Foreclosure in 95336>Question Details

Sl, Home Owner in 95336

Should I just walk away...?

Asked by Sl, 95336 Wed Feb 9, 2011

Hi, I bought my primary home (in Manteca, CA) in 2005 for 1st mortgage of 320K and second of 80K (both purchase money) with 0% down. Never refinanced & no LOC. Total monthly mortg (1st & 2nd) is $2657. I'm under water by around 240K on this home. In 2008, I moved to San Jose, CA because of Job change and rented out my Manteca property for $1400 a month. I had to pay the difference ($1250) out of my pocket to keep up with the mortgage. In 2009 I bought a second home in San Jose. Monthly payment for that is $2300. This means the total mortgage for both homes now is ($2650 $ 2300 - $1400) = $3550. I am thinking of just walking away from my first home as I did not put anything down on that house and as per CA law, if both loans were purchase money loans for a primary residence they cannot come after me or my new home. I know that they will not approve a short sale because of the huge difference in the home price now (-250K). Should I just walk away? Bank refused a loan modification.

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15
Only you can answer this question, looking to or for advice from others on a decision of this magnitude is ill-advised. What you are asking about is called "strategic default", and personally if enough home owners did that or saw things this way, our entire financial system could collapse.
1 vote Thank Flag Link Sun Feb 13, 2011
Hi All, just wanted to update you that on Sept 2nd I successfully sold my Manteca home through a short sale. The property was listed in March 2011 and sold in Sept 2011....not bad.:-). I was able to take this decision because of some wonderful advise from you guys, who recommended that I did a SS rather than a Foreclosure. I wanted to take a moment to Thank you all for your true and accurate advice. I have in writing from the 1st lender that they relieve me of any future collections. The second did not say anything about coming after me, but the new law I guess should protect me where the lender cannot come after you after a short sale. I'll talk to my CPA about that. Anyways...Thank you all once again...its such a relief getting the burden off of paying towards a severely under water property.
0 votes Thank Flag Link Thu Sep 8, 2011
Walk away foreclosure is considered the worst form of default by the credit industry and is very difficult to overcome, see below.

Ramifications of Foreclosure, Short Sale or Deed-in-lieu-of Foreclosure

Here are some of the ramifications of foreclosure, short sale or deed-in-lieu-of-foreclosure, there are many more like; insurance rates, your job (yes employers are checking credit records these days).

Your credit score will be reduced by 200-400 points, short sale and deed-in-lieu-of a little less 100-200 points.

All forms of foreclosure stay on your credit report for 10 years.

After you have gone through foreclosure, short sale or deed-in-lieu-of-foreclosure there will be what is known as the "waiting period", this period of time varies for each and can be reduced if you had some type of extenuating circumstances that caused the foreclosure:
Waiting Periods to Buy After Foreclosure – “YES” Short Sale and Deed-in-lieu-of are forms of foreclosure
• Buying after a Walk Away Foreclosure
The waiting period is 7 years
• Buying after a Foreclosure
The waiting period is 5 years with 20% deposit up to 7 years.
• Buying after a Foreclosure with Extenuating Circumstances
The waiting period is 3 years with 10% deposit up to 7 years.
• Buying after a Deed-in-Lieu-of Foreclosure
The waiting period is 2 years with 20% deposit, 4 years with 10% deposit up to 7 years.
• Buying after a Deed-in-Lieu-of Foreclosure with Extenuating Circumstances
The waiting period is 2 years with 10% deposit.
• Buying after a Short Sale
The waiting period is 2 years with 20% deposit, 4 years with 10% deposit up to 7 years.
• Buying after a Short Sale with Extenuating Circumstances
The waiting period is 2 years with 10% deposit.

In addition to the waiting period and minimum down payment, you will be required to have a minimum FICO score and the home purchase must also be the principal place of residence, not a rental nor a vacation home.

Lastly, most loan applications will ask the dreaded question "Have you ever been foreclosed on?" this stays with you for life, many think that because it will not show up on the credit report after 10 years they can answer "no", well lying on a loan application is a felony that carries a major jail term, so be aware.

Bob Patrick
Buy a home after foreclosure expert
Movin-On LLC
Helping families/people that have lost their homes get back into another in as little as 6 months
0 votes Thank Flag Link Sun Feb 13, 2011
Hi Sl
First off you may be able to short sell. You should look into the short sale if you can.
Walking away is not always the best option in fact it is usually the worst.
You can ruin your credit and be treated as such for years to come if you think that is your way out. I sure would not.
Remember those 100 signatures or so when you bought the property?
Whatever happened to being responsible and being a man of your word?
Don't forget to look into the tax implications. Seek a CPA's advice.
Those tax implications will just about kill you.

Harold Sharpe - Broker
So Cal Homes Realty
(951) 821-8211
harold@socalhomesrealestate.com
http://www.socalhomesrealestate.com
California Department of Real Estate Broker License # 01312992
0 votes Thank Flag Link Thu Feb 10, 2011
You may qualify for the debt relief act as you mentioned and perhaps that is what saved my clients last year when I sold their previous primary residence as a short sale. I did ask them to speak with a CPA who understood the real estate tax laws in which they did. They also had two loans but the second was a HELOC and the bank was very difficult to deal with but I managed to negotiate their contribution to a level they could afford. They are now debt free of the second property and on with their lives. I encourage you to follow up and speak with one as well so you do not have any doubt when you choose how to handle the sale of your house. If you need any support plesae do not hesitate to send an email. dsoldwisch@pmz.com
0 votes Thank Flag Link Thu Feb 10, 2011
They very likely will approve a short sale. You just need to have a professional handle the negotiations for you. The short sale price will be approved at current market/appraised value, regardless of what you owe on the property. A short sale is far less of a hit to your credit than a foreclosure.

