Figured out CH7-now what to do with the house?

[Diesel73L]

I had gotten into this discussion in another thread, but figured it might be good to start fresh here since that thread had a few other topics in it as well. Getting rid of our cc debt is going to be pretty straightforward since we'll be under median and have plenty of exemptions. The underwater house however, is a different story. One attorney advised to stop paying the mortgage now since it takes so long to even start foreclosure (8 months) in NJ. We'll have our discharge in hand before the bank even files suit. Then it would be a waiting game to see how long we could stay while banking mortgage payments. At that point one of two things would happen-either we'd reach a deal through mediation, or we wouldn't, and the house would eventually go for Sheriff's sale. The problem I see with starting that whole process right now is that while we could walk away from this house with a lot of cash in our pockets and no debt besides a car loan, if we ended up having to leave say two years after we're discharged I seriously doubt we'd be able to get another mortgage even with a substantial down payment.

The other scenario would involve paying our mortgage all the way through bankruptcy and working like crazy to rebuild our credit, watching the score carefully. Then, once we're far enough away from the bankruptcy (not sure how long that would be) and our credit score was high enough, we could stop paying and instead socking the money away. At least once the end (Sheriff's sale) was in sight we could begin looking for a house and could rent for a few months if necessary. Still, that would involve us throwing away mortgage payments for years until we got in a position to purchase another home.

The third scenario (the one we like the least) is to stop paying now, file, get the mortgage discharged, and simply wait for them to force us out. The advantage of doing it now I guess is that it could literally take years. I guess maybe I'm just not ready to move-the immediacy of it all is what's scary. On the other hand, if we do it now my daughter (just shy of four months old) won't really know any different once we're settled wherever we end up. Whatever we end up doing, I don't want it to be jarring or traumatic for her. It's a lot to think about, but for right now I'm just going to focus on getting us through the CH7 without the creditors driving us up a tree...

[mountanddo]

I wouldn't count on foreclosing taking years. My BF stopped paying on his house in June 2011 and they scheduled a sheriff sale for December which was postponed until February. With the 6 month redemption period that would bring him to August. That's just a little over a year. I suppose if they keep rescheduling the sheriff sale it could take years but you can't count on that.

[keepsmiling]

Two years in NJ seems to be standard timeline for foreclosures, according to some attorneys I know.
But will you be able to exempt all that cash if you stop paying now?
How underwater are you? how much do you love your home and what would it cost to rent?
We can't rent for less than what we pay now, unless we move into a one bedroom in a slum.

[Diesel73L]

Two years in NJ seems to be standard timeline for foreclosures, according to some attorneys I know.
But will you be able to exempt all that cash if you stop paying now?

Probably-we really have nothing else to protect.

How underwater are you?

About $20K, but it keeps getting worse and worse-by the time the market hits bottom it could be double that-or more.

how much do you love your home

Well that's the thing-we started this process thinking that we would keep our home no matter what the cost. We also were naive and a lot less knowledgeable about BK, foreclosure, etc... This is our first home, it will always be special to us. I have made some improvements to it, but nothing major. It's by no means our dream house-in fact, as we were signing the papers back in 2008 (the enormity of the financial crisis had not yet been fully realized), we said to ourselves that this will be a nice start, we'll make improvements, let the market rise, and "trade up" to what we really wanted. Then as the crisis wore on, we found ourselves in more debt, and tried to rationalize, we said, "Ok, we're fine with staying here long term." In a sense, we settled. A very long answer to a very simple question-the short version is: less and less. Furthermore, if we can be in our "forever home" by the time my daughter is six, she won't know the difference.

and what would it cost to rent? We can't rent for less than what we pay now, unless we move into a one bedroom in a slum.

Dont'cha love NJ? Our mortgage (taxes included) is $2240 a month. That's the kicker-to rent a comparable house (2 bedroom with some sort of yard, etc...) we'd probably have to pay more than that. Especially now with more demand for rental housing than ever. I suppose we could look at condos or townhouses, but it will be a BIG culture shock for us. We also own a dog which makes things hard. We are rural people and are used to space and freedom to do what we want on our land. It might make for a tough three or four years. However, if we were able to find a deal it might be worth it to rent for a while if it meant that we could afford our dream home/land later.

[shark66]

One thing that you need to understand is that if you let the bank foreclose, it takes three years from the day that the house stops being in your name (not the same date as foreclosure) for you to be able to apply for any kind of mortgage.

