New: When does it make financial sense to dump my house?

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Submitted by SellingMyHome on November 20, 2009 - 12:17pm

All,

I have read many posts here, and admit that I still have a lot to learn. Thanks for the many answers to questions folks post here.

23109VC started a post earlier asking about his situation. I appreciate the honest answers. But, his situation is different than mine, so I'd like to feel you out. By the way, I am the one that responded to the Battiata bashing post. I have listed with him already, and have an offer already, and they have submitted the package to the bank. I've yet to see how they deal with other buyer's agents, I'll still let you know how my experience goes...

My story:

Bought a house in Lakeside (92040 zip) in 2003 for a little over $400,000. Since then in 2006 or so, I did a refi with about $15,000 cash out (all of which went in to fixing up the house, not for new BMW's). So, that means we have a recourse loan. Actually got out of an 80/20 in 2005, then refi'd in 2006. Closing costs were always rolled in, so total owed got higher! Can you believe the banks do that? My house actually appraised for over $600K during my last refi!

We currently owe about $450K, can get about $350K after realtor fees. That means we are hoping for a $100K forgiveness.

Current mortgage and Property tax add up to $3,300/month. Total household income is about $120K, and I estimate we save about $900 month with the interest deductions, so would need to rent for less than $2,300 to make it work. We could easily find a place for less than that that suites our needs.

Why do we want out? Like 23109VC, we need a bigger place, and hate to see houses going so cheaply. We could easily buy a bigger and newer house for the same as we owe, or a little more. Also, a neighbor recently converted their house into a nursing home. This has upset my wife a lot! We're not sure if it will just be the infirm elderly, or worse, halfway house type folks.

Can we afford what we have? Yes, but with two kids under four, we have saved absolutley nothing in the last four years, and have actually been dipping further into our credit cards. I have a great pension at work, and wife contributes to her 401K. Sadly though, we have no savings in case of emergency.

SO, my questions is: Is it financially smart to get out, rent, wait out the hit to the credit for the short sale, and buy in a few years? Should be able to save enough for a 10% down then. Also, will have more money each month with higher income, school loan paid off, and one less car payment.

This is purely a financial question. What are the potential downsides to my particular situation? Will our current lender even accept a short sale? Will they want me to pay something back?

Feel free to ask clarifying questions.

THANKS! Brian

Submitted by SD Realtor on November 20, 2009 - 12:28pm.

I think you are doing the right thing. To move forward, my opinion would be to rent for awhile, work on rebuilding your credit, and save as much cash as possible. Live within your means.

Unfortunately you are listing with an agent who has about a 40% success rate. This is not my speculation, this is simply what the numbers show when you add up his solds verses his cancelleds, expireds and withdrawns for the past year.

It is your job to be proactive. You should be contacting him at least once a week to check the status. You should get involved with the transaction, find out who the negotiator is, check and see if your listing agent is doing everything and delivering all the documentation the negotiator requires. Normally I would not advise a seller to get involved like this. If you had a listing agent with a better track record for completed sales then I would not be worried.

The questions you posed about whether the lender will accept your offer is something that you should be calling the lender to check on. The lender will analyze the numbers and the paperwork you provided and check out what the BPO and appraisal come in at. Chances are they will accept the sale especially if you show them INCREASING credit card debt. Homeowners CAN increase probability of acceptance by SHOWING the short sale lender financial problems. You need to convince them or at least your realtor needs to. I would be proactive if I were you.

Also pose as a buyers agent and call Battiatas office to find out how easy it is for perspective buyers agents to get information about your home.

As for how easy will it be for you to buy a home in the future? That is speculative but you are not alone. Cleaning up your credit will be priority one but I believe if you clean it up, stay clean, start building up a cash pile you will be okay in a few years.

Submitted by SellingMyHome on November 20, 2009 - 12:33pm.

I will stay on top of my realtor, trust me, especially after what I've read.

We just submitted the offer to the bank, so I imagine I should give it a few weeks before I call. Can I call lender (PNC by the way), directly?

Submitted by SD Realtor on November 20, 2009 - 2:18pm.

