what happens to people who walk away from their homes?

16 years ago

I'm not very familiar with the foreclosure process but I am curious what happens because my fiance's parents just walked away from their home last summer. They owned it for about twelve years but had refinanced and used the money to pay bills or buy crap I guess. They still owed more than they could probably sell the house for although the house was on 8 acres but mostly hillside and woods. Anyway, I was under the impression the bank had already foreclosed and that is why they moved. I just found out that they were behind on their payments but at the time they moved, the bank had not foreclosed. They moved in July of last year and just yesterday were served with what they say is the bank suing them for the balance they owe.

I'm amazed that people just walk out of their home and expect nothing to happen to them. They didn't damage the house or anything, just left a bunch of junk they didn't want and locked the doors and left. I'm sure the house has probably been vandalized by now by kids or people trying to break in. They never tried to sell the house at all. They just decided they couldn't make the payments and left. Their only concern was putting "no trespessing signs" on the property so they wouldn't be liable if anyone got hurt.

His parents are saying they are probably going to jail, etc. All I know about foreclosures is that the house will probably go to a sheriff sale and if the bank sells it for less than they owe and forgives the remaining amount they will have to pay taxes on that amount.I don't condone this behavior at all, I didn't know about it until yesterday (I thought the bank had already ordered them to move out) What normally happens to people who walk away before their home goes into foreclosure?

Featured Answer

mariend

16 years ago

I think that if you just walk away, you could get hit with different laws etc, because my son is loosing his home but has been in contact with the mortgage co who is trying to work with him and advising him what to do when. His is due to a big job cut and no work in MI in his area.
Just being behind is not an excuse, especially if one or the other has a job. I would be concerned, because IRS probably will be involved. Please, if possible, don't lend them any money or let them move in with you or their son. They should seek some legal advice and assume some responsiblility.

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Comments (46)

newhomeseeker
Original Author
16 years ago
They have already moved in with their daughter so no worries there. They both work but make about $7 hr each. Also the father was out of work for about six months because he had a heart attack and open heart surgery. So they do have some legitimate reasons for not being able to make the payments. But I can't imagine just leaving your house like that. They didn't try to sell it FSBO or talk to a realtor to find out how much they could possibly sell it for or anything.
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triciae
16 years ago
Well, we don't have debtor's prison in this country. So, unless they've done something crimminal you haven't mentioned they won't be going to jail for walking away from their house/mortgage.

Recently, like within the past few weeks, a moratorium on federal taxes due for any waived mortgage debt was signed into law. But, there are certain criteria that have to be met such as date the mortgage loan was closed, whether the property was a primary residence, & when debt was foregiven. If they meet the criteria, they won't have to pay federal taxes on the difference between what the lender recovers & what they owe, if any.

The foreclosure process takes a very long time in some jurisdictions. It sounds like your in-laws live in one of those areas since they moved out last July & are just now receiving the Lis Pendens. There are lots of procedures that have to be followed exactly to assure clean title after a foreclosure. In some areas, this process can take a year, or even a bit longer.

Too bad they didn't even try to sell before abandoning the property. But, that won't get them thrown in jail. :)

/tricia
popeda
16 years ago
Back in our youth,let's say more than 25yr. ago, we bought a condo at its peak price, and took out what was one of the first ARMs ever. We intended to rent it. The housing market in that town tanked to the point that you couldn't even get a realtor to list the darned thing because people could buy a real home with nothing down and less payment. People with local paper were given new, better mortgages, forgiven even principal in some cases, and carried on. Our paper had been sold out of state, and no one cared about the tanked market several states away. We tried to carry to the house for a while, but finally talked to a lawyer who said to ask the mortgage folks to negotiate; when they wouldn't respond, he said to walk away. We had to pay the lawyer and about 10k in extra taxes for the forgiven debt resulting. It was balanced out a little by the loss we could claim on it, but basically it was a financial blow. It didn't do much to our credit; existing loans or cards we had continued on with us. We did not try to buy other real estate for many years, so we don't know what would have happened on that. We rented.

I hope that people will take advantage of the tax thing. There are circumstances where you feel you have few options. But in our case, and others' too I imagine, the best thing would have been a good dose of common sense before we signed the dotted line.
susana_2006
16 years ago
We walked away in 1985. It was a horrible local economy -- the biggest employer closed its door and hundreds of houses hit the market the same week. My family needed to relocate, husband had a good job.
We tried talking to the local mortgage holder -- they would not discuss any options other than us continue paying the mortgage. We rented the house for a while and discovered that being long distance landlords was not working well.
Since the bank would not talk, we had to hire a lawyer to negotiated for us. We got them to take the deed in lieu of foreclosure -- but since, my husband had a good job, we had to pay them $5,000 to consider the debt paid in full.

