I love rain and alcohol! asked:
I live in a old house that is falling apart. We just refinanced for the third time about 7 months ago. We owe 100,000 for the house and it is only worth 50,000. We pay 1,100 a month in mortgage and we really can not afford that. They just raised our payment up 200 on a 7% fixed rate. We do not want this house anymore, we do not want to negotiate anything. We found something for rent for 400 bucks a month so we will rent that. If we just walk away from our home will they be able to seek a jugement against us? We live in the state of Missouri but our lender is from Florida. Our lender is Taylor Bean and Witaker. Will they garnish our wages? If so how long will it take for them to start garnishing our wages? Will they send us something in writing before they start garnishing our wages so we will have a warning? Thanks for your answers!
I have had this house five years. We refinanced thinking that we will get a lower fixed rate, but that is not how it happened. They told us our ARM was about to go up so like fools we signed into this contract. Our payment was only 20 dollars lower now here it is seven months later and they said our taxes and insurence went up which raised our payment 200, which I think is unfair. We received 750 at closing.
These people also charged us 450 at closing for an appraisel which I did not see happening.
Debra
I live in a old house that is falling apart. We just refinanced for the third time about 7 months ago. We owe 100,000 for the house and it is only worth 50,000. We pay 1,100 a month in mortgage and we really can not afford that. They just raised our payment up 200 on a 7% fixed rate. We do not want this house anymore, we do not want to negotiate anything. We found something for rent for 400 bucks a month so we will rent that. If we just walk away from our home will they be able to seek a jugement against us? We live in the state of Missouri but our lender is from Florida. Our lender is Taylor Bean and Witaker. Will they garnish our wages? If so how long will it take for them to start garnishing our wages? Will they send us something in writing before they start garnishing our wages so we will have a warning? Thanks for your answers!
I have had this house five years. We refinanced thinking that we will get a lower fixed rate, but that is not how it happened. They told us our ARM was about to go up so like fools we signed into this contract. Our payment was only 20 dollars lower now here it is seven months later and they said our taxes and insurence went up which raised our payment 200, which I think is unfair. We received 750 at closing.
These people also charged us 450 at closing for an appraisel which I did not see happening.
Debra
Terry
You better talk with an attorney.
Comment by frediwhite@verizon.net — September 4, 2010 @ 7:00 am
Craig
i would suggest you consult with a bankruptcy attorney
Comment by goobar121 — September 5, 2010 @ 2:46 pm
Monica
I MADE A FEW CHANGES:
In a nut shell: you have to be the right borrower to walk away without any federal tax consequences. Your loan has to be obtained in the right year for starters. And it has to be a non-recourse loan. There are 4 other ways of getting out of the house if you don’t have a non-recourse loan. The information below is my own research and should not be taken as letter of the law. Every family’s situation is different, which means different rules apply.
Other ways to get out of paying Federal Taxes needs to be addressed by a tax consultant.
As far as state taxes are, you will need to consult a tax person for that too.
*************Go to an independent tax consultant. They will be able to answer all of your questions about garnish of wages, etc…Please don’t go to H&R Block or TurboTax.
For all the information below I will use this example:
You buy a home for $450,000. You bought the home with 100% financing. The market has turned south and now the home is worth $200,000 or less than half of what you borrowed. There is a difference of $250,000 between what you bought the home for with financing and what the home is worth. You need to sell the home for whatever reason. Either you can’t make payments, you need to move, an illness has occurred, or an accident- for any reason, you need to sell.
If you want to short sale, try a renter, walk away, or foreclose:
1) You can try to ‘short sale’ the property. You will need your lenders approval. You will need to be behind in payments before they will talk to you about a short sale. Basically the lender would tell you whether or not it’s okay for you to sell the home at $200,000 or whatever offer comes in that they approve. Expect your lender to put you through the ringer to go this route. (The lenders have backed off quite a bit regarding the amount of paperwork you will need to fill out) You will need to write a hardship letter, give them access to statements to all of your assets. You will need a real estate agent who is approved to handle short sales, since they can get complicated. Basically if you have 2 mortgages on your home, the second mortgage may not get paid and the first lender will only get a fraction of what the home sells for. That is why you need the lender to approve the short sale. Although in this market it shouldn’t be very hard to get the lender to approve you. Now a short sell, should forgive the Federal taxes.
A) How does a short sale instead of a foreclosure affect your credit? It is hard to say. Some say the difference on a short sale vs a foreclosure when regarding your credit report, is the difference between being hit by a bus and being hit by a train. Both are bad. One is worse. However, it’s only bad for a few years and then it’s over. More on this later.
2) **You can always try and rent your home out. Renters are a pain in CA. If they don’t pay one month it can be timely and costly to get a renter out of the home, meanwhile you still owe your mortgage and they could be living in the home rent free. I would still have to rent my home for as long as it takes the market to come back, if I am trying to make money on the home in the long run. If it takes 5 years it may not be a big deal, but if it takes 10 or more….. no thanks. If you wait 10 years to sell the home so you could make a $100,000 profit all you would have to do is save $10,000 a year every year for 10 years (and that is if you count dollar for dollar, not invested money) .
