A Maryland sob story

[sailordude]

In May 2007 I bought my house in Baltimore, MD (a recourse state). It was about all I could afford in a half way decent neighborhood. And it needed lots of work.

* Original Appraisal: $177,500
* Purchase Price: $172,000
* Mortages 75/25 (currently $124k @ 6.5%/40k @ 9%) both with Wells Fargo (my STB exwife is not on the mortgage)
* Zillow thinks my home is worth $177,500; but a nearby home (in better condition) that Zillow estimated at $184,500 just sold for $129,900 (a possible foreclosure). Maybe my house could sell for $100k? Maybe less?
* For the time being, at least, my credit score is in the 780 range.

Necessary repairs: New front porch, New back deck, New Roof, Carpeting, and drywall work. The kitchen really should be redone. A short sale realtor I talked to was less than enthused by the property and said it was close to unsellable in this market. I figure I need to put at least $30,000 (that I don't have) into it to bring it up to sellable condition.

As a newly single guy, I don't want the house. I don't want anything to do with this house anymore. I can't afford the house. Apparently, I can't sell the house. It's like a chain around my neck, and walking away is looking mighty appealing right now.

Contributing headache: A couple of years ago I bought a rental property with an LLC (using a 401k loan), that I rehabbed using credit cards. Then the credit crunch happened and I couldn't refinance it into a regular loan. Then the tenants (and two property managers) went deadbeat. Then my wife left and I stopped caring and the property has been sitting abandoned (I hope ... who knows what squatters could be there, and what damage they could have done) ever since.

Now, my 401k loan payment is killing me (at over $1000/mo), my credit card payments are killing me (minimum payments around $1200/mo), my bank account is down to triple digits, my lawyer wants cash (another kilo-buck this month and next), my house needs some immediate mechanical attention, my truck has just turned a 1/4 million miles and has me nervous, the monster overtime I've been working to hide from my troubles is affecting my health, and I need to get off my behind and get something done.

IF (BIG if) I can sell my rental quickly (Zillow says $105k ... I don't believe it) and clear $60k, I can clear my 401k loan and most of my credit card debt, and I could once again afford my mortgage (but probably not repairs). But with the failure of my marriage, I do not want to keep my house. I don't even want to remain in Baltimore. I'm thinking of upgrading to a somewhat larger sailboat, and moving onboard that (it should be cheaper than an apartment and is the lifestyle I desire).

I'm scared silly. But things can't keep going as they are. I'm looking to clean up my financial hell in the cleanest way possible. I don't care if I can't buy a house for 5 years. Or 7. Or ever. I'm completely soured on the concept of long term debt and will likely never buy a house again.

I'm not sure if I have any questions, or if I just wanted to let loose in a forum where I was unlikely to get any lectures on financial morality. I would sure be interested in hearing how the process of walking away worked for other people in Maryland. And I would sure be interested if someone could point me in the direction of a financial professional (that won't bankrupt me himself) to help me plan my way out of this mess.

[La Biondina]

Good grief.
I'm SO sorry to hear about all your troubles! I think there are a few others here that are walking in Maryland, hopefully they can chip in with some advice. I would definitely say WALK. And maybe even throw in a bankruptcy for good measure! Stay in the house until they foreclose, either save your extra cash like a fiend, or pay off some of your debt. Although, if BK is an option, maybe don't pay off any debt.

I'm not familiar with MD laws etc, but even just googling it to see what might happen down the road if you walk away should start you off in the right direction. Searching on these forums might also give you some info, I'm sure I've seen threads from some people in MD.

Good luck, one day it will all be over

[sailordude]

There doesn't seem to be too many posts from Maryland, so I suppose I'll do as others have done and keep a running dialogue (or monologue, perhaps, if I just talk to myself) of my choices and the benefits and consequences. I'm wordy, though.

I've painfully decided to do the walk away thing. Keeping the house would be a fiscal and emotional disaster. I'm probably going to start defaulting on some bills in the near future, so I might as well choose my battle.

An automatic payment for August will be made Monday on my first mortgage. It's too late to stop it. I've signed on to my Wells Fargo account and found that while it is pretty simple to set up an automatic payment; there is no quick and easy way to cancel it. So I used their "contact us" option to send a note requesting they cancel the auto-payment feature. My next 2nd mortgage payment isn't due until September 20th (I overpay slightly every month, so I'm ahead by a bit), and that is not setup for auto-payments. I'm not certain if I will immediately stop paying that $400 or not. Reading through the forums I've seen some indications that they may more rapidly respond to failures on the second by going to a collection agency. Not certain. I'll keep reading. In any case, I won't miss a payment until the first of August. That should give me plenty of time to get my ducks in a row (silly expression).

I've done what others have done and opened a Google Voice account to handle the inevitable phone calls that will be heading my way in six or eight weeks. I don't understand how Google can offer that service for free; but it looks perfect, and will come in handy later when it gets close to time to move. I've deleted all other Wells Fargo contact phone numbers beside the Google Voice. I don't need to deal with calls at work, and if things get real annoying I'll stop the forwarding to my home #.