Maybe, if the parents send letters offering the deed back to the bank (and save copies of all letters) the bank will accept the deed. Since you stated that these people have a low income, it's possible that the bank would perhaps accept the deed with no other recourse. Perhaps they could find someone in a free legal aid clinic who could help them. I really don't think that they have much to worry about, unless they have other property or assets that could be taken.
Good luck. I know how it is when there are no options other than just giving the house back.
Did this hurt our credit? I don't think so, we've since bought and sold properties & luckily have never been in that horrible situation house-wise.
Susan
chrisk327
16 years ago
Its interesting, i read this Messege board and one at another site that is finance related as well as various deals.

Someone posed the question as to whether they should walk away. They said that the house down in price 100K, a neihbor had an exact same house sell. The person had a piggyback loan and and ARM that hadn't reset yet and was manageable. They also had a significant amount in savings like 50K. They felt that it seemed like a waste to keep paying even though they could afford to comfortably. Funny thing is, most people agreed, said they should walk away, that the bank made a poor investment decision giving a mortgage on this property.

I guess as much as it might occur to me, I could walk away from this, I couldn't see myself blaming the bank when there was no underhanded tactics and I just bought high.

The people on the board were suggesting to buy another place in the development low, and live in that, and let the other one go into forclosure.
marge727
16 years ago
The laws concerning foreclosure are very different from state to state. Many states now have trust deeds which mean that the foreclosure doesn't go through the courts. Its called a Non judicial foreclosure. When that property is sold at the auction--there is no redemption period afterwards.

However, Triciae mentioned a Lis Pendens and that means that one went through the courts; when that happens the bank can foreclose and get a money judgement too. Some states still use mortgages and that foreclosure process is different, and has a redemption time after the sale.

When you have only the original loan and walk away, its different from when you have a refinanced loan or a 2nd trust deed and walk away. That's an area of law that I taught and practiced in Calif.
One thing I would add--is be careful buying homes in foreclosure. There are lots of laws in every state that protect the person being foreclosed on when they sell, not necessarily when they lose it to the bank though. The special foreclosure laws do not protect a buyer.
triciae
16 years ago
"Some states still use mortgages and that foreclosure process is different, and has a redemption time after the sale."

There's not always a redemption period after a mortgage foreclosure. In fact, I've never worked in a state where there was. Redemption periods were limited to tax sales & other such circumstances.

Most states use mortgages. Here's the list:

Deed of Trust states: Alaska, Mississippi, North Carolina, Arizona, Missouri, Virginia, California, Nevada, & Washington DC.

Mortgage states: Alabama, Louisiana, North Dakota, Arkansas, Maine, Ohio, Connecticut, Massachusetts, Oregon, Delaware, Michigan, Pennsylvania, Florida, Minnesota, Rhode Island, Hawaii, New Hampshire, South Carolina, Indiana, New Jersey, Vermont, Kansas, New Mexico, Wisconsin, Kentucky, & New York.

States that use both Deeds of Trust and Mortgages are: Colorado, Montana, Texas, Idaho, Nebraska, Utah, Illinois, Oklahoma, Wyoming, Iowa, Oregon, Washington, Maryland, Tennessee, & West Virginia.

Georgia uses a security deed.

Foreclosure laws are State Statute so they vary considerably in everything from where the actual sale occurs (courthouse steps versus the actual property) to the time frames required for public notification.

As I re-read the OP post, I'm now wondering if the parents received notice of a deficiency suit as opposed to the original foreclosure. That would make more sense with the time frames given by the OP. I assumed they were located in a mortgage state & noted a Lis pendens sense the OP used the words, "served" & "sued".

In any event, nobody's going to jail...at least not for what the OP described.

/tricia
justnotmartha
16 years ago
Oregon is a trust deed state for any HUD regulated lender. Mortgages are rarely used with the exception of a select amount of private party loans.
qdognj
16 years ago
What happens to people who walk away from their homes? Not nearly enough, as far as i am concerned...
krycek1984
13 years ago
Not to turn this into a "hot topics" discussion, but why *shouldn't* someone walk away from a house they can't afford due to various reasons? Get real.

Companies walk away from debt ALL THE TIME. Every day. All the time. But when it's time for INDIVIDUALS to walk away from debt, it's a different issue...the individual should live under the burden of everything while corporations can walk away from debt to make it easier for them to suck profit out of the world.

If you lose your job, or your ARM resets, why not walk away? Remember: There is a contract between the mortgagee and the mortgage company. The contract specifically spells out what will happen if the mortgagee defaults. If the debtor walks, then they are stuck with the consequences.

I have absolutely no sympathy for the banks that made way too many loans to the wrong people, and then sold them to someone else, and sucked our tax dollars away in the process.

I don't necessarily agree with walking away from an underwater mortgage, but let's be honest: If banks and corporations are going to treat contracts and debt as non-chalantly as they do, why shouldn't we?

In any event, back to the subject at hand, the OP's parents in law lost their house due to joblessness. Is MI a non-recourse state? I thought it was. Usually in non-recourse states, the mortgage holder does not/cannot sue for the deficiency balance, I thought. Anyone else care to clarify? I know Ohio is a non-recourse state.

There was no reason to turn this into something that it wasn't, qdognj. You just had to stoke the fire.
brickeyee
13 years ago
"There was no reason to turn this into something that it wasn't, qdognj. You just had to stoke the fire."

