The Crash is truly coming...A first hand accont

[mukoh]

Their particular situation has not so much to do with just the market, but their need to move right now.

First thing of advice list it with an agent who will take a short sale, there are agents who are with reputable companies who specialize in short sales.

Most won't do it is because the first thing the bank is going to drop is their comission.

List it for market IMHO, and take the best chances with the bank. They might want to start missing payments soon to have a bargaining chip.

FSBO or redflip won't get any traffic to the house at all, and will extend their ability to sell further out.
FSBO doesn't guarantee saving on any comissions as if a buyer comes in and has a realtor that realtor will bargain for their comission or steer the client away from the house.

Another strategy for your relatives to consider, is to find a job wherever they are finding one, buy or rent a house there, and just walk away from this one.
Deal with the sale and the loss on this house after they settle into a new one.

[johnsgonefishin]

I am sorry for your niece but honestly what happened to her down payment? On 408,000 it should be about 80,000 dollars. I assume that they put nothing down as they owe 400k on the home. It sounds like something they could not afford to begin with as it appears nothing was put down and on top of that it was remodeled when there was little to no equity. It just sounds like your niece made 2 bad finiancial decisions. Buying a house with nothing down is like playing the stock market on margin. We all saw what happened from that(1928) and in a strange way history repeats itself.
On a side note, alot of people keep saying the local employment is doing great and cite Boeing and Microsoft. Boeing's high paid executives are long gone and so is their money. Washington State did little to try and keep them. We are just starting to see the full economic effect of billions of dollars lost from our economy. As for Microsoft, the stock has been flat for the last 5 years and paid out some meager dividends to make up for the poor preformance. Microsoft has been through the ringer in lawsuits for anti-trust in the EU. I don't think the local employeers are doing as well as Realtors make it out to be.

[Big Mike 34]

Rose Colored:

My niece would never strip the house it just is not Moral....She may have to walk away because she has NO Alternative because she has to move and buy another house in the state they move to....

She will leave the house spotless....Take pictures of everything....give a packet with all the stuff in it that you would usually give a new buyer...Where the water shut off is, a list Identifing the Cable company, water company electric company etc...the manuals for the appliences. Her payments will be paid to date...There will be a letter from the Doctor explaining why it is necessary for her to take her children to another state...

As to their Remodeling, Their realitor told them last fall that the house was worth around $500,000 to $550,000 ...Now a realitor wouldn't wouldn't take it because they can't sell it cheap enough and they can't affort to take an additional hit $30,000 or more in taxes and Realestate fees....They don't have the money...

In 4 or 5 years the market will no doubt be where it was but for now I think it will soon take a much greater hit then it has so far....Some people new to the market will buy but others, like my niece, must sell and the buyers are just not there.

[S-Crow]

Big Mike,

This may have been already covered, but to purchase another home in another state requires funds. If your family member is truly broke, consider renting in the other locale and renting their existing home here in our area. I don't know what the rents would be in your area, and it may or may not cover the PITI obligations on the home, but the alternative of a default is probably much more destabilizing to their credit history, never mind the impact on the family unit itself. It may be best to just be idle until the credit markets start to stabilize which will then impact the real estate markets across the country.

The agent that indicated the value of the home a while ago, should have told you that the market was changing; perhaps they did. In my opinion, the local market was changing in a big way in Winter of 2007 (Jan Feb..) and signs were as early as late 2006 when all of a sudden we had list price drops showing up which were virtually non-existent during 2004,2005, and most of 2006.

Best of health to the them.

[Big Mike 34]

S CROW:

1) My family member is leaving the area ...Not because of the house payment...They have never missed a payment but because there Children are very sick because of alergies...and MUST LEAVE THE AREA....She is virtually Bed Ridden NOW....and getting worse....They have been to the best specialist in the area....and will give the Bank the Doctors written statement when they leave....

2) They are not Broke.....But they can't afford to pay for two houses....Most of us can't...They can't afford to sell and make up the $85,000 or so necessary to be Totally clear with the bank....

The point of my message is to point out the state of the market and show just one of the many situations that would cause a person to hand the Bank the keys and walk away...

You can choose to believe the market is great...There was no Seattle Bubble...and the Real Estate industry is telling us the total UNVARNISHED TRUTH....and while they are telling the truth it is a very polished truth...

It is an example of people who have run into circumstances that demands they leave the area....

They did not over buy....they did not make a down payment Because they had plenty of money to make the monthly payments with out a down payment...they dramatically improved the property while living in it for two years....Still...they are approx $85,000 Underwater if they were to sell the place in this market...and by that I mean it would cost them At least $85,000 more to sell then they paid when they bought the house...and what they currently owe the bank.

They can afford to make the monthly payments but must leave the area and must buy another house when they arrive where they are headed....

