Regretting Buying First Home 5 Years ago

YellowSnow · #1 (**permalink**) 07-21-2010, 05:05 PM

Hello. I'm considering defaulting on my Mortgages (1st and 2nd) by choice or perhaps trying for a short sale. I know this can be a controversial subject since it's not exactly ethical to not pay back a debt when you are capable of doing so. I'm not thrilled about the prospect of being, "that guy" but the fact of the matter, is that my payments are more than half of my take home pay and I'm paying almost all interest only. So it's quite a sacrifice for, what's turning out to be, an awful investment. When I bought the home, I thought I'd be able to sell it in 3-5 years for what I paid for it or even for a small profit. Boy was that a naive notion.

I think one of the more important questions I need to find the answer to is what recourse the bank has. If they can sue me or garnish my wages, I imagine I should just stay the course. The problem is that my girlfriend hates Nevada and wants to move back to California, and I share her love for out home town/area in the North Bay Area of California so I wouldn't mind freeing myself of the house so that we could move if I found a good job back there, in the Bay Area. I have a job I like here though. That's why I moved here. But the downturn in the economy has translated into a 4 year streak without a raise since the small company is hurting. I think we'll survive though.

So here's the breakdown:

Bought house, new, about 5 years ago for $240K. Similar houses (same floorplan, etc) are selling in my neighborhood for $100-110K now. It would probably rent for $1-1.1K/month. It's crazy how big the real estate value hit has been in NV.

When I bought the house I financed 80% with the first Mortgage which has a 6.5% interest rate. I financed the remaining 20% with a 2nd Mortgage which has a 9.25% interest rate. Chase now owns both mortgages. I have never refinanced. Both mortgages are fixed rate. I've never been late on a payment.

The first mortgage is interest only for the first 10 years (out of 30) and I haven't paid any beyond the minimum (interest only) payments.

The 2nd Mortgage is amortized over 30 years but has a 15 year balloon payment. A few years ago, I threw an extra $2K at the principle of this loan. Other than that, I've just made the minimum payments (interest + principal amortized over 30 years).

My income is $44K/yr before taxes. NV has no state income tax.

I have no other debt. My car is getting a bit old but it's been paid off for years.

I have $10K in my checking account and a ROTH IRA and some GE stock that add up to about $2K. I wish I had something better for retirement savings but I foolishly bought a house instead.

I did apply for a loan modification but Chase said I had too much money in my checking account, even though I only had about $2.5K at the time and it hadn't been higher than that for the previous 2 months either.

I'm wondering if I should keep my balance under $2K for a couple months and try again. My bi-weekly check is nearly $1500 and gets direct deposited into my account. I'd really hate to have to keep my checking account nearly empty since having a buffer means no stress regarding bouncing checks, etc.

Please let me know your thoughts. Thanks.

DavidBibby · #2 (**permalink**) 07-22-2010, 08:47 PM

Suppose you went to a rent-to-own store and purchased an entertainment center. You don't own ANY part of it until the very end after you've made all your payments. If you stop making payments suddenly.. a couple of big guys come in and take your entertainment center away.

In my opinion.. an interest only mortgage with a balloon payment at the end is nothing more than a giant glorified rent-to-own gimmick.

You've been making payments for 5 years and you don't own ANY part of the house (or maybe a VERY SMALL part of the 2nd mortgage).

The way I see it, the bank should have NEVER lent you the money in the first place to get the house. The idea was that you would be making a bigger income by now and it hasn't increased so you're stuck in this major mess.

Because the banks just went ahead and lent just ANYONE buy a house years ago.. it caused the house prices over inflate and caused the housing crisis and economy and bail out situation that we're in today.

You're just a casualty of extenuating circumstances.

It would be nice if the bank was willing to work with you.. but they want their $240k (actually more like $600k after making ALL payments) for your $100k house.

A lot of people in my neighborhood WALKED AWAY from their homes because they bought them 2-3 years before I did when the prices were up sky high and they watched their values plummet.

The house price will likely NEVER reach the original purchase price again.

In my opinion... the bank has already made enough money from you in the last 5 years.

The decision to stay or leave is entirely up to you. I can't advise you either way. Look up "Strategic Default" and get as much information as you can.