You can call the lender. Think of it like this. Anyone that the realtor talks to, you talk to. Also one thing that I did was every time I made a call to the lender I logged it, got the employees name and number and would send it to my clients. I did this more for my own protection then anything. There were times where I sent faxes into the lender 4 and 5 times before they somehow, "found" what I was trying to send them.

Your realtor should have passed on to you a list of items that the short sale lender has demanded. I would hope that this entire package accompanied the offer that was sent in.

As you are very early in the process, what you should be assigned a negotiator HOWEVER a negotiator probably will not be assigned until that package is complete. Now there is NOTHING from stopping you from calling your lender or servicing organization and checking on how things are going. Did they receive the ENTIRE package, when was the last time your realtor called them, has it been assigned a negotiator, if not when... etc...

Empower yourself.

Submitted by Vishon on November 20, 2009 - 2:20pm.

One question about OP's calculation. The tax saving of $900/month, is that before or after the property tax paid?

For the purchase price of $424k, at 1%, the property tax is $4240 or $353/month.

The tax saving should be corrected accordingly.

V

Submitted by Rt.66 on November 20, 2009 - 2:31pm.

Brian, you'll get good advice here (as you can see), another source on this matter I highly recommend is Mish's site.

http://globaleconomicanalysis.blogspot.com/
He has covered to the topic several times and looks at it in a purely business fashion.

Search the site for “strategic default” and “walking away” posts.

The remarks in his comments pages will probably be of great interest to you. He has some really smart members too.

Submitted by sdrealtor on November 20, 2009 - 3:16pm.

Brian
I checked your property and you are very very very fortunate in one regard. You refinanced into a single loan and got rid of the Nat'l City/PNC second. They are the nastiest most miserable to deal with. You now have a single loan which limits your lender to one action if you stop paying which would be foreclosure and then they couldnt come after you. National City/PNC on 1sts is very very slow and you will likely be in for a 6 month ordeal or longer. Make sure they provide you with a full release as they should. I have gotten them for clients.

More than anything, have a drink and toast your good fortune in getting rid of the 2nd. If you hadnt they would have given you two options-keep servicing the debt after close of escrow or come up with about 50 cents on the dollar to settle.

And based upon who listed your property I would encourage following Sd Realtor's advice also.

Submitted by PatentGuy on November 20, 2009 - 3:15pm.

Brian,

Are you attempting to get the lender to let you off the hook for the $100K as part of the short sale process, even though (as you point out) you now have a recourse loan?

Based on your post, I assume you have the ability to pay the balance (even if over time) if you chose to. I'm not advocating that you do, I'm just curious as to whether your lender will "go after you" (whatever form that takes) for the unpaid balance. Since it is a short sale, and not a foreclosure, they may have a long SOL before you are "free and clear" from the debt. Plus, who knows what document they will spring on you to sign as a condition of closing.

This is not legal advice, just speculation.

Good luck to you.

Submitted by PatentGuy on November 20, 2009 - 3:19pm.

sdr,

you say "Make sure they provide you with a full release as they should. I have gotten them for clients."

Excellent advice, but what control does the realtor have over securing such release? Doesn't the underlying financial circumstances of the debtor play into whether a release will be given by the lender?

what is the carrot for the lender to grant the release and agree to short sale instead of foreclosing going after Brian in that "single action" you mention?

Submitted by sdrealtor on November 20, 2009 - 3:21pm.

One last thing that might not have been clear. You have a questionable hardship case and may not get it approved. If that happens and you still want out you can walk because you only have one loan. Once they foreclose they cant come after you. Goggle California Civil Code 580b. Of course I'll give you the std disclaimer to verify this all with an attorney.

Submitted by sdrealtor on November 20, 2009 - 3:26pm.

PatentGuy
When whomever negotiates with the lender does so they should be requesting specific language and leveraging the sellers position to get it. If the lender forecloses that is their one action. Their alternative if the seller stops paying is a judicial foreclosure which is very costly, time consuming and has a 1 year right of redemption (i.e. they have to hold onto the property for a year and the former owner can repay them and get it back). Judicial foreclosures are very rare in CA.

iN a short sale the matter is settled today and they can get it off their books. To go the foreclosure route they will have anon-performing asset for at least 6 more months assuming he is current today.

