Question Major issues with my house, did not reaffirm. What are my options?

[Mark80]

I am a few years out from my discharged and did not reaffirm my mortgage. Mainly because it's usually not recommended, and partly due to the concerns about the integrity of the house. Back then I started to have some settling issues / foundation problems. I assumed at the time if something catastrophic happened that I could not afford to repair that I would not be tied to the mortgage. And for better or worse could walk away.

Well as I feared things my house needs the foundation repaired and a bunch of piers put in place to stabilize it. The estimate for everything ranges from 30 to 50k. My homeowners insurance does not cover it. So my question is what should / can I do? I wasn't sure if in these types of situations if you could walk away. Or if you are legally bound somehow in regards to the condition of the home.

My only other option would be to affirm the loan. But due to only being two years out I am not sure if that is even possible. And the only reason I am considering that would be to try and get an equity loan for repairs. But I have a feeling that is going to also be impossible right now. Not only from the BK situation but also due to the condition of the house in regards to reaching a high enough appraisal.

What do you guys think? How would you handle this situation?

[bcohen]

There is a lot to unpack in this question. All we know is that your house needs a very expensive repair, and that you included your mortgage in a bankruptcy (presumably Chapter 7) which has been discharged. And we know that the mortgage was not reaffirmed, which means that you are not personally liable for this debt, cannot be sued for any deficiency balance, and that the lender cannot report anything negative to the credit bureaus if you default on the loan for whatever reason.

The most important information is left unsaid. We don't know how much you owe on the house compared to what it's reasonably worth. We don't know how easily you can afford to pay your ongoing expenses for this house and pay another loan to finance the repairs--or if you have any way of paying for the repairs other than taking on debt. We also don't know how happy you are with the house, how long you plan to live in this house, or how your monthly costs of homeownership compare to what you'd pay in rent. We don't even know how urgent the foundation repairs really are.

Assuming that you can comfortably afford to pay the mortgage, set aside money for ongoing repairs and maintenance, and pay for this repair, it makes sense to keep the house and have the repair done--provided that you aren't seriously underwater, and you plan to live in the house for a long time. If you have to finance the repairs, I would see what options the contractor offers, as many contractors offer financing through companies such as Synchrony and Wells Fargo Home Projects. I would try to obtain unsecured financing, rather than a home equity loan, for the simple reason that a HELOC offers no real advantages, and you will have to pay for an appraisal, and hope the home will appraise for enough to qualify, etc. The fact that the mortgage was not reaffirmed should not affect your chances of being approved for a loan--assuming you otherwise qualify.

Assuming that you cannot afford to pay the mortgage, ongoing repairs and maintenance, and cover this repair, you have no choice but to cut your losses and (eventually) move on.

And of course, even if you can afford to pay the mortgage, ongoing repairs and maintenance, and cover this repair, it might still make sense to strategically default if you owe way more than the house is worth, or if you are unhappy with the house and want to move anyways.

If the decision is made to default on your mortgage with the ultimate goal of surrendering the property back to the lender, you do not need to worry about the condition of the house, or any losses which the lender might incur. The bankruptcy discharge protects you from any personal liability, and the lender cannot report a default or eventual foreclosure to the credit bureaus. So when your finances improve in the future, you could buy a different house. Depending on the local real estate market, and the condition of your house, you might choose to surrender the house quickly via a DIL, or you might try to delay the foreclosure and live payment-free for as long as possible to save money.

[justbroke]

Just wanted to add that if you are going to let the home default and go into foreclosure, don't strip the house. While the bank/lender may eventually become the owner of the home through the foreclosure process, stripping the home on purpose can lead to bad consequences. Depending on where you live, stripping a home before foreclosure may subject the owner to criminal prosecution.

Other than that, bcohen as listed a few things to consider.

[Mark80]

First of all thank you both for responding and the help. This place had been great over the years and I appreciate it.

As far as the questions;

Right now I owe around 200k, I don't know the exact market value of the house because it has not been appraised recently with the market up. If you go off of places like Zillow (which I know isn't entirely accurate) it "might" be worth around 300-320k if of course it was in pristine condition (it's not obviously). There are a lot of upgrades and work to be done prior to selling outside of the foundation and structural issues.

I can easily afford the house payment, but I could not take on a massive loan on top of it. Cost wise I am "hearing" numbers all over the place. Everything from 15k to upwards of 60k just to repair and pier / raise the foundation. If the house was in selling condition and I could do that and sell with profit it wouldn't be as insane to deal with. But I probably need to put another 20-25k in refurbishments and repairs. Urgency wise it's one of those things that keeps getting worse. And the worse it gets the more it will cost obviously to fix, which worries me.

As mentioned I can afford the mortgage but not the repairs on top unless it ends up pretty cheap. These problems usually are never cheap however. But of course that is something I need to figure out via a contractor to have hard numbers. I am also not underwater, but this entire question is driven by the worst case scenario. I am not sure if I am up for dropping so much into the house just to get it into selling condition and try to break even IF things are really bad.

