Is this a valid alternative to getting out from underwater??

[MrUnderH2O]

[Flamingo]

There are many people in your exact same situation. However, to file bankruptcy you must be insolvent and from your posting it appears you are doing just fine but just owe too much on your home that decreased in value with this economy. You can do two things; ride this out cause as you pay down both your mortgages your equity will rise as the economy improves (think long term) or trash your credit and let the house go. If you trash your credit and allow foreclosure it will make obtaining another mortgage extremely difficult over the next several years.

[MrUnderH2O]

Thanks for your feedback Flamingo...

Riding it out does not seem very logical to me. I could live with having crap credit for 5-7 years and living in a home that is making me money in equity every month than a home that would take me 10+ years to even break even. And with the possibility that i don't need to even claim bankruptcy, but simply sell short on the original home and then work with them on a payment plan to pay that HELOC loan over en extended time sounds to me to be a much more admirable choice.

But...i am no Real Estate agent / Mortgage broker of any kind, so I would like to identify any possible holes i could fall into if i took that road.

[MrUnderH2O]

Thanks for your feedback Flamingo...

Riding it out does not seem very logical to me. I could live with having crap credit for 5-7 years and living in a home that is making me money in equity every month than a home that would take me 10+ years to even break even. And with the possibility that i don't need to even claim bankruptcy, but simply sell short on the original home and then work with them on a payment plan to pay that HELOC loan over en extended time sounds to me to be a much more admirable choice.

But...i am no Real Estate agent / Mortgage broker of any kind, so I would like to identify any possible holes i could fall into if i took that road.

If you trash your credit and allow foreclosure it will make obtaining another mortgage extremely difficult over the next several years.

I see that could be a problem if i was forced to move again from the new home with the better equity/mortgage. But seeing as I would already be in the new home i planned on staying for the next 30 years with the mortgage payment in line with today's market I don't see a high risk in that aspect.

[dingdong]

Its called "Buy and Bail"

People do it all the time.

Ehtical, probably not. I have heard about RE agents suggesting it to people very upside down.
Google "Buy and Bail", you can see the controversy.

[StartingOver08]

The mtg lenders have put in new underwriting measures to determine if you are trying to do a 'buy and bail' attempt. One of the measures is your equity in your existing home has to be 25% in order to buy a new home without selling the old home. The lenders have put in a cooresponding rule that the home you purchase must also have 25% equity. That is tough to do in today's market with a recent purchase (say a purchase within the last 5 yrs).

Different lenders have different criteria, but I have been bumping into this particular underwriting rule for about 3 mths now with various buyers. (I'm a Realtor). There is other criteria that works at preventing a buy and bail. Even if you rent your existing residence, the lender is going to put you through the wringer on underwriting.

[AngelinaCatHub]

There are many people in your exact same situation. However, to file bankruptcy you must be insolvent and from your posting it appears you are doing just fine but just owe too much on your home that decreased in value with this economy. You can do two things; ride this out cause as you pay down both your mortgages your equity will rise as the economy improves (think long term) or trash your credit and let the house go. If you trash your credit and allow foreclosure it will make obtaining another mortgage extremely difficult over the next several years.

I believe Flamingo's advice is sound. All things being equal, when you purchased your house for 380 you had no problem on the payment. so it takes a 50% hit, you liked the house at 380, now you don't like the house? The house is what you chose. You need a house anyway. Stay in it, ride it out, sell short if you insist but don't screw up your credit with what you state you have going for you. You don't need bk, you need a Financial Planner. Only my opinion. 'Hub

[DeadManCrawling]

I say go for it. This is sort of what I am planning to do, with one difference.

I won't need a mortgage at all.

If you can lower your expectations, perhaps you will find a home you can buy outright, and get rid of the need for the mortgage rules mentioned above.

In my market there are homes starting at 20k that are livable, if in need of repair. Get to 40k and they are decent. 50k and you can have an inground pool, hot tub and lanai. I live in the Tampa area. I am liquidating all I can and saving while letting my current house sit awaiting foreclosure. Then I will purchase one with no mortgage needed. Dream home? Hardly. But it will be free of loans. Maybe it would make sense for you to do the same. Without a mortgage, I will be better equipped to save and consider plans for my other debts, which may still include BK. Of course, excess income could easily steer me (and you) into a chapter 13.

Good luck in your journey. Many others have done this and it worked out fine.

[woeisme]

If your income is near 6 figures, unless you have a large family, I would say you would be forced into a CH 13 if you file. Those are not a picnic! If bailing on the old home and getting a much cheaper version leaves you with a lot of disposable income, you may end up paying for the old house anyhow, because anything you owe on it over what the lender can sell it for become unsecured debt, which you will have to pay some percentage of in your CH 13, sometimes all the way up to 100% depending on your disposable income in after filling out the forms and schedules. So this might work for you, but it might come back and really bite you in the a$$, I sure would research it thoroughly before making any moves. Good luck!

[MrUnderH2O]

Thanks for all your comments...very much appreciated!

My intention is FAR from trying to 'buy and bail'. I simply want to know and prepare for the WORST case scenario.

Seeing as i already put 80k down on my current 'old' house I don't feel I would have to foreclose IF i had to walk away from not being able to rent it out I believe I could do short sale.
But, this is why SO MANY houses around me have already foreclosed. Those owners did not have that 80k to put down so it was a 'no brainer' for them to walk away from a house that they still owed 370+k but was now worth 190k.

In any case I plan on meeting with a mortgage broker to go over the details and identify my eligibility. I will definitely be doing all my homework before i make a commitment. Thanks again for all your comments!

[Amy26]

I have been dealing with a similar situation since last year... however having no income for 6 months eventually pushed me into bankruptcy.

I started asking questions about my house specifically last year (no intentions of bk at the time, just didn't know what to do with my house). I was moving out of the country and realized that the home I purchased in 2007 for 270,000 was now worth a wopping 120,000 last year. It has dropped more since then. I had no idea what to do with it. I investigated my options with my mortgage companies... one was a credit union and the other was a company called Acacia. They basically told me to take a hike. The whole you agreed to these terms now live up to it. I talked to a few lawyers...some told me to just walk away since I was leaving the country (glad I didn't do that since now I'm back) and eventually I was forced to rent it out for less than half of what I had to pay every month.

Basically, you will not get off easy no matter what you do. My mortgage companies refused to let me do anything... my first mortgage company said I could possibly do a short sale but the second mortgage would have to agree to it... they said absolutely no. So, short sale was out. I couldn't do a deed in lieu because I had a second mortgage with another company. The only option was to 1. keep paying on it or 2. let it go into foreclosure. In my state, they could have come after me for the money and it would have haunted me forever.

I opt'd to keep paying for it. Course it bit me in the ass later...but the options are very limited for persons such as you and myself. If you let it go, the ramifications could be great.

[MrUnderH2O]

Thanks for sharing Amy26....

Fortunately i live in Ca. so the law states the lender cannot go after me if i HAVE to foreclose. (at least until 2011 when it changes). But, I am optimistic that it will not have to come to that and i am able to rent it out even if it is at a loss of 2 to 3 hundred a month.

Worst case scenario i cannot rent it out and the banks refuse to sell short or do a deed, then i have no choice but to forclose. Even then my credit would be crap for 7 years if i had to claim BK but i would be living in my new primary home with positive equity.

IF i simply stay and wait it out at an average rate of 5% market increase a year that would still take 11 years to JUST BREAK even on my current old house that is $110k underwater.

Sounds to me that after 11 years my credit would be back in top shape even if i had to claim BK and I would be living in a home with positive equity. Sounds like a much better situation than doing nothing and breaking even after 11 years.