Walk Away in AZ

[MRC123]

Me and my husband are seriously considering walking away from our home here in Arizona. We purchased the house in Sept 2006 for $265,000 and put $19,000 down. Our mortgage is 5/1 ARM interest only loan and the balance is $249,000. There are no second mortgages on the house. We make our payments to Wells Fargo and from the things I have read on here, they are extremly difficult to work with. We are current on the mortgage.

I don't even like the thought of moving, but like Prof says cut all emotional ties to the decision. We have 3 children and don't want to put them through this, but we do have to do what is best for our family in the long run. I figure the sooner we start the process the sooner we will be out of it.

If we do plan to walk we will be able to pay off our credit card debt, which is only about $4,000, then save the rest. Me and my husband had a few questions.

1. How long before we can purchase another home?
2. How long do foreclosures stay on your credit?
3. If everything is settled before the Mortgage Debt Relief Act is set to expire (end of 2009?), do we have to claim the amount that was outstanding on our taxes?

We can make our house payments confortably, but I just feel like we are depriving our children from doing extra curricular activities, because we just can't afford dance classes or gym lessons and I want our children to at least experience all the great things life has to offer.

I know we will be able to rent somewhere, but I just hate renting, I like to feel that where I live is or will be mine.

This is a great site and I hope to make our final decision based on some of the information I get from here.

[knabrusc]

MRC123~

I suggest staying in this forum and going through the threads...there are quite a few from others regarding walking away in AZ. Myself included...My husband and I made the decision to walk away less than a month ago and are going to be renting an apartment. We have a 17 month old and I am 9 months prego. We loved having a house and it being our own, but eventually it came down to it being a business decision and we decided to swallow our pride and say you know what...we can move on and we will
With regards to your questions 1 and 2, it really depends on a lot of things. Are you going to continue to pay the rest of your bills and just let the home go? Or are you wanting to not pay anything? Obvioulsy not paying anything will affect your credit even more than just not paying the mortgage. Also, depending on how long foreclosure takes is how many late payments you'll have showing on your credit along with the foreclosure, which could affect it more. With regards to question 3, since we are in AZ we are a non-recourse, anti-deficiency state. Basically, as long as your loan was a "purchase money mortgage" was not a home equity loan or a HELOC your loan qualifies under non-recourse. As for anti-deficiency, no matter what, even without the new law passed, we still are not liable for the difference, nor do we have to report it as I called the Maricopa State Bar and met with a lawyer for 30 min and $35 to find out if my loan qualified and make sure we were covered.

[MRC123]

knabrusc
Thanks for replying.

In response to the questions you had we do plan on still paying our other bills and just letting the mortage go.

I don't believe our loan is a HELOC (not quite sure what that is).

knabrusc, are you planning on staying in your home for as long as you can?

I know the situation isn't the end of the world, but your right, when it comes right down to it, it's a business decision, and our own decision to do so, with my families best interests.

So what your saying as far as the tax laws and stuff go, we don't have to claim that portion that the bank lost on our home as income on our taxes even with out that mortage relief act in place or not??

[MRC123]

We have a situation we could take advantage of, I hope.

My Mother-in-law owns her home free and clear, it's paid for. She has really good credit, around 800. We were thinking, but haven't asked yet, maybe she could purchase a home for us, then buy it from her later when our credit it better. Basically, we would be renting from her.

Is this considered buy and bail?? I wouldn't think so.

I told my husband she would obviously have to be able to afford the payment on the house.

[Cat Damiano]

Your relative can buy a house for you to rent..............just not the house you are currently in as a foreclosure bail out............you would, however, have to wait a while to be able to buy it back with a foreclosure on your credit.

[MRC123]

Do you know how long "awhile" is? 5 years??

[Cat Damiano]

Waiting Period to Buy After Foreclosure

Buying After a Foreclosure
The waiting period is 5 years up to 7 years.

Buying After After a Deed-in-Lieu of Foreclosure
The waiting period is 4 years up to 7 years.


Buying After a Short Sale
The waiting period is 2 years

[MRC123]

What is the down payment now for FHA loans? 3% or 5% of the purchase price??

I believe we will need to save whatever amount it is so that my mother-in-law can use that to put as the down payment.

[Cat Damiano]

You would need 3% down plus escrows and closing costs.........a good rule of thumb is roughly 5.50% of the purchase price.

[MRC123]

Thank you so much for the information. I am hoping to make an educated decision on this whole situation. I will keep everyone updated.

[knabrusc]

Originally Posted by MRC123

knabrusc
Thanks for replying.

In response to the questions you had we do plan on still paying our other bills and just letting the mortage go.

I don't believe our loan is a HELOC (not quite sure what that is).

knabrusc, are you planning on staying in your home for as long as you can?

I know the situation isn't the end of the world, but your right, when it comes right down to it, it's a business decision, and our own decision to do so, with my families best interests.

So what your saying as far as the tax laws and stuff go, we don't have to claim that portion that the bank lost on our home as income on our taxes even with out that mortage relief act in place or not??

