Want to relocate for work... but house is way underwater

[mkcal]

Hi all,
This website is amazing -what a great bunch of people helping eachother out.

Short version:
We owe 800K. House worth 650K or less. We want to move interstate for job opportunities. Should we foreclose?

Long version:
My husband and i bought a house in 2005 for 750K (welcome to California...) with 10% deposit, and an 80% loan (it was a 5/1 ARM from Countrywide), and 10% personal loan from a friend.

A year later the house value was up to 850 but I could see the writing on the wall with the housing market and knew our ARM would become unmanageable - and we re-financed to pay back the 10% personal loan and to roll in some of my husbands considerable credit card debt. Now we are in a 680K 1st fixed at 6%, interest only for 10 years, then P & I(Indymac) and a 120K 2nd fixed at 8.25 P & I (Countrywide). We also had to roll in a 20K prepayment penalty from the original countrywide loan!!!

I think the house is prbly worth 650ish or less now.

We can afford the payments and have no financial hardship - and my heart goes out to those who are not as fortunate. However, my husband would like to move across the country for his career opportunities. The job market here is pretty much dead for him but we know that he could get a good job in other parts of the country.

Is foreclosure our only option? From what I've read here I'm pretty sure the lenders wont accept a short sale, so need some advice.

If we foreclose, how long does it affect our credit? We can live on cash until we get thru that, but I'd like to know ALL the facts before we jump.

thanks so much!
Maria

[The Professor]

A foreclosure remains an active reportable item on your credit report for seven (7) years. However the long term key issue you are going to have is on that second loan. Since it was a creature of a refinance, you are personally liable for it. Given the current value of your home and the balance on the first loan, it looks like there is no equity beyond what the first loan will recover as the result of a foreclosure and subsequent sale of the home.

That effectively means the second lender will be chasing you once the first lender has completed their foreclosure. So, what I'm suggesting is the first lender will foreclose and you will no longer owe on their loan, given the probability they will follow the non-judicial foreclosure path. But be aware that you are going to have to make peace with the second lender in what will become a personal unsecured loan as the result of the foreclosure.

Daniel

[mkcal]

Thanks Prof Shays. Thats pretty much what I thought the case would be.

Have you heard of CW doing any 'settlements' to discharge 2nds? eg: If I offered to pay 25K (or some other random amount) upfront, right now - would they consider settling? (we have access to some cash to do so if it would help long-term).

thx
Maria

[The Professor]

I have not heard of Countrywide negotiating on these second loans in the manner you mentioned. I have heard of them doing so in connection with a short sale.

Daniel