Submitted by SellingMyHome on November 20, 2009 - 4:21pm.

sdrealtor wrote:
One last thing that might not have been clear. You have a questionable hardship case and may not get it approved. If that happens and you still want out you can walk because you only have one loan. Once they foreclose they cant come after you. Goggle California Civil Code 580b. Of course I'll give you the std disclaimer to verify this all with an attorney.

Is that true even with my refi? It is now considered non-purchase and is recourse? Hope I'm wrong.

Submitted by SD Realtor on November 20, 2009 - 4:23pm.

sdr nailed it. The release is crucial and it is basically one of the final steps. You want a full lien release. Different lenders react in different ways. Like I said in another thread USAA was not gonna play. I found Wells Fargo to be okay at least in my dealings with them and they issued full lien releases. In other cases I have seen other lenders not issue a full release and basically convert the unpaid balance into an unsecured loan.

Again this is usually towards the end. Get to that point first and then if they do not issue the full lien release work with them to get it.

Submitted by SellingMyHome on November 20, 2009 - 5:46pm.

Vishon wrote:
One question about OP's calculation. The tax saving of $900/month, is that before or after the property tax paid?

For the purchase price of $424k, at 1%, the property tax is $4240 or $353/month.

The tax saving should be corrected accordingly.

V

I'm not sure what you're asking. I'm saying that I think I'm getting about $900 in reduced taxes that I won't get if I don't own anymore (by interest and property tax deductions).

I saw another post that said add up your interest and property tax payment, multiply by 34%, and divide by 12 to estimate the tax savings. I think the 34% was a tax bracket guess for the poster's income, which seems close to mine.

Submitted by FormerSanDiegan on November 20, 2009 - 5:52pm.

The only real way to figure the tax benefit for your situation is to look at your specific return. If you use turbo tax for example, you can remove the mortgage and property tax deductions (and maybe switch to standard deduction if you don;t have a lot of other deductions) take the difference and divide by 12.

Submitted by Adebisi on November 20, 2009 - 7:56pm.

My goodness. The jealousy by inferior realtors of Battiata the Real Estate King is amazing.

Pay no attention to the wannabe posers on this board, SMH. Batiatta will take care of you. Trust me, dude knows how to close. ABC. Always. Be. Closing. That's Batietta's motto.

Submitted by PCinSD on November 20, 2009 - 8:12pm.

Adebisi wrote:
The jealousy by inferior realtors of Battiata the Real Estate King is amazing.

Heh heh. Nice. Trying to shill for Battiata, but instead informs everyone that Battiata has inferior realtors.

Submitted by paramount on November 20, 2009 - 9:00pm.

There's a certain joy in observing realtors engage in petty disputes.

Submitted by smshorttimer on November 20, 2009 - 9:42pm.

Adebisi wrote:
My goodness. The jealousy by inferior realtors of Battiata the Real Estate King is amazing.

Pay no attention to the wannabe posers on this board, SMH. Batiatta will take care of you. Trust me, dude knows how to close. ABC. Always. Be. Closing. That's Batietta's motto.

What. A. Tool. Goodnight now.

Submitted by all on November 20, 2009 - 11:49pm.

Nothing relevant to add. Just curious - how did a $424K loan grew into $450K loan after a $15K cash-out refi and that is after 6 years of paying the mortgage? Did you get an IO or negam?

Submitted by SellingMyHome on November 21, 2009 - 8:36am.

captcha wrote:
Nothing relevant to add. Just curious - how did a $424K loan grew into $450K loan after a $15K cash-out refi and that is after 6 years of paying the mortgage? Did you get an IO or negam?

They rolled in closing costs as well.

Submitted by Adebisi on November 21, 2009 - 9:52am.

captcha wrote:
Nothing relevant to add. Just curious - how did a $424K loan grew into $450K loan after a $15K cash-out refi and that is after 6 years of paying the mortgage? Did you get an IO or negam?

Isn't that amazing? After 6 years with $125K in income, there's been no principal reduction at all and the guy said he has no savings.

Battiata is great at reeling guys like this in. He'll probably end up selling the guy his next foreclosure too after he closes this short sale. And you can just feel the professsional jealousy from the gaggle of goofy realtors on this board. I mean, who wouldn't want a client as financially unsavvy as this guy? It's easy money.