There are people defaulting simply because the house is under water.
They can still pay, they just do not want to.

'Strategic default' is the term being bandied about.

Some of them used there homes as a cash cow, borrowing and then spending the money.
Now they want to default and walk away.

Not the same thing as losing your job.

I have some sympathy for folks who have hit hard times, but none for anyone that milked their house and now wants to walk away.
krycek1984
13 years ago
Once again, companies milk their credit lines, their equity, and their customers until there is nothing left then declare bankruptcy. No one seems too outraged about that. I'm not saying walking away from your house is always right, but we can't make all these people out to be villains from our high horses.

Most importantly, walking away from your house is an ETHICAL dilemma, *not* a moral dilemma. The OP was not here to be judged, the OP was asking for advice/input, regardless of the reason that the house was walked away from.
logic
13 years ago
Apparently the wealthy are doing just that...without repercussion. It's considered a strategic investment decision...and yes, it is done by corporations all of the time.

If you aren't wealthy or a corporation, you are considered a deadbeat. Otherwise, it's a "smart investment move".

And people wonder why so many jump on the "Can't beat'em, join 'em bandwagon.

Read on:

Excerpt: "Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment..."

Here is a link that might be useful: Biggest Defaulters on Mortgages Are the Rich
brickeyee
13 years ago
"Once again, companies milk their credit lines, their equity, and their customers until there is nothing left then declare bankruptcy."

Not in anything approaching the number of mortgage defaults.

And unless the state has a law against deficiency judgments, the lenders can go after the defaulters.

Even in the states with deficiency judgment restrictions, they only apply to a single principal residence, NOT investment properties.
creek_side
13 years ago
Thanks for the link, Logic. It was an interesting read.
logic
13 years ago
brickeyee: "Not in anything approaching the number of mortgage defaults."

Actually, CRE (Commercial Real Estate) defaults are at a 16 year high...while the residential mortgage default rate appears to be leveling off to some degree.

That said, the collateral for the loan is the property. In a default, where the borrower walks away, the property goes back to the lender.

That being the case, exactly what can the lenders go after the defaulters for?

And...the point of the article is that those with mega bucks don't care, because they can afford not to care...as they can afford to buy another property, even if they have defaulted on another.
brickeyee
13 years ago
"That being the case, exactly what can the lenders go after the defaulters for? "

If the lender does cannot sell the property for the outstanding balance of the note there is a deficiency.

You owe $500k, default, and the holder of the note can only get $300k for the property.

This is a $200k deficiency.

I am leaving out all the costs of the foreclosure, so even if a property sells for the loan balance there is a deficiency.

Some states do not allow the note owner to sue the borrower for the deficiency on a principal residence.

Many banks do not pursue the borrower since they recognize that the money is not there.

If the borrower has any other property the bank can go after it, especially if it has a lot of equity.

"Actually, CRE (Commercial Real Estate) defaults are at a 16 year high...while the residential mortgage default rate appears to be leveling off to some degree."

While the rate may be leveling off, there are far more residential mortgages than commercial.

Changing rates say nothing about the actual underlying number of defaults.
Billl
13 years ago
Not sure where you are getting your data, but from what I've seen, the default rates for commercial and residential are comparable.

"According to new data from Real Capital Analytics, the default rate for commercial real estate loans owned by the nation's FDIC-insured banks increased from 3.83 percent in the fourth quarter of 2009 to 4.17 percent in the first quarter of 2010."

Residential rates have been hovering in the mid 3's. and were estimated at 3.3% for June by Experian.

http://www.realestatechannel.com/us-markets/residential-real-estate-1/real-estate-news-consumer-default-rates-mortgage-default-rates-spexperian-consumer-credit-default-indices-standard-and-poors-home-foreclosures-2873.php
brickeyee
13 years ago
"default rates for commercial and residential are comparable"

Rates do not tell you the actual number of each category.

If there are twice as many residential mortgages and the rates are equal, there are twice as many residential defaults compared to commercial.

I t reminds me of the TB 'epidemic' in Arlington, Virgina in the 1970s.

The number of TB cases increased by 1200%.

The Vietnamese who settled in the area brought TB cases with them.

The real numbers was 1 case per year, and then 13 cases the next year, followed by a huge decline back to a case a year.
Billl
13 years ago
The pure number of defaults mean nothing. Sure, there are more home owners, so there will be more home owners in default. However, defaulting on a 150k mortgage doesn't have the same economic impact of defaulting on a 20 million dollar construction project.

Besides, the posters comment was about the actions of businesses in comparison to individuals. In general, a business is more likely to default on a loan. There is some understandable anger when companies get away with behavior that is unacceptable for individuals.
brickeyee
13 years ago
"The pure number of defaults mean nothing. "

Yes it does..

It tells how long it will take for everything to recover.

The rate is just a trend line, nothing more.

It is possibly useful for trying to decide if the problem is worsening or easing.
logic
13 years ago
billl: "In general, a business is more likely to default on a loan. There is some understandable anger when companies get away with behavior that is unacceptable for individuals."

