Arizona - Walk Away

[hwillis]

This forum has been such a wealth of information. Thank you! I am looking for confirmation in what I believe to be true:

I believe My loan would be considered a non-recourse. I believe the anti-deficiency law would prevent any income tax liability. I believe I would not need to file for bankruptcy.

I am 26 years old. I purchased my home in 2005 with an 80/20. 6.75% interest on first 5 year arm interest only and 7.25% interest on fixed second. . Have never refinanced. I have one year before the rate can change. I am current on my payments so far.
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Purchase price was 175,000. 6 homes on my street are foreclosed and trying to sell for 90,000. I put no money down, only upfront cost was loan fee.
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I plan on stopping payments next month. I don’t see any help for me with the new mortgage plan that will be available in March. I can rent closer to work for much less than my mortgage payment.
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The way I see it, my credit rate will drop dramatically, I won’t be able to purchase another home for several years, BUT I won’t be underwater on a house with a payment that will only be increasing with rate adjustments every 6 months since I won’t qualify for a refinance or loan modification. The anti-deficiency law will expire in 2012, and then I would be responsible for income liability if a foreclosure . From purely a business perspective, a foreclosure seems like the only financially sensible solution.

[LeavingAZ]

I believe you're right. My situation is similar to yours. Cheers!

[The Professor]

hwillis:

Assuming the piece of desert upon which your humble place of abode is located doesn't exceed 2.5 acres, I would agree with your business decision.

Daniel

[hwillis]

Yes, it is less than 2.5 acre I will now start giving what would have been my monthly mortgage payment to my parents to reimburse for their contribution to my escrow fees. Thank you for the confirmation.

[cactus77727]

Just a quick point of detail. The tax liability issue is resolved by the federal Mortgage Debt Relief Act, not the anti-deficiency laws in AZ. AZ laws are not set to expire. You are correct the Mortgage Debt Relief Act was extended through 2012.

I does look like you could walk because your loans are purchase money. They foreclose, and they will not be able to sue you for deficiency.

However, if you haven't already, put all your paperwork together with your loan docs, and go talk to an attorney experienced in real estate and debt collection to confirm your findings. Then talk with your tax accountant about he taxes.

Congratulations, you are one of the financially enlightened ones.

[RimToRimHiker]

Definitely go see an attorney. I waffled back and forth about what to do? what to do? for several months. After reading through thread after thread of loansafe posts especially those by Prof Shays, I spent $100 for a consultation with an attorney who specializes in foreclosures, short sales, etc., a couple weeks ago. Best $100 I've spent in a long time. I now know my rights. I am confident that walking away from this oh so very bad business decision is the best choice for our financial future. This month is the 1st month I've skipped making payments. We'll stay here until someone knocks on our door and says get out. As Cactus said, congratulations on being financially enlightened. What a great feeling!!!

[AZChick]

Yes it is a great feeling, though I'm still shocked by the number of people who want to stay on a sinking ship. Maybe it's because I have 3 kids to provide for on one income...

[RimToRimHiker]

I think some folks are so utterly scared of a bad FICO score they keep hanging on no matter what. I was one of those until a light bulb finally went off. In reality we should have stopped paying our payments months ago. But I just wasn't there yet. I had to have all the facts in front both from a legal and financial standpoint before it hit me that we were on a sinking ship with no lifeboats in sight. I was telling a good friend of mine about our situation. Her response was "you can't ruin your credit score....it's so important". She thinks we should do whatever is necessary to pay the loans. I explained the whole scenario... ridiculous interest rates, over $100,000 underwater with that number rising as every week passes and the dismal prospects of the lender agreeing to a loan modification that makes sense for us and them. She still couldn't see why we would even consider walking away. To listen to her, it was like FICO was some supreme being that controls all life. What BS!!! Obviously one of those who totally buys into the ads on TV about the power of a credit score. My main concern now is we do what is best for a financial future. And it certainly isn't staying in this house.

[hwillis]

The way I am beginning to look at it...My FICO credit score will recover quicker than the low appraised value on the house.

[RimToRimHiker]

I think you hit the nail on the head.

[cactus77727]

Right on everyone. Bad FICO is like a bad haircut. It'll grow back.

[dedwards]

It does grow back. I had to go bankrupt some years back ( Due to medical bills linked to first wives death. ) it dropped my score to a low 398. However within two years it was 650 and I had a 800 a good three years before the Bk stopped showing on my credit report.

