Consequences of Stopping Payment on Home?

[WolverineGator]

I bought a second home for 275k, value is now 150k. Mortgage is 2k/month with everything escrowed in. I live the American dream: living month to month and not being able to save! 90% of my income goes towards mortgages, 10% to expenses (food, utilities, etc). I'm barely making it. Blah, blah, blah.. woes deleted.

The reason I post here is to ask: Is there anything I should be aware of before I stop making payments? What about my other assets? Advice?

EDIT1: Literally ran out of money... so walked away.
EDIT2: Life is much better now.
EDIT3: Coming soon (probably foreclosure, loss of any remaining assets)!

 

[Vette73]

Keep paying for now.

Can you rent it?

Also if you can;t keep it call the bank/mortgage company and ask for a short sell. This will get rid of the house and not hurt you as much. But they, the bank, have to agree to it.

 

[darkxshade]

Don't do that, buy another house, you know what they say... third time's a charm.

 

[Onita]

Post on creditboards.com. Why would you ever buy a 2nd house, which you don't need and can't afford

 

[HardcoreRobot]

greed

OP, i would try to rent the second residence. what about renting a room in primary residence as well. prices WILL go back up.

 

[rivan]

Originally posted by: HardcoreRobot
greed

OP, i would try to rent the second residence. what about renting a room in primary residence as well. prices WILL go back up.

Renting might not be a bad idea. Do what you can to make it through the next few years; housing will pick back up.

I'd think simply stopping the payments would be a last, last resort.

 

[Specop 007]

Might try playing dirty with your mortgage company. Call them and say you cant afford the current terms and want to send them the keys because its just a little too much. They may offer you a lower rate. The banks have to do the foreclosure process which costs a pretty penny. Sometimes, in their eyes, its better to keep you in it at a lower rate then go through the foreclosure.

Essentially you call them and say you nee a lower rate or you walk and they get the keys in the mail.

 

[mshan]

What is that second house really worth if you didn't need to sell now? (fair market value if financing were more readily available to lots of potential buyers and buyer psychology wasn't so bad).

 

[mugs]

If you have $5k in equity, why don't you SELL the home?

 

[PokerGuy]

Simply stopping the payments is usually the last option. Before you do that, contact the mortgage holder and see if they will work with you on either restructuring the mortgage or allowing some sort of short sale. Working out some sort of deal will work much better for you than just walking away, but it's not always possible.

 

[LemonHead]

Don't walk away. Do whatever you can to keep it. Do you have a renter?

 

[alkemyst]

You may think credit doesn't matter, but even something as simple as auto insurance is affected by scores.

IMHO you should honor your debts, it's people like you that are fucking up the country for the rest of us.

 

[OCGuy]

People recommending a short-sale are flat out wrong. Short-sales leave you responsible for the difference in what they sell it for and what you owe. It also still ruins your chances of buying a conforming loan for the next 4 years+. Its more akin to getting your car repossesed.....you owe the deficiancy balance to the bank still.

 

[alkemyst]

Originally posted by: Specop 007
Might try playing dirty with your mortgage company. Call them and say you cant afford the current terms and want to send them the keys because its just a little too much. They may offer you a lower rate. The banks have to do the foreclosure process which costs a pretty penny. Sometimes, in their eyes, its better to keep you in it at a lower rate then go through the foreclosure.

Essentially you call them and say you nee a lower rate or you walk and they get the keys in the mail.

It's not the foreclosure process that's the kicker, it's getting back the home you'd have to maintain. The last a bank or builder wants is their house back esp in this market.

They may be able to work with the debtor though and extend payment/etc.

 

[DisgruntledVirus]

Chalk this one up to why ARMs suck.

 

[AccruedExpenditure]

Where do you live

 

[torpid]

Can't they go after your other home since you owe seemingly $120,000 to them (mortgage was 275 now it's worth 150 - so you owe them 125 minus 5k equity)? As anyone can plainly see, I am not a financial expert, but it seems to me that you are in big trouble if you let them foreclose.

 

[Epic Fail]

Originally posted by: mugs
If you have $5k in equity, why don't you SELL the home?

I was thinking the same thing, but I think the OP misused the term.

Equity = Asset - Liability

Doesn't matter how much you paid in mortgages already, if the current mortgage is larger than current home value, you have negative equity.

 

[BurnItDwn]

You are in a crappy situation, but I'd agree with others who suggest trying to rent it .... Even if you don't get enough to cover the mortgage, if you get enough to cover enough of your expenses, then you can hopefully hang onto it for several years until property values hopefully go back up. Then, sell it, and hopefully you'll be ahead of the game ....

Short term that's gonna suck, but long term it will hopefully make you a lot better off

 

[Gooberlx2]

Originally posted by: torpid
Can't they go after your other home since you owe seemingly $120,000 to them (mortgage was 275 now it's worth 150 - so you owe them 125 minus 5k equity)? As anyone can plainly see, I am not a financial expert, but it seems to me that you are in big trouble if you let them foreclose.

No, he still owes $275k, less whatever he's paid off so far. His loan was $275k, regardless if the value is now only $150k.

...but yeah, I have no idea what the bank can go after. I imagine they can probably drain his regular accounts, at the least.

 

[Fritzo]

Pretty stupid plan.

Rent the damn thing out. You might even make money on it.

 

[mugs]

Originally posted by: Epic Fail

Originally posted by: mugs
If you have $5k in equity, why don't you SELL the home?

I was thinking the same thing, but I think the OP misused the term.

Equity = Asset - Liability

Doesn't matter how much you paid in mortgages already, if the current mortgage is larger than current home value, you have negative equity.

That's what I was figuring.

From googling around it seems there are "recourse" and "non-recourse" loans. Recourse = they can go after your other assets, non-recourse = they can only take the house. Considering that it's a second home, I would think the bank would give him a recourse loan since they know there is another significant asset to go after... but the OP needs to find out.

Of course you have a moral obligation to pay your debts, but no one seems to care about that anymore. It's all about what you can get away with. Given that the OP the OP has about 275k in other assets (oh wait, his $100k equity in the other house might not really be equity either), I can't say I'd feel sorry if the bank was able to take back the money that is rightfully theirs. I do feel sorry for the OP getting caught up in this mortgage disaster, but it sounds like it's largely his own mistake for taking a big risk that turned out badly.

 

[Queasy]

Originally posted by: Fritzo
Pretty stupid plan.

Rent the damn thing out. You might even make money on it.

Yep. With the credit market tightening up, there will be more people looking to rent. If the second home isn't too extravagant, you should be able to at least cover the mortgage while the equity gets built back into the home.

 

[torpid]

Originally posted by: Gooberlx2

Originally posted by: torpid
Can't they go after your other home since you owe seemingly $120,000 to them (mortgage was 275 now it's worth 150 - so you owe them 125 minus 5k equity)? As anyone can plainly see, I am not a financial expert, but it seems to me that you are in big trouble if you let them foreclose.

No, he still owes $275k, less whatever he's paid off so far. His loan was $275k, regardless if the value is now only $150k.

...but yeah, I have no idea what the bank can go after. I imagine they can probably drain his regular accounts, at the least.

Right, I'm assuming that the bank sells it for $150k.

 

[BKLounger]

renting seems like the only viable option. It sucks that you basically still owe 270k on the secondary house but defaulting will really screw your finances for years to come. I'd say rent it until the housing market goes back up and when the market gets close to what you paid then sell sell sell.