like this is the same... just b/c the banks and government acted in fraudulent doesn't give the people the same rights. The people are the ones that put government in place... we need to recoup our authority and our rights and get those greedy-blood suckers out of the top!
  • October 10 2008
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Profile picture for sunnyview
I have two young kids myself. Like my parents and grandparents before me, I actually saved for the down payment on my house. I was responsible and am not underwater or even close to it. I am irritated by the bailout and the irresponsible borrowers, but I am more irritated with the banks. They did dirty business and if it comes home to roost it is because they did do the wrong thing.

No, I will not tell a borrower that is $1700 a month under rent to hold on by their fingernails and keep paying. The banks didn't do that. In fact they are getting paid for those bad loans by me the taxpayer who once again is doing the right thing and getting bent for it. Since I the upstanding taxpayer am already paying, I am telling this underwater owner to work it out or walk because I have already paid 700 billion for the banks mistake and why should they pay the tab when I have already paid fop it along with millions for others?

I am glad that your daughter is learning life lessons from you. I hope I am teaching my children to be responsible in life and with their finances, but many people did not have that advantage. Instead they listened to professionals like banks, brokers and realtors telling them it was a good time to buy and made the wrong decisions because they had no other information to go from someone like their parents who did not stand to profit by encouraging them to buy now.
  • October 10 2008
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Profile picture for dtbandt

Eric142 has it nailed.  At some point you have to make a really crummy decision and that is what is the best thing for your family in these scary times.  Do you keep pouring $$ into a bottomless pit because it is the "right" thing to do or do you swallow hard, walk away and look to the future.  The only way to make the decision is to see a lawyer who specializes in real estate law in your state.  DO NOT ask some real estate agent, this is too important.  A lawyer's advice is the foundation upon which you will make your decision.  Right now, you need legal advice.  See a lawyer, then decide.

  • October 10 2008
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