What should I do about my house, in Las Vegas?
We purchased our first home in Jun 2006. It was $280,000. At the time, the average price for a home was just about $280,000. We decided on a 30 year fixed, with a 5% down payment as opposed to all the 80/20s and ARMs that were available. We were tired of renting after years of apartments, and were afraid that we would not be able to afford a home in a few more years –similar to California. We believed the mantra of 'American dream' and 'throwing money away on rent'. Now, our home is worth about $180,000. I hope. Nothing around here is selling. You can find many large, new homes, on big tracts of land, for low prices. Ours is a 3 bedroom, built in the late 70s. It was priced well at the time we bought it. I can continue to make the payments. But…I fear I am making a stupid decision—I will be a financial leper the rest of my life. I don't have any other debt. I think the best thing to do right now is cut my losses. But that seems wrong. Seems worse, though to risk my child's future on this 2006 sized LV mortgage. Do I keep paying, because I can? Or do I walk away? What are the consequences in Nevada? Maybe buy another house now (if someone will lend me th e$) and hope I make money on it and maybe the debt from this one comes out in the wash? Could my hubby and I divorce, one of us takes the debt, the other then still has ability to rent/buy?
First of all, it doesn't matter if you are 'underwater' unless you need to sell. Really, it doesn't.
People are 'upside-down' all the time on car loans and it doesn't freak them out.
The bank never agreed to be your financial partner and assume risk with you. The bank agreed to lend you money and you agreed that you would repay it. If you are able to do so, you should. If the property was worth 125% of what you paid for it (i.e. a 25% profit) would you be looking to share that with the bank? Why do you think they should take (or even share) YOUR loss? People walking away from upside down mortgages really have the potential to completely sink the financial sector!
You can't walk away with no penalty. That's because you borrowed the money and YOU agreed to pay it back. When you don't pay it back, it shows you are irresponsible with money and not a good credit risk.
There are four levels of things you can do if you have to sell. The further down the list you get, the more damage it does to your credit.
#1 - come up with the difference out of pocket at closing. Not terribly attractive, but does no damage to your credit.
#2 - get the bank to agree to a 'short sale'. From a bank's point of view a short sale is a loss mitigation technique - meaning they think they'll lose more if they don't do this. This is why they have means testing for a short sale and why you already have to be delinquent in payments.
#3 - deed-in-lieu of foreclosure. A 'voluntary' foreclosure. Saves the bank attorney fees and a court date. Trashes your credit. Similar to qualifying for a short sale, you have to be in distress for a bank to agree to this.
#4 - full foreclosure. The bank hires and attorney and goes to court to gain ownership.
In cases 2, 3 and 4 there is a deficiency. They can come after you for the balance. In some states it is difficult for them to do so and they may choose to forgive the balance. If they do, they will almost certainly send you a 1099 next tax season where the amount forgiven counts as income to you (and now you have a real tax problem). If the amount isn't forgiven, they can go to court and seek a deficiency judgement against you. After they get this, they can garnish your wages to get repaid (and garnish any tax return, etc., you might be owed).
There is no 'walking away'
good luck!
March 29th, 2009 at 7:42 am
Besides the ethical issues, if you walk away, kiss your credit goodbye for at least 10 years. If the mortgage is in both of your names, divorce will not help. You each have individual credit files and defaulting on a mortgage affects all borrowers on the title.
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March 29th, 2009 at 8:09 am
http://inthisget.csland.com.ar
A very informative website, kindly stay a minute in website and check anyone categories link in left side.
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March 29th, 2009 at 8:59 am
Markets rise and markets fall. It is highly unlikely that las Vegas will end up like Detroit. Stick with it as long as you're working. In real estate you must always follow a long term strategy. If you worry about every hiccup or downturn in the market, you will drive yourself mad.