EXACTLY.
C Marlin
13 years ago
There is some understandable anger when companies get away with behavior that is unacceptable for individuals.

Do you know this to be a true statement?
krycek1984
13 years ago
Do you know this to be a true statement?

What a bizarre response. Why wouldn't it be a true statement? Why don't we charter a psychological study to find out? ::rolls eyes::

It's a true statement because I believe it so there you go. Psychological study done.
tara97034_yahoo_com
13 years ago
I am considering walking away from 2 of my rental properties, one in OR, one in WA. These are both refinanced loans.

The loan amounts are about equal to the market values but even if I can sell, I will loose even more money to fees, repairs...

I am loosing money every month because the rent doesn't cover my cost.

And there is no hope in sight. I am throwing money away.

Can the banks go after me for what little equity I still have in my other rentals or my saving ?

The credit hit is the least of my concern.

Any advice ?

Thank you.
brickeyee
13 years ago
Investment properties are rarely 'non-recourse' even in states that limit recourse on owner occupied properties.

Yes they can come after you, and if you own anything else of value very well may.
artemis78
13 years ago
Also, even in the best case scenario where the debt is cancelled and they don't come after your other assets, the value of the cancelled loans is considered income and you'll pay taxes on it, since these are investment properties.

Honestly, if you can sell for about the value of the loan and all you're losing is the repair money, that's what I'd do. You'll lose some money, but probably not as much as you'd lose in legal fees and taxes to walk away---and losing money from time to time is the nature of investment properties.
brickeyee
13 years ago
"losing money from time to time is the nature of investment properties. "

But...
But...

This seems to have fallen from the view of all sorts of quick RE investors interested more in flipping for a quick profit.

I have not lost money in a long time, but have had to hold properties longer than anticipated when renovation costs turned out higher than anticipated.

Part of the strategy is to make sure you can cover the mortgage payment (and other expenses) with the rent.

If you have a fixed mortgage the rents will slowly rise until you go from a neutral cash flow to a net positive.

During that time you have leveraged the increase in value on the property.

With 20% down a 0.5% per year increase is 2.5% overall (5x leverage).

It is nice watching values increase while someone else is paying the interest for you.
kailuamom
13 years ago
Some of the answers you guys are giving are out of control! The nature of each loan/property can vary and then there are the specific state statutes, which vary. So, each case is determined by the note and the state.

Also, I can't imagine judging someone harshly for complying with a contract they signed. To the best of my knoweledge when a lender approves a mortgage, they specify the terms and conditions under which they will lend the money. If those terms say...in the event of default, we take your house, they must have thought it was a good idea. I have not heard of a contract that says, if you default the penalty is XXX and you are a really bad person.

OH wait, I forgot, after they made that loan, they placed bets that would pay out if the loan defaulted.

And another thing....during the bailout, most of those mortgages were purchased for about 10% of their value so they now hit the jackpot when someone defaults and they get to cash out the value of the home. (that's why the lenders aren't modifying loans - they make money on the foreclosures).

Sorry - Personally, I can't somach walking away from my underwater home becausem I like it and can make my payments. BUT - I don't think there is a moral issue for the homeowner. The lenders who bet against the mortgages on the otherhand......
stir_fryi SE Mich
13 years ago
I know of a couple people who purchased a new home and walked away from the old one -- these were people who just wanted a bigger/nicer house and new they could never sell the old one.

This was a few years ago -- I can't believe they'd get away with it now.
akrogirl
13 years ago
My horse trainer has a couple of clients who did this fairly recently, after buying all new cars first, of course. I find it totslly disgusting.
muredduo318
8 years ago
I owe 200,000 on my house which is worth 140,000 at best and needs lots of work. I have been maintaining my mortgage by using credit card to live. I was in an accident and have become disabled. I had a great job, great benefits, and everything was great. Now I have had multiple surgeries and just plain can't afford this mortgage. What happens if I just walk away. I live in RI. My income went from 80K a year to 25K on SSDI. I have a wife and 3 children. Can they collect this debt from me if I walk away.
rob333 (zone 7b)
8 years ago
last modified: 8 years ago
Talk to your mortgage company muredduo318. You might be surprised what can happen. Not only that, I'm not just saying this, I hear it in a first time buyers class and it stuck with me. That is, it was advice given by a mortgage company. You have nothing to loose to try to get a reduced payment.
muredduo318
8 years ago
Rob333 I tried. I spoke with the mortgage company and they said there was nothing they could do. In a matter of fact they said unless I was delinquent there was nothing they could do. They said if I was behind on my mortgage then they would talk to me about different programs. This guy actually was trying to persuade me not to make my mortgage payments ruin my credit than they would talk to me about readjusting my mortgage. Tell me thats not crazy!!!!
rob333 (zone 7b)
8 years ago
last modified: 8 years ago
Walking away will also ruin your credit. They will come after you. Why not skip the payments (save them and/or pay other creditors)? You want to keep your home, right?