I finally got the courage up to deal with my rental property (in a decidedly so-so area of Baltimore). I'll admit that I've been emotionally devastated by the whole divorce thing and as a result have been conflict averse over much of the past year, so have ignored my rental not wanting to deal with left over tenants or squatters. It turns out the tenants, whom I had paid my previous property manager to evict, are still living in the row house, and have been all year, rent free. I talked to my "tenant" and told her I was selling the place and she needs to move. I gave her a reduced rent of $500 (from $900) for the next three months, and will forgive the $6300 in past due rent (like I'd ever get that) under the understanding that she vacate the premises. I'm hoping she leaves and doesn't force me to do an eviction as I'm told they are expensive and time consuming. The good news is that at least the place has been occupied and appears (at least from what I saw) to have been fairly well maintained. I was worried that the place would have been gutted and destroyed.

If the renter does vacate, I hope to sell the property quickly for $70k or so. More would be nice. I would take $50k if that was the only way to move it though. My prime concern is to pay off the $30,000 I still owe to my 401k plan to eliminate that nearly $1,100 monthly payment and get the money someplace protected. I'd like to pay off as much as possible of the ~$37,000 I have of credit card bills (largely used to rehab the rental, and for the past year just make expenses). If I can't, well, chapter 13 bankruptcy is on the table (I don't qualify for chapter 9); but I'd rather not have my life controlled by a trustee.

I am still weighing my options regarding a new car. My current truck has around 250,000 miles on it. It's running fine; but I doubt it will keep going indefinitely (and things are beginning to break fairly regularly). However I'm having a hard time with the thought of more debt. If I'm going to buy something new (err, used), now is the time, I suppose. Or I could just hope it doesn't break down in the next few months and stash some would be mortgage payments into a car fund for when it does decide to go. I'm leaning towards the latter.

I feel like crap about this decision. I always pay my debts. Since making this decision a few days ago I have yet to get more than a couple hours of sleep. I'm hoping that mind dumping here will help ease some of the stress.

[whatsbestforme]

If you're like me, the "mind dumping" here will help. I hope it does. And I love to read others' stories.

I am sorry for what you're currently going thru--I feel completely inadequate to offer advice, but I did want to offer my empathy.

I hope all of us are able to put this financial nightmare behind us quickly.

[sailordude]

Thanks La Biondina and whatsbestforme for the sympathy. It's appreciated. With a little luck I'll get through this mess, and by documenting here maybe I'll help someone else in Maryland (or elsewhere) at some point. I know other's stories have calmed me a bit. I will admit that I feel a bit ashamed of the disapproval I gave relatives and friends who have gone through financial difficulties in the past. Things change rapidly when the shoe is on the other foot.

I'm obviously still weeks away from my next due payment, so everything at this point is prep. Today I used one of those online legal form companies to prepare a Quit Claim Deed for my wife. She is on the title to the house; but happily not on the mortgage. Also happily we have already legally determined the disposition of all our assets and debts in our separation agreement. She just needs to fill out the form so I can file it with the clerk. It will be one year of separation on Tuesday, so I can finally file the divorce paperwork. I think it is best to finish the house paperwork before things get weird.

I also did a little research into the deficiency issue. It looks like in Maryland the bank has three years to file for a deficiency. Apparently they can just forgive the deficiency ahead of time by issuing a 1099-C. I don't know what the likelihood of that is, although it would be best (given my loan amounts, I'm hoping the deficiency isn't worth pursuing). Especially since that would apparently not be taxable income according to The Mortgage Debt Relief Act of 2007. I do wonder, though, if Wells Fargo waits the three years they are allowed to come after me for deficiency, which will obviously take me beyond the 2012 expiration (assuming it isn't extended) of the Mortgage Debt Relief Act, will I end up having to pay taxes even though the foreclosure would be completed (theoretically) in 2011? Not that it matters, as there is nothing I can do about it.

So, the plan...

1. Stop paying the mortgage as of September 1st.
2. Bank the money ($1233/month on the first, $400 on the second) in anticipation of needing a new vehicle if my truck doesn't hold out (I figure $4k will get me something adequate) and to prepare for a rental (say $3k for first/last/deposit given likely credit hit).
3. Walk away. Even if the house sells for some ridiculously low price at auction, say $75,000, that would be less the $50,000 deficiency on the 1st mortgage, which will hopefully not be enough for Wells Fargo to worry about (I have high hopes). On the second mortgage I'm guessing I'll have to try and settle, hopefully for less than $10,000 of the $40,000. I can handle that.
4. Sell the rental, thereby clearing my debt to myself (401k) and hopefully most of my credit cards.
5. Hopefully, once finances settle down a bit, buy a suitable sailboat, move onboard and dock it in some pleasant location and live a happier life for a lot less money.

[sailordude]

My automatic mortgage payment has now been officially canceled.

In other news, I have once again determined that attorneys work on their own schedule. I had planned to file my divorce on Wednesday (the first eligible day); but I haven't got the paperwork yet. Hopefully my phone call gets things rolling. I expect similar delays with the foreclosure. The price of being a small fish in a big pond, I guess.

My last mortgage payment was processed today. I guess I'll be back in a month to declare my first missed payment. If I don't chicken out first.

[mrange25]

Don't feel bad about any decision you make. When enduring economic collapse, there are no morals or ethics, there is survival.

If you are doing the best thing for YOUR survival (both financially and mentally) it can never be wrong.

The idiots are the one's sitting on the deck of the Titanic playing a violin and going down with the ship.

