My sister is going to stop paying her mortgage.

HardDrive · 10:37 AM

I feel terrible.

They can make the payments. Barely. They bought in a sketchy area (Highland Park, LA). It didn't look too bad to me, but they have had some bad situations come up lately. A guy pulled out a gun and shouted at my mother over a minor traffic altercation in front of their house! Some drunk gang kid. The local schools are crap, they don't have the money to send their kids to private schools.

The mortgages they signed are insane. One is 40 years at 7.5%, the other is interest only, and its like 9% interest!?

****** crazy.

Total debt close to $600k, house might bring $425 on a good day.

Absolutely zero chance of getting a refi. No programs to get them a write down.

Like hell I'm giving them any $ to try and save the current situation. If I have to give them money, I would much rather have it be a down payment on a decent property rather than put good money after bad.

I feel like schit for them. Their losing home where their babies were born. They had high hopes and fixed up the house.

I feel like there is something I should do to stop it from happening. But my gut tells me the right thing to do is let them learn this hard lesson.

Aurel · Aurel's Garage

Home ownership is not for everyone. Some would be better off renting.

saxen · 10-21-2011, 11:10 PM

Agree

dennis in se pa · dennis in se pa's Garage

If they don't pay and play nicely with the lender they can probably stay in that house 1.5 to 2 years before they have any real issues. It's amazing how far back you can get on taxes and mortgage payments these days. And it looks like they have nothing to loose anyway. And sorry to say "F*ck the bank!"

Shaun @ Tru6 · 10-22-2011, 03:18 AM

I think there is a member here who lied to the bank telling them he was going to let it go to foreclosure and the bank gave him a lower rate.

dennis in se pa · dennis in se pa's Garage

A lower rate won't help if you are seriously "upside down". It is called a strategic move. Businesses AND BANKS do it all the time. Don't pay, wait until they make them get out. It will take awhile. Free rent. Don't pay the taxes either.

911_Dude · 10-22-2011, 05:07 AM

My cousin is doing this. On the one hand I dont blame them. On the other hand I think its ****. They bit off more than they could chew just because the banks let them. Now, collectively, the whole housing market is screwed. However, if one took responsibility for ones actions, it would be easy to see they should never have bought the house in the first place. Simple math.

dennis in se pa · dennis in se pa's Garage

"They bit off more than they could chew" if this is true I don't pity them. But most of the time it is not the homeowner's fault.
Have a good job, making payments, but value went from $700K to $400K. Never to return. What would you do? A strategic foreclosure is what banks and businesses call it when THEY forfeit properties. Why should an individual be any different?

A930Rocket · 10-22-2011, 05:26 AM

My sister-in-law is moving out of her house after being foreclosed on. She went through a rough time with cancer, back surgery and losing her job. We helped her with her down payment, but have no ability to help her now, since I was let go as a builder in 2009 myself. We sold our house right away to lessen our financial burden, but having built the house, we had equity in it.

sm70911 · sm70911's Garage

Can they use the house as a rental property ? I know you said they fixed it up and there are emotional attachments. But maybe its best to hang on to the equity and have the renters cover the mortgage for a few years, until HP comes up a bit. There are worse areas and HP is pretty well situated.

kaisen · 10-22-2011, 05:57 AM

Quote:

Originally Posted by sm70911

Can they use the house as a rental property ? I know you said they fixed it up and there are emotional attachments. But maybe its best to hang on to the equity and have the renters cover the mortgage for a few years, until HP comes up a bit. There are worse areas and HP is pretty well situated.

Equity?? He said they owe $600K and it's worth $425K

And you think they could rent it for more than the mortgage payment?? Rental homes in the LA area are WAY less than buying the same home. Way less.

Targa Me · Targa Me's Garage

First of all it doesn't sound like a neighborhood l"d like to live in anyways.
Tell her to do a Short Sale, or at least attempt that before going into foreclosure.
I say screw the banks. They got government bail outs but that never trickled down to the consumer.