3) **If you can’t sell or don’t want to be put through the ringer of a short sale you may be able to walk away from your home. Usually this means you live in your home without paying your mortgage or property taxes until the foreclosure is complete. In CA you would be able to live in your home for at least 6 months rent free. Of course the credit will take a hit. But your credit score is only good if you need it to buy something. Now, if you really want to get one over, you will go into foreclosure and then file bankruptcy because that alone stops the foreclosure process for 1 year. And it may get you out of Federal Taxes.
a. Your credit score will go down quite a bit for the first 2-3 years. About a 220 point drop. After that, if you pay all your other bills on time you should start to see an increase in your score again. The foreclosure will remain on the credit report for 7 years, but really only affect you for 3 years.
b. There is a great benefit to foreclosure right now that is in effect until the end of 2009: Check out the Debt Forgiveness Act that President Bush signed into law December 2007.
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Regarding Federal Taxes: In a nut shell the lender used to be able to send a 1099 on the $250,000 difference and you would be responsible for paying taxes on that money. However this Act tells lenders they cannot 1099 you for the difference. This is a great benefit. So if you think in the long run you will end up in foreclosure no matter what you do, you may want to do so before the end of next year to get this benefit. There is always a chance the Act will be extended, but just in case…..
Please keep in mind that this is only good for a primary home, and not an investment property. There are other rules that must be followed and conditions that must be met.
** No one expects you to go into finical ruin to keep your home. I think that when the housing crisis is over that people and lenders will not be looking down on consumers. We will be known as the people who went through the housing crisis, just like the people who went through the Great Depression. The crisis is bad, but it is bad because Congress told lenders they had to loan to everyone. Then 9/11 happened and investors couldn’t give their money away fast enough. This is not a consumer induced problem. Therefore I don’t think the effects on the credit report will be as bad as some make it out to be, although I could be wrong.
**One little tid bit I found on an article: Let It Sink – If You’re Upside-Down In Your House, Just Walk Away! People should walk away from their homes and mortgages if their homes are worth less than what they owe. As home prices drop, many people will owe tens and hundreds of thousands more on their homes than they are worth. These people should look at mortgages the same way the lenders do, as business agreements not as sacred bonds. This came from an article I found. Think of your home as an investment. If you had money in stocks and the stocks were dropping as fast as the home values you would dump the stock.
Other options for giving your home back to the lender:
**Forbearance Agreements
1) Can I try a Forbearance Agreement to avoid Foreclosure?
Yes, you can and you should look at a Forbearance Agreement as an option to avoid foreclosure. FORBEARANCE AGREEMENT – An agreement between a mortgage company and a borrower in which the borrower promises to stay current on the mortgage going forward and agrees to a repayment plan for delinquent payments and costs and fees associated with the foreclosure action. A Forbearance Agreement is a tool that allows the borrower to keep the property.
The lender will expect you to show that the delinquency was due to circumstances out of your control (injury, illness, job loss) and that the financial difficulties have been corrected.
**Here is another website with some FAQ’s forbearance agreements. I would not contact them directly, but just read what the FAQ’s are. I am not sure how accurate this article:
Deed in lieu of foreclosure
You may have thought about giving your home back to the lender. Typically you must have only 1 loan on the property for this to happen. This is called deed in lieu of foreclosure Basically you are telling the lender you cannot afford the payments and you made a mistake getting the loan. It is very difficult to do this. Your home has to be in perfect condition for the lender to even think about taking your home back. Here is a website article from HUD:
Comment by D G — September 7, 2010 @ 10:35 am
Charlotte
in other words, you refin 3 times, and took money. Now you don’t want to pay it back. This is called stealing. You are a thief.
The bank WILL come after you for their TOTAL lose and the IRS will tax you.
Comment by Real Estate Guy — September 7, 2010 @ 11:21 pm
Dan
Since you refinanced you owe all of the money you were given. You can not walk away from the debt, unless you are granted bankruptcy, of course.
No, there is no warning before they garnish wages, seize accounts, seize property, or seize your income tax return.
You can not just pocket the money and expect things to be all rosy. You need to repay the 100k you were given. If they sell it for 50k you will of course only owe 50k more.
Comment by Mom — September 9, 2010 @ 8:09 pm
Brian
First question is how could you possibly get refinancing up to $100k on a house that’s worth $50k? Most of the time the lender will appraise the house before refi to verify that you are not upside-down (as you are now).
Didn’t you know that your payments will be raised? You signed the loan docs and they should have been explained to you that this will happen.
One other question is why did you have to refi? To get a lower interest, or a lower payment?
If these facts were not disclosed to you, you could have a reason to claim misrepresentation and fraud by the lender or the loan broker.
Your state is a deficiency state, meaning that if they foreclose on the house, they can still sue you for the unpaid balance of the loan.
Most likely if you owe a lot, they may choose not to go after you since they figure you didn’t have money to pay your monthly payments, you certainly won’t have the money if they win a court judgement for the balance.
You could start bankrupcy procedings which will halt the foreclosure process until the BK judge decides what to do with the house.
BTW, how did you end up buying this house, how long have you had it and how much did you pay for it?
Comment by BayAreaRealtor — September 13, 2010 @ 4:26 am