should I go into foreclosure?

brigitbella · January 2014

I have been in my home since 2006, when I purchased it for 175,000. It is now worth 135,000. My ex husband and I purchased the home, without much financial knowledge, and I still have little knowledge now, except that I know we got crappy 1st and 2nd mortgages, because we still owe approximately 175,000. I was able to refinance my first mortgage this past October 2013 (in just my name), but nobody will touch the 2nd mortgage because of it being so far underwater. I am able to make my payments on both (which come to about 1500/month), but I'm not able to keep up with the home repairs. We will need waterproofing in the basement, as it leaks on rainy days, full electrical re-wiring of the home, new furnace/air conditioner, and plumbing at some point. I also occasionally hear something in the attic, and noticed a small hole in the outside soffit. Oh, and paint is cracking near the ceiling by the fireplace, which probably means my chimney is leaking. I should point out the house was built in 1953. Hubby is willing to help with repairs and upgrades, but the mortgage is on me, as "you're the one that got in this mess".

I guess my dilemma is this...should I walk away knowing I will need to put in at least 30,000 in repairs/updates or keep the home and hope it pays off?

I was thinking of calling it a loss and buying again in just hubby's name, but his credit is not as good as mine is now. I do realize it will take a huge hit if/when I do decide to foreclose.

Any advice or guidance would be greatly appreciated.

hoffse · January 2014

Well I wouldn't do it. To me, foreclosure is appropriate when you literally can't afford to make your monthly payments, and that's not the case for you. Being underwater isn't a good situation, but it's something that's happened to many people who bought when you did. If you stay in the house long enough, you will eventually get to the point that you won't owe the bank if you sold. I would be inclined to stay in the house at least until you hit that break-even point.

It sounds like you have remarried. Whether your husband is willing to pay on that mortgage or not, he should be contributing to the overall living expenses in some fashion. You said he would be willing to help with repairs - so I think that's what he should be doing. I don't find it reasonable for a married couple to put the entire burden of living expenses on a single person in the relationship when both people have incomes. Some people do split finances so that the mortgage comes from one income and other living expenses come from the other... or they will do some other arrangement to make it proportional. But you imply that the lion's share is falling on you and stretching you personally (when your husband could afford to help out more). If that's the case, then I would address this problem ASAP. If he is living in that house and is married to you, then I would argue his responsibility is just as great as yours to see that a) the house he's living in doesn't fall apart and b) his wife doesn't go into foreclosure because her husband won't help when he can afford to help.

If I've misread your post, please correct me.

Finally - the reason you still owe about $175,000 is probably two-fold. First, mortgages are amortized. That means you pay the interest first and then the principal. Banks know that people move, on average, every 7 years, and this helps them get their investment back out of the loans they make. It also hedges against folks who do what you're contemplating. If you've been in the house about 7 years, then your payments will still be primarily interest.

Second, when you re-finance the clock restarts. If you had to refinance to afford your payment, then that was a good deal. But you are starting an amortization schedule all over again.

If you want to hit the "break even" point on your mortgage more quickly, then you need to make extra payments. Do check your paperwork, but in most mortgages any extra payments get sent toward principal instead of interest. That lowers the amount of interest you pay over time, and it gives you more equity in the house at a higher rate.

If you need help figuring out how to afford to do this, post a budget and we can help.

Xstatic3333 · January 2014

I agree with PP; I'd stay until you can break even. I'm not sure what the rest of your budget is like, but I'd probably try to make other lifestyle cutbacks to make that happen ASAP. Things like a second job (I have one!) or selling some big items can really help.

From what you wrote here, and maybe it's just not the full story, your husband's attitude about this doesn't seem appropriate to me. If you went into foreclosure and started renting, you'd still have to live somewhere! Even if you guys keep totally separate finances, I think he should be contributing the amount he would have spent on rent to the mortgage and/or repairs. When the repairs are done, this means mortgage to me. It may be "your mess," but he lives there too. Now if you guys have it worked out that he's paying for other joint stuff instead, that may be ok. It just didn't sound like that from your OP.

brigitbella · January 2014

I guess I should clarify, i do pay most of the household expenses, and the full mortgage. He pays me cash every pay day and the cable/internet bill. To be fair, I make more money than him, and he works nights so he can be home when our daughter gets home from school. So, I save money by not having to fork over $300 extra every month for after school care.