[sailordude]

Mrange25, I've come to the conclusion that losing the house is inevitable; it is just a matter of timing. But I'm not sure I'll ever feel good about walking away from a debt. Still, what needs to be done, needs to be done, and I'm fairly certain that walking away now is the best of all the bad choices. Hell, it might even be better for the bank if they have a chance to sell the place before prices drop even further. If I look at this as a fight for survival, it is easier to accept the necessity of collateral damage. Sorry, Wells Fargo. Friendly fire happens. :-(

The frustrating thing is I make a decent living. Especially the past year or so where I've put in MONSTER overtime. I've just made some bad financial choices. Buying the rental property was the second worst. Buying my residence was the first. Never again. I have needed every dime of the overtime to keep my head above water, and even then I was slowly depleting my savings.

My savings are now depleted.

Although, now that I think about it, this might be better as it is forcing me to deal with the underlying problem now instead of holding on for 2, 3, 4, 5 more years. Housing prices might start climbing in this area when BRAC gets going. Can't wait, and can't count on it, though.

I HATE living in Baltimore. I have a lot of fun here, as there is always something to do; but I can't stand the crime (in just over 3 years I've experienced 1 home invasion, 1 burglary, 4 car break ins, 2 stolen lawnmowers, and 1 murder across the street ... in a "good" neighborhood) and the taxes and just don't want to be here any longer. Get me outa here!

Back to the decent income thing... I might need to start making some adjustments. Once I've saved up a few thousand dollars, it might be in my best interest to cut waaaay back on the OT, just in case bankruptcy becomes prudent. My base pay is very close to the median pay for the area. Overtime and shift differential drastically increases it; but I might be able to keep things close for six months if I work at it. Not that I desire Chapter 7, or bankruptcy at all, it's just that I like to keep my options open. And it would kind of **** to be committed to a five year Chapter 13 plan. Besides, it would be nice to cut back a bit on the life ****ing work life.

Ok. I guess I'm still venting.

[vargasluis]

Hi,

I walked away in Maryland last year, thank God.

My situation was different however; I did not have any economic hardship and my foreclosure was strategic. Basically 1 loan upper 200s house underwater around 100k ARM interest only with resetting by 2011 No second home or investment properties , no Home Equity line of Credit. I basically realized that I was throwing money away and I needed to move for career reasons. My lender was not a private bank but one of our GSEs.

Anyway after a HUGE research work (a lot lot more than before getting that mortgage) I decided to stop paying; I never returned phone calls or had any negotiation; I left the foreclosure to proceed by itself. In Maryland foreclosure is nonjudicial through a Deed of trust and after seven months it was completed; in the meantime I lived rent free for that period. Given the new accounting rules on the GSEs the house was bought back for more than the loan was worth and I had no deficiency and even if there was any it was really small.

The only consequence was my credit rating but I can live without it now; final result I turned my financial life around and now I am paying back the remainder of my debts; even my cars (2) are already paid off.

The issues I see in your case are:

1) 2 loans on the first house
2) A private lender that will take a loss and can potentially go after you for a deficiency
3) A second mortgage on an investment property that is just adding another liability in case you walk away increasing your potential for deficiency judgements and do not forget that because you have a second home you are not eligible for the 2007 debt relief act which means you might have a tax liability also.

I do not see any room for negotiation with your lenders; if I was you I would directly talk to a bankruptcy attorney as I think Chapter 7 might be your only option but just if they go after you looking for a deficiency.
Bankruptcy is bad but prolonging your losing situation I think is a lot worse. Overall bankruptcy is a legal instrument used by not only individuals but corporations (see GM, Chrysler etc) that allows a recovery and you will eventually recover as long as you have financial sanity.

Good luck
LV

[sailordude]

Thanks for commenting vargasluis. I really do appreciate it.

Just to clear up a couple things...

The investment property was bought CASH using money I pulled out of my 401(k) plan, so there is no mortgage there, just a large monthly 401(k) loan payment (about $1100). My credit card balances are high because I used them to rehab the building. My intent was to get a mortgage after the rehab was complete and pay off the 401(k) loan and credit cards. Unfortunately, this coincided exactly with the onset of the lending crisis, and no bank would lend me money on a property in an LLC. For months things kept changing and it looked like I'd get financed, and then it would fall through as the banks continued to work through their issues. Then the wife left and I stopped caring or trying. As things stand, I still owe $30,000 to my 401(k). I'm hoping to get this place sold (even if I have to sell it at an obscenely low price) to at least cover the 401(k) loan and hopefully a few other debts before the foreclosure is complete.

Both my mortgages on my primary residence are with Wells Fargo. I'm not sure if that matters. I don't think they can get a deficiency judgment non judicially, I'm pretty sure they'd have to go to court. Twice (once for each loan). I'm guessing the deficiency will be about $40k per loan, so I'm hoping it isn't worth their time or money, especially considering the tons of much higher deficiency balances that exist in this expensive state; and double especially if I'm threatening bankruptcy. There is very little info here from MD; but I'm keeping my fingers crossed.

As to Chapter 7, well, it isn't looking good for me. I went to an online means test and was plugging in different numbers and couldn't find any way to make it work. If bankruptcy is in my future, chapter 13 may be the only way to go. Interestingly, a 401(k) loan does not qualify as debt, so it has no bearing on the means test, even though it is the primary reason I can no longer afford my bills. Makes sense, though, given that I essentially owe the money to myself.

I think the worst case scenario is that I will have to get on a five year chapter 13 plan to pay back as much debt as possible. This would be unpleasant; but it would still be better than my current situation.

