letting a house go into foreclosure after buying a new house

[kranky]

This isn't "working the system", it's just stupid.

He will be throwing away some amount of equity because the house will sell for less than it could have. He is ruining his credit needlessly, and he has no idea when that might come back to bite him - his credit cards might get cancelled, any car loans will be at high rates, his insurance (car/home) could go way up.

If he had just reduced the home price until it sold, he would probably have gotten more than he will get through a foreclosure (because all those extra fees the lender now will incur are going to come out of his equity), and saved his credit.

Now he might consider what happened to my neighbor's buddy Sam. Sam had missed some mortgage payments because of illness. They started foreclosure. Sam ignored the papers. More papers came. He finally got in touch with the mortgage company. At that point they weren't interested so they went ahead with the foreclosure and sheriff's sale.

Sam's house was worth about $200K. It sold at sheriff's sale for $30K - to the mortgage company. Sam offers to buy the house back from the mortgage company for the $30K they spent, PLUS make up all the back payments and interest. The mortgage company said no. The bank filed with the IRS that Sam had income of $130,000 because of the debt they wrote off. So Sam not only got screwed out of his house, he owes income tax on $130,000 of money he never received, and his credit is demolished.

 

[jammur21]

Why not just rent it out?

 

[vi edit]

Originally posted by: jammur21
Why not just rent it out?

He was looking for a no hastle way out. Renting out property is the polar opposite of no hastle.

 

[NL5]

Originally posted by: vi_edit

Originally posted by: jammur21
Why not just rent it out?

He was looking for a no hastle way out. Renting out property is the polar opposite of no hastle.

Not in my experience. I have rentals, and I have gone thru bankruptcy. I'll take rentals ANY day. What this guy did is gonna bite him WAY harder than bankruptcy if the story is anywhere near accurate.

 

[OS]

Originally posted by: kranky
This isn't "working the system", it's just stupid.

He will be throwing away some amount of equity because the house will sell for less than it could have. He is ruining his credit needlessly, and he has no idea when that might come back to bite him - his credit cards might get cancelled, any car loans will be at high rates, his insurance (car/home) could go way up.

If he had just reduced the home price until it sold, he would probably have gotten more than he will get through a foreclosure (because all those extra fees the lender now will incur are going to come out of his equity), and saved his credit.

Now he might consider what happened to my neighbor's buddy Sam. Sam had missed some mortgage payments because of illness. They started foreclosure. Sam ignored the papers. More papers came. He finally got in touch with the mortgage company. At that point they weren't interested so they went ahead with the foreclosure and sheriff's sale.

Sam's house was worth about $200K. It sold at sheriff's sale for $30K - to the mortgage company. Sam offers to buy the house back from the mortgage company for the $30K they spent, PLUS make up all the back payments and interest. The mortgage company said no. The bank filed with the IRS that Sam had income of $130,000 because of the debt they wrote off. So Sam not only got screwed out of his house, he owes income tax on $130,000 of money he never received, and his credit is demolished.

gd, people who can't afford their new homes are gonna be f*cked.

 

[lokiju]

Sounds like a dumb idea to me, he could have at the least called one of those "we buy ugly houses" places and they would have bought him out for a small amount, he could pocketed some cash and they would have paid off his loan, leaving his credit free and clear.