IndyMac loan underwater - Trying to find best way out

[YoungNAZ]

I've read quite a few of the posts on this forum and some have encouraged me to proceed and other have scared the crap out of me (racoon's story about MGIC). Here's my situation:
In Dec. 2007, my husband and I bought our first home (a condo) for $205k in Phoenix, AZ. It is currently worth $135k based on other sales in our complex. We thought we were getting a great deal and that we would live in it for 3-5 years then sell it for a profit and move into something bigger. We got a 30 year fixed mortgage with IndyMac. We were denied by several lenders before IndyMac finally accepted us. Looking back now, we realize that we shouldn't have qualified in the first place (we had no credit history, my husband had only had his job for less than a month, we put no money down). But we know it was our decision to sign all those papers, so we must live with the consequences of a bad bet. We lived very happily in our little condo for almost 9 months, then my husband had his hours at work cut in half in September. We stretched our budget as thin as it would go (canceled cable, applied for forbearance on his school loans, cut out eating out or buying anything unnecessary). We were still able to pay our bills, but just barely. At the time we thought saving our house and paying our mortgage was the most important thing we could do. Right before Thanksgiving my husband's office closed completely. We knew it was coming for a few weeks so we contacted IndyMac and filled out their application for a loan modification. They turned us down since we were still current on our loan. We have contacted them several times since, but we always get the same answer, that since we are current, there is nothing they can do for us. My husband was able to find another job but it doesn't pay as much and it is with a startup company so the job is pretty unstable. If the company doesn't start making money in the next few weeks he will be once again out of a job. Also starting Jan. 1 our monthly payment increased $180 since they had not calculated our taxes into the payment for the previous year so we owed them money. It doesn't look like they are calculating this year's taxes in to the payment so we're going to owe them money again next year.
So we are again considering all of our options. We want to tackle this issue proactively instead of waiting for him to lose his job and then be forced into foreclosure. We want to do this on our terms. We have thought about renting it out, but we pay $1900 per month with the HOA fees and could only rent it for $900 per month on a good day. And then we would have to trust other people to pay their rent on time or we're going to ruin our credit anyways by making late payments.
To add to the whole situation, my dad was layed off from his job of 30yrs 2 weeks ago. He had already had his house on the market for almost 3 months, but he owes too much on it. He has since moved in with his girlfriend and it just paying for his house to sit empty. When his severence runs out he will no longer be able to pay his mortgage. So the option we see is that we let our condo go, move into my dad's house and help him pay his mortgage. If we have a secure place to live for the next few years, do we really need a good credit score? We don't plan on needing a new car anytime soon, and if we do we will save up some cash and buy a cheap used car (we're okay with this).
After reading other posts, I'm scared that we will owe money or since we pay PMI each month they will come after us. We would like to make this a business decision, so any facts you could give me would be appreciated. We feel we're just going to keep throwing good money after bad, never really get out of the condo what we put in. If we bail now, will it be better than keep pouring money in for another few years? We know we would be so much happier in the bigger house and if my husband does lose his job, it would be alot easier to find roommates to help foot the bill in a larger house than in our tiny condo.

So to summarize, we're underwater with a loan to IndyMac and we pay PMI, we live in AZ, we haven't been late on a payment (yet), IndyMac refuses to work with us until we are behind, we have a secure place to live for the next few years lined up, our payment has gone up this year, my husband's pay has gone down, we're still able to make our payments right now, but the budget is stretched. We want to make the best decision for us and come out of this at the end as best as possible.

Questions:
-Do we really need our credit score if we already have a new place to live, don't need a new car, and don't need any more credit cards?
-Are employers really checking credit scores when applying for a new job?
-Since live in AZ, IndyMac can not make us pay the deficiency, right?
-But since we pay PMI each month, what does that mean as far as someone coming after us for money later?
-We would qualify for the Mortgage Debt Forgiveness Act, right? So we won't owe a bunch of money to the IRS?
-Should we try for a short sale and then a Deed in Lieu if the Short Sale doesn't work out?

Thanks so much for your help.

[AZChick]

From what I've understood, you should be fine with the MFDRA and the PMI company can't come after you if your lender can't. I'm sure someone will more knowledge will post soon. Hang in there.....it's tough when you have parents that are struggling too...you almost feel like your in sinking in quick sand sometimes....

[cactus77727]

You need to have your plan reviewed by an attorney and accountant experienced in real estate and debt collection.

If you were in a single family home on less than 2.5 acres I'd know the answer. However, your situation presents a question I haven't seen yet, so someone else will have to answer. Does your condo qualify for the anti-deficiency laws in AZ?

ARS 33-814
F. A deed of trust may, by express language, validly prohibit the recovery of any balance due after trust property is sold pursuant to the trustee's power of sale, or the trust deed is foreclosed in the manner provided by law for the foreclosure of mortgages on real property.
G. If trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling is sold pursuant to the trustee's power of sale, no action may be maintained to recover any difference between the amount obtained by sale and the amount of the indebtedness and any interest, costs and expenses.

As for credit cards, they probably will reduce your limits to balance owed, and maybe even close them altogether. I've read that most of us will be able to rent from understanding landlords in the future given a foreclosure on our record, if the rest of our bills have been made on time.

[AZChick]

Very good point cactus, since it is a condo that may mean it's not a single family dwelling and change things......you probably should consult a lawyer...

[YoungNAZ]

So I just found out 5 minutes ago that my husband's hours at work are getting cut in half starting next week. I knew it was coming, but it still hits you like a rock. I guess the decision of what to do about our condo is going to be taken out of our hands, we're not going to have any choice but to let it go. So to those of you that are living rent free until they evict you, where are you putting the money that you save up? If you put it in your checking or savings account can they take that from you at any point?

[cactus77727]

I've read some people, who had their loan with the same bank as their checking account, moved the checking account to another bank. Other than that, it's not like a mortgage company can just go withdraw your money.

As for the general state of banking, like everyone else, I don't know. I was thinking of taking my money out of my current Mega Big Huge bank, and putting it into a local credit union. Mostly, I'd like to do that just to help finish off the sinking of the mega banks.

Have you determined if your condo is covered by AZ anti-deficiency law?

[The Professor]

A condo would, given the nature of the definition of a single family residence, clearly qualify. As to your money, I wouldn't worry. Before a creditor can execute on it they must file a lawsuit and obtain a judgment. There is plenty of time to place it beyond their reach.

Daniel