Hi there,

We moved to Seattle two years ago and bought at the peak of the housing boom on the usual assumptions: income going up/reliable, home value going up so we could refi, etc. Things didn't work out quite as planned:

- Lost job last year, long-ish period of unemployment which ate up savings
- New job is pretty significant hit, down $~20k from $~120k
- No health benefits, with expensive chronic meds in the family (~$500/mo) and other bills (ER visit, phys. therapy, etc.)
- Two kids, two parents, single income

...some property specifics:

- Purchased for $390k
- Currently valued ~$277k
- 6.5% fixed, 30yr with interest-only for 10yrs (+$700 payment afterwards)
- Currently paying ~$2800/mo
- Net income ~$6400/mo

...Sought a mod with the lender (SunTrust), took them about 2mos to get back to me with an interest rate cut and (what appears to be) a conventional, 30yr loan, net -$300/mo in the HAM trial payments, though the paperwork was really generic. This is in line with what I'd expect but...really won't help, though we haven't indicated we would/wouldn't accept. We can't sustain this place with our health expenses/bills and otherwise living in an expensive area.

So...we blew it. We want out -- we have 10+yr-old, half-broken cars, bald tires, no new clothes for years, etc. All so we could keep our mortgage current, which we did, and stay out of other debt (also did -- no car payments, cc debt, nuthin'). The only, unfortunate thing on our credit is a BK7 discharged in 2005 -- also medical-driven -- which is why we've been so fastidious about other debts.

Our questions are: (a) now that we're about to miss our first payment, how long may we have to hold out until the bank considers deed-in-lieu, ( is there any reason they wouldn't, all things considered, and © considering rent for the kind of room we need is about *half* our current mortgage in this area, we're considering moving sooner rather than later while our credit is still passable to improve our options.

It also seems logical rental prices will climb in spring, given seasonal norms and how many other people are doing what we're doing, FWIW.

Thank you so much for your time, and please let me know if I may provide any additional information.

Hi there -- I hate to bump my own post because I know it's generally in bad taste, but we're still twisting in the wind and don't have many sources of information we can trust. We have neighbors who are in foreclosure/trouble, as well, but their situations are all a little different or we're not sure whether we should share more details (a devil of a situation, BTW...all of us feeling self-conscious and afraid about the same thing, but unable to talk about it...).

Please...could anyone share some insight on this situation? We've been able to fix one of our cars, finally, by stopping the automatic debit on our checking account so it's coming close to the put up/shut up point, I have a feeling. Thank you so much, in advance.

Not a lawyer or expert in this, but I'll give my $0.02. You should really consult with a good real estate lawyer that knows foreclosure situations to give you more concrete info on your situation and what to expect.

You need to find out if Washington is a deficiency state (meaning that they can come after you for any difference between what the house sells for after foreclosure and what you owe on it). This site might give you some info --> link. You also need to learn about judicial vs non-judicial foreclosure. Also learn about recourse vs non-recourse. There's also the federal and state tax implications. If your home gets foreclosed upon and you are forgiven debt, you may be liable for that debt in terms of taxes. It may be treated as income.

I'll give you an example of California as I understand a little more about the laws here. California has strong consumer laws. California civil code of procedure 580b says that if the house was acquired with purchase money (original loan and never refi'd or had money pulled out HELOC), the only option any lender (first or second loan) would have is to take back the residence that was secured by loan (non-recourse). They can't go after any deficiency or pursue any judgments. If the loan(s) were refi'd or money was pulled out, then they become recourse and they can pursue a deficiency judgment... if they pursued a judicial foreclosure. California also has civil code procedure 726 (one action rule). It says that the lender can only take one action in satisfying the debt from the loan. The lender can't decide to go the non-judicial route AND also go the judicial route. What that means in California is that if the lender goes the non-judicial route to foreclose, they can only take the residence and not go after a deficiency judgment. To go after a deficiency judgment, they'd have to go through the longer, more expensive and riskier route of the judicial foreclosure. It's rare that a lender goes through the judicial route so most home owners end up just losing their home and not fear a deficiency judgment.

Again, it's important that you talk to a good real estate lawyer for your state to understand your situation and what implications you might face. Good luck.

Thank you for getting back to me. My understanding is, with respect to taxes, the fed is not taxing forgiven mortgage debt, at least through the end of 2009 ("Mortgage Forgiveness Debt Relief Act of 2007") and we otherwise don't have income tax in WA. Your points about judicial/non-judicial foreclosure were especially helpful, however, and an attorney seems like a good idea (now to scrape up a few bucks for a consult...).

Our credit is going to look...bad...after this, regardless...and the consensus seems to be saving more money by staying in the home as long as possible is better rather than uprooting faster in hopes of finding a better rental. Does this seem sensible?

You are right about IRS taxes. The Mortgage Forgiveness ... Act of 2007 does relieve you of canceled debt from a mortgage. I believe it was extended through 2012 (IRS site).

Regarding staying in home until evicted after foreclosure or finding a rental sooner before your credit does a complete dump... I've read that many foreclosed families have been able find rentals fine, so long as they come up with a larger deposit and the rest of their credit report is good. If you are going through the foreclosure process already and have no reason to move prior to eviction, it would probably be better to stay in the home IMO. My reason for that is that until the title of the home officially transfers to the lender or other purchaser, you are liable for that house. If a squatter moves into your empty home and gets hurt, you are liable. If you have an HOA, many people continue to keep paying that along with insurance.

I should get in touch with our insurance agent, BTW, that's a good point...I should try and include our homeowner's policy with the rest (monthly payment for car, life, etc.) so we can keep that current.

Ugh...yeah, that was one thing which occurred to me (liability, squatters, etc.). Plus, I *like* my neighbors and want to avoid sticking them with an abandoned property on the block for as long as possible. A twist is that now a number of our neighbors have heard through the vine we're having trouble they're sending mortgage brokers and such our way. Unless we have positive equity (duh) there is no refinancing option other than the current, Federal efforts or getting lucky with the bank, correct? I want to be able to categorically respond to these.

I believe you are right. If you don't have a decent amount of equity, you won't be getting a normal refinance. You'll need government help (HAMP, HARP, etc.) or a loan modification through the lender (hard to get).

HI! I wonder if they are thinking that you may be able to do a short sale? Definitely less damaging than the FC would be long term. It seems like a lot more realtors are getting savvy with that complicated process, which few were familiar with even a year ago!

Either way, stay as long as you can, and bank the cash! It may seem more painful:it seems like once we decide to let the home go, a lot of us are anxious to move on! Clear the chi, whatever. But from experience, I have to say that for the long term good of your family (and your cars ) stay as long as you can, and view it as being for the greater good. When it is time to rent, hit Craigslist for a private landlord, and once you have met them and made a good impression, give them the scoop. I told our landlord exactly when we had decided to let our house go, so when he checked out CR, he could see that we were ALWAYS current until then. He rented to us, and we had another gal whose home we decided wasn't for us who was ready to rent to us on the spot, despite the story. She did not care; provable income... no sweat.

Best wishes to you~