You are the first person in MD that I think I've seen a time frame from, so I'm going to plan things on your seven month window (I realize it may not necessarily be the same, but it gives me a baseline). My next due payment (which will be the first missed payment) will be September 1st. Seven months from that would be April 1st, which is a perfect time to have to deal with moving. My insurance was just paid, so I'm set for a year there. $1600x7=$11,200 in savings. That is not insignificant. Of course, some of that will go to paying expenses that I'm struggling with now. Some will go to purchases that have been deferred for a long time (there are literally holes in the bottom of all my shoes, and I'm wearing shirts I bought ten years ago). Some will go to car repairs and/or a replacement vehicle (cash purchase only, please). Some will be offset my a smaller tax return. And some will cover the expense of eventually moving.

Hmm. Doesn't really sound like that much when you figure it all in. Although if I can get the rental sold I will be in much better shape,

[helpinNE]

@Sailordude - You may have answered this but I missed it.
If you own the rental outright (except for paying the 401K loan back) why don't you move into this residence after the foeclosure is complete. Is this what your plan is?

[sailordude]

I certainly COULD move into the rental when all is said and done. That isn't likely to happen for a couple reasons...

1) I really want to get my money back into the 401(k) where it is protected and so my take home pay could recover a bit (by not having to make the payments). There are two and a half years left on the loan. That means selling the rental property.

2) I really don't want to continue living in Baltimore. I'm sick of the crime and the taxes.

3) The neighborhood really isn't terrific. It's not a warzone or anything; but it is no place I'd want to be out at night in. Especially being a white guy. Whenever I'm in the neighborhood checking up on the property I get a lot of hostile and suspicious looks (although, happily, no outright threats). Baltimore is a dangerous city.

[sailordude]

Researching and mind dumping still...

Based on my understanding of Maryland's foreclosure law, as changed in 2008, 6 ½ months appears to be the break neck speed, fastest possible way to get foreclosed on, including a 30 day certification period where objections can be filed on the foreclosure sale before eviction can proceed. Given the stories I'm reading, I have no expectation that it will be this fast; but it shouldn't be any slower. So, at a minimum I should have at least seven months before I need to vacate. Here is an agressive, theoretically possible, timeline.

Event	Notes	Fast track theoretical dates
Mortgage Payment Due	This will be my first missed payment	09/01/10
Grace period	Appears to be 16 days	9/16/10
2nd Mortgage Payment Due	Presumably the 2nd won't foreclose	9/20/10
2nd Mortgage grace period	10 days	9/30/10
Default on Primary Mortgage	30 days late	10/1/10
2nd Mortgage Default	30 days late	10/20/10
Notice of intent to Foreclose	45 days BEFORE filing	11/15/10
Foreclosure Filing Date	90 days after default and 45 days after Notice of Intent to Foreclose	12/30/10
Served with Foreclosure Papers	I guess it could theoretically be done the date of filing; but I doubt it.	12/31/10
Receive Notice of Date of Sale	Not less than 10 days before sale. Failure to receive will not delay sale	2/4/11
Foreclosure Sale	45 days after being served	2/14/11
Certification of Sale	30 Days are allowed for objections to the sale to be filed before eviction can commence.	3/16/11
Eviction	After sale is certified by court	3/16/11

[sailordude]

Oh, I went to the Freddie Mac website and found out they own my loan. One of them anyhow (it doesn't give specifics). I'm not sure how that changes things; but Freddie has been promising to follow Fannie with going after "strategic" foreclosures. I feel mine is a survival foreclosure (I saw it described somewhere as a "anticipatory foreclosure"); but who knows what criteria they will use. Some members of congress are not pleased with this plan and are trying to stop it before it gets going. We'll see. I feel I probably won't be a target; but I'll be paying attention to see which way the wind is blowing.

Another datapoint I had forgotten about that would have changed my mind had I decided to keep paying and ride out the storm: my 2nd mortgage BALLOONS in less than two years. I was told when I got the loan that I would have no trouble refinancing the second; but that was before the house value dropped so precipitously. Would they rewrite the loan now? I can't afford to take the chance.

[sailordude]

Have you noticed I write a lot? It's stress related. Forgive (or ignore) me.

As usual, I spent a few minutes today on google looking for foreclosure info and I ran across the following blog entry...

Baltimore Homeownership Blog: Foreclosure: Disadvantage or Advantage

The article focuses on the foreclosee's credit score with a warning that while people should do everything possible to avoid foreclosure; but that those who have no choice will recover and be able to buy a house sooner than those who strategically foreclose. The implication is that nothing is as important as maintaining a good FICO (and a further unstated implication is that running with their program will save your FICO score) and being able to buy a new home as soon as possible.

The last paragraph...

Facts show that the advantages to foreclosure are slim to none in comparison with the long list of disadvantages. It is in the best interest of anyone facing foreclosure to act immediately by seeking counseling or programs that deal with foreclosure prevention. Simply settling for foreclosure without a fight will have disadvantages at the moment and for the long haul.

I get annoyed by articles like this because they always seem to lump everyone together into one group. ANYONE facing foreclosure needs counseling or programs for foreclosure prevention? Foreclosure doesn't make sense for anyone? At all? Blanket statements like that damage the credibility of the writer. And, given their business is mediating and counseling for loan modification and refinancing, there sure doesn't appear to be any impartiality or likelihood that they would actually pay attention to the individual situation, instead suggesting they would run everyone through the cookie cutter loan modification process.

I have seen a lot of articles like this in my Google searches. I know my situation. They don't. I can't help but feel offended.

It's late and I'm tired. Perhaps I'm oversensitive.

[AnonEMouse]

I don't know about everyone else ... but I do the same thing ... countless hours on countless searches reading "opinions" (**and you know what they say about those) of people who make their living writing "opinions" about things which they may-or-may-not really know anything about.