I love my home I never wanted to lose it but it just does not make since to struggle with it any more. My credit will recover.

Your credit will recover faster then your homes value.

[tyerac]

hey guys,

Well officially this month will be my wife and i's first late payment. We consulted a lawyer proficient in this and it was the best decision we made. We are excited but nervous for the future, but we are confident that with the law firm acting on our behalf it will keep the wolves away. Some background... We have been trying to sell for months on the regular market as we are desperate to move closer to town due to work/childrens school etc to no avail, so we decided to short sale to whoever will give the best offer. we are doing this on our primary and our rental home which is 55% underwater right now and we are losing $600 a month on. I took this as a purely business decision for my family as I cant bear having to drive my kids to work in rush hour every morning for 40 minutes, then drive another 40 minutes to get to work.... over 100 miles a day!!!

I'm keeping the faith, with the help of this site and others who are having this experience!

[The Professor]

I'm glad I can provide a supportive role in your journey. So many things we do in life, if we can phrase them in terms of the learning opportunities they provide, have a positive impact. I'm more than confident that seven (7) years from now as that reported foreclosure rolls off your credit report, you will treasure this decision as one that you are thankful you made.

Given it is my absolute belief that there will be no investment benefit in owning residential real property over the next seven years given an anticipated flat market and lack of appreciation, what will you have lost other than the opportunity to hope that your home might reach a value equal to what is owed, is the addition of having made monthly mortgage payments that exceed the fair rental value of the home during this time period. Those of course are not benefits, but excessive burdens.

Take care,

Daniel

[sroseg]

Originally Posted by Professor Shays

I'm glad I can provide a supportive role in your journey. So many things we do in life, if we can phrase them in terms of the learning opportunities they provide, have a positive impact. I'm more than confident that seven (7) years from now as that reported foreclosure rolls off your credit report, you will treasure this decision as one that you are thankful you made.

Given it is my absolute belief that there will be no investment benefit in owning residential real property over the next seven years given an anticipated flat market and lack of appreciation, what will you have lost other than the opportunity to hope that your home might reach a value equal to what is owed, is the addition of having made monthly mortgage payments that exceed the fair rental value of the home during this time period. Those of course are not benefits, but excessive burdens.

Take care,

Daniel

Your statement above had a major impact on me and my husband last night. We had decided last weekend to do everything in our power to work out an acceptable loan mod with Chase on a 1st and 2nd. We were wondering if your opinion above would change if the property were not in AZ, but coastal property (one mile from beach) in Carlsbad CA. We thinking that if we could jsut hang on for 5 or 7 years here it might get back to par and we could sell it without having to short sale. I realize you cannot advise us personally on this decision, but your insights and forthrightness are invaluable. We have 1/3 an acre, a classic CA ranch home, that we bought in 2006. Total of 1st & 2nd with Chase for $850K. We think the house is maybe worth $700K. We paid $1 million. WHAT WERE WE THINKING?

[The Professor]

As a La Jolla High School graduate, I'm familiar with your area and keep an eye on values because it is my intention to return to the San Diego area when I retire. Nevertheless, you need to recognize that the major determining factor relative to a home's value isn't necessarly location (despite what the real estate industry has consistently preached). Affordability is much more important.

When my parents bought our family home in the '60s in La Jolla, my recollection is that they paid around $50K, more than most homes in the neighborhood because it had a great view of the La Jolla Shores. It was barely affordable for my parents then. It certainly would not be today if my father's salary was adjusted upward based upon inflation. What that tells me is it and other homes located in desireable areas along the Pacific coast are still priced too high. The solution to this unaffordability problem will be further reduction in values.

From the perspective of a third party (me), I view your home as a liability having a negative value of more than $150K. I say more than $150K because if you remain its owner until it is no longer a liability (when its value reaches the same level as the secured debt), you will have been making monthy payment that likely greatly exceed its fair rental value.

Harsh realities are often painful. Nevertheless, to deny that which is real isn't a good idea.

