Why shouldn't I walk?

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<p>AV Paperboy,</p>

<p>A short sale/foreclosure without a very good hardship explanation will haunt you for many years. Just put yourself in the shoes of potential landlords and employers.</p>

<p>On the side note. I am very disappointed with many short sellers who just wanted someone else to take the hit. Many short sellers even blatantly extract profits before skipping mortgage payments. </p>
 
Yeah, you made your choices just like a bunch of other people. People that are now being rescued by our government. So much for living with consequences, making bad choices and free enterprise. Do what’s best for you. If you think walking away will solve your problems "Just do it".
 
<p>And people complained that the boomers had no responsibility. Well, some of us didn't.</p>

<p>What bugs me is paperboy can still make the payments. Yeah, it's a business decision, and you all will note, I gave him a business suggestion. I don't approve of it, but I gave it. If ethics doesn't mean anything in a business situation, well, that would be a fine kettle of fish. Why, then bother with Ethics at all?</p>

<p>Indeed, since few pay any attention to ethics, when it would cost them money, maybe the study of same is, indeed, useless.</p>
 
I don't think there's a big moral issue here. Citibank took a risk with with its eyes open and certainly didn't expect "The Necklace" behavior out of him. Paperboy signed a contract saying "I'll pay you this money or you get the house". If he doesn't pay, and surrenders the house in good condition, he's held up his part of the deal.



However, I would recommend you stay and figure out how to get your credit cards bills under control the old-fashioned way (student living, pasta and peanut butter, cheap ornaments for Xmas gifts, etc.) You're only going to get one opportunity to move out of this because of the credit hit. If you bail to an apartment and then have to relocate, or move in with a wife/fiancee/whatever it will be hard. You've already lost what you put in so you won't be much worse off if you bail in Dec 2008, so put it off until you know what you want to bail to.
 
RKP - whatever he AV decides on, he will deal with the consequences. That could be 7 years of bad credit, maybe losing out on a job because of bad credit (on this matter, i think there will be so many short sales/foreclosures that the stigma associated with these things will decrease, employers will see so that a lot of applicants will have bad credit that they will somewhat be de-sensitized - i could be wrong though). There is no right/wrong decision. You make decisions and you deal with the consequences. What is right to you may not be right for some one else. You make your decisions based on your morals and ethics, which vary greatly by person. So when yo ask "why is it ok for him to walk away and ruin his credit" that is my response.
 
<p>$2000 for mortgage on a condo is not that bad. Renting would be roughly $1300, so you're just suffering a $700 loss. My assumption is that your credit has already deteriorated due to the credit card balances. But as long as your interest rates are low, I wouldn't be too concern. I suggest you find a roommate. If not, find a cheaper place to live and rent out your condo.</p>

<p>In my case, I live with my girlfriend in her one bedroom condo. However, her monthly payment is only $1600/month so it's very affordable for the both of us. I basically pay $800/month. I don't necessarily think your property is overpriced. I just think that you should have realized that you cannot afford $2000/month.</p>

<p>Worse case scenario is that you'll go through foreclosure. If that happens, use the money that you would have paid your mortgage with to pay down your credit cards. At least once you lose your home, you'll still have a job and credit availability.</p>
 
<p>AV Paperboy, </p>

<p>You are young, and you can learn from this mistake. Also remember, whatever action you take, either you did it yourself, or induced, you are ultimately responsible for the consequences. Nevertheless, this is a very hard way to learn this lesson.</p>

<p>Now to your issues:</p>

<p>First of all, you need to realize you screwed up, and need to learn from this. And whatever the consequences are , you have to take it. </p>

<p>Secondly, I would advise you to consider this as a PURE "business decision", nothing else, to mitigate futher risks, and the impact to your personal financial situation. If at the end, you decide to stay, it shouldn't be because of your moral is calling. It should be it is the best financial path forward for you. </p>

<p>Now lets look at your options. It appears that there are more than several choices: stay , stay with a room mate, stay with family help, rent it out then stay with family for min cost, rent it our then go rent something else, just walk, max out all your credit cards then walk, etc. It won't an esay decision. </p>

<p>Coupe thoughts for your to consider:</p>

<p>a. since you still have the original mortgage, if you walk, the bank can't go after you wage, assets for the loss. Your credit will be ruined for seven years for "charge offs". You might get a tax bill though as a result of the short sell. Which will be large. Given the fact you have $20K in debt also, if you decide to walk, you might want to consider put that $20K in the "walk away" pot too, just file BK. BK stays on the credit report 10 years, which is 3 years longer. Since the BK law changed, you should consult a friend or do some research on line. It is not as easy as before I think. </p>

<p>b. You should also talk to an accountant, and find out the following: </p>

<p>- can you deduct loses if you rent it out (passive lose rule for real estate rentals)</p>

<p>- can you convert the condo into a pure rental income business, then take the capital lose as full tax deductions when you sell later? There is a time requirement here I think. Again,ask an accoutant or tax expert. </p>

<p>I will walk away only if can put the $20K in the "POT", and wont get the IRS / CA franchise Tax board bill and my monthly cash flow is negative. </p>

<p>I will consider to do some thing creative and legal on the tax side to mins. my loses. The biggest advantage here is that you don't have any equity here. So you can rent the house out for some acceptable loses, then it might not as bad. </p>

<p>With the new Bush bail out package, you might qualify for a interest rate freeze of five years. So you might have some time. Even if you don't qualify, you still should call your bank try to extend your terms at the current interest rate. </p>

