We just retired and we can't afford our mortgage. If we have enough cash to buy a house in a different state, should we foreclose or short sale?

Asked by kmade99, Queen Creek, AZ Sat Nov 17, 2012

We are a retired couple living in southern California.

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Keith & Kins…, Agent, Verona, WI
Sun Nov 18, 2012
If you have cash set aside to buy a different house, couldn't you sell your current house for less than what you owe and make up the difference with your cash? In my opinion taking advantage of the banks to do otherwise. I know there's some financial advisers out there that suggest strategic foreclosure, but in my opinion this is a mater of integrity. You made a promise to pay the bank, and if you can, you should.
1 vote
Felix Santia…, Agent, West Palm Beach, FL
Sun Nov 18, 2012
I would strongly urge you to seek the advice of a real estate attorney before proceeding. However, if you are paying cash for a new home then there is no mortgage fraud committed.

Motgage fraud is committed with a "buy and bail" if you are financing your new purchase. On your Uniform Residential Loan Application (1003 Form), you are asked specific quesitons about your intentions with regard to the new purchase. Keep in mind this a federal form, and you are most likely obtaining some kind of federally regulated financing through FHA, Fannie Mae, or Freddie Mac. Answering untruthfully in order to secure financing is fraud. Recently, the federal government announced steps to pursue mortage fraud more aggressively.

What you do with your cash is your business. If you need to purchase a home in another state with your own cash, no one can tell you what you can and cannot do with your money. You may even be able to short sale the first home, as a decrease in income due to retirement is a hardship.
1 vote
Felix Santia…, Agent, West Palm Beach, FL
Mon Nov 19, 2012
Although I respect their opinion, I have to strongly disagree with the response by Keith and Kinsey Schulz that this could be a "matter of integrity." Whether it is a strategic default or a decision of what to do with your money, it is NEVER a moral issue or a question of integrity. Don't let anyone tell you otherwise.

My clients' contract with the bank is strictly a legal business document, there to protect both parties should one not be able to perform their duties. If you decide for business and/or personal reasons that you can no longer make payments to the lender, the contract is a road map as to how the matter will be resolved. It does not matter if my clients have $100 or $100,000 in savings. It is no one's business but my clients' to decide how to best use that investment. And I would strongly disagree with anyone that recommends throwing a client's hard-earned retirment cash into an over-priced piece of brick and mortar is a good and moral choice. How misguided that would be.

Certainly, the banks and collection agencies benefit from making the housing crisis a moral one. But, I can assure you there is no VP of Guilt and Pity at Bank of America. Their decisions are strictly business in nature.

Kmade99, you are making the right BUSINESS choices for you. No one should question your integrity.
0 votes
So, if someone buys a car, and then decides that they would rather have a Lexus; then they can park it on the Caddy Dealer's Lot and just walk away?
There is no such thing as INTEGRITY any more?
You make a COMMITTMENT, but that's Okay, that's for suckers!
Flag Mon Nov 19, 2012
Annette Law…, Agent, Palm Harbor, FL
Sun Nov 18, 2012
Your situation will dictate the best recourse you should take. Soliciting opinions off the internet for a decision that is this incredibly important is the worst option.

The instrument in which your saving is held, the nature of your retirement income, the laws of the STATE of CALIFORNIA and the laws of your destination state and the choice you make regarding the ownership structure of the property will all have bearing on your future security. You are facing a strategic decision that has long term consequences. The 'internet' will prove woefully inadequate to protect your interests.

You need to consult an attorney as well as your financial planner. Listen closely to what they tell you they can't tell you to do.

You may want to give Felix a call.

Best of success to you.
0 votes
Tracey Simms, Agent, Bel Air, MD
Sun Nov 18, 2012
Have you considered a reverse mortgage? It could be a good option for you.
0 votes
Greg Myers, Agent, Gaitherburg, MD
Sun Nov 18, 2012
If you have the cash to buy a home in a different state you cannot "Short-sale" your present home since hiding assets is mortgage fraud. The banks have prosecuted former home owners for fraud involving short sales. Letting your present home go to foreclosure is a personnal decision which only you can decide, any real estate professional would never recommend this as the long term effects will HAUNT you for 10 years.

You need to seek the advise of a real estate professional and or a real estate attorney. My suggestion is to determine how much "cash" you would need to bring to the table to sell you present home and determine if you have sufficient funds for a down payment and closing costs for a home in the state you want to move to. You must also determine the amount of mortgage you retirement income will allow. This overall option is the safest course of action for you to move on in life and enjoy your golden years.

Greg Myers
RE/MAX Realty Group
0 votes
The Roskelly…, Agent, Gambrills, MD
Sat Nov 17, 2012
Hi K,

What you are describing could be considered a 'buy and bale' which is a form of mortgage fraud.

A short sale will require (in most cases) a financial hardship which would be hard to prove if you have sufficient assets to pay for a home in cash.

Have you considered renting to put some time between your new purchase and a final decision on the disposition of this home?
0 votes
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