Walk on Existing Mortgage??

[Rick Lee]

Ok, let's throw my situation out there. My house in VA is rented out now for about $25 per month more than my carrying costs. But I am always worried about my tenants skipping on me or losing their jobs and stopping the payments. I was told today that I will probably be canned as of April 1. Right now I need to save every dime and spend every free minute looking for a job. What do I do if my tenants skip on me? I can't carry that house on my own even with my current job and certainly can't do it if I'm unemployed. I don't know that it would sell for what I own on it. I might be a tad upside down. I'm not sure what other houses in the hood are doing and I suspect there are several foreclosures there, which not only kills prices, but also makes them very hard to sell because of investor/owner ratios Fannie/Freddie and FHA require. Do I walk? What choice do I have? There is no sympathy in these gov't. programs for investment properties. But I bought it as a primary, lived there for 3+ years and moved to AZ for my job, which I'm about to lose. No chance that any kind of new gov't. program will apply to me. My wife suggested moving back there. But it makes no sense for us to incur moving costs and move to a more expensive place where both of us would be unemployed, not to mention how miserable I'd be there.

[UconnTim97]

It is different if you are in dire straits, as opposed to putting 20% down on a larger house as the OP is suggesting. He is looking to cash in, and have the the taxpayer (us) bankroll a mortgage that he signed for, but is no longer willing to pay for, but is still capable to do so.

[tc-sacto]

Originally Posted by wcc

Whatever, how fast can you back pedal....

Ok pal.
Anyway, just not sure what to tell som of htese people. Starting to question everthing. Not just about real estate, but valuing business as well....GE at 7, wfc at 8. Jeez, how many Dow components are under $10 now, Unempl at 8+% GM may fail...then what?

[cl8ton]

Agreed! The OP worded it as it was just an inconvenience where Rick worded it as no other choice.
I despise the former and sympathize with the later.

Originally Posted by UconnTim97

It is different if you are in dire straits, as opposed to putting 20% down on a larger house as the OP is suggesting. He is looking to cash in, and have the the taxpayer (us) bankroll a mortgage that he signed for, but is no longer willing to pay for, but is still capable to do so.

[Wickd89]

Have some class and live up to your commitment. You signed a contract with your name and character so just live it out.

What I am doing.
1. Paying down the loan.
2. Thinking of some remodeling to add value to my house.

Either way, money is not the issue; it is integrity everyone is forgetting...

[Red Baron]

I don't see in the OP where he states "here's my scenario" or what I'm thinking about doing....

Maybe he is a dirt bag or maybe this is hypothetical question, we just don't know.

Either way, walking on the loan just because is BS. But hey, that's what hope and change is all about..

[cl8ton]

"cons: deal with bad creadit for seven years. (I don't really care as I pay cash for everythnig... except for the house of course."

Originally Posted by Red Baron

I don't see in the OP where he states "here's my scenario" or what I'm thinking about doing....

[Jeff Higgins]

You, sir, are a double talking, back peddling, farking scum bag. And yes, I would walk right up to you and say that.

[UconnTim97]

Originally Posted by Wickd89

Have some class and live up to your commitment. You signed a contract with your name and character so just live it out.

What I am doing.
1. Paying down the loan.
2. Thinking of some remodeling to add value to my house.

Either way, money is not the issue; it is integrity everyone is forgetting...

I couldn't agree with you more. I am doing the very same thing.

I am positive in time, my house will be worth more than I paid for it. It is a struggle at time now to make the payments, but I agreed to make the payments for the duration.

How about in a good market, if the banks said "hey, the market took a great upturn, your house is worth twice what you(we) paid for it, so we are kicking you out and selling it for the new higher value, enjoy"?

[jeffgrant]

It seems like "social experiments" don't have a good track record around here.

[tc-sacto]

Originally Posted by Rick Lee

Ok, let's throw my situation out there. My house in VA is rented out now for about $25 per month more than my carrying costs. But I am always worried about my tenants skipping on me or losing their jobs and stopping the payments. I was told today that I will probably be canned as of April 1. Right now I need to save every dime and spend every free minute looking for a job. What do I do if my tenants skip on me? I can't carry that house on my own even with my current job and certainly can't do it if I'm unemployed. I don't know that it would sell for what I own on it. I might be a tad upside down. I'm not sure what other houses in the hood are doing and I suspect there are several foreclosures there, which not only kills prices, but also makes them very hard to sell because of investor/owner ratios Fannie/Freddie and FHA require. Do I walk? What choice do I have? There is no sympathy in these gov't. programs for investment properties. But I bought it as a primary, lived there for 3+ years and moved to AZ for my job, which I'm about to lose. No chance that any kind of new gov't. program will apply to me. My wife suggested moving back there. But it makes no sense for us to incur moving costs and move to a more expensive place where both of us would be unemployed, not to mention how miserable I'd be there.