I'm not just blowing smoke. My husband and I bought a house together and he later left me (with the mortgage to pay without giving me money?! Yep, he was getting away with that). He finally told the lawyers I could have the house and do what I wanted. I wanted to finish remodeling it (I did) and was going to put it on the market. The day before I was to put it on the market, my city had historic flooding and my house was affected. So I asked if I could short sell the house, and they said no. It was also at the housing market bottom (crash of 2008 still going on in 10). They said they'd foreclose on me and, instead, I bankrupted. Ruined, or ruined, I'd start over. Five years later, I own again and my house has gained in value in only a handful of months.

If I were you, I'd put that sucker on the market and see if I could get out of it. If you make a profit, all the better. Or skip the payments and find the options they're trying to get to you. You can't eat your cake and still have it. If you're walking away, you obviously have somewhere else to go. Sell it and go could be your best option. If you can't sell it for what's worth, ask to short sell it. Don't just walk away.
Ann Scott-Arnold
8 years ago
last modified: 8 years ago
murredo

I'm going to give the "here is reality" stuff. Not unsympathetic but you have to face up to living below poverty level ASAP (And Poverty level for a family of 5 is $28,440.)

Fastest way to get really really poor in the US is to become disabled. 70% of people who are disabled have an income below Federal Poverty Level.

If you do not cut expenses to income (and get food stamps, Medicaid, heating assistance etc) you will have credit cards you can't pay and bill collectors after you and suing you - in addition to losing the house. Do NOT withdraw and spend anything you have in a 401K -- just prolongs the idea that life can kind of go on something like it was and in the future you will need that money.

The answer is "It depends" as to whether the lender can come after you for the difference between what you owe and what they would sell the house for after foreclosure

The first thing that is important is whether you are in judicial or non-judicial foreclosure state. (We can skip California which has it own peculiar rules about purchase money mortgages vs refi)

If it is a non-judicial state, that means the lender serves you with notices of default and foreclosure and then the sheriff holds an auction. 99.9999 of time the only bidder is your lender and they get the property. Then they sell the property.

If it is a judicial foreclosure it goes through the courts -lender sues, you have to answer, you go to court, court orders the property sold at auction........ and again normally the only bidder is the lender who then sells it. Lender comes back to the court and says "we were owed XXX" but only could sell it for --XXX" and the court enters a deficiency judgement.

Quick check shows RI is typically non-judicial foreclosure BUT a lender could go judicial.

What you are worried about is called a 'deficiency". To collect deficiency after the foreclosure and final sale of the property BY the lender to someone else depends upon state law.

If the foreclosure is non-judicial, in RI, it seems, the lender has to now file a suit to make up the difference from what you owed and what they got for it.

CAVEAT: I did NOT practice in RI and am retired from practicing law so this is all general stuff.

YOU NEED A BANKRUPTCY LAWYER IN RHODE ISLAND

Who would be liable on a deficiency judgement? ONLY THE PEOPLE WHO SIGNED TO GET THE MORTGAGE.

So if you were the only one on the mortgage - and your wife didn't sign - it would be you. (Good news is Soc Sec Disability can not be attached like wages - Bad News is a creditor can seize it all by attaching your bank accounts and grabbing it when the deposit comes in. )

If your wife signed to get the mortgage, she would be on the hook.

Keep in mind that the lender is going to spend $50000 -75,000 in legal fees to chase a deficiency judgement. If the house is really only worth $140 and you owe $200 .....cost them more to do it than they would collect. (And one look at your income and they would see there is nothing to collect.)

YOU NEED TO TALK TO A RI BANKRUPTCY LAWYER! That won't save the house but it will

* give you time to do the short sale

* prevent any deficiency judgement

* clear all those credit cards you are running up - and will never be able to pay off. Yes the cards will be cancelled if you do bankruptcy but they will be cancelled with collection agencies after you because you can NOT pay them off when your family has an income below poverty level.

Options:

1. Get a realtor out to give you a market value. Contact your lender about doing a short sale and give them the realtor's valuation. If they say go ahead and try selling it - PUT IT ON THE MARKET. The lender will have to approve any sale. Do it this way and no deficiency because the lender will have agreed to take less.

2. Forget mortgage programs. No Way In Hell can you afford that house with a family of 5 living on $25,000. (Assuming that is the only income.) You can not afford more than $590 - 645 a month in principal interest taxes and insurance or rent.

You are below federal poverty level! (Go sign up for food stamps and get Medicaid for the wife and kids - and if you are waiting for Medicare to kick in because of the 2 year rule, Medicaid for you too. Rough calculation - not knowing your out-of-pocket medical costs and exact mortgage and guessing -- is about $600 -650 in food stamps for your household)

The mortgage programs - HAMP, HARP, internal lender programs similar to HAMP etc - will NOT help you. Those were all designed to drop the interest rate for 5 or 6 years to lower payments and then it would go back up and/or stretch the mortgage out to 30 or 40 years. It was all based upon the assumption that people's household incomes dropped because of job losses and their incomes would come back up within a few years.