I've often wondered if I've acquired some type of obsessive-compulsive disorder resulting from the foreclosure.

Then I think *MAYBE* just maybe it bothers me so much because it is so "out of character" for how I lived my (financial) life up to that point.
And maybe, no matter how thick a skin I think I've grown, just maybe I'm still bothered by the "opinions" of pseudo-experts.

Then I start chanting my (newish) mantra; "We've liquidated a non-performing asset." (Say it a few times. )

It *DOES* get better!!!

Cheers!
Mouse

** "Opinions" are like a-s-s-h-o-l-e-s; everyone has one; and everyone else's stinks.

Read my whole sad story here; SOLD at Trustee Sale (Modesto CA) Now Getting HAMP Paperwork?

[Maurice Bedard]

Sailor- if you move into your rental, you won't have a rent payment and you could use what you would be paying in rent to repay your 401k. This would simplify things for a while at least.It could even save you from bankruptcy. And if the economy does pick up, maybe even build a little equity. In a couple years, if you are living in it, you may be able to refi it, but with a bk it would take longer.The foreclosure will hurt less than the BK credit wise as far as being able to get another mtg. I would try to get tenants in one or the other, collect that money while you are not paying the mtg, and you wil have more to work with when the foreclosure is final. An extra $750 a month for 7 months added to the other $11k is quite a lot of cash.

I went through one of the foreclosure counselling sessions and all I learned is that the is food available at a slightly higher price than what I pay now at the store through some charity. Also that I should sell my back-up vehicle worth maybe $500 even though I am required by my contract with my employer to have an operational vehicle and a back-up. So the counselor was basically telling me to lose my job in order to cut my expenses. What a waste, as if I haven't already cut my expenses to the minimum to make my house payment.

[sailordude]

Thanks for commenting, ******,

There is no way I'm moving into the rental. It's in the inner city and I don't feel safe there (Bodymore, Murdaland, err, I mean Baltimore, MD). I still have "tenants" living/squatting there; even though they aren't paying. They've agreed to move, but... I paid a company to have them evicted months ago. I'm not sure what happened except that it is impossible to trust anyone to do what they promise.

I can't legally rent out my primary residence without doing some mandatory repairs (I've had two roofers try and fix my roof leak unsuccessfully, and they are now pushing to have me replace the whole roof $$$, my front porch is ready to fall down, and I need to replace four windows in the basement that are painted with lead paint....the joy of buying a 'fixerupper'). I'd rather live in my own house (in a decent neighborhood where crime isn't too bad) for the next seven or eight months and eventually sell the stupid rental to settle some debts. Maybe I could save a few extra dollars by living in the rental; but it isn't worth the quality of life issues.

Bankruptcy is only on the table as a deficiency defense, and will hopefully not be necessary. I have no interest in buying a new house for the foreseeable future (if ever...I really am soured on the concept of real estate as an investment, not to mention very long term loans). Some people are owners, some people are renters. Me, I hope to eventually move onto a sailboat.

I'm not surprised about the uselessness of counseling sessions. Whenever I have been required to do any mandatory course (boating course, firearms course, religious premarital counseling, equal opportunity seminars, safety courses, etc...) I have found them to be universally useless, and really only good for appearances.

[sailordude]

When stressed I write. Journals. Blogs. Poetry. Articles. Short fiction. Forums. It helps me to clarify my thoughts and to give me a point of reference when I suddenly forget why I'm doing something. I wrote the following while thinking about consequences. I'm hardly an expert at all this; but what follows is my understanding of things. Feel free to correct any misunderstandings or simply ignore the whole thing. It really is for my benefit.

---

Nothing comes easy. Or free. Walking away from real estate (or, more accurately, the mortgages) has some significant downside.


Credit will be trashed.

The complaint that most critics bring up immediately, is the hit on credit and the difficulty in buying a new house later on down the road. This is a real issue. My FICO score across the three major reporting companies is hovering right around 780 right now. If it weren't for high credit card balances, I'm certain I would be well into the 800s. I'm not sure how bad a hit I'm going to take; but I expect it to be at least a couple hundred points.


A lower credit score naturally means that future credit will be harder to obtain, and when obtained it will be at a less desirable interest rate. It may be two, five, or seven years before I can qualify for a new home mortgage. Who. Cares. I am single and have little need for a lot of space. I prefer mobility to being tied down. I have a hard time imagining ever buying a home again, really. It doesn't sound like being foreclosed is much of an obstacle with finding a place to rent, although it may mean a higher security deposit. And while many companies run credit checks on potential employees, I am employed and not currently concerned, and if this changes willing to bet that given the economy most employers will understand the circumstances. My biggest concern is my aging truck; but I'm hoping to bank the next several "missed" payments in a special fund to buy a decent, if inexpensive and used, replacement. With cash.


Deficiency Judgment.

Another real concern. Maryland is a recourse state. What that means is that once the property sells at auction, the mortgage company can file for a deficiency judgment for the difference between the sell price and the mortgage balance. In Maryland they have three years to pursue this. They can pursue this not only in the case of foreclosure, but also in the cases of Short Sale and Deed In Lieu of Foreclosure (DIL).