HardDrive · 10-22-2011, 06:02 AM

Monthly payments are $5000. They couldn't rent it for half that.

kaisen · 10-22-2011, 06:07 AM

Quote:

Originally Posted by Targa Me

First of all it doesn't sound like a neighborhood l"d like to live in anyways.
Tell her to do a Short Sale, or at least attempt that before going into foreclosure.
I say screw the banks. They got government bail outs but that never trickled down to the consumer.

Short sale is a great idea, but the banks won't typically consider one unless you are behind on your mortgage -- go figure

Aurel · Aurel's Garage

Quote:

Originally Posted by dennis in se pa

"They bit off more than they could chew" if this is true I don't pity them. But most of the time it is not the homeowner's fault.
Have a good job, making payments, but value went from $700K to $400K. Never to return. What would you do? A strategic foreclosure is what banks and businesses call it when THEY forfeit properties. Why should an individual be any different?

The value of my home went down from $500k to $380k. As long as I did not have to sell, it did not matter because I loved the place, could afford the payments and planned on staying for a long time.

Then my job situation started to deteriorate, and I did have to sell the home when I moved to New Mexico. I lost $110k in home equity, but still walked away with $70k.
Why? Because I had put 38% down when I bought. I could have gotten a $500k mortgage when I bought in 2007, but I did not. I could also have taken a $100k home equity loan but never did. This was our saving grace.

Now, I will get a bigger home, with million dollar views, in the most upscale neighborhood of Albuquerque, that the owner has been trying to sell for two years.

Aurel · Aurel's Garage

Quote:

Originally Posted by kaisen

Short sale is a great idea, but the banks won't typically consider one unless you are behind on your mortgage -- go figure

That is what I would do in their situation:

1. Stop paying my mortgage
2. Go talk to the bank about a short sale.

sc_rufctr · 10-22-2011, 06:27 AM

Quote:

Originally Posted by HardDrive

I feel terrible....

I feel like there is something I should do to stop it from happening. But my gut tells me the right thing to due is let them learn this hard lesson.

Firstly... It's not your problem to solve. You didn't have any say in what house they bought or what area so why do you feel like you have to bail them out now?
You need to do the best for yourself and your immediate family. I know it's hard watching something like this happen to someone close to you.

If they default then that's their decision.... They could work seconds jobs to make ends meet.
I've done this and I didn't like doing it but the alternative wasn't an option for me.

id10t · 10-22-2011, 06:30 AM

Quote:

Originally Posted by dennis in se pa

"They bit off more than they could chew" if this is true I don't pity them. But most of the time it is not the homeowner's fault.
Have a good job, making payments, but value went from $700K to $400K. Never to return. What would you do? A strategic foreclosure is what banks and businesses call it when THEY forfeit properties. Why should an individual be any different?

At some point, they thought that 700k was an acceptable price. Did the schools or neighbors suddenly change over night? Or were they planning to flip it?

If the bubble had frozen the house at that value but interest rates went up to where they couldn't afford to change their existing rates, would they be looking to sell or be thinking they got a good deal?

Por_sha911 · Por_sha911's Garage

Quote:

The mortgages they signed are insane. One is 40 years at 7.5%, the other is interest only, and its like 9% interest!

They should have seen their meltdown coming from a mile away. Sadly, they are going to pay for some really bad choices. I'm guessing they speculated on the housing market before the bubble and needed both loans just to buy the house. There is a reason that speculators make big money: huge risk. Unless you counseled them to do this, you are not to blame. Its one thing to take big risks to make money but its another thing to do it with your primary residence.
Tell them about "cash for keys" programs: Bottom Line - Real estate agents learning fine art of 'cash for keys'

Hugh R · 10-22-2011, 08:19 AM

Tell them to look into the tax ramifications. IIRC if they have a short sale or debt forgiven it can count as taxable income to the IRS. I think there was an exemption on this for a time, but it went away.