letting a house go into foreclosure after buying a new house

[OutHouse]

my neighbor did this. He knew he would have a hard time selling his old house so instead of dealing with double payments he just let his old house get repoed.

i asked him "what about your credit, wont your wages get garnished?"

for the credit question he said, who cares, i got my cars paid off, i got my loan on my new hosue before i became deliquent on the old one and i dont plan on buying another house anytime soon. So i really dont care about my credit rating getting hit, it will recover.

for garnishment of wages, he said they cant do that because he was right side up on the old house and they will sell it for more than what is owed on it. but if i was upside down they could garnish me for the difference unless i filed for bankrupsy.


so after thinking about this and how he did this. I wonder how many other people out there who need a larger house but know that thier old one wont sell and just let it go into foreclosure.

 

[DeadByDawn]

If the bank can sell it for more than he owed, why couldn't he?

 

[EvilYoda]

huh, that's interesting...I wonder if more people would do it if they knew about this "method".

 

[MisterJackson]

It's all about loopholes and working the system. It's the American way. Taking responsibility for one's actions and debts is apparently the path to communism!

 

[OutHouse]

Originally posted by: DeadByDawn
If the bank can sell it for more than he owed, why couldn't he?

dunno didnt get that far into the convo. was still processing his method of dumping the house.

 

[dullard]

Even the hit on the car insurance bills alone wouldn't be worth it to me.

 

[doze]

Never heard of this before, but it does not surprise me.

I have heard of people buying a new car with a very small downpayment and no trade-in then never paying a dime and driving the brand new car for months until it got repo'd.

 

[Queasy]

Someone in my old neighborhood did that. Pissed me off too because they screw over other people trying to sell their houses when they allow their own house to go into foreclosure...this drives down the selling price in the neighborhood.

 

[ggnl]

Originally posted by: Citrix

Originally posted by: DeadByDawn
If the bank can sell it for more than he owed, why couldn't he?

dunno didnt get that far into the convo. was still processing his method of dumping the house.

That's exactly what I was thinking. It's a given that the house will go for much less than its market value if it goes to bank auction, why doesn't he just list it for that price? It couldn't be that hard to sell...

 

[flot]

Originally posted by: Citrix
my neighbor did this. He knew he would have a hard time selling his old house so instead of dealing with double payments he just let his old house get repoed.

Seems like a dumb move - if he could have sold it for even exactly what he owed on it, he would save himself money in the long run... even if he only made $1000 on the sale, that's still $1000 in his pocket and no credit/bank hassles down the road.

Only time this seems like it would "make sense" would be if he absolutely trashed the house, if it needed major repairs to be habitable, or if he got a terrible deal on it in the first place and did not put much $ down. (or if the local housing market has devalued since he purchased)

Generally speaking - people who let their homes get repoed are simply deluding themselves about the situation. It is sad really because many of them could probably walk away making at least a little bit of money on the deal, and could help someone else out at the same time. (by selling them a cheap house) Instead they tell themselves they'll figure it out, or it won't get repoed, etc, and end up with nothing.

 

[OutHouse]

Originally posted by: ggnl

Originally posted by: Citrix

Originally posted by: DeadByDawn
If the bank can sell it for more than he owed, why couldn't he?

dunno didnt get that far into the convo. was still processing his method of dumping the house.

That's exactly what I was thinking. It's a given that the house will go for much less than its market value if it goes to bank auction, why doesn't he just list it for that price? It couldn't be that hard to sell...

the market in denver is at a all time high for house inventory. selling a house is tough especially for what people want for their houses. my neighbor just didnt want to make those 1500 payments that would amount to nothing when the house was sold. so he just let it go, and HUD took it.

 

[FoBoT]

doesn't sound right, if he had equity, he should be able to lower the price and at least break even and not get hammered with a foreclosure

 

[WW]

how did he get a new house? usually you need the money from the previous house for the next one. or was he rich enough he didn't need to?

something doesn't make sense....was he also going through a divorce?

there are tons of companies that will instantly buy your house from you....maybe not at top price. Is Denver really going that negative?

zillow him and see what the prices say

 

[OutHouse]

Originally posted by: WW
how did he get a new house? usually you need the money from the previous house for the next one. or was he rich enough he didn't need to?

something doesn't make sense....was he also going through a divorce?

there are tons of companies that will instantly buy your house from you....maybe not at top price. Is Denver really going that negative?

zillow him and see what the prices say

i dunno how he got the loan for the second, maybe he just told the bank he was going to rent the old house out. nope no divorce.

yes denver housing market is stale. i have seen many houses in my neighborhood be on the market for 8 months +.

 

[Mark R]

I really don't understand this.

If you sell the house, OK. You can pay off the loan, and you hopefully you will have some cash left over.

If you foreclose - then the house still gets sold, and the money goes to pay off the loan - but the bank will add about $10k in penalty fees and administration charges, and only after that will they give you the difference. Additionally, they'll go for the first buyer, and won't hold out for a better (or even reasonable) offer. If the house sells for less than the loan + fees, then they'll hassle you for the rest of the cash for ages.

 

[NL5]

Originally posted by: Mark R
I really don't understand this.

If you sell the house, OK. You can pay off the loan, and you hopefully you will have some cash left over.

If you foreclose - then the house still gets sold, and the money goes to pay off the loan - but the bank will add about $10k in penalty fees and administration charges, and only after that will they give you the difference. Additionally, they'll go for the first buyer, and won't hold out for a better (or even reasonable) offer. If the house sells for less than the loan + fees, then they'll hassle you for the rest of the cash for ages.