MRC123~

Smart We are also paying all of our bills on time and we should be able to pay off small credit card balance too!

I HELOC is a Home Equity Line of Credit. Basically, instead of taking out one lump sump at once and doing what you want with it you kind of have a credit card to use the money whenever you want up to a certain amout specified from when you took out the HELOC. Have you refinanced at all or is this the initial mortgage you took out when you purchased the house?

We are actually not staying in the house past November 1st. We knew our credit would get hit so we rented an apartment and put the date out 60 days. Our main concern was being able to get into an apartment while credit was still intact. Some apartments here will not rent to you no matter how much you put towards 1st/last months deposit, others state they work with people going through foreclosure. The one's we wanted were the biggest 3 bedroom we could find with a great rate and they stated on their application, if you weren't in at least good standing in all 3 catergories they would not rent, which is why we are not staying in the home and taking as much advantage as we could. I honestly just want to get out of the house and be done with it. Our payment is going to go up $650/month. We were told we barely qualified for a loan modificaiton...I was floored! We are about to have another baby...we need all the extra cash we have! We are continuing to pay the HOA as it does take care of front landscaping and it's only $50/month...we will do so until the bank decides to sell, even though I think I saw some postings in here that said something along the lines of the foreclosure overrides any possible way HOA could come after you, but I would rather not risk it. We also checked our Homeowner's insurance policy and it's paid up through March of next year. You'll want that up to date until bank takes ownership. If something happens, say a tree falls on the house during monsoon, you are liable for that damage and personally I would rather pay a deductible then the whole thing.


You are correct with regards to not having to report it. Check out this link. Part 2, 4th bullet point. Then see part 3, bullet point 1
http://www.irs.gov/newsroom/article/0,,id=174034,00.html

Like I said, as long as your loan is a "purchase money mortgage" you qualify under non-recourse. Even after everything I read, I still went and saw a lawyer just to put my mind at ease. I hope this helps! I know it is a tough decision...my husband and I said the same things...we want to be able to allow our kids to do things and enjoy being kids, not have them stressed because mom and dad are stressed...not worth it!

[knabrusc]

Originally Posted by MRC123

Do you know how long "awhile" is? 5 years??

I've heard many different time frames on how long a foreclosure affects the credit. I've heard 2 years up to 10 years from people who are in mortgage industry, to people who have gone through it, to people who had a bankruptcy with it. I think it really has depended on what else is on your credit and what exactly happened. So many people are foreclosing or are going to or had, I don't think lenders in general can expect any business in the next 10 years if they are not somewhat lienent in some areas. Especially if the only ding on your entire credit was the foreclosure. Most are saying that they are going to go back to when you were required to put 20% down no matter what your credit and then go from there.

My husband and I have newer cars and don't plan on buying or refinancing one in the next 5 years, we have 2 major credit cards that we use and rarely ever do we use them...the only thing we needed our credit for was to get into an apartment, and now that's taken care of. We would love to have a house in the future and we will save up to make sure we have money down for when that time comes. For right now, we are breathing a little easier knowing we can take care of each other and our kids and not working to just keep a home and not enjoy it. It's you and your family's decision to make and no one else can make it for you.

[MRC123]

Can somone help me understand why mortgage companies will take a short sale, but not write down our loan balances. Wouldn't it be less costly to just write down the principal of the loan and have the homeowner stay in the home rather than going the entire process of a short sale??? I don't get it.

Doesn't it end up being the same for them. They take the hit on the short sale.

[AZ Meltdown]

Originally Posted by MRC123

Can somone help me understand why mortgage companies will take a short sale, but not write down our loan balances. Wouldn't it be less costly to just write down the principal of the loan and have the homeowner stay in the home rather than going the entire process of a short sale??? I don't get it.

Doesn't it end up being the same for them. They take the hit on the short sale.

Because if they cut you a deal and writedown your loan, the floodgates will be open and they will be held hostage by every underwater borrower who has heard about it and has the backbone to gamble and stop payments.

With a shortsale they don't have the full costs of foreclosure, and you don't have quite the credit hit. It is a compromise and somewhat win win.

[knabrusc]

Originally Posted by MRC123

Can somone help me understand why mortgage companies will take a short sale, but not write down our loan balances. Wouldn't it be less costly to just write down the principal of the loan and have the homeowner stay in the home rather than going the entire process of a short sale??? I don't get it.

Doesn't it end up being the same for them. They take the hit on the short sale.

It would be cheaper in the long run but why would they want to fix a problem they created...?

The catch with a short sale is, is that you almost always need to remain current on the mortgage payments until it sells. If you do a short sale, make sure you have an experienced realtor who has handled short sales before. You have to be very patient with them also...you could get a buyer, but a lot of time the mortgage company draws out the process making it take 4-10 months to sell your house. I think in the "Proper way to walk away" thread there is a post from Faith who did a short sale and she told her exact situation and what it took. Do a search for short sale and you can get an idea of what others have done or gone through for a short sale.

[faith]

Originally Posted by MRC123