<p>Your net expensess is about $1925 a month, and you can rent it out probably for at least 1300 right now according to you, so you have a neg cash flow of $625 / month, or $7500 a year. If you can deduct it, then your net cash loss will be around $5000 / year (assuming your tax deduction on the 1925 and property tax washes). Again, make sure you understand the Passive Loss rule. My decision on either continue to stay there, or rent it out will be based on tax advantages. Especially, if I can conver this to 100% rental property after three years of renting it out. </p>

<p>In terms of listing it, you will still be in a large short position, so why bother? </p>

<p>My biggest concern for you is your $20K credit card debt, not the real estate. With your income, you can probably stay there for ten years and condo value might slowly come back. In 20 years, it might make you some money. But that credit card debt is only going to get bigger and bigger if you don't pay it down. So do a budget, and try to pay that $20K off. If there is anything I will ask for help from your parents or brother sister, I will try to borrow money to pay that credit card debt off. </p>

<p>Good luck! </p>

<p> </p>

<p> </p>
 
Bush just announced that there is broad support on tax reliefs on short sells. So you probably don't need to worry about tax consequences as result of walking away. If this materiallizes, then a $40K short sell vs $100K short sell makes no finanical difference to you (assuming you are in CA, and you are still on your original mortgage.)
 
You'll face larger penalties if you've refinanced on this loan. However, if it's an orginal purchase money loan then your bank is more likely to work with you in negotiating a short sale. If you are considering a short sale, it's imperative that you find a good tax consultant, RE Attorney ( they have a $350 p/hr consulatation fee usually but I highly recommend this), and a good real estate agent experienced in short sales. Be leary of all these short sale companies you find when doing random searches on the internet. A majority of them are all "fly by the night" companies that are only capitalizing on the short sale pandamonium. More than half aren't licensed and have been in business less than a year. Don't get a RE agent that's been licensed less than one year or a lender turned realtor; they haven't got a clue about conducting a successful short sale. Price below comps to generate an offer and start the short sale process with the bank so that you can get the BPO/Appraisal process out of they way. That takes anywhere from 4-6 weeks and your agent needs to monitor the auction date with title routinely. If your bank does have an auction date set but have an offer in their hands they will grant an extension on the auction date if you ask for it and you have a well qualified buyer in the pipeline. Be prepared to share all your financial statements with your bank. They're going to look into all your assets, accounts, debts, taxes, etc. Good luck and best wishes to you.
 
<p>Wow.</p>

<p>Thanks for all the responses... I am still taking time to read through all of them and will respond more when I can, but to answer a few questions - </p>

<p>I have not refinanced. I tried to get into a fixed mortgage but can't because the comps on the market are at low asking prices (lowest at $279k), and have been on for 60+ days.</p>

<p>I take no offense to people suggesting I should have thought more about this back in 05/06 when I closed, if I did I wouldn't have posted here for adivce in the first place . Like a lot of other people I got caught up in the "if I don't buy now I'll never get in" mentality and had easy access to whatever financing I needed to make that happen. </p>

<p>Will post again soon!</p>

<p> </p>

<p> </p>
 
<p>how do we know this is authentic? could this just be for an article someone is writing?</p>

<p>i'm skeptical when it comes to somebody publicising their failure like this </p>
 
True....sad though....I see these scenarios in my office everyday. One guy has me doing his short sale which got approved by the bank today. He won't pay for an attorney because he say's he's broke, yet he just came back from a 7 day cruise to Jamaica. Next month he's going to the Bahamas. If that's broke where do Isign up?
 
<p>rickhunter -</p>

<p>It was not easy to put this info out there like this... admitting you've failed is one of the more difficult things to do in life. At least for me. But I've been thinking about this for a while and I'm looking for advice on what to do. </p>
 
Sometimes, weird and crazy stuff happens in life. You can't control what happens around you. But you can control your reaction to it. Having had some weird life curveballs thrown at me, I found that if you do what you think is the right thing to do (regardless of what everyone else may think or may be doing), you can live with it and be content that you did the right thing. No one can make that decision but you and you are the one who will have to live with it.
 
lawyerliz - This all brings up a moral question I have. When you borrow and promise to pay the money back, you are morally obligated to pay it back and the lender receives your promise to pay. But, when you take out a mortgage or borrow money with collateral of the same value, are you giving the lender your promise to pay the money back or are you giving collateral? Is the lender receiving collateral in lieu of a promise to pay? This goes to the idea that for a contract to be fair, there has to be a this for that?
 
The collateral is a contingency. The lender is loaning you money to buy a specific item, i.e., a home. You agree to pay back the money. If you can't pay back the money, then the lender can take the thing you bought with the money it loaned you. At least, that's the theory. Depending on the contract, YMMV.
 
Paperboy the decision is ultimately yours, don't worry about what other people think. Now you have the opportunity to make an informed decision. Do plenty of research and investigate all options. Once you decide on your option, study the backgrounds of professionals in that industry that can help you acheive the best outcome for you. Don't go with the first professional that approaches you. Once you talk to enough of them, you'll know what questions to ask and you'll know what to look for.
 
I don't believe there is a moral issue at stake here. The bank and the consumer both made the same bet at the time: real estate market will continue to go up. Well, like any other bets, they were both wrong. The consumer, AVpaperboy, in this case, didn't have the intention to default the lender at time of contracting. So now situation changed, both party will have to make the right legal decision to minimize financial loses. If the bank think they can take less hit to kick him out today legally, the bank will not hestiate to do it by leaving our AVPaperboy on the street.

So this is a pure business decision, and the contract between the bank and the consumer outlines what happens when payment can't be made, and what remedy each party will has. This is clear and simple.
 
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