I can understand the jealousy though. Batiatta is practically a celebrity in southern California with his TV commercials, his clients love him, and he's been invited to testify in front of Congress. He's got it all. Hell, he's probably closed 5 deals in the day or so this thread has been active. No wonder he gets so many cheap shots from the can't-even-close-a-car-door realtor gang that hangs out here.

Another thing I'm amazed at is how America now tolerates it's middle and upper class welfare queens. Back in the 80's and 90's, welfare queens were villified for getting something like $12K a year in taxpayer money. The original poster is going to drop a $100K loss on the taxpayers in one year and no one even bats an eye. Ain't America great?

Submitted by creechrr on November 21, 2009 - 9:53am.

SellingMyHome wrote:
captcha wrote:
Nothing relevant to add. Just curious - how did a $424K loan grew into $450K loan after a $15K cash-out refi and that is after 6 years of paying the mortgage? Did you get an IO or negam?

They rolled in closing costs as well.

I picked up an that too. After six years of mortgage payments, you still that much?

6 years * 12pmt/year = 72 mortgage payments

72 * ~ $2,000 (low assumption) = $144,000

So, at least $144,000 worth of payments have been made. I've never had a mortgage but, something doesn't add up.

Submitted by Vishon on November 21, 2009 - 2:19pm.

Quote:

I'm not sure what you're asking. I'm saying that I think I'm getting about $900 in reduced taxes that I won't get if I don't own anymore (by interest and property tax deductions).

I saw another post that said add up your interest and property tax payment, multiply by 34%, and divide by 12 to estimate the tax savings. I think the 34% was a tax bracket guess for the poster's income, which seems close to mine.

Income deduction is not the same as tax credit. If I understood it correctly, and it may very well be that I'm mistaken, property tax is a deduction to income but is paid whole. So a fraction of property tax is written off. The net result is negative.

Basically the property tax paid is greater than the reduction.

The way to really check is to take the taxable income, go to the IRS website, look at the tax bracket and % tax, compute the amount of tax balance. Then take all the house deductions, i.e. the property tax and interests, subtract them from the taxable income, then recompute the tax balance. The difference is the tax savings.

Submitted by SD Realtor on November 21, 2009 - 3:15pm.

Adebesi would you care to make a friendly wager on who has a better solds to cancelled/expired/withdrawn ratio in 2009?

I will even let you pick any realtor who posts here.

Lets see you put your money where your mouth is.

Also do you want to post how many solds Battiata has verses how many cancelled, expireds and withdrawns he has in 2009?

Or if you like, I can post those numbers.

I guess if you think a 40% ratio is good, then so be it.

Submitted by SellingMyHome on November 21, 2009 - 4:23pm.

Adebisi wrote:
captcha wrote:
Nothing relevant to add. Just curious - how did a $424K loan grew into $450K loan after a $15K cash-out refi and that is after 6 years of paying the mortgage? Did you get an IO or negam?

Isn't that amazing? After 6 years with $125K in income, there's been no principal reduction at all and the guy said he has no savings.

Battiata is great at reeling guys like this in. He'll probably end up selling the guy his next foreclosure too after he closes this short sale. And you can just feel the professsional jealousy from the gaggle of goofy realtors on this board. I mean, who wouldn't want a client as financially unsavvy as this guy? It's easy money.

I can understand the jealousy though. Batiatta is practically a celebrity in southern California with his TV commercials, his clients love him, and he's been invited to testify in front of Congress. He's got it all. Hell, he's probably closed 5 deals in the day or so this thread has been active. No wonder he gets so many cheap shots from the can't-even-close-a-car-door realtor gang that hangs out here.

Another thing I'm amazed at is how America now tolerates it's middle and upper class welfare queens. Back in the 80's and 90's, welfare queens were villified for getting something like $12K a year in taxpayer money. The original poster is going to drop a $100K loss on the taxpayers in one year and no one even bats an eye. Ain't America great?

Wow, nice speaking to you too! You're a jerk!

