Reaffirm or Surrender?

[Jovigirl22]

We plan on filing chapter 7 bankruptcy on Nov 1, which wont put us under the median income, but still pass the means test. From the start, our intention was to only file on our credit cards, reaffirm the house and cars. We consulted with two attorneys, and both tried to talk us into getting rid of the house, and we thought that sounded crazy......we have never made a late house payment and wanted the "sure thing" of a roof over our heads. BUT, the past couple weeks, its making sense to surrender. Last year, we had our house for sale, TONS of showings, no offers, not even a lowball. I HATE where we live, way in the "boonies", over an hour commute for my husband, and the fact that we are way out in the country, yet we are both "city people". I had planned to file BK, wait 2 years, sell and re-locate to a bigger town closer to our parents and work. Last week, I had my agent give me a current market analysis. We have dropped almost $30,000 in value, which would mean after paying a realtor, we would OWE money at closing. The house COULD come up in value in 2 years, but then again, maybe not. Our lawyer is saying that we would have 6 months to a year before we had to go, lots of time to stash our monthly payment. In 6 months we would have $7800, yet staying, waiting 2 years, working our butts off to sell, MAYBE $10,000 after closing costs. Jeez, that makes it look like a no-brainer..........but WHO says that our mortgage companys (chase for 1rst and 2nd mortgage) wont make us leave in 2 months? That unknown scares the crap out of me. How does someone live day to day waiting for the sherrif to knock on their door? Then there is the fact of WHERE do we go from there........I dont want to end up in a nasty apartment building because no decent landlord wants to rent to someone who foreclosed their home. Doenst it look better on the credit to keep the house, maintain the payments and sell? FHA guidelines say 2 years post BK, but 3 years post foreclosure with PERFECT credit. Can those on both sides of this issue share their thoughts?

Janet
Indiana

[SMinGA]

First thoughts... Are you current on the house now? I'm guessing you have paid at least thru July since you originally intended to keep it. You can research practices in your state, but for most NOTHING but letters & calls happens until you are at least 90 days past due. So if you've not paid August, November 1 would be 90 days out. And you're filing Nov. 1, so you'd have some time from the automatic stay. The mortgage company will probably not lift the stay, giving you thru discharge at least. The FC proceess won't be a total surprise. Its not like you'll hear nothing then all of a sudden be evicted. There are processes required, notices to be sent, and so you'll have time.

OTher than that, if the house is upside down DO NOT REAFFIRM. You're putting yourself on the line to pay no matter what. If you ultimately decide to stay in the house, just keep making payments. You can still decide to walk later - such as if in 2 years you cannot sell for enough to break even.

But look at it as a business decision. Can you rent for less? You said you're an hour each way on commute, so moving closer to work saves you time & gas money & vehicle maintenance by driving less. Plus you don't even like the house. Why fight for somewhere you're not happy?

If foreclosures were few & far between, it might be hard to find a rental. But that is not the situation. They're happening all over. You should not have trouble finding someone to listen to your situation, allow an extra deposit, and rent a place. I have not been there, but 3 years post FC is my understanding for FHA also.

[Jovigirl22]

First thoughts... Are you current on the house now? I'm guessing you have paid at least thru July since you originally intended to keep it. You can research practices in your state, but for most NOTHING but letters & calls happens until you are at least 90 days past due. So if you've not paid August, November 1 would be 90 days out. And you're filing Nov. 1, so you'd have some time from the automatic stay. The mortgage company will probably not lift the stay, giving you thru discharge at least. The FC proceess won't be a total surprise. Its not like you'll hear nothing then all of a sudden be evicted. There are processes required, notices to be sent, and so you'll have time.

OTher than that, if the house is upside down DO NOT REAFFIRM. You're putting yourself on the line to pay no matter what. If you ultimately decide to stay in the house, just keep making payments. You can still decide to walk later - such as if in 2 years you cannot sell for enough to break even.

