Consequences of Stopping Payment on Home?

[DisgruntledVirus]

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.

Exactly. It doesn't matter what the house is worth NOW, he still obtained the loan amount for what it was worth previously. The only reason current value matters is because of how much he can sell it for.

$275k-anything down (it sounds like you took loan for $275k after down payment though)-payments so far=current loan balance. If current loan balance > $150k (although it would be less due to costs with selling), then you can't sell obviously. So next option is look to rent as others have said. As was pointed out, even if you don't get the full mortgage amount in rent monthly you still have whatever the rent amount is more per month. So if you can rent it for $1500/mo then you are losing $500/mo instead of $2k/mo. This would effectively free up $1500/mo, which it sounds like you would be able to actually do that.

 

[mugs]

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.

torpid meant he would owe $120k if the house was sold at its current value. He has $120k in negative equity assuming that when he said he has $5k equity he meant he paid $5k toward the principle of the loan. He would still owe $270k, minus $150k after selling the house, $120k still owed (ignoring the cost of selling the home).

 

[torpid]

Originally posted by: mugs

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.

torpid meant he would owe $120k if the house was sold at its current value. He has $120k in negative equity assuming that when he said he has $5k equity he meant he paid $5k toward the principle of the loan. He would still owe $270k, minus $150k after selling the house, $120k still owed (ignoring the cost of selling the home).

Do the banks hit you for closing costs even after foreclosure? I guess it makes sense, but that is kind of harsh since you don't get to have any say in the closing costs.

 

[SearchMaster]

(a) if you have equity in the second house, and its payment is killing you, obviously you should sell it.
(b) if we're misunderstanding and you truly are almost $150K upside-down in the second house, you *can* offer the bank a short sale, just make sure it's "without recourse". This means they can't come after you for the difference. It will damage your credit but is a viable option. You'll need to gather some information first - sales of comparables in the area, current comparables in the area for sale, average time they were on the market, etc. - a good realtor will help you gather this information. I believe people should honor their debts if at all possible but lenders bear some amount of responsibility for the mess we're in now.

 

[ICRS]

You are lucky that tax law changed. If you did a short sale and was short by 120,000 and it was non recourse the IRS would have claimed you just made 120,000 in income, which is around 42,000 in taxes that would be do immediatly. But they changed the law, which is a shame.

 

[PlasmaBomb]

Originally posted by: Fritzo
Pretty stupid plan.

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

Hell, even if you "only" get $1k* a month it would certainly take the pressure off.

* We don't know where the location is or the size of the property, therefore this is a random number.

 

[mugs]

Originally posted by: torpid

Originally posted by: mugs

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.

torpid meant he would owe $120k if the house was sold at its current value. He has $120k in negative equity assuming that when he said he has $5k equity he meant he paid $5k toward the principle of the loan. He would still owe $270k, minus $150k after selling the house, $120k still owed (ignoring the cost of selling the home).

Do the banks hit you for closing costs even after foreclosure? I guess it makes sense, but that is kind of harsh since you don't get to have any say in the closing costs.

Good point, I have no idea.

 

[Gooberlx2]

Originally posted by: mugs

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.

torpid meant he would owe $120k if the house was sold at its current value. He has $120k in negative equity assuming that when he said he has $5k equity he meant he paid $5k toward the principle of the loan. He would still owe $270k, minus $150k after selling the house, $120k still owed (ignoring the cost of selling the home).

Ya, my reading comprehension FTL.

 

[alkemyst]

Originally posted by: DisgruntledVirus
Chalk this one up to why ARMs suck.

Where were ARMs mentioned? An ARM has nothing to do with a house plummenting in value.

 

[AccruedExpenditure]

Originally posted by: ICRS
You are lucky that tax law changed. If you did a short sale and was short by 120,000 and it was non recourse the IRS would have claimed you just made 120,000 in income, which is around 42,000 in taxes that would be do immediatly. But they changed the law, which is a shame.

