should I take the loss

Question

Divorce finalized.  Niether of us live in the house.  It is rented, but the rent is not covering the note or any repairs that come up.  Upside down on the house, and at a terrible interest rate.  WHat should I do?  Sell the house and take the loss.  SHort sale.  Walk away?  I do not want to walk away from the house, but my ex wants to.  She is not helping out with repairs or covering the loss.  Please give me some advice.  I do not want my credit ruined and want to buy another house in near future.

Joel Owens · Answer

The divorce decree IS NOT the final say in the eyes of the lender.

Your note agreement if both of you are on it precedes the divorce.

Yes the judge can say the wife is responsible for it but the note holder can also start dinging your credit because the ex-wife isn't paying as agreed and they look to you the ex-husband for payment.

I have seen this happen many times where the person who isn't supposed to pay per the court orders credit gets trashed because they feel they shouldn't pay because of the agreement. The lender doesn't care about any of that.

Tom Goans · Answer

Patrick G. has the best response to consider, what is stated in the divorce settlement about the property. This is binding upon BOTH parties. Understand this prior to making any decisions. It may also be wise to have a conversation with an attorney prior to making a decision.

Sean Reynolds · Answer

Property settlement has not been settled.  When we bought the house, we did 100% financing, 80/20 loan.  One bank at 6% and the other 8%.  I know, I know, what an idiot.  Now I'm stuck.  I do live in Louisiana which allows the bank to come after difference.  I know this is an investment site, so I figured y'all would know the best way to handle this.  I hope to right te ship ad put myself in position to invest.

Joel Owens · Answer

Who is responsible for the payment in the divorce decree??

Did you deed the title away to her at some point?? If you did then you no longer own the house but are still on the mortgage if both of you were to begin with.

If she is not on the note itself and is not responsible for some or all of the payment with the divorce decree then she probably cares less what you do at this point. Is she still on title or just you??

What's the interest rate??

You might be able to talk to your lender and get it reduced. This would help you get closer to a neutral position with the rent covering the note. With some lenders you do not have to be behind on payments to qualify and if you can document the hardship then they might work with you. If you are sitting on a ton of cash or other properties with equity they will be less sympathetic.

You could possibly "buy and bail" if you qualify debt wise for an additional second property payment. If your credit score and others things are good they question you less sometimes.

You need to figure out at what pace properties are increasing in value if they are at all for your area and then figure out how long it would take to get out from under the property.

No legal advice

Wayne Brooks · Answer

Sean, it looks like a short sale is best bet as you seem to have a documentable hardship.  But, do not buy another house prior to doing the short sale.  First, the shorted lender will look at that as a "buy and bail", where you buy your replacement home, then walk away because the other one is under water.  Also, it's not the " settled for less than owed, etc." on your credit report that causes the biggest hit after a short sale, it's the 12-36 months of missed payments.  You can do a short sale while still being current, if you can show "imminent default" in the near future due to dwindling savings, forced retirement, job transfer, etc. Depending on the actual investor who owns your loan.

Patrick G. · Answer

What did the judge say about the property?

Michael D. · Answer

Sean Reynolds, I completely agree with Nechelle Vanias. Nice to stick with principals if you can, I'm in that boat now - but not when the other party is leaving you holding the entire bag.

Best do something about it as soon as possible. One thing you might consider is reaching out right here on BP to see if you can find an investor or listing agent in your area that can help speed you through the short-sale process.

Are you both on the loan and title?

Best of luck!

Michael

Nechelle Vanias · Answer

Sean Reynolds,

The longer you draw it out the bigger the risk you take with ruining your credit and the more money you lose covering your cash flow rental shortage.  Start the process now so that you can start the clock to being eligible to purchase a new home through the traditional means again.  The stress of the situation you've described isn't worth it.

Additionally, you're on a real estate investment site.  Think out of the box.  If you're in a big rush for whatever reason to buy again then seller finance your next home purchase until you can refinance with a bank.  Or better yet, buy your new home now before you short sale (which many people do) and then you don't have to worry about credit.

There are a lot of options that are less stressful and better business moves then trying to hold on to a losing asset.

Good Luck,
Nechelle Vanias