Down to last option before walking away from home. Advice?
Hi all -
Sorry about the ridiculously long post.
My close buddy is going through a situation where he's either going to have to walk away from his home, or to pay a $10,000 a month mortgage for a few years to get caught up and keep the home. I told him this would be a great place to get some input, so he emailed me the rundown of his situation below for me to post.
If anyone has a few minutes to make it through this, I'd love to hear some thoughts to relay back to him.
Thanks!
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I bought my home in late 2005 for $890k with $80k down and two loans ($750k 1st and $140k 2nd). I refinanced once to get out of my adjustable rate neg am loan after 3 years and now have a 40-year fixed at 5% on the first.
When the market corrected my home's value dropped as did my income. I depleted my savings trying to make my payments and reached a point where I could no longer afford to keep paying. With my home's value down to $650k at the time I couldn't sell the property and recoup my down payment. I attempted several times to get approved for a loan modification through Countrywide, then Bank of America with no success. stopped making payments in 2011 and haven't made payments since then trying to get a loan mod that offered principle forgiveness. Because of the size of my 1st, I didn't qualify for HAMP or any other programs.
Midway through this process my 2nd loan of $140k was forgiven. So now my total owed on the house is about $744k.
My loan was then sold off to a trust and serviced through a small servicer (defined as servicing less than 100 loans) which gave them an exception from the California homeowners bill of rights. In other words, when I'd submit a loan mod app to them they could deny me and give hardly any information behind why...they could simply just say that my debt-to-income ratio doesn't qualify and not show their calcs. I hired an attorney who was able to submit enough TROs to fight off foreclosure and allow me to stay in the house while I went through this loan mod process.
*Sidenote--around this time my fiance and I had a baby and are living in the home.
In the end I made the decision to file for Chapter 13 bankruptcy and tried to leverage the Mortgage Modification Mediation program to have a 3rd party help negotiate my loan mod request with the loan servicer. During this process I have been making $4,500 good faith payments toward a bankruptcy trust that holds the money in escrow and if we work out a deal that goes toward what I owe. If we don't work out a deal I get that money back. I was somewhat misguided in thinking that if my numbers worked, this program would make them have to work with me. It wasn't until after that I learned that there's nothing that forces them to work with me and if they simply wanted to sell the property there was nothing ultimately stopping them.
So now I have a BK on my record, and my only options are full reinstatement (approx $260k in arrears, which is not an option), deed-in-lieu where I'd get my monthly payments back (approx $45k), OR I can try to pay back the arrears monthly over the next 5 years (4 now since it's been a year since my BK).
My question to this group is this; should I walk from the property and hold only the $110k from not paying my mortgage I have saved + the $45k I'll get back OR should I try to keep the property which is valued at somewhere between $980k-$1.1m, and make payments of approx $10k a month over the next 4 years.
With my income, my fiance's income and 1 roommate we'd bring in, we can afford the $10k if we tighten our belts a bit, though it's definitely high. The comps show that the home can sell right now for $1-1.1m, however with the timing of the BK right now I wouldn't be allowed to try and sell the home. Just don't have enough runway to do it in the next month when we have our final BK hearing.
So the ultimate question is if it's worth it to pay those high payments for four years, which pay off the arrears as well as some of the principle, and then in 4 years I have the home with about $700k balance on the loan and a home that should be work at minimum $1m (barring any major economic events, which is always a risk). Current home condition is a fixer-upper but with nominal spend on renovations here and there could be modernized. I have family that can help do this work cheap.
If we walked from the home i'd have $150k in my pocket, but we'd be renting in the range of $4k a month.
So take my $150k and go rent, or leverage the Ch 13 to pay off the arrears over 4 years and keep the home which likely will have at least $200-300k in equity after that 4 years, while risking a higher than ideal mortgage payment in a home that needs some work to get up to speed?