Off Topic: Forclosure Question

A made up scenario that is probably quite common these days...

A family has little debt outside of their house. In the last 2 years, they went from having $40K equity in their home, to now being upside down close to 50K. Both cars are paid off, they have no credit card debt, and they have close to 15k in savings.

Do to a great job opportunity out of state, they are seriously considering leaving the home to forclosure. With the current market, the house will be unsellable for at least the next 2-3 years. Renting the house out is not really an option.

What is to keep a family from foreclosing? I know your credit will take a major hit just like it would if you filed bankruptcy. Can the mortgage company go after your paid off cars? Can they go after your savings account? Can they go after your IRA's and 401K's?

Wildcat Coach said:

A made up scenario that is probably quite common these days...

A family has little debt outside of their house. In the last 2 years, they went from having $40K equity in their home, to now being upside down close to 50K. Both cars are paid off, they have no credit card debt, and they have close to 15k in savings.

Do to a great job opportunity out of state, they are seriously considering leaving the home to forclosure. With the current market, the house will be unsellable for at least the next 2-3 years. Renting the house out is not really an option.

What is to keep a family from foreclosing? I know your credit will take a major hit just like it would if you filed bankruptcy. Can the mortgage company go after your paid off cars? Can they go after your savings account? Can they go after your IRA's and 401K's?

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While I'm not a lawyer, I would say no. The mortgage is collateralized by the house. Therefore your other assets are not at risk as far as I know.

i agree with moe...

....but i don't think foreclosure is worth it unless they plan on not buying for a loooong time...if job opportunity so good....i'd consider renting out the house and taking a hit in the monthly mortgage for the diff

You talking about a deficiency judgment - it ain't happening - call them and tell them you can't afford to keep the house - they might just let you convey the house to them in lieu of foreclosure

Wildcat Coach said:

A made up scenario that is probably quite common these days...

A family has little debt outside of their house. In the last 2 years, they went from having $40K equity in their home, to now being upside down close to 50K. Both cars are paid off, they have no credit card debt, and they have close to 15k in savings.

Do to a great job opportunity out of state, they are seriously considering leaving the home to forclosure. With the current market, the house will be unsellable for at least the next 2-3 years. Renting the house out is not really an option.

What is to keep a family from foreclosing? I know your credit will take a major hit just like it would if you filed bankruptcy. Can the mortgage company go after your paid off cars? Can they go after your savings account? Can they go after your IRA's and 401K's?

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This is me, except I have negative equity now 15K or more, and am in debt approx 15K and growing. Don't know wtf to do.

I overheard two financial investment guys talking at the bar a few weeks ago, saying that mortgage defaults don't even appear on your credit rating. Not sure of the validity of this, and not sure if it applies in the US, but certainly something that changes the equation.

Seymour is right on. One in a row.

Seymour said:

call them and tell them you can't afford to keep the house - they might just let you convey the house to them in lieu of foreclosure

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What does this mean? And what happens if they agree to it?

I am f'd in the ass if I don't sell this place fast and that isn't going to happen.

xpanda said:

I overheard two financial investment guys talking at the bar a few weeks ago, saying that mortgage defaults don't even appear on your credit rating. Not sure of the validity of this, and not sure if it applies in the US, but certainly something that changes the equation.

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Not true.

Seriously. I could use some help with this. I am up shit creek. And I don't believe in cheating by bankruptcy or forclosure.

xpanda said:

I overheard two financial investment guys talking at the bar a few weeks ago, saying that mortgage defaults don't even appear on your credit rating. Not sure of the validity of this, and not sure if it applies in the US, but certainly something that changes the equation.

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What's up ? I haven't heard from you in quite a while ! Hope all is well up North ! Hope you will be heading this way soon. :toast:

Kornholio said:

Seriously. I could use some help with this. I am up shit creek. And I don't believe in cheating by bankruptcy or forclosure.

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Bankruptcy or foreclosure isn't cheating.

Drunken Horseplayer said:

Bankruptcy or foreclosure isn't cheating.

