Foreclosure advice?

The idea is to purchase something like this outright in the not too distant future via tax return money and perhaps a small amount of borrowed money from family. http://cincinnati.craigslist.org/reo/2455939407.html

Not going to happen if you let the other home go back!

Also, while it can be done, borrowed money tends to weaken your already weak position from an underwriter's standpoint. She say's "Hmmm if he can't afford to live where he's at and save enough money for a down payment, how is he going to make this house payment and do all the upkeep?"

Now if they gift you the money 6 or more months prior to the purchase then it becomes your money and the underwriter doesn't have fears in that arena.

Agreed, hurting your credit is not typically the path to a quiet place in the country.
Living in the country tends to come at a price as well. A big price is transportation. One of the "attractions" of city living is that things are close-by. Prices can also tend to be better due to competition. The "only gas station in town" does not have to have the best prices. Same with food. Sure, you can drive to town for better prices but then your talking travel expenses.
More places and more people also make getting and keeping a job easier. If you loose your job in a small town there may not be another or to get another you have to travel two towns over which costs in commute dollars.

carguy123 wrote:

The idea is to purchase something like this outright in the not too distant future via tax return money and perhaps a small amount of borrowed money from family. http://cincinnati.craigslist.org/reo/2455939407.html

Not going to happen if you let the other home go back! Also, while it can be done, borrowed money tends to weaken your already weak position from an underwriter's standpoint. She say's "Hmmm if he can't afford to live where he's at and save enough money for a down payment, how is he going to make this house payment and do all the upkeep?" Now if they gift you the money 6 or more months prior to the purchase then it becomes your money and the underwriter doesn't have fears in that arena.

I think the point was find somewhere cheap enough that he can pay cash, thus credit doesn't matter.

I never saw anything that said he wanted to pay cash, but I could have missed it.

As far as renting your FHA house, that's OK - now.

You signed a statement that said you intended to occupy the house and you did for quite a while. Things have now changed and you are allowed to rent the property.

That's true on all of the main mortgage types. The idea behind the YOU MUST LIVE THERE clauses is that many investors try to defraud the lenders by saying they are going to live there when that is not their intention. Investor loans have tougher underwriting, higher down payments and higher interest rates than Owner Occupied properties. They also have a higher default rate.

carguy123 wrote: I never saw anything that said he wanted to pay cash, but I could have missed it.

I think that's what he meant by "purchase something like this outright ". Given that it was $12k, that seems reasonable.

Yes, I intended to buy outright with cash monies. I'm aware of country living costs having spent the first 19 years of my life there, I think it's worth it.

I just hope you have thought it all through because even electric/phone/gas companies do a credit search.

That said I do wish you good luck with this and buying cash is definitely a good move

Gas and electric might be trouble, if I remember right they'd want a decent chunk of change up front to start services if we have bad credit. We're already using tracphones as it brought our monthly phone bill from $80 to $10.

This isn't a decision we make lightly, we've spent the past two years trying to make things work but we're just about at a dead end

Insurance can be an issue after a foreclosure/short sale. They run your credit and some won't write insurance for you or else charge you out the wahooooo!

Renting it out is your best bet. Even if you had a $100 negative cash flow that's minimal and would allow you to wait out the recovery in your area. I don't know where you live, but just about every new real estate story I read (and I research them to help me with my job) has become a positive.

OK, that's a positive relative to the recent negatives, but it still means that if you can hang on for a while you have a better chance of getting out of the hole without damaging your life. You really have no idea how much collateral damage that will do from large deposits being required for utilities, higher interest rates on just about everything you have from now to 5-7-10 years from now, insurance, employers who won't hire you, to . . ., to . . , to . . .!

And that doesn't even begin to factor in deficiencies.

BUT if you have to do it then put it in a bankruptcy. That has a finite financial life, it allows you to start over and it takes any chance they'll call it strategic out of the picture. It has many of the same negatives except there's a shorter half life to the problems it causes.

rotard wrote: $1300 a month? It might be time to start job hunting, for both of you.

I have to agree with rotard. If your combined income is $1300/month ($26,000/year) for both of you, you both sound underemployed. Before you let the house go into foreclosure, I would recommend serious job hunting. A higher combined income will go a long way towards getting you where you guys want to be and will be easier to secure without bad credit hanging over you. Do that first, then deal with the house.

What kind of work do you guys do (if you don't mind sharing)? You never know who reads this board...maybe you do something someone is looking for!

I'm impressed with the choices you've made, and the honesty in which you are approaching this.

I'm gonna agree with both rotard and dyintorace, except d2r's math isn't so good. $1300 per month is $15,600 per year. Of course that's your take home not your gross, but still... As a comparison, a single full time minimum wage job would yield $15,080. Somebody is grossly underpaid.

Perhaps you have made a decision to be a single income family. Perhaps there are medical issues. Perhaps there are large amounts withheld for another purpose. I'm not sure, but you have done a great job of addressing everything possible on the expense side of the equation. You've gotta take another look at the income side.

It's obvious this has been a big burden to you. You can't let this whoop you. You are too early in your marriage to be under this much stress. So far, you've done good at keeping the priorities in line. But this is gonna start to hurt where it counts. Your family and marriage are too important to risk.

You've done a good job covering most of the details, but have not talked about your income. Your story is unusual in that most people under the stress you are under would have fallen very far behind in their bills, mortgage payment, and crashed their credit rating. You have not, so there are some things you have done very well, and some things we do not yet understand.

