Opinion on how to solve my mortgage (Foreclosure?)

[marlon]

My credit score is excellent. I have no debt (except my mortgage and 1 car payment). I am very rigorous and my reputation to make payments and honesty are important values. I have an advanced degree and income is usually around $100K/year.

Surprisingly, I work as an engineer for an automobile company and got laid-off recently. All of sudden, my stable situation becomes a nightmare. I have wife and son and my wife does not work.

1. I have a condo in Redmond which was appraised last year at $365K. Now is probably only worth $285K. My mortgage balance is $285K. Even if I am successfull selling now at $285K, I would need to take into account about 6%-8% in real state agent and taxes. I am paying about $2,300/month in mortgage. I have a little bit of savings and 401K, but I do not feel right to spend my hard and limited savings into this.

It is really hard for me to continue with such mortgage while I am unemployed. Ideally, I would like to move to an apartment at $1,300/month and save money.

2. I have plans to move out of the state(or actually move out of the country) in 3 years from now.

Question:

What is the best alternative for me getting rid of this condo and payments? I already called the lender twice but they did not offer any refinancing for me.

What is the implication of foreclosure? Is a floreclosure and bad credit going to block me somehow of getting a job in the future? That is my major concern.

[Angie]

Marlon, I'm sorry to hear about your situation--very sad.

How is the job search going? Any chance you'll be "back in the game" soon?

I wish I had some advice about how to make it work out...all I can tell you is that if you do get foreclosed, you will surely not be alone in this day and age. I have to think that after all this turmoil is over, people who are reviewing credit histories (for employment or otherwise) will recognize that these were unique times, and that it probably won't be the same kind of stike against someone that it was in the past.

Good luck to you and your family.

[sniglet]

Keeping a clean credit rating is often not worth taking a big financial hit. These days having a foreclosure on your record doesn't mean that much. Hey, it's not as if there will be any point in buying a new home for many years anyway. Prices are going to keep dropping for many years in the future, and when we DO hit bottom we will drag along with very little appreciation for a decade or more.

I won't say this is the best option for your situation (you should consult a lawyer), but purposefully going delinquent and just living in your current home for as long as you can (rent-free as it were) might work out quite well. My sister has been delinquent on her home in Florida for well over a year and they still haven't evicted her and foreclosed. She gets LOTS of nasty overdue notices, but neither has anyone kicked her out.

I think the period of time you can live rent-free before foreclosure largely depends on your lender (e.g. how overwhelmed they are with foreclosures, whether they are technically insolvent already, etc).

In any event, I don't see how you come out ahead continuing to make payments on a mortgage for a home that will soon be underwater, when you have no income.

Actually, it is only AFTER you become delinquent on payments that options really open up. Who knows, your lender might be willing to make significant reductions in payments for a year or so, creating some new reset point (i.e. where payments baloon a few years down the road to make up the difference). That at least would delay the time at which you need to start going delinquent again.

[rose-colored-coolaid]

The main thing people forget is that you only need a good credit rating if you plan on using credit. BTW, using credit is in most cases a bad move. As you're experiencing, a little hiccup and suddenly you have all this debt to pay on with inadequate funds.

#1 Look over your car loan. How big is that. Can you really afford it. Could you sell it for more than you owe? Could you find a used car in decent shape for enough less to make it work out?

#2 You need to figure out expected credit for the next couple years. If you plan on using plastic to make it through this period of unemployment, you need to keep the credit rating good. If your plan is to not make any or at least many purchases on credit for the next five years other than a home (with at least 20% down) you don't really need to worry too much about your credit rating.

[marlon]

Thanks for the reply.

Based on my skills and job market, I think I have good chances to get a job within 2 months. The problem is that no one knows for sure.

The car is already for sale. I have two cars (one already paid) so it is fine and right getting rid of the other one.

I do not even care with credit anymore. I rarely use my credit cards anyway. If you are right that typically major employers do not check credit history for job employment purposes, I do not give a jack damn to my credit.

I will consult a lawyer tomorrow. If he confirms that the lender will not go after my 401 funds and other savings I have, I think a fair plan is to wait till May and then stop making payments at that point if I don't get a job. I will call also a real state to see if they can sell the condo soon - however, I seriously doubt that it is going to be cost effective since counting the selling fees, it is already underwater.

[EconE]

Marlon. Hope everything works out for you job-wise and home-wise.

WRT future employers checking credit and the fear people have of bad credit due to foreclosure...I think this time will be different as others have said. I'd be willing to bet that there will be people who are doing the interviewing that lost their homes too...and I'm sure each person will have a different story behind their lower credit score.

I doubt that there will be a stigma regarding foreclosures in the future...unless of course... a person took a 200k house and HELOC'ed 500k out of it, as you can see on the Irvine Housing Blog.

Best wishes...and speaking of credit scores...does anybody know how I can get mine to ZERO? Yes...I'm serious.

[ira s]

Marlon,
Have you been in touch with the lender's loss mitigation dept at all?
One option might be for them to adjust the loan.
Otherwise, you might want to sell the condo as a short sale, which would also require the cooperation of the lender, and they would agree to accept as the sale price less than what is owed.. I don't know what the best thing for you to do is, but I thought sharing more options couldn't hurt.