OK so the back to the main question, if I am understanding this right if I decide this is hopeless I could just stop paying and allow the bank to go through their process. Using that money to build up savings as long as I could prior to moving. I think I know the answer to this, but when you walk away from these things doesn't it make it VERY difficult to attain a new mortgage loan?

So another "if I am reading it right", regardless of the condition of the house, foundation problems or not you cannot be held liable for any repairs after walking away?

JB: I wouldn't have done that anyways but it's good to know.

Thank you both!

[bcohen]

Right now I owe around 200k, I don't know the exact market value of the house because it has not been appraised recently with the market up. If you go off of places like Zillow (which I know isn't entirely accurate) it "might" be worth around 300-320k if of course it was in pristine condition (it's not obviously). There are a lot of upgrades and work to be done prior to selling outside of the foundation and structural issues.

It would be useful to get an appraisal and see what the house is worth as it sits. Obviously, if you plan to sell in the future, you want to put as little money as possible into the house, since you generally don't recoup that investment. Putting money into a house prior to selling it usually does not result in a higher selling price, but it can often result in a faster sale.

I can easily afford the house payment, but I could not take on a massive loan on top of it. Cost wise I am "hearing" numbers all over the place. Everything from 15k to upwards of 60k just to repair and pier / raise the foundation. If the house was in selling condition and I could do that and sell with profit it wouldn't be as insane to deal with. But I probably need to put another 20-25k in refurbishments and repairs. Urgency wise it's one of those things that keeps getting worse. And the worse it gets the more it will cost obviously to fix, which worries me.

As mentioned I can afford the mortgage but not the repairs on top unless it ends up pretty cheap. These problems usually are never cheap however. But of course that is something I need to figure out via a contractor to have hard numbers. I am also not underwater, but this entire question is driven by the worst case scenario. I am not sure if I am up for dropping so much into the house just to get it into selling condition and try to break even IF things are really bad.

As I just pointed out, you really don't know if you're underwater or not, because you don't know what the house is worth in its current condition. The fact that other similar houses sell for X number of dollars in perfect condition is really not important, because your house needs tens of thousands of dollars worth of repairs to be worth that much. You also have no idea what the repairs will cost, until you get written estimates from two or more contractors.

Also, all of this talk about getting the house ready to sell tells me that you aren't happy with this house, and that you plan to move anyways, which means that putting a lot of money into the house just doesn't make sense. And thanks to the bankruptcy discharge, you don't have to spend money fixing up the house in order to sell it; you can let the lender worry about that.

OK so the back to the main question, if I am understanding this right if I decide this is hopeless I could just stop paying and allow the bank to go through their process. Using that money to build up savings as long as I could prior to moving. I think I know the answer to this, but when you walk away from these things doesn't it make it VERY difficult to attain a new mortgage loan?

So another "if I am reading it right", regardless of the condition of the house, foundation problems or not you cannot be held liable for any repairs after walking away?

If you crunch the numbers and realize that the house is not worth keeping, you are free to stop paying and let the bank go through the foreclosure process. You can certainly delay the foreclosure--for example, by requesting a modification or other borrower assistance, and by responding to any court papers. You are free to live in the house as long as you are still the legal owner, i.e. until a foreclosure sale is completed, and you can save your money by doing so rather than paying rent somewhere else.

If you do this, the bankruptcy discharge prevents the lender from reporting a default, foreclosure, or charge-off. You can qualify to buy another house based solely on the amount of time which has elapsed after your bankruptcy discharge. You are not responsible for any damage which occurs to the house due to natural causes, i.e. if pipes break or the foundation caves in, etc. As Justbroke mentioned, you cannot deliberately damage the house, although I did not mention that because people in your situation would have no incentive to do such a thing.

It should be noted that if the house is located in an HOA, you remain liable for HOA dues and special assessments until your name is removed from the deed, either by a DIL or a successful foreclosure sale. Since you are still required to pay these ongoing expenses, you should continue living in the house as long as possible to save up money.

[Mark80]

OK I finally get what you mean by underwater. I thought you meant behind on payments for instance. Your right, I have no idea right now. I planned to move regardless once my son graduates. So ya I guess I am not happy with the house overall. I made a quick knee jerk reaction when buying it years ago due to circumstances (school year, options). And have had a lot of regrets since.

I read on here a few years ago (I believe) that attempting to get another loan with the bank having knowledge of you walking away from your old house can cause problems. I suppose they learn that when asking for your housing / renting history. But maybe things changed, or maybe I am not remembering things correctly.

I appreciate the help and taking the time for in depth responses. It cleared a lot of things up for me!

