I'm going to do the best that I can to make a long story short and see what advise you may have for me.
I have a house in Michigan that I have owned for 10 years as a primary residence. My company is relocating me to Pennsylvania. I have a first mortgage that is $120,000.00 and an equity line of credit balance of $38,000.00. I have had a couple mortgage brokers out to the house, sent out by the relocation company, that have come up with a $50,000.00 number on my house. Basically $108,000.00 upside down on my house. I have a short window to find a new place to live and do something with my house. Obviously I'm not coming up with the difference to make the Michigan deal go away. I would consider renting the property but then I have to find a renter and hope to get at least what my monthly payments are, which is next to impossible in Michigan. To the best of my knowledge the original mortgage is an FHA and I believe I have been paying PMI for the last 10 years as well.
Walk away? Would the bank still be able to garnish wages to make up for difference being an FHA loan? Roll the dice and see if the bank is willing to do the leg work?
File bankruptcy and let the house go that way?
I an current with my payments and have been for a very long time. I am unable to afford this house as well as a place to live in my new state.
Any advise would be greatly appreciated.
Thank you very much!
First things first. You need to determine your ultimate objectives. This requires asking yourself a series of questions and determining the appropriate answers. Please visit this link to review common questions to ask in your situation.
If you walk away and the bank does not agree to forgive the $108,000 deficiency then you can be liable for the amount. The deficiency may be more or less depending on what the banks collects after the sale of your property at a foreclosure auction.
Remember, a bank or creditor cannot garnish wages without first obtaining a judgment from a court. Michigan allows debt deficiency judgments which can last for xx years. That said “rolling the dice” may not always work in your favor. If a bank or creditor obtains a proper judgment then it may be allowed to garnish your wages. Read this link about debt deficiency so you are familiar with all of its implications.
A debt can follow you from state to state. So just because you have a judgment in Michigan does not mean the judgment cannot be enforced in the state of your new residence.
In this current environment banks and creditors are becoming more aggressive with their “leg work”. There is a growing market of third party debt collectors purchasing bank debt for cents on the dollar. For For example if a third party debt collector purchases your $108,000 for $20,000, then there is strong incentive to go after you and perhaps try to settle for perhaps $40,000. Especially if you are working or have other assets or savings.
Your goal is to minimize the impact of any decision to “walk away” from your mortgage debt. Let’s look at various options:
1. You can ask the bank to take the property back in exchange for satisfying the entire debt or forgiving any deficiency. This is called a Deed-In-Lieu of Foreclosure. You will need to contact the lender to find out the requirements to apply for a Deed-In-Lieu. If the lender agrees to a Deed-In-Lieu and subsequently forgives the mortgage debt then you may receive a 1099. The 1099 will be sent to the state and federal tax authorities. The 1099 will show the amount of debt that was forgiven. This amount can be taxable. It is important to speak with a competent and reputable accountant about this. Most importantly, make sure you get the lenders agreement in writing that your debt has been completely satisfied or forgiven. NEVER ASSUME.
2. You can try a short sale. Your lender may be willing to accept less than the full amount due on a mortgage loan if you try to sell the property. . This is commonly referred to as a “short pay” or “short sale.” Generally, a buyer will be willing to purchase the property from a seller in foreclosure at a "short sale" amount. You will need a good realtor who knows how to market a short sale property and locate a short sale buyer. The lender will want financial information from you and the exact terms of any short sale deal. The lender will ask for a hardship letter and specific financial information. They use this information to establish that you are not financially able to pay off the loan. The lender will need to see a written contract between you and the buyer to make sure you do not walk away with any cash from the deal. A short sale deal takes time. It can take up to 4 months or more. You mentioned that timing is everything for you. Like the Deed-In-Lieu, you must make sure the lender agrees to satisfy the deficiency debt or forgive the deficiency debt IN WRITING.
3. You can explore the option of bankruptcy. Under bankruptcy law, as long as you fulfill specific requirements, you can eliminate your debt or you can receive an affordable payment plan. I suggest you consult with a bankruptcy professional, preferably a bankruptcy attorney to explore this option completely.
All of these options, including walking away will negatively affect your credit score. This may impact your ability to obtain a loan to purchase another house. It can impact your ability to rent. I recommend you contact several lenders and/or realtors to learn about how this can affect your ability to purchase or rent a place.
Once again seek the advice from qualified professionals who can guide you along the path.
I hope this helps and feel free to write back.
Good luck and be well.