upside down $ on house,any way out? *Update Barracuda is at least out!*

[torredcuda]

So I`m going thru the big "D" (divorce) and need to sell the house to settle everything but the first appraisal came in $10-20 grand less than what we owe not figuring in broker fees.I don`t have the cash to pay off the shortage so the only options I see are cashing out my IRA and possibly talking out a loan on my truck or just selling it,even then it might not be enough.Are there any other options?I know the thing to do is call a financial advisor but I figured I`d ask here first.Short of selling the `cuda what can I do-am I screwed?We bought this house for an investment thinking in 10-15 years we`d cash out and retire with something-so much for that plan!   

[4Cruizn]

Are you current on your payments?  Who holds your mortgage?   I would contact your mortgage holder and talk to them about doing a short sale.  Explain that the appraised values isn't close to the amount due and see what they say.  They might tell you NO because you are not late on your payments . . . . all banks are different though . . . 

[torredcuda]

GMAC.Last month was the first time ever late with a payment(due to some "leverage mainpulation")since buying our first home.We are getting a second appraisal and then I`ll call the lender.

[tommyg29]

if I were you, and I'm not, I would not be borrowing money from anywhere, including my retirement $$, to pay down the loan so you can close. Shortsales are done ALL the time, and if its your homestead any difference is typically written off by the lenders with no tax consequence to you, although you will take a hit on your credit score.
I am a realtor for 30 years and am now in the worst "underwater" market in the country: Miami, FL.
So, unless you can easily afford the $20-$30-$40k hit it will likely end up costing you to sell the "right" way, or if excellent credit is absolutely necessary to you, I would rather take the hit to my credit and walk away.
Hire a good realtor with shortsale experience and let them handle the details, or if you prefer to spend a little extra, hire an attorney that specializes in mortgage loan negotiations, though that might be overkill, at least at this point.
Good luck with it

[torredcuda]

How bad will a short sale affect my credit?I have excellent credit sores now in the very high 700`s to low 800`s,will I be able to buy another home right away or am I screwed for a couple years?

[tommyg29]

it depends, but generaly it will drop you into the 600s, but you should be able to climb back into the 700s within a few years like you said.
Even 800 credit scores are having a difficult time borrowing today because banks are very tight. They make more money with no risk borrowing from the fed.
In a few years hopefully things will loosen a little.

[the Wizard]

Yeah, I'd stop making payments right away.  The folks that are getting foreclosed on that I know of are going at least a year without having to pay, so that money goes straight in the bank.  Then when you're a few months late I'm sure they'll accept a small short sale.  One friend of mine even got $3000 or $4000 to move out even though they were at least a year without making payments.  The bank was trying to avoid eviction.  They don't seem to be evicting hardly anyone right now.

I'm into paying my bills, and these are tough decsions, but you have to protect yourselves...the banks will do fine.  They got all the money from the feds.  And it can be argued they caused this mess......

[tommyg29]

if you go the foreclosure route it will hurt your credit more, but...with a good attorney you could stay in your home for one to two years without making payments, but you will be paying some attorney fees.
I personally would not go that route, but its your decision.

[the_engineers]

I agree with Tommy. Your mortgage is a contract between you and your bank. It stipulates the risk and repercussions for both parties. Both you and your bank took a calculated risk in the purchase of your home.

In the scenario where you default, you receive a hit to your borrowing potential and they take possession of a property which may/may not have a fair market value equal to the amount they have invested.

Honestly, if you cannot convince them of a short sale, you may want to consider purchasing a your next property prior to defaulting on this one. This way, you've already made use of the good credit you've built over the years before the fall-out begins.

If you stay in the new home for 7 years, the impact of the default will be negated.

I am not an advisor, attorney, etc., just well read. Please consult a professional to confirm or disprove anything I have shared.

[tommyg29]

if you can swing it, I agree you should find and buy something else quickly, before you harm your credit, but it sounds like you dont have enough time. Its the typical catch 22. Great deals everywhere, but without 100% cash in hand, most of those deals are out of reach for most.
4-5 years ago, typical homes in my area were selling for $400 to $600k. Today they sell for $200 to $350k, and some foreclosures (that usually need some work!) can sell for less than $100k. Imagine the hit those lenders are taking.

[challengermaniac]

I was a Loan Workout manager for a large S&L and it looks like my fellow c-c.com guys have this right.  The one other thing to consider is whether or not a mark on your credit report will affect your current or future employment.  Also, I assume you are in a non judicial state and only have a first mortgage loan, meaning that the lender will likely complete a non judicial foreclosure, taking the house back to satisfy the debt.  If you are in a judicial foreclosure state and/or have a 2nd mortgage, then we need to talk more. 

At this point, talk to your mortgage loan servicer to determine if a loan modification would allow you to keep your home and if not, get the ball rolling for a short sale (they will want a financial statement, 2 years tax returns & current pay stubs) in order to evaluate your ability to pay the mortgage and/or make payments toward any payoff shortage.  Then get in contact with a realtor who knows how to complete a short sale and list the property for sale at current fair market value, subject to your lenders approval. 

Keep your chin up knowing that you didn't intend for this to happen and are willing to help resolve this if at all possible.

[GranCuda1970]

I agree with Tommy. Your mortgage is a contract between you and your bank. It stipulates the risk and repercussions for both parties. Both you and your bank took a calculated risk in the purchase of your home.

In the scenario where you default, you receive a hit to your borrowing potential and they take possession of a property which may/may not have a fair market value equal to the amount they have invested.

Honestly, if you cannot convince them of a short sale, you may want to consider purchasing a your next property prior to defaulting on this one. This way, you've already made use of the good credit you've built over the years before the fall-out begins.

If you stay in the new home for 7 years, the impact of the default will be negated.

I am not an advisor, attorney, etc., just well read. Please consult a professional to confirm or disprove anything I have shared.

This 

[torredcuda]

My wife is currently residing at the house while I am in an apartment,I am paying half the mortgage plus my apartment rent.I would love to buy another house while I still have good credit but I very much doubt I can qualify for another mortgage while my name is still on with the current one.This leaves me with bad credit living in an aprtment and everything including my cars in storage for a few years which is not what I want.That is why I think I may be better off paying off the difference in the mortgage from the sale.

[the_engineers]

Does the wife want the house?  If she gets it, make sure that the divorce decree stipulates that she must re-finance the debt.  Make sure this happens.

A co-worker let his wife have the house in their divorce.  She never re-financed and now that she's in default, he's getting taken-to as well.

[4Cruizn]

If you cannot afford to buy another home right now, I would start to look for somewhere nice that you can lease to own.  Then agree that part of your payment goes towards your purchase price over the term of your lease.  Once you have completed the lease term, see if you can afford to purchase the home or lease it for another year.  Find a good place with a big garage for the toys.

Certainly a short sale will not hurt your credit as much as a foreclosure especially if the bank let's you complete the short sale without getting behind in your payments.  Then the hit to your credit in small.