Is it the best move to surrender our home?

[greenthinker]

We have a mortgage with Bank of America that is about $125K underwater, and it is one of those interest only loans that they acquired from Countrywide. We are in a confirmed Ch. 13 100% payback plan with the regular mortgage and delinquent payments included in the plan. We have requested a mortgage modification, which has been "in review" for weeks. The only thing that will stop us from surrendering this property would be a principal reduction, and I think the chances of that are ZERO. For one thing, we don't meet the requirement that the mortgage payment be more than 31% of our gross income. And, I have read that B of A is not doing principal reductions.

We are seriously considering having our Ch. 13 plan modified to surrender our house. It looks like the only rational move we can make. We love the house, but not enough to financially cripple ourselves by holding onto a toxic asset.

Is our thinking on the right track? Do we have any other options to investigate before surrendering the property?

Thanks much!

[LadyInTheRed]

I think most people will tell you that you are on the right track to surrender your house and I wouldn't say they are wrong. But, I made the opposite decision and so far have not changed my mind. For me, it is not as cut and dry as "when you are that far underwater you should make the smart business decision and walk away."

I also have a loan that was from Countrywide and is now with Bank of America. It was interest only and fixed for 5 years. I am now paying principal and the rate is variable at 3%, but I know that won't last. The rate is capped at 10% and can never increase more than 2% at a time. I hope it never goes to 10%. But, since it will never increase more than 2% per year, I can adjust my budget if it does. The loan is a no-recourse purchase money loan under California law, so I can walk away at any time, take a credit hit, but not have to pay the deficiency. If it weren't for that "out", I would probably walk away and get the mortgage discharged in my BK.

I love my house and would be happy living in it for the rest of my life. When I bought it, I never expected the value to drop as much as it did, but I knew there were no guarantees. I took on two mortgages (100% financing) that I was ready to pay off over 30 years. I stripped my 2nd and now I only have to pay 1 mortgage. So, as I see it I'm coming out ahead. I'm paying less for my house than I bargained for. The fact that my house is worth less than I owe doesn't really matter to me because I have no plans to sell. Yes, it would be nice to be able to refinance. But I'll have equity someday and still be able to accomplish the goal I had when buying the house: To pay it off before I retire.

Maybe it's a terrible financial decision to keep a house that is underwater by about 50%. Some will call me a fool. But I am happy where I am and am willing to accept the financial consequences. I don't think I am crippling myself financially. If you can afford to make the payments and maintain the home, I think it is okay to take other things into consideration other than how far underwater you are.

I have no desire to talk you out of your decision. I think we each need to make the decision based on our life plans and whatever other criteria are important to us.

[df04527]

Very good points LIR...and to add that, at some point, housing prices will come back for those that choose to stay. Will be years I'm sure but they will come back.

[greenthinker]

LadyInTheRed,

Thanks for your reply. I understand where you're coming from. If you love the house, plan to stay there, and can comfortably afford the payments, then there's a strong argument for keeping the property. As I said in the OP, we do love the house, but we can rent one that we love too, and for about $1000 per month less. That would give us much more breathing room.

I'm interested in knowing how the process of surrendering property in a Ch. 13 works. If our confirmed plan is modified to surrender the house, does it simply allow the lender to resume collection activities once they are granted relief from stay?

[shark66]

As I said in the OP, we do love the house, but we can rent one that we love too, and for about $1000 per month less. That would give us much more breathing room.

That would be one of most important considerations in my book. Buy vs. rent. In your case, renting is the logical course of action.

Good luck to us all.

[LadyInTheRed]

As I said in the OP, we do love the house, but we can rent one that we love too, and for about $1000 per month less. That would give us much more breathing room.

That would be one of most important considerations in my book. Buy vs. rent. In your case, renting is the logical course of action.

Yeah, if I could rent for $1,000 less than my mortgage payment, I think I'd be sitting here wondering when the bank will finally get around to foreclosing and thinking about the savings I've built towards a down payment for my next home.

I'm interested in knowing how the process of surrendering property in a Ch. 13 works. If our confirmed plan is modified to surrender the house, does it simply allow the lender to resume collection activities once they are granted relief from stay?

Yes. But, it could be some time before they foreclose.

[Guest123]

It will be a long time before prices come back up. Financially it is smart to start fresh, keeping an under the water house will not allow that. I think the OP is making the right choice of letting go. Especially if you have conveinced yourself that it is a bad debt then that is the time to move on. But if you are in a good neighborhood and are happy like others stated then that is more then enough to stay.

The house we let go was our first, a starter house while we planned on our dream house. Keeping it would have put our dream house further out of reach. Right now we are in a better, bigger house in a better neighborhood, closer to work for less. And we don't have to worry about unexpected home repairs.

[greenthinker]

Thanks for all of your replies.

I emailed our attorney telling him that we want to surrender the house. He said that he will file a motion to modify the plan. Are such motions ever denied?

[Billssuck]

Our modification to surrender our house was approved with no problems or inquiries...

[msally1947]

I called my attorney to tell her I want to surrender my house. She was very cold and negative, saying that the lender can refuse or sue me. She will not even file the motion until I fill out a new budget form. I told her that I knew some people in a Ch 13 who had modified to surrender their home, and she said 'are you sure they weren't in a chapter 7?' She said she has had a few cases where it went through ok, but she really seemed negative about it. I asked her if she was just giving me a sort of disclaimer, and she would not commit.

I got off the phone feeling very upset and depressed. I am going to just fill out the budget and hope for the best. I have read so much on these forums about people surrendering while in a Ch 13, that I am hoping she doesn't know what she is talking about! I am really saying my prayers on this!

[Billssuck]

Basically we just had to submit new schedules for income and expenses (and to include expected rental expense in it less mortgage expense). My lawyer is so busy that I had to schedule a phone conference with him one month out. He did call and we talked about it and then 2 weeks later I went in with our new budget. He charged us about $400 more to modify the plan (which was paid in our plan payments). I was initially wanting to convert to a ch7 when I modified to surrender the house but because of finishing paying off attorney fees for the ch13 first and then paying ch7 fees upfront was more than what was left in our ch13 payments. About 4-6 weeks later I got the paperwork from the trustee approving the modification.

msally1947, I think mods like this are just a hassle for lawyers and their big money maker is filing cases. Still the lawyer should see you through this without giving you a hard time.

[msally1947]

billssuck, Thank you for the kind and uplifting words. I really needed to hear something positive, and what you said makes complete sense. So many people on here have done it, so I couldn't understand why she implied that it might not be possible. Thanks again and congrats on having only 3months left!!