Why is that a shame

 

[alkemyst]

Originally posted by: Ocguy31
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.

Wrong, a short sale doesn't affect you one bit UNLESS you can't stroke that check for the difference at closing back to the bank.

 

[OCGuy]

Originally posted by: alkemyst

Originally posted by: Ocguy31
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.

Wrong, a short sale doesn't affect you one bit UNLESS you can't stroke that check for the difference at closing back to the bank.

So people can pay the difference, which is sometimes in the $100,000+ range, but they couldnt make the payments?

 

[EagleKeeper]

If you can rent it out for close to your payments, you will be ahead of the game.

Presently, either
1) You are able to make payments, but it is tight or

2) You have started to miss payments/come up short

Any rent payments that you can obtain will allow you some flexability.
Plus come tax time, you can then recover some in taxes owed to the Feds and your State.

You can try to negotiate with the lender for a more relaxed deal.
Dumping the house for $120K loss either indicates that the market has tanked where the second home is worse than the rest of the country and/or you were suckered into paying an inflated price.

If the second home is a vacation type home, it may be difficult to rent it out full time.

 

[torpid]

Originally posted by: Common Courtesy
If the second home is a vacation type home, it may be difficult to rent it out full time.

Maybe, but you can probably charge a lot more. There are web sites dedicated to people wanting to rent out their homes for vacationers. Usually there is a 3-7 day minimum stay and it costs only marginally less than a "good" hotel. VRBO.Com for example.

 

[DisgruntledVirus]

Originally posted by: alkemyst

Originally posted by: DisgruntledVirus
Chalk this one up to why ARMs suck.

Where were ARMs mentioned? An ARM has nothing to do with a house plummenting in value.

While an ARM wasn't directly mentioned, I don't see how the OP would be in this situation with a fixed rate. If the OP bought a second home (worth more then the first which doens't make sense to me, but another issue entirely) and was paying $2k/mo mortgage on it with a fixed rate, then it shouldn't matter what the current value is. If the OP got into this situation with fixed rate then the OP is an idiot for buying a second home that takes 90% of his income when combined with the first home. I assumed the OP wasn't that stupid.

So that infers that for some reason the mortgage increased, which *generally* is from an ARM (or some other type of adjustable mortgage). That is why I made a statement about ARMs.

edit: forgot to add. The only possible other reason OP could be here would be if some major expense came up, lost income (due to divorce or loss of job, but OP has income still so loss of a job is ruled out), or some other situation along those lines. OP didn't mention any of that, so it is most likely due to the mortgage increasing per month.

 

[alkemyst]

Originally posted by: Ocguy31

Originally posted by: alkemyst

Originally posted by: Ocguy31
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.

Wrong, a short sale doesn't affect you one bit UNLESS you can't stroke that check for the difference at closing back to the bank.

So people can pay the difference, which is sometimes in the $100,000+ range, but they couldnt make the payments?

The short sale is not only about not being able to afford the payments. I don't think you understand the entire picture. The difference could be in the million+ range as well. It's about wanting to get out of a bad situation, not leaving it unresolved.

If you fail to pay your debt reqardless of short-sale or not it will affect you a long time.

Failure to pay for one's home is considered a very high credit risk.

 

[OCGuy]

Originally posted by: alkemyst

Originally posted by: Ocguy31

Originally posted by: alkemyst

Originally posted by: Ocguy31
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.

Wrong, a short sale doesn't affect you one bit UNLESS you can't stroke that check for the difference at closing back to the bank.

So people can pay the difference, which is sometimes in the $100,000+ range, but they couldnt make the payments?

The short sale is not only about not being able to afford the payments. I don't think you understand the entire picture. The difference could be in the million+ range as well. It's about wanting to get out of a bad situation, not leaving it unresolved.

If you fail to pay your debt reqardless of short-sale or not it will affect you a long time.

Failure to pay for one's home is considered a very high credit risk.

Sometimes it is worth it to keep $100,000 in the bank and have bad credit for a couple years. Holy smokes.....