Happily, at the moment it doesn't appear that mortgage companies are pursuing deficiencies. And with good reason. Legal fees are expensive. There is a burden of proof that has to be met, and for reasons that escape and astound me, it is apparently a real chore to meet this burden (with all the paperwork I signed at closing I would have expected this to be a slam dunk). But, even when it can be clearly met, the fact is that most defaulters are not exactly flush with money. If a bank wins a large deficiency settlement, odds are pretty good that the poor borrower is just going to end up in bankruptcy, reducing or eliminating any judgment the bank may win. After throwing tens of thousands of dollars at judicially pursuing this judgment, to end up with nothing is to end up losing money. It is a losing battle for the bank in almost all cases except the very few where it is clear the borrower defaulted for strictly strategic reasons and in fact actually has significant assets. I don't fall into this category, so I'm not unduly worried.


That said, Fannie Mae is threatening to aggressively pursue Strategic Defaulters. Frankly, given the above issues, I suspect this is more of a scare tactic than anything, trying to encourage those who are on the brink to make a few more payments before being forced into default, or to discourage those relatively few who really do have the assets from taking this path. I don't see how they can make the determination as to who can pay, and who can't without a bunch of info they shouldn't have access to. Unless you give it to them. This is one reason I'm not anxious to try for a work out or short sale program (given the unlikelihood of success). They demand full financial disclosure. While from my point of view, it is pretty clear that I am in dire financial straights, who knows how they will look at things? Why would I want to give them the evidence they need to pursue me further? I'm not financed through Fannie, but just found out a week or so ago that Freddie Mac owns my loan. They haven't been as vocal, as far as I can tell; but who knows what will be coming in the future.


Taxes, Taxes, Taxes


Working on the (I think likely) assumption that any deficiency will be forgiven, there is the sticky issue of taxes. In the eyes of the taxing authorities, forgiven debt = income. That means if I end up with $75,000 in forgiven mortgage debt, I could conceivably owe the federal government something like $25,000 in taxes (I'm guessing at a 33% tax rate ... I'm not sure what it would actually be).


Happily, there is a clever thing out there called the Mortgage Debt Relief Act of 2007. This is valid for debts forgiven through 2012. The big criteria that I am interested in here is the Qualified Principle Residence Indebtedness exemption. Interestingly, it appears at first glance that I need to maintain the property as my principle residence for the exemption to work. It has been recommended to me that I rent out my home to cut expenses and then either live in my rental property (not a neighborhood I want to live in, and besides I really want to sell it to clear some debts) or find a cheap rental to stay in myself. While I may save a couple hundred dollars a month this way, if I end up defaulting anyhow I think I would lose this exemption. That is too risky. I could always try and claim insolvency, or go bankrupt, in that case; but defaulting while maintaining residence seems like the wiser choice and the best way to keep control of the situation.


Of course, the wild card in the mix is what if the bank doesn't issue a 1099-C for forgiven debt? They have three years to pursue a deficiency, does this mean they have three years before they need to issue a 1099C? If so, that could theoretically put me outside the 2012 window which would be unpleasant and potentially expensive. I am insolvent now; but I hope I won't be in a couple years. Oh, the complications!


I am still researching my Maryland tax risk.


What will your friends/family/neighbors think?


I frequently see this as an argument for staying in a bad situation (bad job, bad marriage, bad mortgage). It's not worth living life for the opinion of others.
There may be some other negatives that I'm overlooking at the moment; but I think I've hit the high points. There isn't a good solution. We all do the best we can.

[DBarr13447]

Just wondering if you've closed the accounts your mortgage payments were paid from?

I saw a horrible situation here where people cancelled their automatic mortgage payments, then cashed in an insurance policy so they could feed/house their family and the bank swept the money ($10,000?) from their account! They found out that apparently in their paperwork/loan doc's, the bank was allowed to do this to off-set the losses/defiiciency they incurred by the forclosure process.

Personally, we closed our accounts that the bank knew anything about (via automatic mortgage payments) and opened new ones about a month before we stopped payments. It was a hassle because we pay most bills online with automatic payments - so we had to be sure they were coming out of the new account before we could close the old. But I must say, I feel better knowing the bank no longer has access to our money.

Good luck with everything & keep us posted!

[sailordude]

Dbarr, I've heard the same thing. I think the mortgage company and the bank need to be the same, though. I don't think the mortgage company has any knowledge of the balance of any account not in their institution, nor any right to go debit it without approval. I did carefully review my mortgage documents for any gotchas that I could think of, so I think I'm safe.

My bank is definitely not associated with Wells Fargo. If I ever got wind that Wells Fargo was planning on buying my bank, I think I'd do as you suggest and immediately close the account (or at least not keep any real money in it). Just in case.

BTW, the big consequences post above was written for my private "walk away" journal I've started. It didn't have any seriously private info in it, so I thought I'd post it here just to share. Brevity is not one of my strong points.

[DBarr13447]

This is a great place to vent & share experiences!

[sailordude]

The 1st of September is a few minutes away from turning into the second, at which time I will be one day late on my very first mortgage payment.



I need to take a deep breath.


They won't start complaining for a bit, as I am still well within the grace period; but it is a big step for me. I have effectively committed myself to this action as I have simply had to pay some bills I've been putting off for awhile, and I no longer have enough cash in the bank to pay the mortgage, even if I changed my mind. My course is set and my sails are full.



Onward.

[bliss]

congratulations sailordude!

i just posted this link in another thread - youwalkaway.com

they have levels of membership and professionals to help people like us. we just decided to walk away also. freedom and quality life is the most important thing. and the banking/mortgage systems is a big joke!

best of luck on your way to freedom!!