We are a professional short sale service and would be happy to explain the process to you and walk you through the steps. Please call us directly to discuss your specific situation. Our services are FREE to homeowners. We look forward to hearing from you.

Eli Givoni, Director
Short Sale Department, LLC
561-361-1909
info@shortsaledept.com
http://www.shortsaledepartment.com
Serving all 50 states
0 votes Thank Flag Link Wed Feb 9, 2011
Not just a CPA can handle this, an attorney would be very valuable. It is interpretation of the law that will show you the consequences. Chad Wood is a respected attorney that will explain the options available to you and the benefits of your decision.
0 votes Thank Flag Link Wed Feb 9, 2011
See a CPA, it sounds like you need to get professional advice from a CPA. If you need one pleease email me at: tamirines@gmail.com, I would be happy to help.
0 votes Thank Flag Link Wed Feb 9, 2011
Thank you all for your quick response. In addition I wanted to give out some more information:

Both 1st & 2nd were from New Century Mortgage (which is no longer in bus), the 1st was transferred to Carrington Mortgage (which is a debt collector) and 2nd to BOA. As far as property now being rental, and as far as I know if I have lived in that house for at least 3 years out of total 5 years, then IRS still takes that as my principal residence (because it was bought with the intention of dwelling/primary residence) and with that I should qualify for the 2007 Debt relief act.

http://www.irs.gov/newsroom/article/0,,id=174034,00.html

Please correct me if I'm wrong in my thinking.
0 votes Thank Flag Link Wed Feb 9, 2011
Although your loans on the Manteca house are purchased money, the property is no longer your primary residence. This means there is a potential for capital gains with either a foreclosure or a short sale. However if you speak with your CPA and show that you had to move due to job relocation you may be able to differ the capital gains. If you let the property go to foreclosure you are still responsible for the condition and safety while you wait. If you short sale the house you can keep it occupied and receive rent while you wait if your tenants are cooperative. If you short sale the property it is important to have the lender give you a no money owed on any promisary notes to keep creditors from seeking finincial recourse. I sold a home for a couple in a similar situation last year and they were free and clear of debt after the sale other than the $1,800 paid to clear the second loan which was a home equity line of credit. The properties I have sold as a short sale that had purchase money loans the lenders have give 0 money owed on primisary notes. The short sale is usually the best way to persue since you have control of the situation. If the property forecloses there are typically more unknowns. And of course if things are not working out during the short sale for whatever reason you can always foreclose. It is important to contact your CPA during the process to make sure you fully understand any financial liabilities. Please call and we can discuss your options.
David Soldwisch; 209 612 7737; dsolwisch@pmz.com
0 votes Thank Flag Link Wed Feb 9, 2011
Although your loans on the Manteca house are purchased money, the property is no longer your primary residence. This means there is a potential for capital gains with either a foreclosure or a short sale. However if you speak with your CPA and show that you had to move due to job relocation you may be able to differ the capital gains. If you let the property go to foreclosure you are still responsible for the condition and safety while you wait. If you short sale the house you can keep it occupied and receive rent while you wait if your tenants are cooperative. If you short sale the property it is important to have the lender give you a no money owed on any promisary notes to keep creditors from seeking finincial recourse. I sold a home for a couple in a similar situation last year and they were free and clear of debt after the sale other than the $1,800 paid to clear the second loan which was a home equity line of credit. The properties I have sold as a short sale that had purchase money loans the lenders have give 0 money owed on primisary notes. The short sale is usually the best way to persue since you have control of the situation. If the property forecloses there are typically more unknowns. And of course if things are not working out during the short sale for whatever reason you can always foreclose. It is important to contact your CPA during the process to make sure you fully understand any financial liabilities. Please call and we can discuss your options.
David Soldwisch; 209 612 7737; dsolwisch@pmz.com
0 votes Thank Flag Link Wed Feb 9, 2011
Tami is correct. Talk to a CPA first. You will have two issues when you dispose of the property either through a short sale or foreclosure. First, the cost basis when you transferred the asset into rental property and the gain or loss when you sell or walk away. Second, the potential ordinary income you may incur when you dispose of the non -primary residential property.
Good luck,
Web Reference: http://ocnorth.com
0 votes Thank Flag Link Wed Feb 9, 2011
I agree you need to talk to your tax advisor. In some cases you may be responsible for the difference. Depending on who your lenders are they may work with you on a short sale. Banks are not in the market of keeping vacant house in their inventory right now. I live in Manteca and would like to discuss the options you may have. Please contact me at vickireagent@aol.com and lets work on a plan to get you free of the mortgage payment on your Manteca home. I look forward to hearing and helping you with your situation. Best of luck and thanks for the question. Vicki Gonzalez
0 votes Thank Flag Link Wed Feb 9, 2011
Before you do so I recommend you speak to a competent attorney that will discuss your legal consequences, a cpa/enrolled agent for your tax consequences and a strong Realtor with a team to explain what it takes to accomplish a short sale. Send me an email and I will refer you to both a tax person and attorney. Ron@HomeBuyersRealty.com
0 votes Thank Flag Link Wed Feb 9, 2011
Talk with a reputable CPA. Sounds to me like the home in San Jose is now your primary and there can be major tax implications either way. If you don't know a CPA let me know so I can recommend a good one. This is not as cut and dry as people would like to think. If the CPA and you decide that a short sale would be more benefical for you I would be happy to map out a game plan with you. Thanks for your question. Tami Rines
0 votes Thank Flag Link Wed Feb 9, 2011
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