Foreclose or not? Options?

Asked by Matt, Minnesota Sun Feb 1, 2009

We purchased our townhouse for $185k and now its work about $150k. We're upsidedown by about $30k. We since rented it out and baught a house. Financially, should I walk away and let the townhouse foreclose even if I can still afford it?

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Aaron Dickin…, Agent, Champlin, MN
Sun Feb 1, 2009
This is an ethical/moral issue and I think a slam-dunk. If you have moved out and have it rented and can afford it, you have an obligation to pay your debts... that's what you signed up for when you bought it in the first place. If the loan was from a relative you certainly would pay it... it should be no different when it is money from someone you do not know. While there are many people thinking about "walking away" from their obligations in this market today, I think it is akin to stealing since this screws the bank out of money that they lent in good faith.

The other problem is that a foreclosure will severely damage your credit for years to come and make any other loans difficult (or impossible) to get and if you can get them, much more expensive. The decision you make today affects you long term.

Lastly, this housing market will come back in time and in the mean time you can use the principle payments and depreciation deductions on your taxes to help offset your costs.

Do the right thing and follow through on your obligations... especially since you have the ability to do so.
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Cameron Piper, Agent, Forest Lake, MN
Sun Feb 1, 2009

As I see it you have two options:

1. Keep it

2. Get rid of it

If you choose to get rid of it, you have three more options:

1. Let it foreclose

2. Sell the property short

3. Give the bank the "deed in lieu of foreclosure"

Given these last three options I would always try to sell it short. You may have some difficulty trying to convince the bank of your hardship but in the end it is the right thing to do before just walking away. Please remember that you agreed to pay a certain amount for the house and then agreed to pay a bank back for lending you that amount. No amount of change in the house market will change that. If you aren't willing to fulfill your obligation to the bank the least you can do is attempt to find a buyer for them and minimize their losses. Operative here is the fact that you can still afford it - on moral grounds alone you should fulfill your obligations.

The next best options is to simply give the keys back (deed in lieu of foreclosure) and ask the bank to accept that. This is better for the bank since they won't have to hire an attorney and go through the foreclosure process to take the house back. It is also quicker and they should be able to recoup some of the costs in the expedited process. Few banks are willing to do this but it is worth a shot.

Keep in mind that there are ways in MN for a bank to pursue a deficiency judgement against you if they take it back and the house sells for less than you owe. You'll have to consult with an attorney for more specifics.

Cameron Piper
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1 vote
Jason Semler, Agent, Andover, MN
Sun Feb 1, 2009

Why would you walk away from an income producing property? The value will go up again someday and you will come out on top when it does.

Good Luck!
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1 vote
Fiorella Gro…, Agent, Apple Valley, MN
Wed Apr 28, 2010
Hi Matt!
If you can afford to keep your townhouse and have a renter in place, do not sell your townhouse. Keep it. This is an income builder for you and will help you out in the long run. Stick with it for now and eventually you will make money with the townhouse. You definitley have options, and if you would like to sit down and discuss those options, please feel free to contact my team and I at 952-223-0900. We pride ourselves on finding creative solutions to clients concerns/obstacles/issues. I am confident we can help you!
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Bill Eckler, Agent, Venice, FL
Sun Feb 8, 2009

Foreclosure is not the best choice for everyone. Be sure you have explored all options available, become informed on the topic, and are completele aware of the pros and cons of your situation.

$30,000 is not a large amount to be upside down for. It seems your approach of renting out the unit should be minimizing your financial burden. The damage done to your credit by a foreclosure is certainly worth trying to avoid especially when your present losses are minimal.

Our best advice is to be as informed as possible prior to making a decision.

Good luck
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Dallas Texas, Agent, Dallas, TN
Sun Feb 1, 2009
If you can still afford the property, you are earning income. Walking away ruins your credit long term damage can cost you more money off not able obtain loans for cars, mortgage, credit cards much more.
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