No way can they modify your mortgage of $200000 to fit an permanent income of $25000 as that means you can only pay less than half the principal and interest due monthly even on a 3 1/2% loan. Can not be done. They will NOT simply forgive over 1/2 of what you owe so you paying what you can afford and let you keep the house. You will default now or you will default later but you will lose the house.

And no - they are not going to fool with even talking about modifications until they know you are in financial distress and that means missed payments. You want them to take a loss on what you owe -either less interest or repayment stretched out a few more decades etc, you take the credit hit.

Bottom line is your credit was going to be ruined the day you became disabled and lost your income and went from making more than 13% of all workers and having more than 65% of all households to being below poverty level for 5 people and in the bottom 20% of all households.

It is going to be damaged whether you short sell (lenders won't touch you after that for at least 3 years) or file bankruptcy (most lenders won't lend to you for 7 years though VA and USDA will lend after 3 years if good reason like illness for the foreclosure)

The only way you all are going to be able to afford housing is if your wife gets a job (from what you said, it implies she does not work.) 40 hours a week at $10+++ would just about make it and a $200K mortgage, taxes and insurance of around $1200 would be barely doable with strict economy - 1 car, no cable, only 1 phone in the house and she keeps a pay-as-you flip phone for emergencies at about $10 a month, no smartphones with data plans, no Hulu, Netflix or Amazon streaming, no restaurants, used clothing stores etc.

While you are working on trying to short sell or just walking away and letting them foreclose, you need to contact the housing authority in your area and see if they have low income housing available and if there are any openings.

You need to get a short sale started by talking to the lender and getting a realtor going with it.

BTW, the person who wrote about not being allowed to short sell was dealing in 2010 when lenders weren't use to the idea yet -- lenders got real use to short sales since then and they are now normal things.
rob333 (zone 7b)
8 years ago
Yes, they were used to short selling then. It was my realtor, who is also a friend (after the fact of being my realtor) who suggested it. But thanks for trying to judge my life! Maybe they weren't used to it where you are, but here was different. The rest of what you wrote, is spot on, assuming we got all of the correct info and nothing left out.
muredduo318
8 years ago
Ann Scott Arnold and Rob 333, My wife is not on the mortgage and I have already prepared to take myself off all accounts. Or open new accounts in my wife's name.

My wife and children are already on State benefits through medicaid and I am on A and B with a supplement free of charge. Also yes my wife does not work. She has not ever worked and has been homeschooling our children from the beginning. We are really having a hard time with this. I am only 56yrs old and my wife 44. I will be getting a small settlement and my thought process was to pay off all my credit cards buy a house cash, put in in my wife's name with my son and let the house go that has a mortgage payment of 1608 per month. I think with no mortgage then we should be able to make it on my SSDI with no other expenses. I appreciate your input. I am trying to learn to live on this small amount. But have not yet adjusted and the credit cards are now getting out of control.
Ann Scott-Arnold
8 years ago
last modified: 8 years ago
rob

I was doing mortgage foreclosure counseling - and NO many lenders were not all that use to it in 2010 and many were reluctant to do it.

I can also see a lender looking at someone who lived in a 100 year floodplain area (and/or could see a river not that far away) and saying "you should have had flood insurance to fix it" - we are not taking a hit on what we are owed because you didn't get insurance - no more than if you had let the house insurance lapse and it burned down and now you want them to forgive a big chunk of what it owed and let you sell the land.
Ann Scott-Arnold
8 years ago
last modified: 8 years ago
murredduo

Here is a thought to avoid simply walking away and having the lender foreclose. Simply give the lender the house. Have a deed prepared transferring it the lender as the new owner. Record the deed. By certified mail send the deed and the keys to the lender. Check with a real estate lawyer in RI to see if you can do that. Had it work here. The contract is if you don't pay, they can take the house --- so short-circuit it and give it to them. After you sign the deed and record it and send it, you no longer own it - the lender does and there is no one to foreclose against.

(1) Thought you would qualify for the Medicare Savings Program through Medicaid - means the Medicaid program pays your Part B premium and picks up the deductibles and copays. Also your Part D (prescription plan) should have 0 premiums so long as you pick certain plans (make sure your drugs are covered by the plans) and you copays will be in the $5 or $6 range.

(2) If you are getting a lump sum, paying off the credit cards and buying a small house with no mortgage is an excellent plan.

(3) BUT - and here is a big 'but' - the idea of putting it solely in your wife's name (and your son ....a minor?) is not a good idea. Statistically 65-73% of people who become disabled end up divorced. The sudden poverty of disability destroys many marriages - even long term strong marriages have trouble withstanding poverty due to a spouse's disability. The better way would be to

(a) Keep a life-interest in the property for you and

(b) have your wife and son on the deed as the owners of the estate in the entirety interest with a reversion to you if they died before you. (That means you have the right to the property while you live and when you die, it goes to them and if you die first, it is theirs.)

You really really really need to talk to an estate planning lawyer about how to title any property.

