Since that time, two major residential developments, Inspirada and Kyle Canyon, have been experiencing difficulties in financing and may not be nearly as built out as as anticipated. With all those jobs being created, there will be a pent up demand for housing that will hopefully alleviate the worst of the depreciation you have seen on your home.
In the mean time, your most valuable asset is your excellent credit rating and fortunately affordability does not seem to be an issue with your current mortgage payments. (That alone would disqualify you for a short sale. You have to prove you cannot afford the payments, that you have no other assets at all, and that circumstances beyond your control put you in this situation. A declining market does not count as a circumstance beyond your control.) If you do go through a foreclosure, not only will that affect your borrowing power in future years, the banks, if they think you have the assets, have the right to go after you for a deficiency judgement to repay the money .
Personally I would tell you to stick it out, hope the market recovers quite a bit, and save some money in case you need to make up a short fall. While this is not an attractive short term option, I feel it is the best one in the long term, and that 10 years from now you will be VERY glad you chose that course of action rather than go through a foreclosure that could conceivably haunt you for the rest of your life. If you have extra assets that would allow you to purchase a property, why not buy one of the ones in your neighborhood if they are going that cheaply?! That way you could rent it out without having a negative cash flow and still take advantage of the future appreciation. (Actually if you live in a neighborhood where the houses of your size are going for $140k and renting for $1200, I would love to know where that is so I can buy a few!)
A question, have you actually had an experienced agent run the comparables in your neighborhood rather than just relying on an online search? While fun to look at, those are not truly accurate. If you go to http://www.greatlasvegashomes.com you can register for a free market analysis that will give you better information.
I'll be honest, though. I just don't understand your underlying logic. You bought a house at the top of the market for $240,000 and now it's worth $140,000. You "want" to move out of Vegas within 3 years. You and your husband have excellent credit. But you're concerned that when you sell that you'll still be upside down. So you want to "bite the bullet" now, rather than later. Is that about right?
But then you go on and say: "Good thing about foreclosing on our home and buying a new one is we could get a lot more house for a lot less money and have a hope of earning equity on our home." Just as the old commercial on TV went ("I'm not a doctor but I play one on TV"), I'm not a judge, but let me play Judge Judy for a moment: Accept some responsibility. Be an adult. You made a dumb move buying in one of the most overheated markets at the top of the bubble. And now it's time to pay up. And apparently you and your husband can do that without great difficulty. You just stay there, pay your mortgage on time, just like you promised you would. You don't lose the house. You don't injure your credit. You don't make the lender pay for your mistake. Do NOT stick the lender with a $100,000 loss, then try to rebuild your equity on another property. I don't like Vegas and I'm not keen on gambling, but I've seen too many people on a losing streak figure that the next hand of blackjack, or the next roll of the dice, is going their way. You tell me: What's the usual outcome?
So, worst case scenario: You stay in your property. You make your payments. You live up to your obligations. And in 3 years you're still upside down. Probably by not as much. That's better than deciding after the fact that you made an unwise decision in your purchase, and walking away from it.
The alternative is to wreck your credit for 10 years. You said you wanted to move in 3 years. How'd you feel about being stuck in Vegas with lousy credit for another 7 years after that? Not a pretty picture.
Someone mentioned renting, and you presented numbers regarding the negative cash flow. There are ways to close that gap. You could do a tax lease, or use a land trust to accomplish the same thing as "rent to own." In both cases, you'd be able to pass the tax benefits on to the resident beneficiary. Thus, depending on their tax bracket, you might be able to charge $1,800 a month, and their net cost (after tax benefit) is only $1,200.
There are a number of ways to deal with your situation. Walking away is not one of them.
A few things about your situation and would agree with some other things mentioned here. Using listing prices in today's market isn't necessarily an accurate way to determine property value. You should use actual sales. There are many short sale listings priced below market that either may not be accepted, or have sales above listing price. There are also REO's in the mix that may also come in above asking, or in need of repairs that keep them below market. Obviously these properties have an effect on those that absolutely need to sell today, but that doesn't seem to be your situation.
