We (my wife and I) have been in our home for 7 years. We are current on our payments on both our first Loan of +/- $370k (5 year ARM tied to LIBOR) and our Second loan of +/- $75k with Citibank. We paid $499k for our home with only $15k down. Our home lists on ZILLOW (as of 4-27-12) for around $270k. We have roughly $11k in credit card debt and roughly $10k in student loan debt.
We are trying to figure out our best options regarding either staying in our home, shortselling or going through foreclosure. We would really like to stay here and avoid the credit and (I’ll say it) spiritual and emotional roller coaster of foreclosure or short sale.
I am starting a process with BofA on my first to restructure my loan. I “demanded” a principle reduction, which they scoffed at and basically want me to fill out the paper work and will determine which programs I may qualify for. I am not very optimistic about the outcome. I am doing this without the aid of representation, as they sent me a package with less than two weeks before they say it “expires”.
My question is this: What is our best strategy in the long run. We have considered stopping payment on our second with the hope of coming to a settlement with them hopefully pennies on the dollar. That would get us closer to market value… but is it realistic? If we did that would we still be able to restructure on the first?? Have you seen many homeowners actual successful with principle reductions from BofA? Principle reduction seems like the only real option for us, as simply lowering my already low (3.1875) interest rate just delays a foreclosure and helps the bank collect money on a property that is greatly devalued. I need to look to the future and perhaps “walking away” is the best option… but we just don’t know what to do. Any advice you can offer is very much appreciated.
Thank you for your time.
I wish that I had better news for you, but based on what you shared you’ll most likely have some very difficult decisions ahead. In my experience BOA will not reduce your principle balance, no matter what you do, say, or ask. They could potentially modify your loan and that will be based entirely on your finances and whether or not you qualify. Unfortunatey though, you would need to fall behind on payments in order for BOA to even consider your eligibility. This will significantly impact your credit rating. Also, where you already have a 3.1875 rate, a modification is unlikely to improve upon that. In a nutshell, modification could take you months and months, damage your credit, and in your case would most likely only help you very little… if at all.
Settling the 2nd mtg is a possibility, but you would need to stop making payments on that loan altogether. There is no timeframe for how long it would take, but it would be at least 6 months and could take as long as 2+ years of delinquency before they will entertain settlement offers in a range that makes sense. In my experience, you will have to wait until that 2nd mtg has been passed on to an outside collector before it can be settled, and you have no control over when that happens. This will also damage your credit rating.
Bankruptcy could be another approach worth looking at. As I understand it, if your 1st mtg is underwater, and there is no equity protecting the 2nd mtg, you may be able to strip the 2nd through bankruptcy. This would also depend on your finances in order to qualify and my recommendation would be to consult with a bankruptcy attorney in your area for advice on this approach. You can click here to find a local bankruptcy attorney to discuss this with.
Let’s be honest here, you are about $175k underwater on this home. Any approach to keep this home indefinitely will bleed you dry and leave you in this same state of mind for a very long time. My best advice would be to speak with a local real estate broker with experience dealing in short sales. Selling this home and getting out from under the loan could be a tough pill to swallow right now, but I bet a couple years down the road you will look at this as a smart decision.
Good luck and please keep us posted on your progress in the comment section below.
Andy is a licensed real estate broker in Massachusetts and is the founder of Northeast Properties in Norton, Massachusetts. His brokerage is designed to help homeowners in today’s difficult real estate market, specializing in short sales. Andy speaks with Massachusetts homeowners every day, helping them to address their questions or issues with short sale or loan modification. He enjoys helping consumers arrive at the correct solution to their problem, and believes that the only way to correctly do that is by presenting them with all of their options in an un-biased manner.