This is the best answer you have gotten. Your neighbor has no idea how this is goingto go down. The bank is going to AUCTION the house off. It will sell for WAY less than he could have gotten for it. Then, after all of the late fees, penalty fees, listing fees, brokerage fees, bank fees, etc, they will put what's left toward the mortgage balance. HE will still owe the rest of the balance.

Stupid move. Extremely stupid.

 

[mrrman]

I wouldnt even think of doing that

 

[ITJunkie]

Originally posted by: NL5

Originally posted by: Mark R
I really don't understand this.

If you sell the house, OK. You can pay off the loan, and you hopefully you will have some cash left over.

If you foreclose - then the house still gets sold, and the money goes to pay off the loan - but the bank will add about $10k in penalty fees and administration charges, and only after that will they give you the difference. Additionally, they'll go for the first buyer, and won't hold out for a better (or even reasonable) offer. If the house sells for less than the loan + fees, then they'll hassle you for the rest of the cash for ages.

This is the best answer you have gotten. Your neighbor has no idea how this is going to go down. The bank is going to AUCTION the house off. It will sell for WAY less than he could have gotten for it. Then, after all of the late fees, penalty fees, listing fees, brokerage fees, bank fees, etc, they will put what's left toward the mortgage balance. HE will still owe the rest of the balance.

Stupid move. Extremely stupid.

This is what I was thinking. The bank will take whatever they can get and your neighbor thinking the bank will sell it like he would is truly naive(?). He's seriously hosing himself not only now but for the next 7 - 10 years where credit is concerned.
Who knows what financial burdens may come his way and this just hamstrings him all the more.
I fully agree..."Stupid move. Extremely stupid."

 

[CptObvious]

I'll echo the sentiments above. A house sold at a foreclosure auction almost always goes for below market value. So essentially he had the bank sell his home, at a substantially reduced price, for a higher cost of closing (with various fees), and now his credit's (more) f'ed up. Not smart.

 

[Armitage]

Originally posted by: Citrix

Originally posted by: ggnl

Originally posted by: Citrix

Originally posted by: DeadByDawn
If the bank can sell it for more than he owed, why couldn't he?

dunno didnt get that far into the convo. was still processing his method of dumping the house.

That's exactly what I was thinking. It's a given that the house will go for much less than its market value if it goes to bank auction, why doesn't he just list it for that price? It couldn't be that hard to sell...

the market in denver is at a all time high for house inventory. selling a house is tough especially for what people want for their houses.

So sell it well below market, since he claims to be in the black on it. It'll sell quickly that way, no credit issues, etc.

my neighbor just didnt want to make those 1500 payments that would amount to nothing when the house was sold. so he just let it go, and HUD took it.

 

[DrPizza]

I think your neighbor may have done it this way:

Take out a home-equity loan for the MAXIMUM value he can on the first house.
Use that money as a down payment on home #2.
Since he can't sell home #1, he's essentially pulled out his entire equity in the home and placed it in his new home. Plus, banks (or so it seems) tend to assess homes a little higher than their actual market value for the purposes of home equity loans. He's probably betting that the bank will sell it for what they assessed it for.

In all likelihood, he'll probably take a wait and see approach, and if necessary, will file for bankrupcy before they ever garnish his wages. Creditors cannot go after your primary residence in a bankruptcy, so he has a pretty good chance of simply getting away with this. Bankruptcy court, at the worse, will require him to pay back some of the money, but probably not all. His credit takes a ding which vanishes in 7 years. In the meantime, he's minimized his debt, can rapidly rebuild his credit (probably have a decent rating within 3-4 years), and can just ride it out with his current vehicles (pun not intended.) It's kinda funny - people are going to say "but he'll have a bad credit rating..." So what! Maybe he's actually planning on being more responsible with his money, which means only purchasing what he can now afford, rather than financing all his purchases. Other than perhaps a new vehicle, he can probably get away with this without taking that bad-credit hit.

 

[huberm]

this could potentially have a lot of negative effects. It seems he didn't plan for the "unknowns" in the future.

Say for instance he lost his job and needed to find another. A lot of employers do credit checks before hiring - that could keep him from getting a job. Or if he had a big emergency and needed money quick. If the only way were through credit cards or a HELOC, he would be SOL.

 

[vi edit]

Even if you have equity in the place you still could be looking at $10,000-$30,000(if not more) in realtor fees that you'd have to cough up to get it sold.

Selling outright on your own sucks and rarely works, especially in heavily flooded markets.

 

[NL5]

Originally posted by: DrPizza
Creditors cannot go after your primary residence in a bankruptcy.

I believe that only applies to Texas and Florida.

There are a lot more issues than are being realized. He will still owe the difference. And, if the bankruptcy trustee see taht he has done wht DrPizza thinks, he will still ruin his credit with the bankruptcy, and STILL owe the money. Just because you file bankruptcy, doesn't mean you get out of the debt - especially in a case of FRAUD.

 

[OS]

Originally posted by: DrPizza
I think your neighbor may have done it this way:

Take out a home-equity loan for the MAXIMUM value he can on the first house.
Use that money as a down payment on home #2.
Since he can't sell home #1, he's essentially pulled out his entire equity in the home and placed it in his new home. Plus, banks (or so it seems) tend to assess homes a little higher than their actual market value for the purposes of home equity loans. He's probably betting that the bank will sell it for what they assessed it for.

this may depend on state but supposedly if you only have one mortgage, lenders cannot come after you for the difference. However, if you have a 2nd mortgage (HEL), they can.