 

[Pantoot]

Originally posted by: DisgruntledVirus


While an ARM wasn't directly mentioned, I don't see how the OP would be in this situation with a fixed rate. If the OP bought a second home (worth more then the first which doens't make sense to me, but another issue entirely) and was paying $2k/mo mortgage on it with a fixed rate, then it shouldn't matter what the current value is. If the OP got into this situation with fixed rate then the OP is an idiot for buying a second home that takes 90% of his income when combined with the first home. I assumed the OP wasn't that stupid.

So that infers that for some reason the mortgage increased, which *generally* is from an ARM (or some other type of adjustable mortgage). That is why I made a statement about ARMs.

Or he bought the second house assuming that it would appreciate at 25% a month, and he could flip it just like those folks he saw on TV.

 

[alkemyst]

Originally posted by: Pantoot

Originally posted by: DisgruntledVirus


While an ARM wasn't directly mentioned, I don't see how the OP would be in this situation with a fixed rate. If the OP bought a second home (worth more then the first which doens't make sense to me, but another issue entirely) and was paying $2k/mo mortgage on it with a fixed rate, then it shouldn't matter what the current value is. If the OP got into this situation with fixed rate then the OP is an idiot for buying a second home that takes 90% of his income when combined with the first home. I assumed the OP wasn't that stupid.

So that infers that for some reason the mortgage increased, which *generally* is from an ARM (or some other type of adjustable mortgage). That is why I made a statement about ARMs.

Or he bought the second house assuming that it would appreciate at 25% a month, and he could flip it just like those folks he saw on TV.

Not to mention how many folks bought at a terribly inflated price thinking they were smarter than the market and now question why pay on a home that will probably never reach that same peak within the short term <5 years.

This seems to be the OP's angle. He can make the payments, but simply doesn't want to accept his fate.

 

[alkemyst]

Originally posted by: Ocguy31

Sometimes it is worth it to keep $100,000 in the bank and have bad credit for a couple years. Holy smokes.....

There is always sometime, some case, etc. We are talking a specific one. You have ventured so off the path about your thoughts on what a short sale was it's retarded.

 

[Danman]

Wow, this thread looks very familiar. Oh wait, I read it earlier on FWF!!

http://www.fatwallet.com/forums/finance/858405/

Why you are going around spamming your shenanigans for kicks?

 

[Baked]

Damn, you got rimmed hardcore.

 

[OCGuy]

Originally posted by: alkemyst

Originally posted by: Ocguy31

Sometimes it is worth it to keep $100,000 in the bank and have bad credit for a couple years. Holy smokes.....

There is always sometime, some case, etc. We are talking a specific one. You have ventured so off the path about your thoughts on what a short sale was it's retarded.

A short-sale is almost never a good idea. Period. Lenders look at it like a foreclosure anyway, and you arent wiped free of the debt like letting it go. I would say the exception to the rule is when it is a good idea.

I have 3 short-sale files sitting on my desk right now. And i'm sure all the sellers were lied to by the agents who said short-sales are a good idea. But hey, it keeps us all in business, I guess I cant complain too much.

 

[alkemyst]

Originally posted by: Ocguy31

A short-sale is almost never a good idea. Period. Lenders look at it like a foreclosure anyway, and you arent wiped free of the debt like letting it go. I would say the exception to the rule is when it is a good idea.

I have 3 short-sale files sitting on my desk right now. And i'm sure all the sellers were lied to by the agents who said short-sales are a good idea. But hey, it keeps us all in business, I guess I cant complain too much.

What are you some kind of clerk? Like I said it's not the short-sale...it's not stroking that check that makes it a problem.

What you are saying is like buying a house is bad because your mortgage company won't just take what you were paying in rent previously.

Nice bring up the whole 'industry' created this mess.

You are merely helping these deadbeats push the blame on someone else to foot their bills.

 

[Wreckem]

Originally posted by: 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.

Most states have laws that protect your primary residence from creditors.