Very upside down in house. Bought at worst time possible. 80/20 Alt. A over conforming limit ($502k with 417 limit) in Oct. of '06. Built and upgraded the house well outside of standards of neighborhood, because we were sure this was our 'dream house' and where we would retire from. (We're in our mid-40s). At time of purchase, income was strong, single income family (DH) and we were well inside of ratios on both front and back end. Last year DH had steep decline in income (car business) and then lost job. Was unemployed for six months and is now working, but starting from scratch. Income is about 30% of where it was when we purchased home.

Haven't made any late payments, but have nearly maxed out large credit lines on cc's trying to move things around while we 'catch up' (I started working last year to help out after 15 yrs out of workforce raising family - income is limited 35k/yr).

While we have tried to hold back the tide, things just don't seem like they are going to turn around any time soon. Have house on market and are priced at 113k more than anyone else in subdivision - to cover Realtor's and closing costs. There are a few others that have built in values close to ours, but none are listed for sale.


If we short-sell or foreclose, how long will we be locked out of the market? We've been home owners for 14 years, have owned three houses in that time and never made a single late payment - never even had to pay the 'after the 15th' additional charge. Life just beat the stuffing out of us in this past year. We have young teens and I feel awful that our bad choices and bad luck will likely result in them losing their home and leaving their school.

Any feed back or guidelines would be appreciated.

Thanks,

nj2tx

B*U*M*P

I am in California, so I am not sure about Texas.

Look for the Texas foreclosure process. A few things to look at:

1. If you let the property foreclose and the property is less than what the loan is, I believe in TX they can pursue a deficiency judgement, which means that the mortgage companies can sue you for the difference and most times they will convert the difference in a personal loan. Google Texas foreclosures and educate yourself.

2. So, if you short sale, the banks are accepting less than the amount due. But make sure that they don't want to convert the differnce between the sales amount and the loan amount a personal loan. Make sure that they can't sell the dificiency to a CA. Get a real good releator and make sure you read every fine print. This option could have tax implications, the difference would be considered income to the IRS, although you can file insolvency. You also need to talk to an accountant.

Not sure how much this helps.

Can anyone tell me what the penalties are currently for foreclosure vs. short sale when it comes be being eligible to home buying? We can't afford this house (unfortunately, due to the circumstances described above), but we certainly would qualify for a more modest home. What are the penalty periods? Thanks!

From what I've seen, It looks like you may want to wait about a year before trying for a new mortgage after a short sale, that being said, you will want to bring a significant amount of cash to the table. You may get pre-qualified, but when it comes crunch time alot of lenders are backing out. Cash is king in this economy. Your credit score will suffer greatly in a short sale, but from what ive been told, its not as bad as forclosure or bankruptcy. Just my 2 cents because Im in the same situation as you right now, my home is on market and im going to have to short sale it. My realtor said she is able to get people loans with 600 credit score and above, but you need minimum 3% down on any home.

Axle, Thanks for the encouragement. Wouldn't mind sitting it out as a while as a lease-er or a renter (although it will be an adjustment after 14 years of home ownership). In reality with an 80/20 and 0% appreciation, I'm little more than a renter right now. If we could cut our monthly payment by 50% which is more than reasonable (or mortgage payment is huge), we would recover so much more quickly. Even though I thought I was an informed consumer, boy have I learned a lot from this experience. Don't think I'll ever make this kind of commitment again. Nothing, no big house, no big car, nothing feels better than a good night's sleep! (Which I haven't had in 2+ years.)
Best wishes to you and your family.