The second mortgage I have is a balloon. interest only loan. My new lender says they aren't even allowed to offer these types of mortgages anymore, it's considered predatory lending...but that doesn't help me.

Can I default on just the second mortgage? Should I try to a personal loan for the $50,000 to pay it off? I'm so screwed.

I really don't want to lose the house, but I'm finding it frustrating to be so far back, I have no idea when I'll break even.

hoffse · January 2014

Look at this calculator to get a sense of when you will break even. You can even see what happens if you pre-pay at various times:

http://mortgage-x.com/calculators/extra_payment_calculator.asp

I would be really surprised if you could default under one mortgage and still leave the other intact. If you think about it, you have one asset (the house) securing both mortgages. So if you default under one and go into foreclosure, suddenly your house is sold and you are still paying a mortgage for an asset that is no longer in your name. Neither you nor the bank servicing your first mortgage wants that.

Honestly? You and your H might want to look at your finances as a combined unit and see what you can come up with. I make 95% of the money in our household right now. H is a law student and makes $200/month from an on-campus job. I make... a lot more than that. H is still very welcome to spend the money I earn. I see it as ours, not mine. In fact, we are about to go buy a car for H... the payments for which will be funded 100% by my job. That's fine. We're married. Even if your H makes less than you, this is a problem that could ultimately affect you both. Keeping finances separate works until one of you routinely comes up short and the other doesn't. Then you need to reassess what's going on. I suggest taking a step back, pooling your money, and then coming up with a joint budget that works for your household overall.

Again... if you need help creating that budget, post it here. When you mentioned "cable" my alarm bells went off... because cable is probably the least necessary thing you could be paying for these days with hulu and netflix as alternatives. You're probably leaking money in other places as well, and we can help you identify areas where you are spending too much. Sometimes it's hard to know when you're in it.

brigitbella · January 2014

ok, thanks for the help! here's what we spent in December, as far as scheduled bills:

Health Club - $60

!st Mortgage - $1186.70

2nd mortgage - $399.03

Vacation property - $162.19 (stupid time share thing I can't get out of)

Electric - $58.23

Morning Care for DD - $90.00

Gas - $69.97

Credit Card - $150.00 ( to pay off before introductory period ends 5/2014)

Water/garbage - $200.00 (every other month)

Cell Phone - $72.15

Violin Rental for DD- $23.00

Violin Lessons - $40

Cable/Internet - $111.19

Credit Card - $100.00 (6 month repayment plan)

I just changed insurance for auto home, and I will be saving about $600/year for both.

It will be about $70.00/month for auto. Home comes from an escrow account.

brij2006 · January 2014

Here's what I would look at. Do you want to stay in the home? Is this a home that you and your family will continue to reside in. Or if you were to foreclose, then you would want to re-buy a similar home? If so, then stay in it. You can make your monthly payments on both mortgages, so there isn't a reason to foreclose on the home. A short sale may be a better option, but that's only if it was a worst case scenario.

Now, I'm sort of the blunt one on this board. So I'm going to be blunt. You and your H need to have a "come to Jesus" talk. You're married, and what's his is yours and what's yours is his. This is a partnership. You aren't roommates. So as far as the monthly expenses and decisions on the home, it isn't just you. In most states once you get married the home is automatically joint ownership. Whether his name is on it or not. It sounds like the two of you need to put together a joint budget and make some decisions. Even if it means putting all of both of your incomes into 1 checking account to pay for bills and monthly expenses, then you each having a separate account for a small amount of "blow" money. This is something you need to do together. He married into this situation, and it's part of him too.

Xstatic3333 · January 2014

I need to agree with @brij2006 here about your husband's role. I know it may be a tough thing to address. When H was making more than me, before we were married, I told him I could afford to contribute $400 a month towards rent. He chose a place for us to live that was more than twice that, but I still paid that $400 (in addition to half of the utilities). If your credit score is the better one, I would also want to preserve that in case you need loans in the future for some sort of emergency.

Good luck-I do sympathize that you're in a tough situation here.

hoffse · January 2014

I agree with Brij...

OP, I suggest posting your budget in a new thread and also adding a few things:

-Income

-Interest rates (and balances left on loans and CCs)

-Cable/internet

-Groceries...

-Eating out...