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Sure it is. I would be basically saying, FU, I'm not paying you what I owe and I never will. And there is nothing you can do about it.

punter said:

Seymour is right on. One in a row.

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:lolBIG:

He's streaky that way

Kornholio said:

Sure it is. I would be basically saying, FU, I'm not paying you what I owe and I never will. And there is nothing you can do about it.

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SEYMOUR could get on a hot run here if I help set up a second Correct Post...heh

I'm reasonably sure he's reefering to the notion that there may be legitimate value in your contacting your lender and letting them have the house sooner than later if it's truly in a downward value slide.

You could still elect to satisfy the resultant final debt rather than declaring bankruptcy. I presume it might take quite some time, but better to stop the bleeding NOW so that the final payback (in whatever increments) is less .

Such a premeditated surrender of the property to the lender may also have advantages to future attempts to borrow money for a mortgage. But perhaps Seymour or others smarter on this Topic can clarify more accurately.

Re

Seymore may be right on, but he is not really answering the original question.

First of all, in the original scenario I posted, being able to "afford" the house is not a problem. If they stay in the house, they can more than afford to make the payments.

The issue is they might leave due to an out of state job opportunity.

I just want to know what the bank can go after if they decide to walk away from the house.

If anyone knows for sure I would greatly appreciate it.

Returning your home to the bank is the best option and yes it is called in lieu of foreclosure. They save tons of money on the foreclosure process for a property that they are going to be stuck with anyway. They will usually even give you a reasonable amount of time to relocate.

This credit crunch and forclosure question is not new to this country at all. Let me give you an example that actually happened to me back in the late 70's. I have had a Real Estate brokers license in the state of Oregon from 1966 to 2004 so I am not a novice regarding these problems. In 1968 I went into Real Estate full time and got my contractors license and started building homes as well as selling Real Estate and acquiring rental homes. In about 1978/79 under the Presidency of Jimmy Carter the Real Estate market started to hit the skids because of the Savings and Loan fiasco back then and a Real Estate market that had been heading higher and higher. I personaly had 8 homes under a contruction loan of 9 1/4 % that I was then unable to sell because the going interest rates on all homes climbed to over 15 %. After one year the bank raised their interest rates on my 8 construction loans to 15 1/2 %. There were lots of builders that were good friends of mine and far bigger that simply walked away and gave these homes back to the banks. What were their choices. The homes were now worth less than they had cost to build. What did I do ? Well I ended up selling 2 of them through the State GI loans for 8 1/2 % and rented the other 6 out at a huge loss as the payments on these 15 1/2 % loans caused a cash flow loss on the remaining 6 homes.
How is the present situation different than 1980 ? Well the first most obvious difference is the interest rate today of a very reasonable 6 % or less. Another course a person can take today is that since the Real Estate collapse today is pretty much across the nation, if one must sell because of a transfer they most likely will be able to purchase a home in their new location at a very reasonable price. I believe it is true that a person can play hard ball with the bank through forced foreclosure and it will be very ugly and costly for the bank and a person can stay in the home for many months without paying the bank a penny. However I believe it is far better to try to sell the home even at a loss if one has the funds to make up the difference or go to the bank and tell them your problem and arrange a conveyance of Title in Lieu of forclosure. Far cheaper for the bank and they will not go after your personal belongings as many of them are protected through foreclosure anyway. Contact a Real Estate Atty. anyway to make sure ! There is no perfect solution to todays problems but some solutions are simply better for a person who is looking at the big picture. I had 8 unsold homes that had interest rates over 15 % and I rented them and was able to sell them a few years later without ever going through any bankruptcy and maintained my good credit rating. It seems to me that if I had excellent credit and had only one home to worry about, I would turn it over to a competent Property management agent and go on with my life. Time will remedy the situation as Real Estate has always been cyclical. GL in whatever one decides to do but rest assured that foreclosure does have credit consequences.

Very helpful Kermit. Thanks for the insight.