I had a question regarding strategic default.
I'm living in a house that I purchased with my ex-fiancee. She's since moved out and is living in another state. I am looking at moving out of state as well, and want to get rid of my house for that reason and many others. We purchased it at 250k with an 80/20 loan, but it is currently worth about 160k. I still owe 196k to my primary mortgage and about 44k to my secondary mortgage lender. Doing the math, it seems I MIGHT break even in about about 20 years.
While I am mildly concerned about credit impact (my credit is already shot due to my ex) I am more concerned with ending up owing money to either of my lenders after a foreclosure.
I am completely willing to walk away and hand over the house, keys, deed, whatever to the banks. I just want that chapter of my life behind me.
What do I do? Who do I talk to? Are there lawyers that help with this?
Thank you for your email. The key to turning in your “key” is to understand the consequences.
Your primary risk is as you said “owing money to either…lenders after a foreclosure”. Please consider the following:
1. If you live in a non-recourse state, then you may not be liable to the lender on the first mortgage.
Read this link about Non-Recourse and Recourse States.
2. In most situations, a second mortgage lender never receives any money after a foreclosure sale. It is likely you will be liable to the second mortgage lender for the balance due. Also, keep in mind that it is big business for third party collection agencies to purchase second mortgage at a discount (perhaps 30 cents on the dollar) and chase you for the balance. Your best bet is to contact the second mortgage lender and negotiate a discounted settlement. For example, you may offer your second mortgage lender $8,000 to settle the loan and forgive the difference. In this case the difference is $36,000 ($44,000 less $8,000). When a debt is forgiven, the forgiven amount may be considered income by the IRS. Therefore this is can be a tax liability. You will need to speak with a qualified accountant to determine if you will have any tax liability for forgiven debt.
Read this link about debt forgiveness, obligations and deficiency.
3. There are some people who file for bankruptcy in order to get rid of debt. This may be an option if you are qualified and prepared to do so. Bankruptcy can allow for the “discharge” of your unsecured debt. A bankruptcy filing stays on your credit report for 10 years. You are required to list all of your assets in a bankruptcy. If you have enough assets to satisfy all of your creditors then bankruptcy may not be an option. You will need to speak with a qualified bankruptcy attorney to determine your options.
4. You can consider deed-in-lieu of foreclosure for the first mortgage. You can negotiate with the bank by giving the deed in exchange for the full and complete satisfaction of the first mortgage debt. Of course this leaves the second mortgage still open. Your first mortgage lender may not agree to do this unless the second mortgage is taken care of. If you negotiate with your lender make sure you get everything in writing including any agreement.
5. You mentioned that you bought the property in your ex-fiancee name. This means that you may need your ex to sign off on a certain option if the property also has her name on it. You will need to speak with a qualified attorney to determine your rights and obligations.
Your other houses would be considered investment properties while the house you live in should be considered your primary residence. There are more protections in place for primary residences and not investment properties. Do not assume that the rules will be the same for investment properties as it is for your primary residence. It much harder to walk away from debt as it relates to an investment property.
Yes there are professionals who can help you. The key is to talk to several professional to determine who can work best for you.
You did the right thing by asking me. Spend some time reading the links I sent and other information on my website www.strategicdefault.org. You can use this knowledge to find the right professional or if you feel comfortable handle it own your own.
Good luck. Feel free to write back anytime.
Augustine A. Diji