Help us understand some of the income decisions you and your wife have made.

If, for example, you have chosen to be a single income family, I respect that decision. I have made the same one. But in an age where household incomes are based on 2 wage earners, maintaining that choice means that I must earn the equivalent of not 1, but 2 incomes. That's not too easy.

I know you can't stand your neighbors. But if you could generate a bit more income, the financial stress of the house could be eased, and the neighbors wouldn't be as hard to take (for a while).

I'm concerned that your decision to foreclose could make things worse for you. A crashed credit rating, increased expenses with rent, etc. won't ease the stress.

I was taught if I had nothing nice to say, to say nothing at all... I will keep silent here. And I wonder why I keep hearing that flushing sound everywhere... sigh.

darkbuddha wrote: I was taught if I had nothing nice to say, to say nothing at all... I will keep silent here. And I wonder why I keep hearing that flushing sound everywhere... sigh.

That's decidedly NOT saying nothing at all, pal.

OP, I'm a bankruptcy attorney. I don't know what the foreclosure/garnishment/etc. laws are like in Ohio (I practice in MO), but you might want to consult with a debtors' rights attorney of some kind. They generally do an initial consult for free or pretty cheap, and they can probably steer you towards your best option. If nothing else, you might be able to use the threat of filing for bankruptcy or other action to get the bank to give you a better deal.

Bringing up the income, it may also be fair to consider that they used to make more money, but have suffered in this economy like many others.

I'm currently lower level management at a major retail chain. I'm making more money now than in any previous job. We used to clear around $2k a month, but with the arrival of our second child, we're trying to make it on one income. It doesn't help that my job demands completely open availability. Once our now 3 week old is a little older, we may reconsider this point.

She isn't technically completely unemployed. She works from home for a company that takes overflow calls for PBS, those sad puppy commercials, and other such charity drives. There are no set hours, and she's paid by the talk minute. Lately she's been a bit busy to put in hours what with the newborn and all. When she does work with some regularity she'll probably make $300ish a month. It might be more, we haven't tried this as her only source of income, so we'll see.

Most bigger real estate agencies have lawyers they work with these days for short sales. Last I checked in the Minneapolis area the lawyers are getting about $500 a pop from the homeowner up front plus something on the back end from the bank/realtor, but for your $ they handle all the calls to/from the bank and do all the paperwork.

Might be worth getting a realtor over to figure out what your house is worth anyway, to point you in the direction of maybe some cheap value adders you may be able to do by yourself. I guess I'd start there.

Could you transition into a similar paying job that has regular hours, and then pick up side work / a second job?

Any worries about your employer reacting to a foreclosure/default?

Can you negotiate a raise?

Can your wife begin a home day care and earn some additional income in the home?

I think that time is your best friend here. You can't afford to sell the house right now, so your best option is to reduce or eliminate that $30 gap. Re-negotiate your mortgage and get those payments down. Deal with the neighbors or build a fence. Find a better job or a second job. You have to find a way to stay in the house and wait for the market to rebound and sell when you can break even.

If moving is your only option, I say to stop paying now. I am basing that solely on the stories that I have heard, I am no expert, but I hear about people who pay and pay and the bank sucks every last dime and then they wind up on the street anyway. Stop paying and the bank has to negotiate something. If they decide to foreclose, it will take a few months for it all to happen, and at least you will have a little cash to work with. Your young enough to work that bad spot off your credit history.

Datsun1500 wrote: The main thing that he was angry about was the fact that they would not help right off the bat. It was like they had check boxes they needed to check before going to the next step.

They probably need some sort of "check and balance" to protect themselves from people who simply want a "better deal" then what they originally negotiated. After all, a mortgage is a contract, and it usually specifies what happens when it falls into breach.

The entire situation is miserable for everyone involved -- home owners, lenders, and investors.

PubBurgers,

don't undersetimate the importance of stability to your family -- being in one house, for a consistent period of time, is probably far less stressful for everyone than a series of moves because you cannot get another mortgage and you have to rent.

To echo a previous poster -- time is your friend on this one. But I wouldn't use that argument to justify walking away and rebuilding your credit. I'd use it to justify sticking with the property and exploring other options to make ends meet.

My wife works from home scheduling meetings. It is very flexible and all you need is a phone and a computer with an internet connection. I can get the info from my wife and send it to you if you are interested.

SVreX wrote: I'm impressed with the choices you've made, and the honesty in which you are approaching this. I'm gonna agree with both rotard and dyintorace, except d2r's math isn't so good. $1300 per month is $15,600 per year. Of course that's your take home not your gross, but still... As a comparison, a single full time minimum wage job would yield $15,080. Somebody is grossly underpaid.

Oops. Math clearly isn't my strong suit! I also agree with the always wise SVreX in applauding your decisions and honesty. It's a miserable situation and the stress must be eating you alive. There are some great suggestions here...hopefully the collective group can help you guys out.

I've heard stories that if you somehow get your payments reduced or forgiven it counts as income with the Federal Government. So, if your bank forgives, say $50k of debt on the house, that counts as $50k of income come tax time.

Is that true?

I think I'm going to try to talk to the bank in the next week or so about modifying the loan. If they say we need to be behind then so be it, I'll tell them to take us off auto pay on the spot. We'll probably attempt to rent but if we can't then we'll have to go from there.

Thanks again everyone for the advice. It's nice to get different angles and experiences on the subject.