One more thing. Fannie Mae and Freddy Mac are trying to pass legislature that would PREVENT you for buying another home for 7 years should you be someone who conducts a strategic default. It has not yet passed and there is still debate on whether or not it will.. so choose your options carefully.

I would be interested to hear what other people had to say. Please give GOOD reasons.

YellowSnow · #3 (**permalink**) 07-22-2010, 10:16 PM

That kinda makes sense. I mean the bank obviously knew the laws and risks when they decided on the terms of my loan. If I can get out legally and save myself a TON of money, I really would be stupid not to. We all gambled and lost.

If laws might change in the banks' favor, that lights a fire under my ass. I really need to find some NV specific information regarding Strategic Default. Any help would be greatly appreciated.

Alton Dawsey · #4 (**permalink**) 08-01-2010, 03:36 PM

Yellowsnow,

With all due respect, stop looking for ways to get out of a problem that you caused.

It's not the bank's fault, nor the "market's" fault; its your's. Own up to your mistake and concentrate on fixing the problem.

How do you do it? Either short sale the house or find a way to pay for it (i.e., get another job, find a higher paying job, something).

Don't just give up and start looking for ways to skirt around the problem. Take this opportunity, fix it, learn from it, and move on.

BTW, yes the bank can sue you and come after the money if you fail to negotiate a "non-recourse" agreement during a short sell.

In conclusion, I'm not trying to beat up you with words - just trying to help. So many people think filing bankruptcy and quitting is the way out of all their financial problems. It disagree.

Best of luck.

saramartin · #5 (**permalink**) 11-23-2010, 06:07 AM

I was always interested in finding a home. Whether I was renting or purchasing, it was my home and that's all that was and is important to me.
As for as your question concern it is very difficult matter.

sapphirecapital · #6 (**permalink**) 11-25-2010, 12:39 AM

did you try to discuss it with the bank? I have made good progress fro a friend doing that with Chase, they cut down the mortgage, adjusted terms and everbody was happy, I think it depends a bit who actually owns the mortgage, I mean they could have a service status only

steven · #7 (**permalink**) 02-12-2011, 05:07 PM

saphire is on to it imo. go to the lender first and let them know that you are struggling and willing to mail the keys in and move on if necessary.

hopefully, a decision could be made that benefits everyone. a few years ago, they would be more likely to play hardball... but the thought of your mortg's defaulting and yet another house to maintain (and pay ins and taxes on) while empty and hope to sell is not something they are looking forward to.

if you do decide to walk away... and i know many that have.... keep in mind that you will still need to rent and your credit will be wrecked. landlords check that, as well as insurers and pretty much everyone else these days. so start working on correctiing it asap

RichS · #8 (**permalink**) 02-14-2011, 12:49 PM

The mortgage mess is a two way street. The greedy banks set you up with a 30 year mortgage with almost all of your monthly payment going to interest in the first ten years. What's so great about that? Who else could get away with that except the banks? That is the way the system is structured and it is not in your favor.

On the other hand maybe you shouldn't have purchased more house than you could afford anticipating that you were going to be able to afford it "later".

The bank's greed and your financial ineptness is what caused this problem. Your credit, along with millions of other Americans is going to be wrecked. So many people have been and are in your situation and are going to be in your situation that you need to think about your own life moving forward. If you credit is wrecked you will get though it.

Landlords know what's going on and they are more willing to work with people who have been screwed by the banks because that is better than letting their rental properties sit vacant. Landlords are thinking it is better to have someone in my rental house even if they are slow payers then to let the property sit vacant and decay or be subject to vandalism.

Some of the banks are working with people. Most don't seem to care. You can only try. Do what you have to do.

RichS CFP(r)
www.insimplelanguage.com

Tobby Smith · #9 (**permalink**) 02-14-2011, 11:43 PM

There comes a point were both the creditor and the borrower have to realize the loan won't be paid back and it's best to just move on.

lerrygibson · #10 (**permalink**) 04-28-2011, 02:33 AM

Moving on can be the better option to do but as far as house concerns then it is better to put the house for short sale so that you will not have to suffer with other problems related to debts.

Bianca_cruz · #11 (**permalink**) 10-17-2011, 12:55 AM

Why not rent it out?

Bianca_cruz · #12 (**permalink**) 10-17-2011, 01:09 AM

I agree as well with lerrygibson, just move on

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