If you have a life interest, no creditor will go after it -- can't sell that. If it is just tilted to you and your wife straight up and your wife is on the deed at all, they can file a lien against your interest in the new home but will have trouble foreclosing to collect on the lien because they have to give half of the money from a sale to her. If your son is on there, they only get a 3rd - not worth the trouble unless you all went to sell the house.

(4) I seriously doubt that your wife can get a credit card in her name. She has not been on the mortgage and she doesn't have - and has not had - any income. She has to have a credit rating in HER name - not yours - to get a credit card. To have a credit rating that means she has had to have been on car loans or house loans to show she pays her bills. She also MUST have a source of income - your SSDI will not count for her income.

About all she can get in the way of credit cards until she has an income and credit history would be 24%++ interest cards with annual fees of $75 -120 a year and credit limits of $300 -500. It will take her 4 - 5 years to even get up to a $2500 with credit limit increases.

That is why not working, staying home and not having an independent financial life is a seriously bad idea for women. Something happens and they have to show a credit history or income to do something and they don't have it --- they do NOT exist in the financial world.

Bottom line is she really needs to get a job -- it can be McDonalds, clerk in a gas station, retail clerk etc working part-time but work she must. If she does not work, she can not get credit for credit cards or loans.

She also needs to be named on all accounts - like car payments etc (utilities aren't good enough for a credit rating).

BTW having her on your accounts - 2nd card for a family member thing - does NOT get her a credit rating. The account is not in her name.

Might be better to pay off the cards, keep them in your name and lock them in a drawer for emergencies. Just use them enough to keep them from getting cancelled for non-use like this month pay the electric with the card and them immediately pay off the card out of your income with the amount budgeted for electric.

---

When the kids are all 18, your household size will drop to 2 people for the purposes of food stamps and a $25000 SSDI income will put you ABOVE the income limits for the Medicaid savings program and Medicaid and Food Stamps with a household of 2. (Assuming that is all straight SSDI and does not include dependent's benefits for minor kids.) Now when she is 65, imagine trying to pay for Medicare B for 2 people ($122 per person - $244 a month), Part D prescription plan ($45 a month per person -$90 per month), Medigap to cover copays but not deductibles ($135 per person -$270 per month) and the Part A and B deductibles (around $1447 per year per person - $2894 a year.) That will be $604 a month in just premiums and over $10142 for all premiums and deductibles (and not including drug copays.) That will be nearly 41% of your $25000 income leaving you only $1238 a month for food, dental & vision, clothing utilities, cars etc.

Now if as I suspect that the total SSDI of $25000 includes dependents benefits for minor children - anywhere from 50% to 80% of what you are getting is for the kids - that changes when they hit 18 (or finish college at 21-22). So then when they are 18 (or until out of college at 21-22), your SSDI will probably drop to maybe $13888 -16666 a year or an average of $1272 a month. With just that income she could stay on Medicaid and you could stay in the Medicare savings program and both on Food stamps.

At 62 she can draw a spousal benefit - but will take hit of around 25% less because she is not full retirement age (around 37% of what you get). At 66 she would get the full spousal benefit of 50% of what you get - and even if your SSDI drops because of the kids turning 18, her spousal benefit would send your income back up to over the limits for Medicaid, Medicare savings program and food stamps.

Say she waits until age 66 to draw the spousal benefit

* if the $25000 is just your SSDI and no dependents, then your combined income would be $37500 -- and you have to pay all the Medicare premiums, copays etc for both of you out of that. You are way over the income limit for Medicaid, Medicare Savings and Food Stamps of 135% of FPL for 2 people (right now $FPL is $16020 for 2 so multiple it by 1.35)

* if the $25000 is, say, 65% higher than it would be because of dependents. when they are over 18 and she is 66, then your combined income would be $22727 - again above the income limits fore Medicaid, Medicare savings and food stamps --- and you have to pay all the Medicare premiums, copays etc. ($25000 divided by 1.80 = SSDI without kids + 50% of SSDI for her spousal benefit = $22727 vs Medicaid income limit of 135% FPL for 2 people of $21627)

It is situations like this that cause what is called a "Medicaid divorce" so that people can keep their eligibility for Medicaid and get medical care because they can not afford the costs of other insurance.

When you are planning, you have to think about how it will be in 10, 15 or 23 years.

If you die before she reaches age 60 she has ZERO income. Nothing nada zip. Your SSDI will not continue except for any kid under 18 and then for the kids it would only be around 75% of what your BASE SSDI (not including extra for the kids) and are getting right now. At 60 as a widow she could get 75% of what your SSDI is (without the additional for the kids.) At 66, as a widow she would get your full base SSDI (assuming no additional for minor kids.)

Right now you are at maximum income and benefits - Medicaid, food stamps, Medicare Savings Program etc --- kids leave SSDI will probably go down and she reaches the age for spousal benefits it goes up......and it can all affect whether or not you have to ante up the Medicare costs for 2 people.

ANd again she needs to work if for no other reason than to stash what she makes in a retirement account for the future.

