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Gronk SMASH!
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Discussion Starter · #1 ·
Lounge finance types weigh in. I’m not looking for a solution, just a place to begin research.

We bought a house when we moved to Florida in 2006. As we all know, the market continued to tank. Right now, we owe about $40,000 more than the house is worth.
We moved to Tennessee for a job, and we plan to stay. We love it here as much as we disliked FL.

Right now, we’re renting the FL place and renting here while we continue to pay the mortgage in FL. I figure our hands are tied, and we can’t hope to sell until the market recovers enough, we pay the principal down enough or we have the cash to cover the difference in value and principal owed. Short selling isn’t really an option as I don’t want the ding on our credit.

Am I correct, or are there options I could be exploring that I’m not aware of?
What sayeth the Lounge?
 

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Ricardo Cabeza
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are you making or losing money on the rental?

Basically, the house is a liability. Waiting around for the market to rebound is a fool's errand. Best to get out now and take your losses.

The only exception might be if you are coming out ahead renting it out, although being an absentee landlord is the pits.
 

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Captain Obvious
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did you contact your lender? they may have some room to work with you. depending on the state (i think), you can walk away and give the bank your house. might not be worth it for the 40k, but a mortgage is a secured loan.
 

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Gronk SMASH!
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Discussion Starter · #4 ·
Andy69 said:
are you making or losing money on the rental?

Basically, the house is a liability. Waiting around for the market to rebound is a fool's errand. Best to get out now and take your losses.

The only exception might be if you are coming out ahead renting it out, although being an absentee landlord is the pits.
We're actually renting it for a couple of hundred more per month than what we're paying to rent here, so it's a little better than a wash, but not worth the hassle. We're definitely not able to rent it for what the mortgage is.

Also, we would like to buy here, but we definitely don't want two mortgages. As you know, options are very limited when you rent a home vs. buying.
 

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Windrider (Stubborn)
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You may have some tax consequences now that you are renting it.......best to check.

Len
 

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Gronk SMASH!
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Discussion Starter · #6 ·
tomk96 said:
did you contact your lender? they may have some room to work with you. depending on the state (i think), you can walk away and give the bank your house. might not be worth it for the 40k, but a mortgage is a secured loan.
We've definitely come to grips with the fact that we're losing a huge chunk of money on the house, so there's no interest in trying to recoup any part of our investment. I just don't want to take a credit hit, and it sounds like handing the house over would be a hit.
 

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Boobies!
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I would at least open a dialog with the lender regarding a short sale--you are in a situation like we were--the loss has already happened, but remains unrealized.

HTFU, take the loss and get on with your life in Tennessee.

{Our out of pocket loss was likely even bigger than the hit you will take, but I have no regrets. We did not do a short sale--since we had a qualified buyer, we did not want to wait the 12 months it would take to process--so we brought money to the table for closing since we were not too far upside down.)

In theory, if the agreement is amicable it should not affect your credit, although you hear stories that lenders are accepting the agreements and dinging the borrower's credit rating.

Another possibility (if you can find the right adviser) is to consider offering a lease to purchase agreement to your tenant, where they will have the option to buy at the end of their lease, with some predetermined amount going towards their down payment.

As others have said, the market is not likely to recover significantly, and Bob the Real Estate guy always said "Don't have a rental property you can't drive by and check on."

Also, don't forget--your insurance situation has now changed if you are not occupying, and insurance while you rent (which you should negotiate) does not cover you was well as a true homeowner's policy.

If you planned on moving back to Florida, different story
 

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gazing from the shadows
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jptaylorsg said:
Am I correct, or are there options I could be exploring that I’m not aware of?

One option is strategic default, but you need to know the laws of the state in question before evaluating that. IOW, walk away, let the bank have the thing. In SOME states that does not stop the lender from coming after you for the money though. And you need to know if they can, or can't. Your credit score will take a huge hit if you do, even if you save lots of money by doing it.

I do not suggest this, nor do I say don't do it, I just mention it as an option. An option that is in the contract, given that what default is and the consequences of defaulting are part of the contract. Even if you can do so legally, you may not want to do so morally.
 

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Gronk SMASH!
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Discussion Starter · #10 ·
paredown said:
Also, don't forget--your insurance situation has now changed if you are not occupying, and insurance while you rent (which you should negotiate) does not cover you was well as a true homeowner's policy.
This is good advice, and so is Len's above. We have already taken insurance and tax liability into account.
 

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Gronk SMASH!
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Discussion Starter · #11 ·
MB1 said:
Where in Florida?
Tampa.

I thought Tampa was OK, just not where I want to raise a family - and the job market is atrocious, and sucking it up to rent for a while and one day having a nice vacation/retirement option down there occurred to me, but we bought the place when we actually thought we'd stay and have a family there. It's way too big and stupid to consider keeping on vacation/retirement home terms.

