Get the bank to take a Deed In Lieu Of Foreclosure. You wont owe anynthing and its a cheap way for the bank to ge the house from you.
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Consequences of stopping paying mortgage
- Thread starter sharknyc
- Start date
FICO scores may increase after BK Discharge....but the years leading up to this will be hell.
If you have existing credit....you are more of a risk so expect interest rates on existing credit to increase. Secondly, auto insurance is influenced by FICO.
Lastly, if you have a child that will be in need of a student loan for college......you may experience challenges co-signing for said loan.
So by the time your BK has been discharged.....you may be at a serious economic disadvantage after paying 2-3x more for something as a result of the BK
Only other thing I have to add is that there are new calculations implemented to calculate FICO scores. Scores will be more influenced by the type of revolving and installment credit you have. Mortgages will be weighed more than say an auto loan.
If you have existing credit....you are more of a risk so expect interest rates on existing credit to increase. Secondly, auto insurance is influenced by FICO.
Lastly, if you have a child that will be in need of a student loan for college......you may experience challenges co-signing for said loan.
So by the time your BK has been discharged.....you may be at a serious economic disadvantage after paying 2-3x more for something as a result of the BK
Only other thing I have to add is that there are new calculations implemented to calculate FICO scores. Scores will be more influenced by the type of revolving and installment credit you have. Mortgages will be weighed more than say an auto loan.
Quote from JSHINV:
I believe in CA the homeowner has a statutory option to do what is called a deed in lieu. you throw the keys to the home on the financial institution's desk and say goodbye. Of course it probably wood kill your credit, given it is forfiture of collateral.
Actually regarding your main question, thousands and thousands all over the country are doing exactly what you are saying. They are just stop paying their mortgages and walking away. I think one the main reasons is they simply can't afford it the mortgage and many did not understand the terms when they bought the home. Secondly, many bought the home as investment thinking it would continue to appreciate like properties had in the past. But, the two go hand in hand, in most cases in this means because they got mortgages they couldn't afford and many did not understand the terms. Reading th posts there were differing opinions on consequences. But, no matter how you cut it, the consequences of walking away from a home and mortgage payments by whatever means (BK, deed in lieu, recourse, short sale) are not going to be favorable. But if a preson or family can't afford to pay makes it almost an inevitable choice.
Deeds in Lieu, Short Sales....etc will effect your credit history too. You may be free of the debt obligation......but you will have a paper trail behind you.
Don't forget the tax implications.
If the lender forgives any of the loan or when the lender forecloses on the property and sells it for less than the outstanding mortgage, the IRS considers this to be cancellation-of-debt, or COD, income. As far as I'm aware, it's all taxable income, taxed at ordinary income tax rates.
And you may even owe capital gains taxes on "phantom income" if the bank forecloses.
If the lender forgives any of the loan or when the lender forecloses on the property and sells it for less than the outstanding mortgage, the IRS considers this to be cancellation-of-debt, or COD, income. As far as I'm aware, it's all taxable income, taxed at ordinary income tax rates.
And you may even owe capital gains taxes on "phantom income" if the bank forecloses.
Quote from 2ez:
Deeds in Lieu, Short Sales....etc will effect your credit history too. You may be free of the debt obligation......but you will have a paper trail behind you.
I agree.
Problem is some people have only these choices.
Some didn't understand the financing terms got emotional and bought. Some were suckered into loans they did not understand or could afford. Many were stated income, more commonly called liar loans and they fudged on their earnings. Others knew exactly what they were doing and were betting on continued property appreciation and planned to flip in the hot market they thought was going to go a few more years. Many FICO scores were manipulated, which was cracked down on in 2007. There are a lot of reasons. I read one case where a couple had like a 5.75 30 year fixed and were talked into refinancing at a 3.0 percent that reset big time in three years. So the economy has a situation where a lot people can't afford to pay off their loans.
It is possible for many of these loans someone at some level had to have a good idea that these were high risk loans, despite the fact they were supposedly charged a higher rate for a "risk premimum." It may have been the home buyer, mortgage broker (close the fees - get their fees and their done) or the bank (don't portfolio the loan just sell it). But, Countrywide kept a lot in their portfolio they didn't sell off to be securitized. So, I can't say for sure. But one thing I am pretty confident in saying is once it got securitized and bundled up into securitizes, I don't think the rating agencies had a clue. Obviously Bear Stearns and Merril didn't have a clue.