If you have 2 adults and 3 minor children in the house, Medicaid cut off eligibility would be 135% of Federal Poverty Level - $28440 is FPL for 5 people. 135% = $38394. She could make $1000 -1050 a month (or $220 a weekly pay period) and not affect Medicaid & Food Stamps. That would mean $11000 or so to stick in the bank. If she does that for 22 years, you all would have saved $242,000 plus any interest. (Note her gross - not after-tax -earnings can't be anymore than that $1000-1050 in a month or Medicaid eligibility is affected for that month. If paid weekly, there will be 4 months with 5 pay periods and if paid every 2 weeks, there will be 2 months with 5 pay periods. Those are the typical pay periods for unskilled work - only kind she can get .She would just have to watch how many hours she is working a month - can't be full time)

Bottom line is when you became disabled, life as you and she knew it ended -and that included the luxury of staying home with the kids and never working in a job. They can go to public school and she really needs to get a job. She is going to have to step up and get a job to help keep the family provided with electric, clothes and other basics. Living below poverty level (where you all are) is really hard. By getting a part-time job, she can ease that a lot - like increasing household net income by over 42% without effecting Medicaid and Food Stamps.

Add in what would she do it if you died before she was 60 (some 16 years from now) and she only got $900 or so a month in SS benefits for the kids under 16 or got ZERO because there were no minor kids? Job - now - anything will do even stocking shelves.

You are gonna need that money down the road.

BTW adult kids living with you do not count in your household for figuring Federal Poverty Level.
rob333 (zone 7b)
8 years ago
last modified: 8 years ago
Again, thanks for judging my life. I had flood insurance. No one was going to buy a house that was actually in the flood plain and flooded. Not everyone was flooded. I absolutely knew lenders in my area (again, you're not from here), who were quite familiar with short selling. I'm really perplexed how you "know" all about my specific situation, but feel free to learn something new instead of telling me I have no idea what's happened in my own life? Really perplexing! You don't know who my lender is at all. Why do you purport to tell me I have no idea what I experienced? Each market is different, last I checked.

They didn't give a reason why they wouldn't, but you know, I'm super glad they didn't let me short sell it. The idiot lender (redundant?!) could've had someone stay in the house that paid their mortgage on time and it would've been easier to sell. In the end, it sold for $60,000 less than I owed on it, and, it sat empty for a year. That's a lot of mortgage payments I could've been making.

I thought they stuck their idiot foot in it deeply. I was so so glad they stuck it to themselves and they got exactly what they deserved.
muredduo318
8 years ago
Ann Scott Arnold, my wife has credit cards in her name. Also we paid off cars in her name. I did this knowing she would need to have credit one day. Her stand alone credit rating is 743 as of today. Plus any joint credit cards would be paid off before letting the house go. I do not know why but medicaid said I do not qualify because it is SSDI and not SSI. I will be taking your advice and speak with a mortgage attorney. I did not know about the life interest thing. Thanks for the info.
C Masty
8 years ago
The whole idea up in the thread that corporations default on debt without repercussion is BS. Corporations that default on debt often lose % ownership and control of their company, go broke, lose employees, lose money, lose market share, etc etc etc. Lives and companies are ruined. These "corporations" are often companies that employee less than 100 employees (often times many more than that) and were born from blood, sweat, tears and excruciating hard work. The whole notion going around in this country (US) that corporations have it so well, is complete crap.
Ann Scott-Arnold
8 years ago
There is a thing called "Medicare Savings Program" . You apply for it through the state Medicaid program. It is not Medicaid but a separate thing run through the Medicaid office.

Medicare is primary but Medicaid -Medicare Savings Program pays for your Part B programs. Medicaid -as the Medicare Savings Program - also can pay for the Part A and Part B deductibles.

You should be what would be called a "dual eligible" - eligible for Medicare because you have SSDI and eligible for Medicare Savings Program through Medicaid because of income. https://www.medicare.gov/your-medicare-costs/help-paying-costs/medicare-savings-program/medicare-savings-programs.html

The link only gives the incomes for a couple. The income limits they are showing would be just about 100% Federal Poverty Level for either 1 person or 2 people (a couple). Based upon 5 in the household and income, you are below FPL for a household of 5. Different limits if a family. Also part of what you get in SSDI is for the kids as beneficiaries - technically should be counted as their income, not yours. That means being specific in the application for the MS program as to what is being paid to you and what is being paid to and on behalf of the kids.

(BTW if you have worked enough, there is no charge for Medicare A - hospitalization leaving only the Part B and D -prescription -sections.)

You should also qualify for help on the Part D costs. https://www.ssa.gov/medicare/prescriptionhelp/

If you don't have the breakdown on how much of the SSDI is for you and how much for the kids, you can call Soc Sec and they can get that for you.

What should count on these programs is your income - not any money for the kids. Also they factor in household size.

Good luck
muredduo318
8 years ago
Ann Scott Arnold. Thanks. By the way I do not pay for Medicare part A. Part B cost me 121.80 out of my ssdi check. It includes part D. I have a medicare advantage plan through United Health. Which was free and covers my prescriptions. 90 day supply mail order for free.. I will look into the assistance. Thanks for the help.

what happens to people who walk away from their homes?

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