Settle with 1st Mortgage Company?

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Lenders require an "arms length transaction" for short sales. That means they can't be between spouses, family members, friends, etc.

Even if she doesn't pay for mortgage insurance, there's always the possibility the lender placed a policy on the loan behind the scenes to protect themselves, especially if she didn't put any money down or if it's a "risky" type of loan (which it sounds like it is).

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Well maybe they did. I'm not sure. I mean the ball is still in our court as they cant refuse me to take on the note or refi with another bank but I just do not see what sense it would make to do so at the current loan balance.

I know when my sister and her ex defaulted they owed their lender like 170,000. The house was in need of repair with foundation issues and they let my mom buy it for 90,000but they went to foreclosure and everything first the bank got the house at the auctions and then resold it to my mom. My sister never moved out of the house. I do not really remember for the reason as to why it went like that but it was about 3 years ago.

I'm not sure if the bank follows the same rules. Unless it is a Federal Mandate or something they are a local bank that keeps the loans in house. So maybe they have more wiggle room. I just want to make sure we have it thought out before we decide what to do or go in default.

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I know when my sister and her ex defaulted they owed their lender like 170,000. The house was in need of repair with foundation issues and they let my mom buy it for 90,000but they went to foreclosure and everything first the bank got the house at the auctions and then resold it to my mom. My sister never moved out of the house. I do not really remember for the reason as to why it went like that but it was about 3 years ago.

That's interesting because usually the bank has the new buyer sign something stating that they have no prior relationship with the previous owner. Are you sure they knew she was a relative? Maybe they made an exception because of the home's condition, but I think that would be rare.

I doubt you could even get financing for the full loan amount. Any lender will require an appraisal and they're not going to finance a house for you at 130% LTV. I think you'd have more luck if your wife asked the bank to modify the loan by freezing the interest rate and re-amortizing to get rid of the balloon payment.

Half the country is upside down on their home. I personally have a problem with people walking away from homes they can afford simply because on paper it's not currently worth the amount they borrowed.

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I remember my sister informing the lender every step of the way what she intended to do and her plans which is why they did not evict her from the house.

As far as walking away from a loan that is affordable. That is not the exactly what is going on. It is my wife's house that she purchased on her own prior to marriage. We have a marriage contract that keeps our finances apart. She is now unemployed so therefore cannot afford to keep her loan, agreement or bills. As a good husband I have been paying them but simply cannot afford to pay all of her bills forever on just my salary. The reason we agreed to keep our finances apart was the way we have decided to live prior to marriage. I would not take on a bad buiness deal or mortgage for her any more than a brother sister or cousin. We have a divorce rate higher than 50% in this country and in the event her and I split in 3 years then I'm stuck with a 90,000 house worth 60,000 for no reason and was not my deal. So the quick answer is no I cannot afford it for an extended period and at the same time would not pick up a 90,000 bad deal for anyone even if I could.

I have read up on the loan modification stuff a little. I just have not figured out if it is able to reduce the actual loan amount or just % and length terms.

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The loan mods do not reduce the loan amount, only the interest and potentially extend the loan term. Since she has lost her job, she could likely due to hardship. However, they would also require her to have the income to support the new payment. If she receives unemployment that may be enough, or she could probably list support from her spouse. They tend to only modify loans that are likely to be sustainable/affordable long term. This information applies mostly to the banks that are participating in the government backed programs, since your wife's lender is a local bank your experience may differ. They tend to be a little more reasonable. However, with any bank the chances of a principal reduction aren't much better than winning the lottery.