[Barbisi]

Mark80,
Your situation is clearly where we are heading with our 46 year old house.
While we don't currently have foundation issues, we are facing some major system issues (like a nearly broken furnace) and want nothing but to sell as soon as our first (and hopefully last) BK13 is successfully discharged in 2022, and move to a milder and nicer sea-level climate.
The first fixer upper house that practically ordained a five year BK 13 sentence was a knee jerk reaction (great terminology!) to a sudden need to vacate the rental house we had enjoyed for three and a half years.We stupidly thought buying a 1963 investor house in 2014 was cheaper than continuing to rent at more than 2k a month. So we spent 100 +k on that shack to make it livable and sellable and so only came out with a check for 80K at closing. After paying some CCs off (60K worth), we had just enough left for a down payment on a nicer but still too old house (1975) in 2016 , and then had to file BK13 in 2017 ,when it became obvious we couldn't afford the much higher mortgage payments and the remaining CC debt.
One question : are you planning to just move across town or are you sick (as we are) of your current location and want to relocate to another state?
I know few people on these forums have ever lived in two or more states (as we have) and most are content to live out their lives where ever they were born. (Eleven + years in Craporado is more than enough for me , thank you! LOL)
It would make a big difference if you're wanting to make a huge change once your son graduates.
Given our dreadful history with updates and repairs,I doubt we can advise you how to proceed, but we can offer you good vibes and wish you lots of luck going forward! May you succeed in finding the right path with your home dilemma!

[Mark80]

Hi Barbisi,

First off I am sorry to hear you had such a long road of housing issues. =(

I really dislike the midwest but I am unable to change jobs. So I am pretty much stuck on the outskirts of the metro here. I would love to if possible though! I however do want to move out of my city and a bit closer in and downsize. Now that my kids are older and flying away I do not need such a large house. I am actually really excited to eventually do so as utility payments are massive. It will be so nice to move to a smaller efficient home.

This is a pretty tough decision though as we refuse to move until my son gets through HS (he is the last one). But it still is several years away, my drive is pretty brutal right now. But I would love to know I have the option just in case without it causing future loan issues. I swear someone had told me that it could, but it's been awhile.

Thanks for the good vibes and good luck! I am sure things will work out eventually one way or another. =)

[bcohen]

I planned to move regardless once my son graduates. So ya I guess I am not happy with the house overall. I made a quick knee jerk reaction when buying it years ago due to circumstances (school year, options). And have had a lot of regrets since.

So there's your answer: this is not your forever home, and you only need it to last for another 3-4 years. I would just continue paying the mortgage and put the absolute minimum of repairs--and no upgrades--into the house. Once your son graduates, you can try selling as-is, or contact the lender and arrange to do a DIL. I would worry no further about these foundation issues, or the fact that the repairs might cost a lot more in the future.

[Mark80]

So there's your answer: this is not your forever home, and you only need it to last for another 3-4 years. I would just continue paying the mortgage and put the absolute minimum of repairs--and no upgrades--into the house. Once your son graduates, you can try selling as-is, or contact the lender and arrange to do a DIL. I would worry no further about these foundation issues, or the fact that the repairs might cost a lot more in the future.

Sorry I just saw this!

What am I supposed to do when applying for a new mortgage down the road? Maybe this was already answered and it got buried but I noticed you mentioned it won't show up on my report. However I am sure the new lender will question my previous living situation / residence. I did see around here a long time ago someone mention that walking away can scare future lenders off. But I am not sure how true that is.

[Zombie13]

Mark80 - couple thoughts.
First, yeah bcohen appears very knowledgeable with all this; good info there. So yes, if you are hard-set on just walking away, there's really no value in fixing stuff unless there is a risk of significant damage to the home.

Next, if you are still interested in your home value, repairs, etc., since your situation could improve:
Redfin appears to be more accurate than Zillow with home value estimates.
Go to open houses in the area, talk with the realtor there. See if you can get added to an email list about homes for sale. Ask them for references to home repair folks. Maybe they can send you a list of comps as well, free of charge.
For contractors: avoid those that send their ads in the mail; yknow... the big postcard things, and the ones that have 'fleet' vehicles with their brand on the van. Very expensive. Example: at the last hole-in-the-ground I mean house, an electrical contractor was going to charge us 12K or 14K to replace the electrical panel. Um, no.
Rather: check out Nextdoor . com and sign up for your neighborhood area. Post a request: "searching for budget friendly contractors for home updates". Folks there are typically lower cost. For updates, you wouldn't need to renovate/remodel the kitchen and bath; rather: paint, new fixtures maybe, that kind of thing.
Best of luck with this.

[Mark80]

12k to 14k just to swap out the box?

Thanks for the help, I will for sure go down that path and check out redfin over zillow.

[Zombie13]

Exactly. We worked with another contractor, and did the job for about 4K. We could have gotten it done more cheaply. Unfortunately the meter was inside this enclosed porch in the back, so the meter had to be moved to a side wall of the house. Yes, that 12/14K company was ridiculous.