I agree Jshin and Originalskunk,
I am hearing some lenders are now going back to do quality control. Meaning they are checking some of these Alt-A (Stated, Reduce Doc, No Ratio) mortgages that were approved and asking the borrower to confirm and verfiy stated incomes. Just because they didn't have to verify the incomes does not mean they will not have to someday prove said income exist.
And as we all know mortgages are callable. If you can't prove income you will have problems. Moreover, your credit history will be compromised and you can forget about getting another mortgage anytime soon.....in their name that is.
Another thing and I am not sure if this was mentioned......but doesn't BK stay on your credit profile for 10yrs instead of the 7yrs ?
My cousin filed BK about 4yrs ago. When it was time for her daughter to go to college.....she had to ask the grandmother to co-sign the student loans. The daugher graduated from college......and still has a little time before paying on the student loans. The grandmother is trying to refi her Home but for some reason the student loans (that she co-signed) are hindering this process for her. As it stands now.......my cousin is unable to get a loan in her name to cover the student loans co-signed by the grandmother.......and unfortunately, the grandmother is still trying to refi under more favorable terms.
One last thing....if one is not paying their mortgage.....taxes are probably not being paid. So we can assume their will be a tax lien on the property.......or the home will be snatched as a result of unpaid taxes anyway.
Bottom line.....take care of business....defaulting on a mortgage is not like any other installment nor revolving debt.
I am hearing some lenders are now going back to do quality control. Meaning they are checking some of these Alt-A (Stated, Reduce Doc, No Ratio) mortgages that were approved and asking the borrower to confirm and verfiy stated incomes. Just because they didn't have to verify the incomes does not mean they will not have to someday prove said income exist.
And as we all know mortgages are callable. If you can't prove income you will have problems. Moreover, your credit history will be compromised and you can forget about getting another mortgage anytime soon.....in their name that is.
Another thing and I am not sure if this was mentioned......but doesn't BK stay on your credit profile for 10yrs instead of the 7yrs ?
My cousin filed BK about 4yrs ago. When it was time for her daughter to go to college.....she had to ask the grandmother to co-sign the student loans. The daugher graduated from college......and still has a little time before paying on the student loans. The grandmother is trying to refi her Home but for some reason the student loans (that she co-signed) are hindering this process for her. As it stands now.......my cousin is unable to get a loan in her name to cover the student loans co-signed by the grandmother.......and unfortunately, the grandmother is still trying to refi under more favorable terms.
One last thing....if one is not paying their mortgage.....taxes are probably not being paid. So we can assume their will be a tax lien on the property.......or the home will be snatched as a result of unpaid taxes anyway.
Bottom line.....take care of business....defaulting on a mortgage is not like any other installment nor revolving debt.
As you can see here........FHA even requires 2 - 3 yrs after BK discharge to get another mortgage. However BOA does allow provisions.....not sure of the terms. Here is a scenario presented:
Scenario 1:
Quick details:
BK discharged in 1/07
Foreclosure in 7/06
No baddies since BK discharge
Approved Target Red Card in early December and already started reporting on CR.
Current open accounts:
2 car loans - 1 opened in 1/05, 1 opened in 9/06
Student Loan
Target Red Card with a small balance to keep it reporting
My Beacon Score:608 Wife's: 612 (scores were pulled in November)
Home prices are really good in my area of Texas right now with lots of standing inventory. We want to take advantage of that and find a good opportunity to get back into the home ownership market. We have financed 6 homes over the years and had flawless credit until our unfortunate situation in 2006.
Do I have any options being 1 year out of BK discharge and 18 months out of foreclosure? There is essentially no sub-prime market anymore, so things are clearly more limited. We spoke to a broker back in November and actually moved forward with an attempt to get FHA approval. The underwriter would have approved us with the BK, but said we needed at least 2 years post-foreclosure to get FHA funding and possibly 3 years. That puts us in July 2008 for a possible FHA approval, but possibly as late as July 2009.
If we can get our scores over 620, and we're hoping a couple of months of Target reporting might give us a little push, he feels we can get a Chase approval with 10% down and a high interest rate.
Suggestions, outlook, ideas?
One Suggestion:
Bank of America has a program called Community Accommodation which doesn't have any BK or foreclosure seasoning. It does require a 620 score, and you either can't make more than 80% of your county's median income or if you do, then you must purchase in a low-to-moderate income census tract. Other than that, you'd have to wait out the 2-years from foreclosure or 2-years from BK filing date, whichever was last.
