Post # 1
So I had a conversation with my parents this past weekend. My mom lost her job, and my dad is still employed. At this time they still can afford to pay the mortgage, but not for long. (Maybe about 6mos to a year) They owe more than the home is worth, so they cannot sell it. They also no longer need the space anymore their kids are grown, and they are ready to downsize.
My question is how can they “walk away” without suffering severe consequences? As in going to jail, having their cash funds seized. Having their credit score go down to zero. They live in Minnesota, and they have their home mortgage through Wells Fargo.
They sent a letter to wells fargo, and some government person. (not sure who-sorry)
Any advice would be much appreciated.
(please don’t tell me that my parents are bad people for wanting to do this–that is not helpful)
Post # 3
Have they looked into short sale? While that’s not easy, it usually ends up much better than just walking away. Typically with a short sale, the bank will forgive the loan balance greater than the sale price of the house. Short sale is bad for credit score, but it would leave your parents without additional debt obligation on the house. Walking away is often even worse for credit score, and the lender can go after your parents for the balance owed. They can take your parents to court and possibly seize their assets or varnish their wages.
Post # 4
- Wedding: October 2011 - Bed & Breakfast
They can talk with a REA who specializes in short sales to see if they may be able to go that route. A short sale is when the bank approves the sale of a home for less than what is owed on the mortgage. Lots of people are upside down on their mortgages (they owe more than the house is actually worth) and are not able to sustain the mortgage payments any longer, which is resulting in more and more short sales across the country. From what I understand, the owner/seller must be able to prove serious, long-term financial hardship to the mortgage lender in order to get short sale approval. Another option may be refinancing under the new mortgage relief program. I know nothing about it, but it doesn;t hurt to look into.
Post # 5
Unfortunately, it’s perverse but the bank will probably not agree to work with them if they are current on the note. So the best course of action may actually be to default. It would really stink for them to use up their free cash on a mortgage they can’t afford just to find out the bank won’t work with them.
Post # 6
@Jamie42003: Have they talked with anyone at Wells Fargo? Depending on HOW underwater they are, sometimes the bank will agree to modifications- the thought process being we’d rather get a PORTION of the monthly payment than no payment at all. Especially if your mom lost her job, they can prove hardship. If they have any “leverage” (military family, special circumstances, disabilty,etc) I would recommend playing that up.
Sorry to hear that they’re having a rough patch right now, and hoping all turns out ok
Post # 7
Well walking away will be awful for their credit score.
I agree with the PPs that looking into a short sale is probably their best bet. And if the bank won’t work with them, they could try renting the house out to cover the mortgage until the market improves.
Post # 8
Walking away will ruin your credit score, period. A better option is to negotiate a short sale with the lender. They will probably have to stop paying their mortgage for 4-6 months for the lender to be willing to work with them. Its worth a call to Wells Fargo now to see what they can offer, but most banks are so swamped by past due loans that they don’t deal with people who are current on their mortgage.
Post # 9
Another option would be to rent out rooms in their house. I’m not sure whether they are in the suburbs or more rural, but it would be a way to bring extra money in the door. FI rents out his spare room for upwards of $400/month to college interns (so they are only there for a few months at a time) every now and then to pay for remodeling expenses. Since they have all the extra space, that might be a good option for them.
Post # 10
Post # 11
Ditto on short sale. Also they need to see if they qualify for a loan modification. I have some links on my desktop somewhere, let me go digging. They are not horrible people, things happen. This economy sucks and they are not alone in not being able to afford to keep sinking money into a home that has turned into a bad investment. Jail is not an option, it isn’t that dire.
Post # 12
http://www.995hope.org/ is a good place to start. Also they need to talk to theit bank. Will all banks work with every homeowner to prevent foreclosure? No, but in some cases they are willing. They don’t want their homeowner’s defaulting on their loans anymore than the homeowner’s do.
– ETA The obligatory this is personal advice and not meant to be legal or professional advice yadda yadda,
Post # 13
@Jamie42003: I have been a Bank Manager for years, here are a few options. However, these are personal recommendations and should not be taken as professional counsel.
Ok, they can walk away but their credit is going to suffer for it. The bank does not take legal action for a foreclosure to garnish wages and such. The only thing they can do is take the house or whatever assets that secure the lien. 99% of the time it’s the physical residence unless the home was purchased for business use.
A short sell is a good option.
I loan modification is the best option but it will work only if they are CURRENT on the loan. They will increase the years owed on the home and lower the monthly payment to make it more manageable to pay.
I don’t want to say too much on here. You can PM me if you like.
Have your mom and dad go in and speak directly with the Bank Manager, I’m sure he/she will provide them some assistance.
Post # 14
@inspiredcreationsbyhaley Although I think that this could be an option, I think my mom would freak if she had strangers in her home. She is very private. I do not think they would agree to this.
As far as I know they are current on their loan, my mom’s whole paycheck went to the home payment, and my dads paycheck goes to pay everything else/save. Without my moms job, they are not saving anything and are now living paycheck to paycheck.
I am thinking short sale might be the best option, but if they are still able to make payments, just not able to save/live a decent life does that count as a finacial hardship, if you have to prove it? That worries me.
I appreciate everyones input, and have been e-mailing all the websites and such to them.
Post # 15
I’m not an expert but have read a little on the subject. Personally I think a short sale may be the way to go but it will probably prevent them from buying another house for sometime, from what I read your credit score takes a 200-300 point hit when you short sale. I also heard on a financial show that if you just walk away and have your house foreclosed on, if the bank knows that you intentionally did this they can sue you for your other assets.
Post # 16
@Jamie42003: Please please please do not take any legal advice from this board! As an attorney who does this type of work, I can tell you now that there is some very bad advice on here and some ok advice. I can only give you some thoughts and would not advise you to take this post as legal advice. Each family facing a potential housing problem is different and any advice that your parents actually follow should come from someone who is knowledgeable of the laws in your parent’s state.
If your parents are current on the mortgage, great. If they have the means to continue to pay it DO NOT DEFAULT thinking that is the only way the bank will work with you to lower the payments. That is simply not true. In fact, since they are current, they are actually in a better position. The bank is obligated to look at your parents new finanical information to determine whether they can negoitate a lower mortgage rate – even if they are not currently behind on payments. They should call the bank and ask to be evaluated for a loan re-modification. This means their monthly payments could be lowered and they might be able to stay in their home despite the lower income. This process usually takes a while, and in the mean time, they will be expected to continue to make payments at the current rate – the sooner the ball gets rolling on the modificaiton applicaiton, the beter.
If the bank will not work with them on a modification – or they run into problems with the process (ie the bank refuses to modify). Tell your parents to find an attorney in their city that is knowledgable and/or a trusted realtor that can refer them to a real estated attorney for advice on what they can/should do.
Good luck to them!