[sailordude]

Bliss, I'm not sure what youwalkaway does except to hold the hand of us walkers as we proceed down this long, ugly road. I'm pretty sure I've researched most of the relevant issues, and I have a plan to handle all the worst case scenarios I can think of. It's nice to know there are resources out there if I get in over my head; but given the cost (when money is already very tight) and my current understanding of the situation, I don't think it is something I need.

[alexgolden]

Sailordude, I'm in MD too and going through some of the same issues you are. I've talked to a lawyer who tells me that ALL the mortgage companies are going after deficiencies, then to another who says he hasn't seen ANY mortgage companies go that route. It is so difficult to get real information on this stuff. I guess it is our fault for living in the people's socialist republic of MD, and not CA where we could just walk away with no deficiency at all...

I want to get out of here so bad but keep going back and forth on whether it is worth it financially. I can pay my bills but I'm ~$100K underwater in two homes and losing $1K per month even when my rental is rented out! I've gotten over the 'moral' implications, this is just a business decision. But as a business decision I have to take into account the monetary risks involved and that is SO HARD to tell!

If they don't come after me for the deficiency then I'm (pardon) Golden! Well, except for the taxes because my biggest deficiency is the freaking rental, which used to be my primary but then we couldn't sell because of the downturn. So I'll definitely be paying taxes on that one! Plus the credit hit (already getting notices from AMEX BTW, which I've paid religiously on time, that they are reducing my credit line, etc... because of the credit hit I've already taken (after 3 months of no payments on 1st and 2nd).

I don't know if there is a PM function for this site, but I'd certainly be willing to meet over coffee or a beer. It'd be great to be able to talk with someone that understands (obviously can't talk to friends/family because of the "Pay your bills, deadbeat" mentality most people have when it comes to this...

[sailordude]

Alex,

I am a bad liar and have a pathological need to confess my sins, so most of my close friends and family know what is going on. So far, I've only found one (a girl I was dating) who simply told me that " you can't do that." Most have been remarkably understanding.

Regarding a deficiency, I am gambling that given I have two loans, a worst case scenario would be the first mortgage being $50-60,000 deficient, not being enough for them to take the financial risk of pursueing. I've read of people having luck negotiating a second, although it seems to take awhile before the 2nd will be ready to talk. In any case, if I get sued for the deficiency, or the entire 2nd mortgage, I will keep bankruptcy (chapter 13 it looks like as I am borderline over on the means test now, and just found out I will be receiving a good size raise come January 1) as my hole card.

I have not heard of banks pursuing deficiencies; but that doesn't mean it isn't happening.

It doesn't matter. I can only control what I control and work within the boundaries of the circumstances as they are presented. I am not happy with this decision; but I don't see a better alternative.

We all do the best we can.

[sailordude]

First contact from Wells Fargo today. Right on time as yesterday was the last day of the Grace Period.

I received an automated call on Google Voice at 2:18PM with no details, just a request to call 866-228-3535.

I also received, via Email, a Mortgage Payment Reminder. It's a friendly sounding email, kind of a "Ooops, did you forget?" type thing.

Happily I'm quite broke or I'd have to deal with a strong compunction to actually pay them. I really don't like conflict.

Interesting other news, that will likely affect things next year... starting January 1st I am getting a fairly significant raise (18%). This should completely put overboard any possibility of a Chapter 7 bankruptcy. It also strongly encourages me to do nothing (especially after the turn of the new year) that would require disclosing financials. It's not really enough money to save me from foreclosure that late in the process; but it will go a long ways to getting me back on my feet. Especially if I can avoid a Chapter 13 bankruptcy.

[Slowhands]

Interesting story you have here. Read through it all...we're considering loan mods or eventually walking on 3 of our 4 rental properties in CA. The 3 are upside down 100k+ each and they have ARM. Two of 3 have 2nd mortgages (HELOCs) and they have HOA dues.

We've heard this fuss about non-judicial foreclosure & no deficiency. We've also been told they (HOA & 2nd mortgages) "might" proceed with judgement. They have ability to garnish wages, attach bank accounts, etc.etc. At the same time, I would assume they try to settle rather than spending massive amnts. of $$$ on court, attorneys, etc. As mentioned above, it's beyond ethics/morals and it's strictly making the correct business decision.

[sailordude]

While this forum is a useful resource it does have a limited sampling, so it is hard to be confident about what is likely to happen. At least, Slowhands, California is one of the heavily represented states, so perhaps that will help with your comfort level.

It's all a calculated risk.

[ProfessorShays]

A key factor here in California with regard to second loans is the borrowing purpose. If it was for anything other than purchasing the house (e.g. borrowing on equity), and the first forecloses thus eliminating the second lender's security interest on the home, we are not talking "deficiency judgment." We are talking about an unsecured personal loan and the second lender's recourse is just like any of your other personal creditors. They can sue on the debt, obtain a judgment, and proceed post-judgment with available creditor collection remedies (e.g. garnishments, attachments, etc.).

Daniel

[Maurice Bedard]

Sailordude- Filing a ch7 now may get it over with before the new raise kicks in.

[sailordude]

Maybe. It's worth considering. But I don't think I qualify right now for ch7, at least by running my numbers through online calculators. Maybe a lawyer could do magic lawyer stuff; but I'm not optimistic.

Along a similar line, it looks like I may have waited a month too long to start the walk. So many expenses are due this month, I actually don't have enough cash to pay them off. And this is AFTER paying my mortgages this month. It's gonna be tight for a bit. :-(

[sailordude]

... I meant to say, after NOT paying my mortgages this month. Tried to edit; but I guess I only have ten minutes to do so.

