Question: I built a home in New York two and a half years ago for my daughter to live in. The mortgage and title is in my name only for a current balance of $147,000.00. My wife and I live in South Carolina. Our condo here is on the edge. We could probably sell it for what is owed. We also have a boat that probably has $30,000.00 in equity. Add in a Money Market Account with $35,000.00 and $60,000.00 in what were 401K’s but are now rolled into simple IRA’s. Credit card debt is about $10,000.00 Cars are bought and paid for. My daughter has not been able to make the mortgage payments for the last eight months. I have been making them, along with all of my own payments. It has come to the point where I am going to have to let the bank have the house back. I have about $50,000.00 wrapped up in the house, but when the bottom dropped out in rural upstate NY, it really dropped out, and I could not sell the house at this time. If I let the house go into foreclosure, can they touch any of my other assets. My wife is co-signitor on the condo and boat, but again, not on the NY house. I have excellent credit, but I’m at the age where I seriously doubt that I will be making any major purchases any time soon.
Answer: -Can they come after your assets? No. Because when you signed the paperwork, the bank agreed to loan you the money and used the house as collateral. However, if you ultimately go through foreclosure, the bank has the right to file a judgment against you for the amount they lost. So you are expected to pay the difference or in most cases people will file bankruptcy to eliminate the judgment. By doing so would require you to sell some or all your assets. So the best option is to work out a pay off or settlement with the bank for a fraction of what you owe on the loan. This is called a short sale. By having the bank approve a short sale and asking them to satisfy the loan, they give up their right to file a judgment. You’ll also able to avoid foreclosure and possible bankruptcy. Again the key here is to get them to “satisfy the loan”. By doing a short sale, you’re also giving the buyer a good deal on a home that is upside down. Now if you are successful in getting a short sale approved, more than likely they will just 1099 you for the difference. But that’s a lot better than a judgment. And there is a chance they won’t 1099 you either.
I am currently under on a home loan that is up to date at this moment. I cannot re-finance because of the under which is in excess of $35,000. My 3/1 ARM is having its initial adjustment in October which will raise my monthly house payment beyond my income. I have another property with about $220000 in equity of which I can borrow up to $100000. (This house cannot be sold as I have a renter with an unbreakable lease) I am within 5 months of retiring which will take my income to 1/2 of what I am making now.
The questions are:
Should I borrow against the home with equity, pay down and then sell the under house> In the current market, houses in my location are taking up to nine months to sell. If I cannot sell prior to my retirement and I stop making payments on the under, what are my liabilities?
Should I walk away> My retirement income (government annuity) is sufficient to survive on for the rest of my life (currently 48 yrs old). If the lenders place a lien and foreclose on the equity property, there is enough money to pay the residual of the foreclosure from its sale.
Should I borrow $100000 on the equity house now, walk away from the under and wait for the residual amount after foreclosure and pay off with the $100,000 I would have in the bank?
I am not worried about the impact to my credit as I have the capability to live without concern for quite some time (more than 10 years).
This may seem trivial compared to others issues, however the correct decision can only be made with an informed decision process. Any constructive feedback here would be greatly appreciated.
Unfortunately, we cannot give you any legal advice nor can we tell you what to do. However, we can tell you the pros and cons with doing each and then you can decide for yourself what option is the best for you.
First of all, a question on the house that is over-leveraged by $35,000. Is that all it will take to sell the property? Another question. What do you plan on doing with the property that has $220,000 equity once the lease is up?
If you walk away from the property that is upside down and let it go to foreclosure, your credit, like you said will be ruined. Your biggest risk would be that they auction off the property and slap you with a deficiency judgment (which is the difference from what it sells for and what you owe) which you have to pay. Or they will 1099 you for the difference.
If you borrow $100,000 and use $35,000 to sell the property, you’ll have to make payments on the $35,000 but you could buy another piece of real estate and gain that money back because you’ll be buying at a lower price. And if you do it right and find the right home, you could pull out $35,000 in equity or more to pay off the loan and get your mortgage payment smaller than before since interest rates are so low.
Hope this helps.