[sniglet]

[mukoh]

Mike,
As I recommended earlier, if they are negative on their equity in this home and they will buy another home in another area that they move to best scenario is to do that and just walk away from this home and let the bank deal with it, the bank will in most cases try to push the home out as REO for the value of the note under it.

However it will leave your relatives with a pretty bad situation with credit scores for the next 2 years.

[Big Mike 34]

Sniglet:

They don't have a choice...They MUST move ....Their Children are being made ill by their allergies...The Doctors have told them to move.....

Timing is important but it will not be impossible to buy another house...They are not Deliquent.

[Big Mike 34]

Mukoh:

You are right...They do have spotless credit at the moment but they will take a hit eventually....The important thing for them is to get another Home...before the credit takes that hit.

These people are like most of us....they are not poor, The husband has a good job, but they are NOT RICH either...They cannot afford 2 mortgages, they cannot sell their house, they Must move.

Putting this into a broader perspective...There are 1000s that will be in their same situation (for a variety of reasons) In their case the bank will take a hit and they will take a credit hit....

In other case's people with substantial equity will have to sell at very low prices that will end up with the home owner losing most of that equity.

Because of all of this ....Housing prices will fall....Involving even more people who want to sell...

My own opinion is that the bubble started in late 04 or 05 ...The bubble is breaking and will go back to the 05 price levels.

Do I have pity for the banks or mortgage companies...NO...They made an aggressive investment and you are not guarantee a profit anytime you make an investment...

[sniglet]

[S-Crow]

Big Mike,

I empathize. Really do. Don't know all details but from what I gather in this brief thread, and knowing what I know being that our escrow office closes transactions for a living, I sense that it would be VERY difficult to qualify to purchase another home in a different location, unless they are putting down a substantial amount, perhaps even co-borrowing assistance, if feasible. But, that is if the idea is to purchase---why do they have to make a purchase?

A couple suggestions:
1) Rent a home in the area they are moving to first--get grounded and settled.
2) Work like heck to get the existing house here in our area rented.
3) Even if it does not rent (I wouldn't know) for the full PITI, our housing location in the Seattle Metro area MAY fare substantially better in a correction than in other areas across the country. So, a little negative cash flow may be diminished by our area's potential for resiliency and recovery, all of which is unknowable. It is a risk, but it may be more palatable.
4) It is not unusual for families to assist other members in physical or financial distress. Perhaps your home is owned free and clear. Consider purchasing their home either outright or as a silent short sale. You may be able to purchase the house for less than the oustanding mortgages which may help to reduce both the family member's burden and yours. The downside is that you are now a landlord which may or may not be what your wish for.

In many short sale cases, lenders will require that the existing borrower zero out, meaning they cannot get any cash back. Further, they may require tax returns or other documentation showing a "household balance sheet," if you will (which will paint a picture of financial distress or not.) So, trying to do #4 may or may not fly with the existing lender if a borrower shows subtantial other assets and has no history of late payments.

That being said, trying is better than doing nothing.

-S-Crow

[Big Mike 34]

jCrow

They have made the house as perfect as they can...New paint in and out, a very fancy master bath remodel, Installed hardwood floors and stairs, put in granite Counter tops in kitchen and baths ...Remodeled the master bedroom to add the room next door which can now be used as a connected baby's room or exercise room or office or turned into a very huge fantastic closet or a master sitting room.

They did the work themselves.

They have investigated Renting...they can't get enough to cover the rent and the damage that renters do would make it a poor option and that assumes they could rent it...

Renting on the other end and paying the mortgage for the next several years just doesn't make any sense at all....Could you afford to do that could most of us...and I remind you they have a daughter that has huge medical bills just to pay the Co-Pays

It is not immoral to have an investment go bad....Over the last two years the mortgage company has collected more then $60,000...and it is an investment that they were also involved in....I have no pity for the Mortgage company...They also took a risk.....Neither they nor my relatives could have anticipated what would happen..

They have an Attorney who is advising them what they legally need to do, morally I see NO PROBLEM...

Again I am pointing out but one example of how decent honorable people can get stuck and left with no options but to walk away

[rose-colored-coolaid]

[S-Crow]

Big Mike,

I hear you. Trying to help throw out some ideas. Are they looking to purchase in another area? If so, why? (I'm not understanding this). Were the family member's health an issue when the remodeling expenses were taking place? Just trying to understand the situation.

You can e-mail me offline if you wish: tim@legacyescrow.net

[biliruben]

The ethical issue would be the fact that your niece would be defrauding the next lender. When your niece is applying for the loan on the next house down in the land of no allergies (the Southwest?), if they don't disclose that they are about to default on their current house, that's fraud.

I feel for people in this situation, but what happens when you make a bad investment is that you pay off the money your borrowed, if you want to be ethical.