So, you might easily be looking at five years of inability to get mortgage on anything.

Given what you've stated about the rent costs in your area, why not just "stay and pay" until something better comes along the way?

If you stopped paying now, with the mortgage as high as yours, you might just push yourself into Ch. 13 and I don't believe that's where you want to be...

As for your daughter...she won't remember any of this, good, bad or indifferent.

My $0.02 only...

Good luck to us all.

[Diesel73L]

[FONT="Comic Sans MS"]One thing that you need to understand is that if you let the bank foreclose, it takes three years from the day that the house stops being in your name (not the same date as foreclosure) for you to be able to apply for any kind of mortgage.

So, you might easily be looking at five years of inability to get mortgage on anything.

Understood-I was assuming (and will check this with an attorney of course) that the important date as far as the timeline of a new mortgage is the Sheriff's sale (assuming it sells). I had planned on five years anyway-two years of living in the home without paying (socking away money), and then three years of renting as cheaply as possible (more on this in a minute) and saving more. Also all the while my wife would be paying a small car payment, and we'd be playing the "charge-it-and-pay-it-off" game with the credit cards we'll inevitably get as soon as our discharge comes through. With a good plan and the frugality we've learned in trying to free ourselves of credit card debt in the first place, we could potentially walk back into the market (albeit with FHA financing) with $60K cash. I'm betting that five or six years from now that $250-280K will get us a much better home (2500 SF, 4 bedroom, 2 bath, etc...) than $250K got us back in 2008.

[Given what you've stated about the rent costs in your area, why not just "stay and pay" until something better comes along the way?

We certainly could, and we might, but I had a real eye opener when I did quick search of our local MLS for rental homes. I was SHOCKED. I saw four bedroom/two bath homes on 2 and 3 acre lots renting for $1800 a month on average! When I was renting, it was in the more urban/suburban part of the state where rents are more in line with what keepsmiling was saying. We would be looking to rent near where we live now-the rural northwestern portion. I guess there's just not that much demand for rural rentals?

If you stopped paying now, with the mortgage as high as yours, you might just push yourself into Ch. 13 and I don't believe that's where you want to be...

Thought through that one too-the advantage is that we have exemptions and could probably find things to spend it on since it would only be payments from February through July. Also, the mortgage itself is lower than $2240-that number includes our $7000 a year property taxes (yes, that's right, $7K a year on an old two bedroom one bath ranch barely 900 SF), so if you take that out we'd be looking at banking about $1650/mo x 6 = $9900. One of us could exempt that with the federal wildcard and still have room. Another poster here pointed out that if we're not paying the mortgage, listing it as an expense on the Schedule J could be an issue-not so (at least in the Trenton district in NJ where we are) says two attorneys I've spoken with so far. I will make damn sure of that before I take it as Gospel though.

[As for your daughter...she won't remember any of this, good, bad or indifferent.

I sure hope so. That's why I want to make sure that we can get into a new home either just before or at some point while she's in Kindergarten so that she can go all the way through at the same school, etc... My wife's father was a builder in the '70s and '80s and got caught up in a boom/bust cycle. Her family had business debt and personal debt and were harrassed for years by creditors, terrorized by folks attempting to serve court papers, etc... They finally decided to file when her mom and dad's bank accounts were garnished by so many different creditors they were going to lose the house they were in, but that wasn't until she was in middle school. There is NO WAY either of us will let that happen to our daughter-we are determined to take care of this and put our family on firm financial footing. We don't want to be rich-just secure. Thanks as always.

[helpmeout]

I'm in NJ, which is a judicial state when it comes to foreclosure, and I was in the house over a year before they served me. I moved out thinking it wouldn't take that long. Should have stayed as they still haven't foreclosed. But NJ only gives you 10 days to move out after the sheriff's sale and I have two kids and wanted to stay in the area I am in now.

To be blunt, you are going to have a hard time getting a decent interest rate with a recent foreclosure on your public record. You may want to consider just stopping now, you may be able to buy a house sooner with a better interest rate.

[Diesel73L]

I'm in NJ, which is a judicial state when it comes to foreclosure, and I was in the house over a year before they served me. I moved out thinking it wouldn't take that long. Should have stayed as they still haven't foreclosed. But NJ only gives you 10 days to move out after the sheriff's sale and I have two kids and wanted to stay in the area I am in now.

