bostonbubble.com

[seth]

Here is my situation:
- Purchased a condo in Boston in August 2005 for $247.5K
- Put 5% down with a 5.875% fixed 30 yr mortgage
- Have never been late on a payment
- I am the only borrower on the loan, however I was recenlty married (this past summer)
- My wife and I recenlty got jobs outside of the city and are planning on starting a family and need to move
- Currenlty owe $220K on the loan
- Condo is currently worth ~$180K in the market today ($70K less than the original purchase price, $40K less than what I owe)

What are my options here??? While everyone else is getting bailed out around me, I feel COMPLETELY stuck.

Now, before you get all high and mighty and tell me to stick it out or that I bit off more than I could chew, try to put yourself in my shoes and understand the scenario:
- I was a responsible borrower who played by the rules
- I did not borrow more than I could afford
- I did not fall for the sub-prime or interest only loan options

While the banks are getting billions in bail out money, homeowners in my neighborhood are foreclosing or selling at a loss, which has driven my property value down 28% from when I purchased it. I feel like a victim of the financial institutions, however I don't qualify for any of the recent Obama "Making Home Affordable" plans because a) I am not in risk of foreclosure b) My monthly payments are not more than 31% of my income c) I am not in "financial hardship".

Is anyone out there in the same situation? Can anyone recommend a good lawyer to talk to about my options? There are the options as I see them:
- Walk Away --- Ruined credit (I have an excellent rating now), 7 years locked out of buying another home, lender could come after me (Massachussets does not have laws that prevent this from what I know)
- Rent it out --- Because of everything that has happened, rent in my area has also declined. My mortgate and condo fee are $1900/month, and other condos in my complex are only renting for $1250/month. Not an attractive option.
- Short Sale --- This seems like the most attractive options at the moment, but don't know if the bank would qualify me. That would still (potentially) hurt my credit score and lock me out from buying another home for 2+ years (although I did read somewhere that if you were never late on a payment you could be eligible to buy another place immediately under Fannie Mae guidelines)

Any other options / advice?

- Disgruntled Responsible Home Owner

[rennyd]

I guess you're new to this board. Get ready to be raked over the coals big time. There was a similar thread recently. You will be shown no sympathy.

[Guest]

I'm sure I will, but that's OK. I'm looking for other people in my situation, or people who can sympathize (I'm sure there are some out there). I am not one of the people who contributed to this problem, but because of everyone else around me I am stuck in the middle of it...I played by the rules and got screwed.

[GenXer]

I think there may be some new initiative on the table to allow short sales without messing up your credit. I don't know if it passed yet, but I'd be sure to watch this closely. At least, I heard this reported today. You are right - nobody knows who'll qualify for this program.

You have the following payout (or paydown) gamble (because it is a gamble):

1) Sell at a $40k+ loss now (guaranteed) or

2) Rent it out and lose $8000 a year for X years


For example, after 1 year, you would lose $40k + $8k if prices stayed the same...but if in 5 years the price ended up higher than what you paid for it, your loss would be less than $40k by the difference, etc.

Of course, you still have commission to pay to the broker, but that's true in any case.

I would take option 1 any time of day - the prices can still be going down or at least not going up any time soon, and the longer you wait, the more you end up losing - so on the maximum end you will lose $80k+ ($40k payments after 5 years, and $40k loss if prices are steady).

If the prices come down, even worse. If they come up - a bit better, but even if prices come up $40k, you still lose $40k in 5 years.

Prices have to basically come up $80k for you to sort of break even. That's a very long shot in today's environment.

If you take option 2, you'd have to come up with the likelihood that prices go up 0, $40k and $80k, and then decide whether the payout is good enough.

Of course, nobody knows where prices could end up, this is why this is such a gamble. But in this gamble, I'd put my money on prices going down or being steady, and possibly coming up just a little bit (not nearly enough to make you happy though).

If this was up to me, I'd take a $40k loss NOW. Hopefully, rent for a while, put money away, and with combined resources start fresh. Any way I look at it, selling is the only way out. If you can sell short on good terms, that would be the best option, but you don't really have a choice unless you are a gambling man, and you are an optimist.

[CL]

While the cynical side of me thinks you didn't do yourself any favor by not having more financial buffer (more downpayment, for instance), part of me thinks you are actually quite unlucky - you bought at probably the worst time (at market peak) and have to sell at probably the worst time again (at/near market trough). Nobody can really time the market, and the macro market is not doing you any favor.

My first reaction and advice is to stay put for as long as you can. How long is the commute from your current place to the new job? Walking away is not a good option, short sale is a midway compromise but still problematic.

[Renting in Mass]

Keep your eye on Calculated Risk for information about legislation that will help facilitate short sales. It seems like banks (with some help from the government) are coming around to short sales.