The question is... how many of those homes will be on the market in 3 years? There's no crystal ball to specifically answer that, just as many others that purchased didn't imagine there would be a drop in home values 2 years ago. There are those analysts that are predicting a housing shortage in Las Vegas by 2009, due to all the hirings from the $30 billion construction boom, just in hospitality.
For you to do a short sale you would have to provide a Hardship Letter to your lender along with your financials. From what you've stated here, it doesn't appear that you can't afford your payments, have a job loss, or need to transfer. I don't believe the bank will accept your property value estimate or any loss in value as a hardship. I know of some short sales similar to your financial situation, where banks are willing to accept a short sale offer if the owner pays the difference in the form of another loan for the amount of forgiveness.
For you to purchase another home, you would have to have enough income to support both properties, need money down and pay a higher interest rate. You may have heard that mortgage standards have been tightened, lenders under much more scrutiny, and more resources being applied to investigate mortgage fraud. It wouldn't surprise me that applying for a second / investment home in the same city, while owning a home with negative equity, might generate a Suspicious Activity Report from your application. With those that have committed mortgage fraud and have contributed to most every homeowner losing equity in their property, it would seem that those doing as you suggest and buying a second property, followed by an intentional foreclosure, are just adding to the problem and may be the next wave on investigations. I would strongly suggest seeking legal advise before proceeding. There could be more consequences than just a severe hit to your credit.
Since it appears you're not under any immediate need to sell, I wouldn't suggest any hasty decisions. You may want to check refinancing options to see if your current payments could be reduced. Not only for any savings it could provide, but may open up rental options in the future.
as long as you are going live there for the long haul
you can afford the monthly payment
sure you feel "richer" if your house is appreciating
if its not appreciating you feel "poorer"
the fact is
your cost hasn't changed
unless of course you got one of those nasty ARM loans
if they told you it was worth $500,000 you would keep it and feel better
its not worth that
yes, you probably paid too much for the house
but you will always need a place to stay
stay in the house
what are your other options?
that ruins you financially
you and 8.3 million other people will be "underwater" this year
maybe you made a bad decision
don't make another bad decision
keep the house
Wishing you the best Emily. Keep us posted.
here is a answer for you.
The president passed a new housing bill 2 weeks ago. It wipes out the negative difference
from 240K to 140K , we just refi at the new apprased value. Im so glad these realtors
told you about that.....
Joseph M. Nardino
You DO have a 30 YEAR loan right?
YOU thought your home was worth 240k when you bought it.
Now you THINK it is worth 100k less.
You have only the mortgage payments invested, with ZERO down.
Your lenders aren't telling you to come up with 100k so stop stressin'.
Have you had your home appraised in the current market?
You have ONLY LOST MONEY ON PAPER.
You still have a home.
This market is crazy. It could boom again.
Wait and see. You COULD recoup the 100k in three or four years.
At that point, you can come out even, or ahead !
Have a little faith.
I would suggest you stay put if it is finacially possible, you never know how the market will perform and you should hopefully be able to get back some of the value in 3 years. The options would be , you pay the difference at closing(no negative effect on credit) .Do a short sale with lender's approval(will effect your credit) or another option may be a deed in lieu of foreclosure(if lender will take it). Best of luck and wait a bit.
We all make mistakes with investing, but in the long run, your credit can be repaired and by the time home prices are reasonable again, you will most likely be back to where you stand now. In the meantime save up some money and invest it in mutual funds...the stock market is on sale right now! It's not worth keeping the home and dealing with the mental anguish you're going through.
I'm very much aware of the new housing bill and what it entails, no thanks to any Realtor I might add. I'm just interested in learning how to work with my mortgage lender. From what I've read it looks like Banks aren't going to be willing to take to government up on the offer until next year, if even. That will be too late for us. Any tips?
John A. Brassner, MBA, Realtor
Cell Phone: 702-808-9816
I'm very familiar with the strategy that Scott is proposing, and it's a pretty good one. If you really want to sell, that approach can preserve your credit and deal with the overencumbrance.
A short sale should be your last resort--only if you absolutely need to sell (which you don't today) and if you absolutely can't make up the overencumbrance. Hold off on that.