Learn what not to do from your uncle jptaylorsg, kids.
 

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Boobies!
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I just went back to look at the information re short sale and credit effect--the short answer is it depends.

If your lender is willing to report the short sale as paid in full or paid as agreed, the effect is minimal. You will be better off than if you were in foreclosure, and can likely qualify for an Fanny /Freddy backed mortgage within two years...

This pdf is a pretty good start, but google search "short sale credit effect" will get you a range of opinions..
 

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Gronk SMASH!
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Discussion Starter · #13 ·
Thanks for the replies. It's looking like I have been correct in assuming that the best way out is to keep paying until we can buy our way out of the mortgage/home value discrepancy with cash.

I'd rather do that than a short sale or default. It's not like we're strapped, I just want to cut the damn cord on that damn albatross.

:mad:
 

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Registered
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short sale or deed in lieu of foreclosure or default are not good options - it will take you years to get out from under the credit ding.

You have options:
1. sell it and take your lumps now - probably the best short or mid term solution
2. negotiate with your lender for a sale and you both take the lumps equally - hard to do but it can be done
3. keep it as a rental property - positive cash flow is not bad and you still get the IRS deductions for income property.
 

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Good news everyone!
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The bank is unlikely to forgive a 40k loss when they know you have other assets they can come after. Even in a short sale scenario the bank is going to recoup as much of a loss as they can, even if it means coming after you for the remainder or partial balance. A short sale is only ever so slightly better than a foreclosure. I know a few years of renting the place out sucks, and so does being an absentee landlord, but you aren't losing any money and it's keeping you from making payments on the place in the interim. Is 40 grand worth dealing with 7 years of bad credit over, and potential lawsuits that the bank may wage against you? As a Florida resident I know our markets have been hit hard but I imagine they will rebound. If you can even so much as break even on the place from month to month with the renters in there you are doing better than a lot of people. There are houses that have been on the market for over a year that in my opinion are fairly priced. You also have to consider with a short sale that you still have to arrange a buyer, and lots of buyers don't even want to get into that quagmire because it can take the better part of 6 months to purchase a short sale. Some people just don't think it's worth it when there are so many other cheap foreclosures to buy that can close quickly. I have been shopping with a very limited budget and am a month into an offer on a short sale. The guy who owns the house accepted my offer almost immediately, but his bank is dragging their feet. It is downright painful but I am hoping for a deal here...
 

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Registered
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I think anyone is crazy to assume that a recovery is in play right now. With all the new taxes that congress and the executive branch have embarked upon I am pretty certain we are heading into another recession, which will affect future foreclosures, which will affect short term housing prices, driving prices even lower. I would say cutting the cord at a $40k loss would be a good move long term, if you can do it. Florida housing was so far overvalued. The higher they fly, the harder they fall. I do not expect to see 2006 prices levels again for at least another 10 years.

Perhaps if we get some fiscally responsible people running the country we might see a vibrant recovery before then but neither party seems willing do the right thing, at least given it's current membership.
 

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Frog Whisperer
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you considered the insurance and pack of matches option?
 

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No Crybabies
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shrewd?

If it is a no recourse mortgage, meaning that the bank can only foreclose, take the house, and not pursue you for a deficiency, here would be the best economic thing for you to do.

Before you have a problem with your credit, qualify for a loan and buy a house where you are. You're then set for a while. Then, stop making payments on the one in Florida, but continue to collect rent. Your swing is probably $3000 a month. Continue to do that until the bank forecloses and takes the house, which could be a year or more, given how backed up they are. Meanwhile, you've banked $36,000 and gotten out from under a $40,000 deficiency, for a $76,000 profit. Yes, there will be tax consequences, and your credit will be dinged for a while, but along with a bunch of the rest of the population, not as rare as it used to be.

Not exactly ethical, but probably legal (you might want to check).
 

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gazing from the shadows
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Weav said:
With all the new taxes that congress and the executive branch have embarked upon...
Which new taxes are those? And are you ignoring the tax cuts? Which are numerous? :rolleyes: Why don't you go into PO and make your argument about tax policy and the political arena? That's the place for it.

The fundamentals of the housing market mean there can be more fall to come, and a long time to see any gains. For example, a glut of housing stock from the boom, high unemployment, lots of upside down mortgages and people being unwilling to take a loss on their house and overpricing them, etc. Guesses about tax policy and any effects on the economy really aren't needed to explain that, and certainly ignorance about what has been done about taxes would indicate to me someone who is speaking without a good factual grounding on the topic.

IOW, people who speak from an ideological bias and not a factual basis don't tend to give objective advice.
 
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