Scenario 1:
Quick details:
BK discharged in 1/07
Foreclosure in 7/06
No baddies since BK discharge
Approved Target Red Card in early December and already started reporting on CR.
Current open accounts:
2 car loans - 1 opened in 1/05, 1 opened in 9/06
Student Loan
Target Red Card with a small balance to keep it reporting
My Beacon Score:608 Wife's: 612 (scores were pulled in November)
Home prices are really good in my area of Texas right now with lots of standing inventory. We want to take advantage of that and find a good opportunity to get back into the home ownership market. We have financed 6 homes over the years and had flawless credit until our unfortunate situation in 2006.
Do I have any options being 1 year out of BK discharge and 18 months out of foreclosure? There is essentially no sub-prime market anymore, so things are clearly more limited. We spoke to a broker back in November and actually moved forward with an attempt to get FHA approval. The underwriter would have approved us with the BK, but said we needed at least 2 years post-foreclosure to get FHA funding and possibly 3 years. That puts us in July 2008 for a possible FHA approval, but possibly as late as July 2009.
If we can get our scores over 620, and we're hoping a couple of months of Target reporting might give us a little push, he feels we can get a Chase approval with 10% down and a high interest rate.
Suggestions, outlook, ideas?
One Suggestion:
Bank of America has a program called Community Accommodation which doesn't have any BK or foreclosure seasoning. It does require a 620 score, and you either can't make more than 80% of your county's median income or if you do, then you must purchase in a low-to-moderate income census tract. Other than that, you'd have to wait out the 2-years from foreclosure or 2-years from BK filing date, whichever was last.
Well, whoever this is has big credit problems. I hope whever this is, is not trading. But to whoever it is good luck. You may be better off renting and saving before buying. Build up some cash equity.
Quote from 2ez:
Scenario 1:
If we can get our scores over 620, and we're hoping a couple of months of Target reporting might give us a little push, he feels we can get a Chase approval with 10% down and a high interest rate.
But its more a rentals market. landlords are now able to be more selective. One of my friends works for a property manager.......and he told me recently, that they are more selective than ever with whom they choose. They have a new rule now too. If anyone is late more than 5x, their lease will not be renewed. I asked him why so....since they make a little extra with late fees.....he said that it doesn't matter......later rent paying will more than likely end up meaning evictions which involves attorney fees and other extras. They would rather have renters that pay consistently ontime.
He said a 2bdrm, 2bth in his Suffern, NY complex was $1565/month, $700 Amenities fees (annual), Rent has been raised to what they call the national average of $1777.
So what's my point.......with the cost of living increasing....saving may be hard fetched. don't mean to sound like a pessimist.....but shiat is more challenging than ever.
It's tough out here.
He said a 2bdrm, 2bth in his Suffern, NY complex was $1565/month, $700 Amenities fees (annual), Rent has been raised to what they call the national average of $1777.
So what's my point.......with the cost of living increasing....saving may be hard fetched. don't mean to sound like a pessimist.....but shiat is more challenging than ever.
It's tough out here.
I grew up in OH, moved to So Cal almost 25 years ago, lived their 20 years and now live in Scottsdale, AZ for over 4 years. So you know much more about the NYC area than I do, so I'll defer to your knowledge.
We are probably a generation apart. But, even though I am not wealthy, I am financially set for retirement in two years at 56 with no change in financial life style.
But, my point is in telling you this (and I guess thousands) is I want you to know that I am very very aware for many many people it is as you say......
And not to be pessimistic either, I don't think it is going to get any better in the next couple of years. Also I pass no judgement on whoever it was in your scenario or others in similar circumstances.
But even in tough times, there is opportunity for financial success who has the will and focus to pursue it. I've seen it. Good luck to you and best wishes for whoever is your scenario.
We are probably a generation apart. But, even though I am not wealthy, I am financially set for retirement in two years at 56 with no change in financial life style.
But, my point is in telling you this (and I guess thousands) is I want you to know that I am very very aware for many many people it is as you say......
Quote from 2ez:
It's tough out here.
And not to be pessimistic either, I don't think it is going to get any better in the next couple of years. Also I pass no judgement on whoever it was in your scenario or others in similar circumstances.
But even in tough times, there is opportunity for financial success who has the will and focus to pursue it. I've seen it. Good luck to you and best wishes for whoever is your scenario.