[admin]

[seth]

GenXer / Admin - How does one go about selling a property for less than they owe on it? Does the bank have to approve the sale? What is done to reconcile the $40K loss? Would I have to pay it all up front at the time of the sale, or would they work out a payment plan option? I do not have $40K at my disposal.

CL - Yes, extremely bad luck. I'm happy I didn't put more than 5% down...it would have been that much more I threw away. The commutes are close to 1 hour, and the condo is very small...not a good environment to raise a family. I never had intentions of staying there for the long term, but 5 years seemed reasonable at the time.

Renting in Mass - Thanks. I will stay on top of that. I know that Obama released new initiatives today (April 5th) geared towards enabling no penalty short sales, however according to the qualification guidelines it sounds like its still very targeted to borrowers who are over their head (i.e. mortgage payment > 31% of income), in financial hardship, or in risk of default. If all this is true, then I still don't qualify. Yet another band-aid that is still only barely helpful when looking at the big picture.

[GD]

You don't have to buy a new house in the burbs just because you're moving.

Rent out your condo, and rent an apartment or even a house. Or sell and accept the loss - if a house is an investment, you must realise not all investments are profitable.

I'd rent out the condo if I were you, get something to help pay the mortgage. You can't expect to have rent completely cover your mortgage - why would anyone rent if it's a completely risk free way to get a property? but at the end you'll own the condo, and pay just $650/month for that. Seems good to me.

[CL]

Seth - you don't have to move to burbs to raise a family. People around the globe raise family in places big or small. If you think you place is small, imagine what's like if you live in London/Tokyo/Hong Kong/NYC. Of course it's nice to have a big yard, 2000+ space and playroom for the family but I won't trade my credit record for it. 1 Hour commute is bad but not intolerable.

[Guest]

I second CL. I'd stay put for another 3-5 years where you are. Baby does not care if it's in a small condo or a Mc Mansion. It's perfectly doable, and you'll avoid accumulating stuff that you neither want nor need.
We were renting a condo until my son was almost 4, we are now renting a SFH ($1700/month) in a close proximity to the T and save our money for better real estate times. No regrets. We didn't have a yard, so we'd go to local parks and playgrounds. Instead of yardwork we'd go for a whole day nature trips. I'm through with suburbian living. In these economic times you need to think outside the box, following our parents footsteps may be no more.

OTOH, if this is not acceptable for you and your future wife I'd sell NOW and avoid even bigger unknown and possibly higher losses. I you are prudent as you are and smart with your money, live well within your means you will recoup it sooner than later and will be able to better plan your financial future.

Best of luck.

[seth]

[admin]

[Speedyb]

A lot of the correct answer depends on how much you and your wife make or have, and those details have not been shared.

Not everyone is getting bailed out. A few people are, but the majority of "bad" homeowners are losing everything they have, getting ruined credit, and all the bad stuff that results from a short sale or foreclosure.

I hate the bailouts too, but the bailouts were for Wall Street, not Main street, so don't be mad at your neighbors (ok...maybe if they work on Wall St.)

Anyways...I did the exact thing you did...Condo for 240K in 2004 (in my case, NO $$$ down), met girl, got married, wanted to move, etc, etc.

I have been renting the condo at $1250 for 3 years "losing" roughly the same 800/month.

But it really is not an $800 loss each month.

The principle repayment is not a loss...that is about $280/month. (some of you may debate this, that is fine)

The tax savings (I don't get them, but if you make < 100K/year you will) amount to about $580/month (1/3 of 1750)

580
+ 280
= $863

So the tax benefits and the principle repayment are roughly equal to your $800/month loss. So you are "kind of" not really losing anything.

While a real estate investor would never enter into a deal like this to begin with, you already have it. So why lock in the loss now...you aren't really losing anything and someday the property price will recover, and someday you will be able to raise rents even further mitigating the loss. (and you hopefully have locked in a low rate! If not, then that may have great impact on your decision)

It certainly hurts cash flow each month and will impact your ability to buy a home, but if you rent it out you can head to the burbs and rent for a couple of years.

Don't be a classic investor by buying at the top and selling at the bottom. This is the bottom and while it is not going back to where it was for a long time, in 2-3 years that property will likely be worth more than it is today. If not you have your tax writeoffs and you are building some equity (or slowly paying the 40K back over time).

I have lived this life, and it sucks, but I can wake up in the morning knowing that I am doing the right thing, my wife and I make decent $$ and while it is a bit of a hardship, it will pass someday.

And times I do wish that the people that created this mess burn in hell for what they did Might I digress...

We really need to know how much you make and how much $$$/assests you have stashed....not sure if I have seen the answer or it has been posted, but to give good advice we need the entire picture. I assume that you have some assets today, but if you have no assets then perhaps buying the condo in 2004 was not such a good idea.

[balor123]