To be blunt, you are going to have a hard time getting a decent interest rate with a recent foreclosure on your public record. You may want to consider just stopping now, you may be able to buy a house sooner with a better interest rate.

Thanks for posting. It's hard to know what to do-we like our house, but we don't love it. We're also right on the edge of where you go from "rough time in the housing market" to "underwater with no hope." We're about 8% underwater right now, but there are two foreclosures on our street already-I have to believe that our house is going to continue to slide ever lower before it starts to rise again. I'm starting to lean toward stopping paying (maybe now, maybe after BK, depending on what the attorneys advise) and going to mediation for the hell of it. If they're willing to modify to something reasonable we'll consider it, but I seriously doubt they will. Then we'll just live rent free and bide our time. Once we have to move we'll rent. My biggest concern was whether the bank, PMI company, or the IRS could come after us with a deficiency judgement or taxes on the deficiency, which they can't because of the BK. We'll take what we've learned about what not to do with credit and apply it to our three year waiting period along with a 20% down payment and see what we can get. There's just no future where we are now.

[keepsmiling]

Don't forget about those bonds. You may need those values unless you know for sure they are under xx.xx amount to include in your exemptions.

I am in the suburbs and bought my house 20 years before you did. It would be almost paid off by now if we hadn't kept taking equity out. My payment is less than yours but I am also on a tiny lot. For your house payment (if I could afford it) I could rent a very nice house here. For MY house payment, it would be unlivable, we'd have to rent office space and storage for the business, and we'd lose the tax write off. A bad move for us but your situation is completely different.

Btw, according the the IRS standards, NJ has the highest allowances in the country for housing. That's pretty telling about what it costs to live here. And I am pretty sure our insurance for everything is the highest as well. Ack.

[buzzstpoint]

My thought is..

Discharge all debt, including your house.
But continue to pay the mortgage. Perhaps in a few years you'll be able to refinance or they will present you with a different mortgage deal (unlikely but hey).
I wouldn't gamble on staying in the home just on what other have said. You never know, you could be the exemption in that rule of "2 years"

If you end up in the future falling on hard times, then you could let the house go.

[ValleYum]

Hey Diesel, I was curious about your comment regarding the 7k in property taxes... you aren't planning to pay the taxes if you aren't paying the mortgage are you?

[Diesel73L]

Hey Diesel, I was curious about your comment regarding the 7k in property taxes... you aren't planning to pay the taxes if you aren't paying the mortgage are you?

Actually I was because I was assuming that the town could come after me for it later-am I wrong about that?

[ValleYum]

Property taxes go with the property. I wouldn't pay them. It's likely your either mortgage company will or after the prescribed period the town will have a tax sale (for example: here in my county it is 2 years unpaid taxes has the property going to the next tax auction). *69 your phone and call your town tax assessor/collector and ask what their policy is. 7k is a lot of money to pay if you aren't planning on staying.

PS: Run it past your attorney too!

[shark66]

Understood-I was assuming (and will check this with an attorney of course) that the important date as far as the timeline of a new mortgage is the Sheriff's sale (assuming it sells).

That's really not how things work...

The bank would most likely buy the house back at Sheriff's sale. And in collective experience of this forum, it takes two days short of forever for the banks to get the house out of your name, for obvious reasons...

Five years is actually a good case scenario...

On another note, if you're planning on letting the house go, I wouldn't be paying any taxes...

My $0.02 only...

Good luck to us all.

[Diesel73L]

That's really not how things work...

The bank would most likely buy the house back at Sheriff's sale. And in collective experience of this forum, it takes two days short of forever for the banks to get the house out of your name, for obvious reasons...

Five years is actually a good case scenario...

On another note, if you're planning on letting the house go, I wouldn't be paying any taxes...

My $0.02 only...

Good luck to us all.

This is so frustrating...we just don't know what to do. If we decide to "stay and pay" for the foreseeable future, just our break even point seems pretty far away, let alone when we'll ever build equity in the home. We would essentially be trapped in our two bedroom one bath ranch. On the other hand, just walking away, as I'm finding, is not so cut and dry. I don't want to be trapped renting for years either. It would be nice to have a large cash reserve stashed away, but here in the Northeast (or many places for that matter) $60-80K is not going to buy a home-its a nice down payment but you still need a mortgage. I dunno...we're going to talk with another attorney for a second opinion of sorts in a week and a half. They do a lot of foreclosure work in addition to BK so maybe they'll have some good advice for us. I hope.