[sailordude]

I received my credit scores today (I get them every three months), which should be interesting to follow as the process proceeds. Interestingly, even though no negative items have been posted to my report, my scores are down about 30 points from three months ago. I think it is because some of my credit cards have been slowly reducing my limit, keeping me at or near the max (pay off a thousand, they lower the limit a thousand). It hardly matters at this point since I'm about to do some serious damage to my scores.

So, my baseline credit card scores are: Experian-746, Equifax-734, and TransUnion-738.

I'm defaulting on TWO mortgages. The general rule of thumb seems to be a credit drop of around 250 points which should, theoretically, bring me down into the high 400s which is pretty miserable. I guess we'll find out.

[Steen719]

Sailordude,
You have a lot of good advice from people here and I don't really know enough to add anything worthwhile, but I did want to say that almost 10 years ago my husband and I went through a bankruptcy. I had always had perfect credit and he lost his job. It was a mess. I'll spare you the details. It was one of the hardest things I ever had to do. I was absolutely humiliated going to the hearing; I can still feel that feeling today. We went on, kept the house and eventually refinanced at a good prevailing rate. I am in a little mess now...well, my husband (nurse) just went through a liver transplant,can't work,etc., another mess, and thankfully we are going to be able to do a regular refi, but I guess what I am trying to say is that I got through some times that I never thought I would. You appear to be a person who cares about honoring his obligations and I do know how hard that is to not be able to do that. I hope this is not too personal, I just wanted to say that I am sorry for your troubles and I hope you can get to that other side soon.
Christine

[Steen719]

Sailordude,
You have a lot of good advice from people here and I don't really know enough to add anything worthwhile, but I did want to say that almost 10 years ago my husband and I went through a bankruptcy. I had always had perfect credit and he lost his job. It was a mess. I'll spare you the details. It was one of the hardest things I ever had to do. I was absolutely humiliated going to the hearing; I can still feel that feeling today. We went on, kept the house and eventually refinanced at a good prevailing rate. I am in a little mess now...well, my husband (nurse) just went through a liver transplant,can't work,etc., another mess, and thankfully we are going to be able to do a regular refi, but I guess what I am trying to say is that I got through some times that I never thought I would. You appear to be a person who cares about honoring his obligations and I do know how hard that is to not be able to do that. I hope this is not too personal, I just wanted to say that I am sorry for your troubles and I hope you can get to that other side soon.
Christine

[sailordude]

Thanks for the pep talk Christine. I hope everything works out well for you.

It's been almost three weeks since the last post, and, so far, all is quiet. I'm guessing once I cross the 60 days late mark that things will start to get interesting.

I've been following a bunch of the other threads and I see a LOT of anger at the banks. In my case I really don't have much cause to be angry. My loan wasn't predatory. If it wasn't for the disaster that is my rental property I'd be able to make the payments without drama. The only thing they did (in my case) that was irritating was put a five year balloon on the second mortgage (which I wasn't aware of until I was reviewing the papers at the signing). Oh, and enthusiastically spout the belief that prices really only go up, thereby talking me into the deal even though I had an indefinable uneasiness in my belly. Crap happens. Divorce, failed investment, and dropping housing prices were the three strikes that took me out.

I try not to feel guilty (sometimes successfully, sometimes not). There is no success without risk. My risks didn't work out. That is life and the nature of risk taking. As a result, the risk the bank took on me isn't working out either. That, also, is life.

[sailordude]

I received a letter in the mail from Wells Fargo claiming that they have attempted several times to contact me without success. I was about to call "Liar Liar Pants on Fire" on them as I haven't received much in the way of contact.

But I would have been wrong.

I have all the calls being sent to Google Voice, and I thought I had Google Voice set to send notifications to my email. In fact, for the first couple of days, that is exactly what happened as I tested the system several times just to make sure it was working. Well, somewhere along the way my email notification option was turned off. I'm not sure how or why it happened. It's probably my fault. But I missed 23 voice messages. I glanced through the transcripts and it was very flaky at best, with several messages not able to be transcribed at all. I'm trying to get up the motivation to actually listen to them. I'd much rather pretend they didn't exist. Unfortunately, I'm not sure avoidance is a very good strategy.

Before I return any calls I'm trying to decide what I should tell them, if anything. I'm leaning towards a sob story: "Divorce, bad business investments, medical expenses, and auto expenses have hit me at the same time unbalancing my income/expense ratio and I am trying to work through it. Until all issues are resolved I'm not sure when or if I'll be able to resume mortgage payments." There is a minor deception in that I suggest I may resume payments if everything else works out. I don't lie well, though, and really don't want to get grilled.

Voice messages: Oct 14 (4 so far), 13 (5), 12, 4, 2, 1, Sept 30, 29, 24 (2), 23 (3), 22, 21, 17.

[sailordude]

Certain phone numbers that call never leave messages. Others always leave messages. A little bit of Google work suggests that those that don't leave messages are part of the Wells Fargo Equity Line group, while those that are leaving (quite friendly and pleasant) messages are with the part of Wells Fargo that handles primary mortgages. Funny, I wouldn't have thought they'd be different groups; but they sure appear to be. Either that or my Google-Fu has failed me.

Google Voice is great, BTW. Excepting of course the messages that weren't delivered. I'm assuming I boneheaded something there.

I think I'm going to make contact while at lunch, today. As long as they are being polite, I suppose I can be as well.