Important questions when Not Reaffirming (and staying in the home)

[azviolet]

Ok..so I've been reading the posts here on the reaffirmation topic.
I had my 341 hearing last week (chap 7). I have decided that I won't reaffirm the house (I owe over $200k on a house that is only worth $110k now since the crash).
I will pay on time each month to BofA (my lender) and stay living in the home. I am in AZ.
Important questions:
1)Do I still "own" the house? If not, what happens when I go to file my 2011 taxes??I know when I file 2010 taxes, I did own the home and the bk is not discharged yet. But for 2011?
I used to bring my mortgage statement to my accountant and it was an advantage to have the house (interest I pay). Will I get the end of year statement from BofA anymore? Does not reaffirming mean that I can't claim the house on my taxes anymore even thos I am paying still??
2) what happens at the beginning of each year when the home insurance etc gets renewed? It is rolled into my loan payment and renews automatically each year. Will that stay the same?
Thanks everyone for the help!!

[btbeme]

You will have no personal responsibility once the Ch 7 is discharged - so in most legal senses you will not own the house, it is secured by the lien and not your signature anymore. Interest paid is still interest paid and should still be deductible. You will receive notices during the BK and can call the bank afterward to get your regular statements reinstated. You will receive a year-end summary for taxes. Insurance should still be paid out of your escrow account as long as you continue to pay your mortgage.

An aside - make sure you speak with your insurance agent regarding the homeowners insurance. Make sure your coverage levels - and the cost - are appropriate for the home replacement value. Any questions, call your bank - they can talk to you after the BK if you allow them to in writing.

[btbeme]

I used to bring my mortgage statement to my accountant and it was an advantage to have the house (interest I pay).

Sorry, I have to say it...

Think very seriously about paying for something you no longer own, especially one worth so much less than you owe. You might get a "tax advantage" for paying mortgage interest...but do the math. If you are in the 28% federal tax bracket like most homeowners, you are receiving a 28 cent refund on every dollar of interest you pay out. I'd rather keep my dollar, even if I have to pay 28 cents on taxes on it at the end of the year.

Mortgage interest deductions as a "tax shelter" are a myth in my opinion. If you are above water on the value, the math changes just a bit...but spending a dollar to get 28 cents back is a bad deal. Saving a dollar and keeping 72 cents after taxes is a better deal. Saving a dollar in a tax-free or tax-deferred retirement account is even better. Saving a dollar and having your company contribute another 50 cents into your 401(k) is still better.

I am with you...we are also in AZ and are about $260k upside down. Our discharge was last month - we did not reaffirm. We are now negotiating with the bank for a principal reduction...but I am not holding my breath. We already have a rental lined up, as I will refuse to pay more than than what I can rent for.

[IBroke]

You will have no personal responsibility once the Ch 7 is discharged - so in most legal senses you will not own the house.

Nonsense. The OP still owns the house!

[btbeme]

Nonsense. The OP still owns the house!

If you reaffirm, you still own, as secured by the Deed of Trust in AZ. If you do not, as the OP did not, that changes. Stay and Pay does not mean that everything is as it was before. The bank cannot foreclose as long as the OP stays current, but that is occupancy, not ownership.

Stay and Pay while upside down a hundred grand simply to get back 28 cents on a dollar of interest paid isn't "ownership" either - it is indentured servitude.

[IBroke]

If you reaffirm, you still own, as secured by the Deed of Trust in AZ. If you do not, as the OP did not, that changes. Stay and Pay does not mean that everything is as it was before. The bank cannot foreclose as long as the OP stays current, but that is occupancy, not ownership.

Stay and Pay while upside down a hundred grand simply to get back 28 cents on a dollar of interest paid isn't "ownership" either - it is indentured servitude.

So who's the "owner" then? I bet that the OP's name still shows up as "owner" if you run a propert-search. And being upside down has nothing to do with ownership either.

[btbeme]

Clarification - if your name is on the Deed, yes, you still "own" the house, so long as you stay current on payments. Few, if any, mortgage companies and banks will do anything as long as you are current.

However, your ability to do certain things, such as refinance, change.

And I still stand by the common opinion that "Owning" is more than just a name on a deed - if you owe sooo much more than it is worth, it "owns" you.

[IBroke]

Clarification - if your name is on the Deed, yes, you still "own" the house, so long as you stay current on payments. Few, if any, mortgage companies and banks will do anything as long as you are current.

OK, that's what I was thinking.

However, your ability to do certain things, such as refinance, change.

Agreed.

And I still stand by the common opinion that "Owning" is more than just a name on a deed - if you owe sooo much more than it is worth, it "owns" you.

That's a question of definition. To me, "ownership" means that I don't have a landlord in my neck. Plain and simple.
We are far, far upside down as well but our monthly payment is 50% of a comparable rental - so we are basically making money by being underwater.

[btbeme]

And being upside down has nothing to do with ownership either.

Staying upside down for a hundred grand after you get a liability discharge... I dunno. We can agree to disagree here, but I'd rather play the Foreclosure/Short Sale Game with the bank for a year, live rent-free until I am kicked out, and then rent for $500-$800 a month less than my mortgage payment for a couple more years. Buy another house - this market isn't going up any time soon - after you have stashed $40,000 to $50,000. Or, pay that same $40,000 in interest over the next three years (plus HOA, taxes, insurance, and maintenance), make zero progress on equity, and still be deep underwater because of the market.

When we went to negotiate with the bank after our discharge, the modification manager simply looked us in the eye and said "stay as long as you can, save your money, then rent. You have a Get Out Of Jail Free card. Use it." With a mortgage, taxes, insurance, and HOA around $3500 a month and a comparable rental for $1800 a month, it is easy for us - either the bank makes it worth our while, or we drag it out for the 9-12 months it takes and then rent for two years.

Anyway... I can rant for hours...

[IBroke]

When we went to negotiate with the bank after our discharge, the modification manager simply looked us in the eye and said "stay as long as you can, save your money, then rent. You have a Get Out Of Jail Free card. Use it." With a mortgage, taxes, insurance, and HOA around $3500 a month and a comparable rental for $1800 a month, it is easy for us - either the bank makes it worth our while, or we drag it out for the 9-12 months it takes and then rent for two years.

Anyway... I can rant for hours...

Oh, I totally understand your POV - especially at such a high monthly payment. We faced such a high payment in the past as well and we couldn't pay it any more. Our monthly payment was $3,800 PITI and we faced foreclosure. HAMP changed the game a bit. While we still have a HUGE principal-balance ($560K), the monthly payment went down to $1,180 PITI - fixed for 27 years. So we can either walk and pay somebody else $2500/month for a comparable rental (actually, we can't because we don't have that much money) or we can stay and keep a $560K loan that costs us $480/month interest.

All I want to say and what I tell anybody is that every situation is unique. There are many different factors that decide if it's better to walk or to stay. The equity or lack thereof is certainly important but it's not all.

Would we keep our $250K upside down house if our monthly payment would be $3,500 as well? Of course not, even if we could afford it. But our low monthly payment is already closing that equity-gap each and every month - so we think it's a great deal.