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March 29th, 2009 at 9:49 am
You paid $280,000 and you say your house is now only worth $180,000. So, in essence, you've lost $100,000 in home value, right? So what do you think will happen if you just up and walk away? Everything you've paid towards that mortgage for the past 3 years will be gone, as will the roof over your heads. Then, in a few years when home values start to go back up, you'll be kicking yourself in the butt for not sticking with it. Real Estate is one of the best investments there is—maybe not so much NOW, but this recession isnt going to last forever. Sure it sucks to still be paying a $280,000 mortgage on a $180,000 home, but it's not going to be that way for all eternity. Eventually—it may take several years—but your home value will go back up and will begin to exceed that $280,000 purchase price. Then you can look back at the house you walked away from, think about the 3 years of mortgage payments you forfeited, and suffer for the next decade with a totally ruined credit score. And if you EVER find a detergent that will make a debt just "come out in the wash" you need to mass-market it and become a gazillionair. Becuase, right now, there's no such thing. This recession wont last forever—why is everybody panicking and running away from their financial responsibilities?? I, personally, am not worried about the value of my home dropping because…..1) I dont plan on trying to sell it until after I'm dead, and….2) I didnt buy a house that has monthly payments I couldnt afford. Homes are long-term investments….you have your ups and your downs. Right now, we're in a down. As long as you can still afford the house, I think you should stay right were you are and just wait it out.
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March 29th, 2009 at 10:14 am
First of all, it doesn't matter if you are 'underwater' unless you need to sell. Really, it doesn't.
People are 'upside-down' all the time on car loans and it doesn't freak them out.
The bank never agreed to be your financial partner and assume risk with you. The bank agreed to lend you money and you agreed that you would repay it. If you are able to do so, you should. If the property was worth 125% of what you paid for it (i.e. a 25% profit) would you be looking to share that with the bank? Why do you think they should take (or even share) YOUR loss? People walking away from upside down mortgages really have the potential to completely sink the financial sector!
You can't walk away with no penalty. That's because you borrowed the money and YOU agreed to pay it back. When you don't pay it back, it shows you are irresponsible with money and not a good credit risk.
There are four levels of things you can do if you have to sell. The further down the list you get, the more damage it does to your credit.
#1 - come up with the difference out of pocket at closing. Not terribly attractive, but does no damage to your credit.
#2 - get the bank to agree to a 'short sale'. From a bank's point of view a short sale is a loss mitigation technique - meaning they think they'll lose more if they don't do this. This is why they have means testing for a short sale and why you already have to be delinquent in payments.
#3 - deed-in-lieu of foreclosure. A 'voluntary' foreclosure. Saves the bank attorney fees and a court date. Trashes your credit. Similar to qualifying for a short sale, you have to be in distress for a bank to agree to this.
#4 - full foreclosure. The bank hires and attorney and goes to court to gain ownership.
In cases 2, 3 and 4 there is a deficiency. They can come after you for the balance. In some states it is difficult for them to do so and they may choose to forgive the balance. If they do, they will almost certainly send you a 1099 next tax season where the amount forgiven counts as income to you (and now you have a real tax problem). If the amount isn't forgiven, they can go to court and seek a deficiency judgement against you. After they get this, they can garnish your wages to get repaid (and garnish any tax return, etc., you might be owed).
There is no 'walking away'
good luck!
References :
March 29th, 2009 at 10:31 am
Couple clarifications on earlier answers:
1) There are no tax implications as long as the place is your primary residence. Congress passed a law over a year ago that all forgiven debt on a primary residence is non taxable until at least 2012.
2) Buying a car and buying a house are really hard to compare. A car is a depreciating asset. A home on the other hand is supposed to be an appreciating asset. It is difficult to compare these types of assets because the expectations are completely different when you buy them. Also last I checked it costs more money to rent a car that you make payments on than to buy it. In housing it is generally cheaper to rent and in some cases it is half the price.
This is a fairly difficult situation and one that no one can really answer for you except yourself. The real question if you take the "you signed a contract" argument away is whether your credit is worth $100,000. Chance of them going for a deficiency against you are pretty low in most cases. They certainly can in Nevada(I'm not saying they definitely won't), but you can also declare bankruptcy which is why most banks won't spend the time and money it costs to try. Most won't bother going after you unless they believe you have something worth going after. In terms of credit I don't see a big difference between a foreclosure and bankruptcy.
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