Daniel

[sroseg]

Wow. I'm reeling a bit. Would you like to buy my house? I don't know how to put those little funny faces in here. I too went to La Jolla HS, graduated in 1970. My parents bought a home right below the cross off Nautilus in 1968 for $50K. My mother had 'always wanted to live in a $50K house.' Zillow currently has this house at $1 million. It's a poorly built 1967 tract house.
Back to today. I have to stay in this area because I have a high-funtioning autistic son who is living independently but only because he has me nearby. Rents for something edging on the war zone in OCSD, Vista, SM are $1800 to $2K ish. Assuming we can rent. I'm the 'poster' that will have bad credit and a dog that I WILL NOT give up. So we figured if we could get a 40 year at 3%, like "Venice" supposedly did, with the tax advantage of homeownership, that gets our monthly out go in a simliar range. No?

[The Professor]

Class of '68. Missed the 40th reunion in October because it was on the same weekend as my daughter's wedding. Yes it is a small world. From LJHS, moved on to college, then law school, and eventually on to teaching which has turned out to be a dream job. Something about the twenty-two accountable hours a week, for thirty-two weeks a year. Not that I still don't have the characteristics of a "workaholic." But it is sort of like doing things in a sprint. Just completed the seventh week of the semester, leaving nine to go. Come May 9th, well I'll relax and enjoy the three months that follow.

Daniel

[sroseg]

You're clearly a workaholic, given the amount of time you are donating to this site to help all of us poor downtrodden Americans, stuck in this nightmare. It is much appreciated. We probaby have many classmates or siblings of classmates in common. I thought I was retired, silly me. Retirement is one of those words in the American lexicon that will go the way of "pensions" or "dictaphones."

[The Professor]

Autism spectrum disorder has crossed both of our paths. Until June 2005, my wife was a special education teacher, with a class of students severely disabled with autism. Unfortunately she was diagnosed with primary progressive multiple sclerosis, and it has been a real challenge. I'm fortunate to have a full-time caregiver here at the house as we deal with cognitive impairment and the additional impairment associated with heavy pain medication. My role is that of a parent, dealing with life's issues one day at a time.

So, while I'm fortunate to not be facing the financial challenges many in this forum are facing, that doesn't mean that I'm unchallenged relative to the issues that are on my plate. It does mean that I recognize the importance of peer support. Mine comes through counseling and the online support I receive through the Well Spouse Association site.

Take care,

Daniel

[snapple candy]

Daniel,
I agree with your perspective on our homes having no investment value for some time to come. I had a mortgage home counselor tell me the same, that our homes are like cars that devalue when you drive them off the lot and they simply are no longer investments. You are just paying expensive rent. Sad but true and it is a reality that my home has become now an "excessive burden" since the lenders cannot offer me a "reasonable and sustainable" solution that addresses those of us that are so upside down and we will be throwing what little we can scrape together down a black hole for the next 5-10 years in an effort to hold on to our homes that many are too emotionally attached to.

Making home payments that far exceed the fair rental market value for years just to break even just makes no sense for me when I can go down the street and rent a comparable home for 30-50% of my current house payment. What is the quality of our lives (and our physical and mental health) worth compared to the stress of these excessive burdens? I am tired, and I think I choose quality of life over struggling for many years to come and we all have different thresholds for handling burden. Paying to be tortured is not my idea of a good time and that is what the past year dealing with my lender has been. I am prepared to throw in the towel on this one if that is what it comes to. Now that I have accepted the reality of my situation, I am not all that stressed out anymore.

[sroseg]

Prof Shays,
I am so sorry about your wife. My husband and I are quickly coming to the understanding there are worse things than a bad FICO score.

[Kirby'sMom]

Originally Posted by sroseg

Prof Shays,
I am so sorry about your wife. My husband and I are quickly coming to the understanding there are worse things than a bad FICO score.

That is so true!! What's a FICO score except a number?? It doesn't show who we really are!

[The Professor]

I carry no credit card balances and yet last week I received a notice from one of the major credit card issuers that beginning in May they were raising the interest rate on unpaid balances to something like 19%. I called their customer support number to inquire why, given a high FICO score, my interest rate was being raised. As you might expect, I got no answer at level 1 support, and was escalated to level 2, which proved to be the point of a dead end. Bottom line was after obtaining a taxpayer bailout, this lender insults taxpayers by attempting to overcharge to a usurious level.

Daniel

[AZChick]

This seems to be happening more and more, Wells Fargo just raised the intereste rate on my husband's open line of credit, for not apparant reason at all, they've just decided to raise rates a half point more, meaning they will make 200-300 dollars more off of my husband....horrible....just seems the banks are trying to get it anyway they can...