Rick,
If you find a stable position you might consider Rent to Own. You typicaly will get a better quality tennant since the property will be theirs some day.
http://www.50statesrent2own.com/ No affiliation just found the info interesting.

[WolfeMacleod]

And we wonder why the economy is crashing?

[jyl]

If purely a business i.e. financial decision . . .

Logical would be to first see if there's any opportunity to renegotiate the loan principal, using some of the govt programs. Because the ideal would be to get less upside down while not ruining the credit record, not paying transaction costs (points etc) again, and avoiding risk of some punitive retroactive measures (suppose credit bureaus later start keeping foreclosure on score for 15 years?) as well as potential harm to employability etc.

If that is impossible, then I think the numbers favor walking away. Don't have calculator handy, would have to look at scenarios and see which net out better.

Quote de jyl

Answer depends on whether view buying a house as a business decision or as a moral commitment. It is not both.

Stricley looking at this as a business decision on a non-recourse loan. The question has made for an Interesting social experiment. Not one lucide well thought out logical argument with facts and figures supporting either option. Plenty of emtional fodder though.



The reason I posted this question is because I'm in the financial fiedl and I am getting this question asked of me more and more. I know the answer I usually tell the client. I just wanted to run a hypo through Pelican to see what others might tell someone.



The:

I discounted the example another 16% to get the starting value ($250k)back to 2.7x income.(the histocial average of median family home values to income...according to Case-Schiller) Then assumed the historical CA. growth rate.

[jyl]

Rick, look into how govt programs define investor vs primary residence - maybe your time living there was enough, maybe you'd only have to move back briefly, etc.

[JavaBrewer]

I friend of mine just told me that their relatives are considering the same deal. They both are Doctors and can easily pay the mortgage but their home is way under water. They want to let that home fall into default and move to a nicer place. Where is the personal responsibility these days. Disgraceful!!!

[pwd72s]

What kind of fool am I? A guy who played by the rules....

[the]

Originally Posted by onewhippedpuppy

Good point. Pretty much "exhibit A" for why we're all in this mess.

Yep, we're in this mess because banks were greedy, and incompetent, in getting themselves in secured loans which were obviously going to become unsecured in large part.

The banks have the money, they are the lenders, it is their responsibility to make sure that they obtain sufficient collateral to secure their loans. It is their job to analyze risk, and the value (present and future) of their collateral. They fail when they fail to do that, and instead rely on the "good heart" of secured borrowers.

They failed. Their greed and incompetence has caused this problem.

(It isn't that much different than if the banks just stored their cash out in their parking lots in porta potties, to save on having to construct expensive safes, and installing expensive alarm systems and security guards).

[therotman]

Originally Posted by jyl

(suppose credit bureaus later start keeping foreclosure on score for 15 years?)

I wouldn't be surprised if credit bureaus were forced to "forgive" these recent foreclosures on the credit rating of defaultees across this country in the name of stimulating the economy.

It's not their fault they bought a house with a stated income, neg-am, pick a payment they could barely make minimum payment on at the 1% teaser rate!

[aigel]

I am not surprised people walk away by choice. $200k is a life savings for most families. You can not expect folks to take the high road considering the money involved. Greed got us the high prices and it looks like greed is now bringing it all down again - and then some!

First people with crappy credit and no down payment walked. Now even people that put significant money down and have good credit start walking.

Cheers, George

[red-beard]

I'll give another take on this. You stated 6.5% growth in the value of the home. Where are you getting that number? 6.5% is above the PRESENT inflation. It is also way below what I'm expecting for inflation in the next several years.

At 6.5% growth, I see the house going to even at 7.5 years.

If inflation hits 10%, it will take a bit over 5 years for your loan to not be "underwater". Is the loan a fixed rate loan?

I am expecting inflation to hit, and hit hard in 2010.

Oh, and +1 with what everyone else said.