First, I want to thank Moe and the LoanSafe team for establishing and maintaining such an informative site. I have been reviewing the information on this site for over a year and have only now decided to share my story. I hope that I will find some support and maybe a few answers as I take the final step.
I bought my home with my wife in July 2007 near Sacramento in California. When we initially signed the contract with the seller (January 2007), the mortgage broker we were working with kept trying to get me or my wife to lie about our income or job title. I refused, thinking that I was going to be given an appropriate mortgage if I told the truth. Well, a few months later the broker comes back to me with a "great deal!" A 7 year ARM, with an interest rate buy-down by the seller. A second mortgage/HELOC was also approved at a very low variable rate (currently around 4.5%). We financed at 100%. Both loans are with Wells Fargo. Both were interest only payments, but I knew I could make additional principal payments (and did so for the first two years).
This was my wife's and my first home. We knew that those 3 year ARMs were unsafe, but we figured that in 7 years, even if we were in a housing bubble (remember, by the time we closed on our house, there were already signs of cracks in the housing market) we would be able to recover enough equity, especially if we were making principal payments, to refinance into a 30-year fixed. Plus, I was certain my income would increase at a steady rate.
Fast forward a little over one year. My wife quits her job to return to school after supporting me through law school. The housing market and financial markets begin to crumble more significantly than I ever imagined could be possible. Then my employer decides to freeze salaries and reduce (or eliminate) bonuses. After taking a long, hard look at my finances, I determine that we really couldn't afford the home when we bought it and should never have agreed to the loan... but we were starry eyed and smitten and made a mistake.
A year ago, I stopped paying additional principal on the loans to put that money toward other debts. We spoke with the bank on numerous occasions to attempt to find some workout or modification, but we "did not qualify". In March 2010, after realizing that every third home in our neighborhood (a brand new subdivision) is either vacant or for sale, I decided to stop paying on the mortgages altogether and decided that we would attempt a short sale (because that would make my wife feel better) but would refuse to sign any promissory note for the difference.
I determined, with help from this forum, that if I short sell, there will be no additional tax liability due to the recent legislation. I will not sign any promissory note and will require that the banks release all additional liability to accept a short sale, and so will be free and clear upon closing.
If I do not short sell, I will allow the bank to foreclose. At the earliest, foreclosure will occur in Fall. Both first and second are purchase-money (and explicitly state so in the contracts) so there would be no personal liability. In addition, I would have no tax on the forgiven debt, both because of the recent legislation and because my cost basis (including landscaping) is greater than the amount I owe on the home (which would be considered the sale price in a foreclosure).
Right now, we are looking for a house to rent. I'm not sure I want to wait for the short sale to complete or for the foreclosure to become final because the uncertainty of finding a home makes me and my wife nervous. Especially because we have one large breed and one medium breed dog.
I'd really love to hear from anyone who has had luck finding a rental home that allows large dogs and about how long it took to find the place.
Thanks for reading my story.