Hope that helps.
I am not sure where you heard that you don't need a Realtor to do a short sale. I can bet you that if you were in foreclosure and you tried to contact the bank as the homeowner doing your own short sale, the first question the bank would ask you is, "Do you have it listed with an agent?" In most cases, the bank never wants to talk to the homeowner. They know by listing the property with a professional, it will get sold closer to fair market value.
Like someone already stated below, banks are getting multiple offers on many of their properties. This is due to the banks lowering the list price less than fair market value. This strategy works to get buyers in the door and create interest. Many times these properties are getting sold way above the list price.
In the last 5 days I have put out 7 offers for my buyers. About 5 or 6 of them ended up having multiple offers.
The market is turning around in Vegas as we speak. Prices started up in March in some areas of Vegas.
Within the last two weeks our team has written 10 offers, and half of those homes already have multiple offers.
Based upon the number of people moving into Vegas (over 6000 per month) and the shortage of applications for building permits buy the builders, the odds of the prices continuing to rise is very good.
In three years, your home should be worth more than when you bought it.
I read your reply and understand that you may be thinking about renting your current home out and purchasing an REO property soon. Let me know if you would like my help with renting out your house and helping you find a nice REO property in your area. My office is actually located in Green Valley and I personally live in Green Valley. So I am very close to you. I have dealt with plenty of REO and short sale properties for buyers and sellers. With the education and experience I have, I am sure I can do a great job working for you. My contact info is below if you decide to look into those options. I appreciate any time you take to speak with me.
Prudential Americana Group
I am in the exact same situation. We bought for 342000 in 2006 and now the comps in the area are 240000. We are stuck too. However, we are looking at possibly renting ours out probably for less than our mortgage. We have the cash and credit to buy one of the REO's more along the lines of what we want.
Yes, we lose a couple hundred a month, but sooner or later, the market goes back up and we reclaim our equity and break even on the current house and make money on the 2nd house to offset the loss. Not the best strategy for everyone though.
If you bought for 240K, your payments are probably around 1600/month is you did a 30 year fixed at 100% financing, so you should have around 5K paid off. If you add more to your payments, you could lower your balance owed substantially and get your home to break even status in a couple of years.
I would suspect the homes going for 140K are Repo's. Those will work their way out of the system over the next couple of years, then we will be back to normal sales of resale homes. The Repo's are dragging the prices down everywhere. In Green Valley, a home bought in 2004 for 450K is now selling for 250K as a repo. The resales in the area are about 350K. So once you clear out the repo's things will look a little bit better.
If you get foreclosed on, then you are part of the problem to begin with. I have heard of this strategy all over the city and frankly I think it sucks and should be made illegal. It just further complicates this mess. All that will happen is those who do this will get foreclosed on a 2nd time in a couple of years. If that happens, you should be put in jail for fraud.
"Do-it-yourself" price research can be risky--just looking at prices on a web site won't give you the whole story. Probably what you are seeing is a few "comps" that are short-sales and bank-owned that may or may not sell at that low price. I can tell you that the well-priced bank-owned properties are selling like hot cakes (real good tastey hotcakes) with multiple offers. Once that inventory has dried up, the other resales will start to sell and things will be better. I'm seeing that now. Please don't dispair--when it is time for you to sell, you'll make the best decision you can based on marketing conditions at that time. Are you really going to worry every day for the next three years? Of course not. Keep my number in a drawer and pull it out in three years,
John A. Brassner, MBA, Realtor
Windermere Summerlin Real Estate
Cell Phone: 702-808-9816
10777 West Twain Ave, Suite 105
Las Vegas, NV 89135
Another option you may have that wasn't mentioned is to rent out your property. You stated that you have to move. If you can obtain enough money in rent to cover your mortgage or come close, then that will give you the opportunity to relocate where ever it is you need to be. If you have great credit, then you might also be able to purchase another home in the new area, depending on your income. If you want a free market analysis to see what your property is valued at or if you want to move forward with listing your home as a short sale, let me know. I specialize in short sales and I know how to deal with the banks.
Prudential Americana Group