But look at it as a business decision. Can you rent for less? You said you're an hour each way on commute, so moving closer to work saves you time & gas money & vehicle maintenance by driving less. Plus you don't even like the house. Why fight for somewhere you're not happy?

If foreclosures were few & far between, it might be hard to find a rental. But that is not the situation. They're happening all over. You should not have trouble finding someone to listen to your situation, allow an extra deposit, and rent a place. I have not been there, but 3 years post FC is my understanding for FHA also.

SMinGa,
We are completely current, never had a late payment. As far as upside down, yes, I guess technically....we owe 158,000 between first and second mortages, realtor suggests we would LIST at 169,000, 175,000 at the most. If we listed and SOLD at 175,000 we would have maybe 2000 to walk away with, if we sold at 169,000 we would be 830 in the hole. Not THOUSANDS upside down like many in todays market, but no profit nonetheless. If we stayed and waited a few years, MAYBE things could improve????

Rent would be pretty comparable to our mortgage, so no savings there, BUT the commute costs a big savings....no more paying "mom and pop" phone and cable companies, heating and cooling would probably drop as our current house was built in 1969 and not efficient. Then there is the simple fact that our aging house continues to KILL us with repair/maintanence costs, it would be soooo nice to tell a landlord about our problems instead of stressing over the latest septic or electrical failure.

You say do not reaffirm for all the above reasons. Are you saying file BK, keep paying mortage, but dont sign a thing, and we can STILL walk later? Wont chase need either a reaffirmation or a surrender on the day we file?

[ccsjoe]

The only light I can shed on the issue is regarding rentals. Because we had to move recently (our old landlord got foreclosed) we got to view quite a few houses and applications. Something that struck us was that it is now common to see a disclaimer regarding bankruptcy on the lease requirements. It is usually to the effect of "recent bankruptcy ok as long as no history of delinquent payments".

[SMinGA]

Reaffirm or move out are not the only options in terms of real property.

Each state has foreclosure policies, and no state allows a mortgage company to foreclose just because they want to. If you make payments, you stay in the house. Your name is still on title, you're still the owner and so you can still list the house for sell, etc. Of if, when the time comes, you can't get a high enough offer - you can just let it go.

The downside to waiting is that the time line on buying another house does not start until the foreclosure happens. So if you foreclose in Feb. '11, you can buy sooner than if the foreclosure happens in Aug. '13 for example.

It sounds like you're weighing all your options, so that is good. Afterall, there is more to it than just mortgage vs. rent payment amount.

[researchnerd]

You can get some idea of how long foreclosure might take in your state by checking out the local laws. Some states have 6-18 months worth of homeowner protections built into the process, others have almost none. Here in GA, it took about 5 months from the time we missed the first payment to the foreclosure date -- but then we put it on hold by filing BK. We walked away from our home because we could no longer afford the mortgage without DH's paycheck, but we were also ~$60k underwater.

ccsjoe is right, it's a renter's market out there now because of all the recent foreclosures. Take an hour or so to check out apartments or rental homes in the area in which you'd like to live; you may be surprised. We were able to find a newer home to rent, in the same school district, for less than half our mortgage payment, and they never even checked our credit. Frequently all they check are your pay statements (to be sure you can afford the rent) and eviction records (to see how much trouble you might cause if you don't pay).

[olivies]

Why not just short sale it, and have the balance due go into the bankruptcy? That's better than a foreclosure. This is a hard game to call, because you're basing your decision on what the house "may" be worth and what your selling position "may" be in two years, "if" you decide to sell and move. Who knows what the circumstances of the next two years will be: job loss, injury, sudden coming into of money, etc. In two years, if your house hasn't regained enough value for you to sell and come clear, you could always entertain the notion of renting it out since rentals are going for about the same as your mortgage payment. I guess my POV is that if you are able to make your payments- and your mortgage is at a fixed rate- keep the house and ride it out 2-3 years. If nothing else, having a mortgage that you keep current will help your credit score inch upward to make it more feasible to qualify for a decent mortgage in that time. But that's just my two cents, and really that's about all it's worth. LOL