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We Are Stuck in a Home in a Neighborhood That is Turning Into a Ghetto. – Lisa

“Dear Steve,

As of today, 4k in money market savings, 2k in old mutual fund, 70k with TSP. Pay off credit cards every month in full. We have two debts, one student loan at $117/month and our townhouse. 10/1 ARM LIBOR will reset in 2015. 310K at 5.75%, with $296k left owing. 2nd mortgage of 27K at 6.75%, 30 year fixed. No PMI on this loan. Credit scores over 800 for both of us. Two young children. When we bought house was worth $360K now not even worth $200K. So many foreclosures in our neighborhood, its just really going down hill and getting worse by the day. Mortgage payment is $1812 (not including escrow). 2nd payment is $217. HOA is $58/month (we are one of the few actually paying).

We will be moving overseas in summer of 2010 with government provided housing. We will absolutely NEVER return to this home, I will never live here again!!!! Yes, we are making it, though not adding to savings except for the TSP. Current rents in our neighborhood are at $1400 – 1500/month. This will leave us about $1000/month short of covering all the expenses associated with this home. We feel like we are the collateral damage. We are stuck in a home, in a neighborhood, that is turning into a ghetto. We want out, but cannot sell because we are too underwater. What about people like us, is there any help for us?????

Lisa”

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The Answer

 

Dear Lisa,

You do have several options, although none of them are especially great.

First, you should contact your lenders and ask for a loan modification. Make sure you keep all the correspondence from the lender to prove that you tried. What you would need for them to do is to rewrite that loan into something you can afford. But!

Let’s say that the lender rewrite and modifies the loan now and a year from now your neighborhood has sunk further in value. Then when you try to sell the home you will probably be upside down and potentially unable to unload the home. You’ll be in the exact same spot you are in today.

The last thing you want to be faced with is trying to deal with this debt situation after you leave the country. Trust me, it will be a whole lot easier and less expensive for you to deal with the reality of your situation while you remain on the same continent.

So, if you believe that housing values are at the bottom and will rise before you move, consider refinancing if your lender will agree to modify your loan and reduce the value.

If the lender won’t do that or you think the home will continue to decrease in value then you might just have to swallow a really bitter pill now and go bankrupt, even though you have good credit.

Bankruptcy is a logical solution because while you may think you are current on your bills and in good shape now with a great credit score, you are really technically insolvent. Your liabilities exceed your assets and the prognosis for improvement does not look good.

Before you make up your mind, call a local bankruptcy attorney and go in for a free bankruptcy consultation and discuss your situation.

Big Hug!

We Are Stuck in a Home in a Neighborhood That is Turning Into a Ghetto.   Lisa
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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