Mr.Aqua

I thought I'd throw this out there to get some feedback.

Situation: My wife bought a town how 6 years ago at the highest point in the market. It's a 1bed, 1 bath condo with 1 car garage in a nice area in San Diego.

We like the place but it's too small for us. Shortly after she bought the condo she started her own business and works out of the house. We've made some modifications to the place but it really isn't ideal. We have 4 cars (3 which are nice, s2000, c6 corvette, and newer tacoma). My biggest issue with the place is the parking. I love my cars and want to get them in a 2 car garage. I would like my wife to have her own office so I don't have to see or deal with her business everyday.

The condo is worth 200-230k (Zillow rates it @ 240 but I think that's to high) 6 months ago the exact same condo sold for 180k as a foreclosure.

She owes roughly 365k on the place. 1st has been modified and 2nd is a HELOC that we have been trying to negotiate a settlement for 18 months. Both loans were purchase money and never refianced. That being said if we do end up settling the 2nd for 10% the place would still be upside down 40-50k and still not ideal for our living situation.

Here's what I have been proposing to my wife:

Stop paying both mortgages on the condo and do either a long drawn out short sale or b foreclosure. Her credit is already in the toilet because of getting the 1st modified and trying to settle the 2nd, so that is not a concern. I'm not on the loan or title so my credit will not be affected.

Now since we are married I cannot qualify for a FHA loan because they would take her debt into consideration and I can't qualify for both homes on my income. However, I can do a conventional loan which would require 10% down. I can qualify for a 400k loan if I pay off the corvette which I have enough in liquid savings to do.

The issue I have is that I would need to take a loan out of my 401k and about 10k out of my roth-ira (contributions aren't taxed or penalized) to come up with the 10% down. So should I sit tight awhile longer and keep paying into a dead horse and save up for the 10% down (18-24 months) so that I don't touch my retirement accounts. Or should I make haste and get into a bigger/better place and put the past behind us.

Any thoughts or comments are welcome!

rob-2

Sell the luxury items you have, and pay the difference you owe on your sale. Suggest a short sale. Foreclosure with someone who can pay? Man that's shameful.

People who do this simply to get theirs are screwing the rest of us.

OR try renting the place out and buying a home on your own.

rwheelz

We are discussing similar situations in the politics forum:
https://www.s2ki.com/s2000/topic/920...#entry21365540

fuzy24

I would be really careful with this decision - admittedly you're not in the best of situations right now, but it certainly isn't dire. It sounds like you both are doing your thing career wise (not worried about lack of income) and the main concern is simply getting a bigger place to live.

What you're proposing would completely wreck her credit, actually increase the amount of debt you both have on a combined basis, and then result in you having less liquid funds at your disposal. I try to treat financial decisions like a game of chess. What I do now may have an acceptable effect for my next turn, but what about three moves from now? Hypothetically, what if one of you loses your job (god forbid) after having gone through the foreclosure process and purchase of a new larger/more expensive home?

Why not rent? You could rent out your current place, while renting another larger place for your family? This way if something unfortunate happens, you can just walk away from your rental and move back into the original home - all the while paying down that mortgage, saving more money, and hopefully working yourself out of the original debt issues. When the time comes, where you can get out of the existing situation and still have room to purchase something bigger, then go for it.

A foreclosure is your ace in the hole. Everyone plays their cards their own way, but you usually want to save that ace for a last ditch situation.

Best of luck to you, you're already making a smart move by seeking external opinions.

SlowTeg

First off, no one has mentioned the obvious, but why do you have 4 cars? I realize you "like" cars, but obviously selling one (either the s2k or the c6) would certainly help with your expenses and savings. Borrowing against your 401k to come up with the downpayment is just dumb imo. The obvious first choice is sell your frivolous items with substantial value, and that would be a car.

Other things to consider are what assets your wife has in her name. The banks will come after any assets of hers if you go the foreclosure route (if she refied her 1st mortgage, then she likely now has a recourse loan). If you can really get the 2nd chopped down and only be underwater 40-50k, that really isn't that bad, and I'd think hard about doing a short sale or foreclosure. You could consider becoming a landlord and renting the place out (if it's a break even rental) and just buying another house. Either way, if you're seriously considering buying another place, I'd say sell one of the cars to help reduce your costs and actually get you some money.

Mr.Aqua

Thanks for the feedback guys. After much thought I'm going to pay off the vette next month. That will put me in a good position to save up for a future down payment while saving some money on intrest. I realized that i do not want to touch my retirement accounts.as I'm 29 and the money I'm going to lose on the compound interest will set me back a lot of money.

Due to the recent banking news we are going to try to get the principle reduced on the 1st (if possible) and plan on settling the 2nd for as little as possible. That would bring the mortgage much closer to the actual value of the home.

In response in why have 4 cars. It's only temporarily until my wife's car dies, then we'll go down to 3.

Jdrum1

Not trying to judge; it's your life and your money.......but, you owe $365k on a condo worth about $200k and have 4 cars (3 of which are fairly valuable). Wow, that would keep me up at night.

Chris S

Your wife bought a condo with all the benefits and risks of ownership. Y'all should suck it up and honor the contractual commitment she made as long as you're able to pay.

Foreclosing or suggesting a short sale is quite honestly a dick-headed move since you're that just transfers your losses to the bank's shareholders (and worst case, the govt. - which means all of us taxpayers). You have 4 cars, and are trying to move up to a bigger, more expensive place by screwing the bank &/or your fellow taxpayers?

Mr.Aqua

I appreciate the feedback.. When the banks won't work with you it gets really hard paying for a place that is not worth it anymore, especially when it does not suit your needs. Sure there's the ethical argument but there's also the business side. We've moved onto a bigger place and are much happier now. It will probably be the smartest financial move I'll make in my life time.

Jdrum1

So, wise business choices and ethics are mutually exclusive?