I actually have 401K, my wife has 401K, putting $ in both kids college savings plans, and I have a pension that will pay me about 90% of my last year's wages. Wife, two kids, and even two dogs. Don't save money in a savings account though. We tend to spend it on things to make us happy in the short term. I've got the long term handled.

You must be a really unhappy person to have put what you did. Blow off! If your point was to make me mad, you win!

By the way, with the loan I'm in since 2006, we've paid $95K in interest, while only $18K went to principal. I wouldn't worry about the banks, they're doing fine!

For the other posters wondering how I can only have paid off so little on the balance, you can see what happens with the percent that goes to principal, and the percent that goes to the lender. The percent slowly reverses, but only many year's into the loan!

I've always wondered why loans are structured like that. Doesn't give us a fair chance to get out from under ourselves!

That is why I will walk away from this house and rent until it actually may make sense to buy again. I appreciate most of the posters comments and suggestions here, and hope to learn some things.

Again though, Adebisi, blow off!

Submitted by SellingMyHome on November 21, 2009 - 4:18pm.

FormerSanDiegan wrote:
The only real way to figure the tax benefit for your situation is to look at your specific return. If you use turbo tax for example, you can remove the mortgage and property tax deductions (and maybe switch to standard deduction if you don;t have a lot of other deductions) take the difference and divide by 12.

So I did that with my Turbo Tax, and for 2008 I would have not gotten about $812 in savings each month. My guess of $900 was not bad using the add them up, multiply by 34%, and divide by 12.

Submitted by SellingMyHome on November 21, 2009 - 4:22pm.

creechrr wrote:
SellingMyHome wrote:
captcha wrote:
Nothing relevant to add. Just curious - how did a $424K loan grew into $450K loan after a $15K cash-out refi and that is after 6 years of paying the mortgage? Did you get an IO or negam?

They rolled in closing costs as well.

I picked up an that too. After six years of mortgage payments, you still that much?

6 years * 12pmt/year = 72 mortgage payments

72 * ~ $2,000 (low assumption) = $144,000

So, at least $144,000 worth of payments have been made. I've never had a mortgage but, something doesn't add up.

You should see how much goes towards interest, and how much towards principla the first 10 years of the mortgage. It would make you cry! Since my refi of $467K in 2006, I've paid $95K in interest, and less than $18K in principal. Reduced the balance to about $450.

Banks are doing good, trust me!

Submitted by SellingMyHome on November 21, 2009 - 5:12pm.

sdrealtor wrote:
Brian
I checked your property and you are very very very fortunate in one regard. You refinanced into a single loan and got rid of the Nat'l City/PNC second. They are the nastiest most miserable to deal with. You now have a single loan which limits your lender to one action if you stop paying which would be foreclosure and then they couldnt come after you. National City/PNC on 1sts is very very slow and you will likely be in for a 6 month ordeal or longer. Make sure they provide you with a full release as they should. I have gotten them for clients.

More than anything, have a drink and toast your good fortune in getting rid of the 2nd. If you hadnt they would have given you two options-keep servicing the debt after close of escrow or come up with about 50 cents on the dollar to settle.

And based upon who listed your property I would encourage following Sd Realtor's advice also.

Thanks for the good news! I still worry about my confusion as to if my loan is recourse, and what that means in terms of the lender's options.

Just curious, how did you dig up my particulars? I have a feeling that with all the info I posted about my situation you could do it somewhere. Should I be concerned about my privacy, especially with some of the jerks that lurk on sites like these?

Submitted by SD Realtor on November 21, 2009 - 5:55pm.

Selling -

You posted the year you bought it, and the sales price. With MLS access, a realtor can enter your zip code, the year you bought the home, and the price and it is easy to find the home. Once the home is found one can use Realist to look up the mortgages that have been recorded.

So my personal read is yes there are alot of jerks out there. However note that ANYONE can go to county records and look up recorded notes on ANY property they want in the county. In this case I do think you are okay.

Submitted by sdrealtor on November 22, 2009 - 6:06pm.

Sorry but SD R you got it wrong. You dont want a full lien release you want a full release on the note. A mortgage has two aspects to it. I lien ont he property and a note you owe to the lender. Getting the lien released allows you to sell the property but it does not get you released from paying back the note.

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