-Etc.

daisy662 · January 2014

I am going to be very blunt. You are in the group of people who really frustrate me. You do not educate yourself, get in a situation over your head, and then expect others to bail you out. Take a look at your expenses. Health club membership, violin lessons, vacation property, and cable??? These are luxuries that someone considering foreclosure has no business with. You need to reevaluate your budget cutting out all things that are not critical until you clean up your mess. You also need to look at getting a second and/or third job. I agree with your ex - you got yourself into this mess, now you have to figure ot how to get out.

Sisugal · January 2014

That is only part of your expenses. What about food, personal care, clothing, gifts, vacation, entertainment, do you eat out etc. Health care, retirement, savings?
IMO your DH should fund the repairs and renovations or at least participate more in the household finances to a greater degree.
Get out of debt - pay extra on the 2nd mortgage and get rid of it.
NEVER borrow against your home.
Learn to spend less than you take in --- save first and then buy - not the other way around with buying and figuring out how to pay for it.

Read the following books for greater understanding on Home buying and financing
Home Buying for Dummies
Mortgages for Dummies

These are great for getting out of debt and getting on the same page financially with a partner
Smart Couples Finish Rich by David Bach
Total Money Makeover by Dave Ramsey

You are NOT a foreclosure candidate - just someone who made some poor financial decisions and does not want to deal with them.

Get second PT jobs if needed to take care of this mess. Sell items you no longer need or want and downsize your lifestyle. good luck.

CuriousKiddosMama · January 2014

I have to agree with a lot of what was posted, you are not a foreclosure candidate, and depending upon your bank/state, the lender may be able to come after you if you walk away from the house. I believe this varies by state though and the bank. I had a cousin this happened too (or so my grandma said)
Please post your full budget on here so we can help, but you need to cut to the bare bones. Get rid of the timeshare even if you get nothing for it. Unless your DD is a child prodigy, get rid of the lessons, get rid of the health club membership. Put all that money towards the loan every month.
Also have a come to Jesus meeting with your DH. You are married, not roommates. You are not responsible for the house, you both are responsible for the house.
Agree with PP, get a part time job if you need to to help you get traction on these loans.
One of the good things you do have going for you is that in many markets around the country, real estate is slowly starting to come back. You may pay on this for a couple years and find out that you are no longer underwater and able to move if you want to.

bparkhur · January 2014

Ok, here's my advice based on the OP. It's not that OP needs to cut her budget per se. She says she can make the payments. The question is, is it better to walk away and reinvest in something that stands to be more profitable than the current home.

OP, I would stay where you are. If you have no need to move, stay where you are and try to pay extra on the second mortgage if you can. I might offer different advice if you really NEEDED to move.

Good luck!

anabelle24 · January 2014

I think you got terrific advice from the others so far - I wouldn't foreclosure either, I would stay and put in money for repairs and break even and then sell. I would also cut down on unnecessary expenses and try and either make extra payments or put the money towards more repairs.

Also, your comment about your H bothers me, "Hubby is willing to help with repairs and upgrades, but the mortgage is on me, as "you're the one that got in this mess". I think that's unfair, especially since you two are married and he lives in the same home as you do. If you had to rent elsewhere, he would need to pay his share. Him taking care of the repairs alone is not going to pull you above water. You two need to work together and figure out how to get this taken care of as soon as possible. You have a future together. You're not alone in this mess. If he can afford to pitch in for mortgage, he really should.

I also recommend the book Smart Couples Finish Rich, I read it a while ago and I'm actually thinking I'll read it again.

JessH1474 · January 2014

If the property goes through foreclosure and there is a deficiency balance, the lender will come after you for the difference. Foreclosure normally leads to bankruptcy b/c most people can't settle with the lender (or lenders in your situation) for what's due after the property is sold. There will also be filing fees and attorney's fees tacked on for the foreclosure action. I would do everything possible to avoid foreclosure.

KatieCutie05 · February 2014

I agree with what some PP have said....

He's not willing to pay the mortgage on a house that he's living in just because you got into it. I'm sorry but that would not fly in my house. You need to come to agreement on finances. Even my student loans which my husband had nothing to do with is still his now. Because he married me. My loans come with me- sure he may have gotten the short end of the stick but thats just how it works. He married you - he also married the house debt. And I'll tell you what - you start getting on the same page with money and he starts helping with this house - your marriage will naturally improve as well. Its a win - win.

Read Total Money Makeover by Dave Ramsey - and get on the same page with finances. You don't need to foreclose you need your husband to help you. His income is just not being used. I suggest a Joint Account and Joint budget.

should I go into foreclosure?

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