Controversial Forclosure Ideas

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Let me begin by saying this may be a controversial topic. I understand this, but really only want ideas to how to go about this.

My friends sisters problem is that she has received a job offer in another city (200 miles away from current town). She has a small 3 bedroom home, with an outstanding Mortgage of about $90K. Market prices are over priced in this small town, and there is very little if any people moving into town. The size of the town is about 18K at best. She has very little if any chance of selling the home anytime soon.She cannot afford the price of two homes.

She is thinking of allowing the current home to go into foreclosure, but she wants to make the most out of the situation. Here is the controversial part -- What can she do to maximize her cash prior to the foreclosure?

In other words, can she refinance the home for remodeling/update, and instead of using the loan for refinance loan for the stated purpose, can she Keep the difference in cost?

Can she rent the home until the foreclosure actually occurs? She would not be making any payments on it, although I would collect rent monies.

What other options does she have? Money is tight. She is open to constructive criticisms on her thoughts, but hope to avoid the moral/ethical issues here. Please provide your thoughts and ideas. She does not want to do anything criminal (one could make the argument that this is fraud, but one could easily counter that argument as well).

So let the comments begin!!!

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If by "controversial" you mean, "behave like worthless, vile, despicable scum," then... eh, I got nothing else to offer.... (more)

yoregano (Dec. 27, 2012 @ 5:44p) |

Sorry, what? Just how much do you think is in a home that's worth stripping? There maybe a few hundred dollars worth of ... (more)

MaxRC (Dec. 27, 2012 @ 6:31p) |

I'm not sure if there are any banks that still do 95% LTV on home equity loans. At 90%, $110k works out 99k or about 9k ... (more)

henry33 (Dec. 27, 2012 @ 7:10p) |

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I am pretty versed on this (similar situation that I am familiar with).

First off - do NOT do a cash-out refinance and then foreclose. This is straight mortgage fraud, not an ethical or moral issue here, this could easily put your sister in the view of the FBI if the bank wanted to push.

Yes, you can rent a home in foreclosure. In fact, renting a home after stopping payments can keep the house in her ownership for MUCH longer. It is called the Hamster Wheel, check this out: http://www.loansafe.org/forum/chase-mortgage-tell-us-your-chase-...

You need to research state specific regulations. Is it a recourse state? If so, be more careful, she can be sued for the difference in home mortgage compared to what it sells for at auction, short sale, etc.

tennis8363 said:   I am pretty versed on this (similar situation that I am familiar with).

First off - do NOT do a cash-out refinance and then foreclose. This is straight mortgage fraud, not an ethical or moral issue here, this could easily put your sister in the view of the FBI if the bank wanted to push.

Yes, you can rent a home in foreclosure. In fact, renting a home after stopping payments can keep the house in her ownership for MUCH longer. It is called the Hamster Wheel, check this out: http://www.loansafe.org/forum/chase-mortgage-tell-us-your-chase-...

You need to research state specific regulations. Is it a recourse state? If so, be more careful, she can be sued for the difference in home mortgage compared to what it sells for at auction, short sale, etc.


DO NOT do the cash out refi. In 2006 that might have been okay, it's 2012, you WILL get into trouble. HAMPster wheel it, look up Foreclosure defenses. What state are you in - Judicial or Non-Judicial Foreclosures? You can rent the place in all states except for california. In cally, it's considered rent skimming and illegal (not a lawyer, maybe SIS or someone else can elaborate on this). You can strip the place. Depending on age and other factors you can get 20k with a little work out of the place. Things like appliances, cabinets, carpets, AC units, copper, etc. do actually sell. You can also short sale with a realtor who will rebate commission. Do the numbers, crunch out what works for you. I would rent it, if at the end the house is empty I would cash for keys it and call it a day. I wouldn't worry about recourse, I have never seen a case for recourse hold in court. Most cases the defense argues the bank discouraged other bidders at the auction ("hidden" max bid, unrealistic max bids, etc.) and the judge dismissed the case(s).

forclosedhome said:   Market prices are over priced in this small townThe market determines the price, so how can the market price be "overpriced" ?

forclosedhome said:   She has very little if any chance of selling the home anytime soonWhy ?

Well you left out a couple of the most important numbers

the mortgage is $90,000 but how much is the home woirth according to the market ?

Agree with everyone else that you do not want to take another mortgage out now and then default - the mortgages taken out after 2009 do not have the same protections and alternatives to foreclosure options as the ones originated before 2009

In addition to collecting rent money until it is finally foreclosed , many lenders are offering large cash payments of $15-$30,000 if you agree to do a short sale but it doesn't sound like the current mortgage exceeds the current property value

we need more numbers and more facts to give you better tips

When did controversial and illegal become synonyms?

I must have missed that change in the dictionary.

SUCKISSTAPLES said:   Well you left out a couple of the most important numbers

the mortgage is $90,000 but how much is the home woirth according to the market ?

Agree with everyone else that you do not want to take another mortgage out now and then default - the mortgages taken out after 2009 do not have the same protections and alternatives to foreclosure options as the ones originated before 2009

In addition to collecting rent money until it is finally foreclosed , many lenders are offering large cash payments of $15-$30,000 if you agree to do a short sale but it doesn't sound like the current mortgage exceeds the current property value

we need more numbers and more facts to give you better tips

OP - the above question is very important.

Yes, so far things aren't really adding up. Cash out refi's are typically limited to 70% LTV, but you might be able to get a HELOC good for 90-95% LTV. It doesn't really matter what you use the money for in a refi/cashout/heloc, they just ask to see if it's going to be deductible or not. However in order for that to happen, there has to be some equity in the property. If there's equity in the property, then you just do a normal sale and if the expenses of the sale make it a little negative, you might be able to do a short sale where the loss to the bank might be minimal like 10-20k.

If she can't afford two mortgages, then she won't be able to buy the other home, she'd have to rent. If she rents out the current home, she'll have rental income that might cover the mortgages. If money is really tight, rent out one of the rooms.

This doesn't sound very well thought out or really needs more numbers to make any kind of sense.

Anyone care to point out that with a recent foreclosure she won't get a second house either? 90K mortgage is what, like $500 mortgage payment? Rent it, move, rent in the new city, put the tenant occupied house up for sale and buy a new house when the old one does sell.

The idea is Probably to buy the second house first , then default on the first one

But if there's equity, as op seems to indicate , it makes no sense to default , just do a regular sale!!!

CptSavAHo said:   Anyone care to point out that with a recent foreclosure she won't get a second house either? 90K mortgage is what, like $500 mortgage payment? Rent it, move, rent in the new city, put the tenant occupied house up for sale and buy a new house when the old one does sell.

She'll also have a much tougher time renting if her prospective landlord does due diligence and finds out she quit paying.

StevenColorado said:   CptSavAHo said:   Anyone care to point out that with a recent foreclosure she won't get a second house either? 90K mortgage is what, like $500 mortgage payment? Rent it, move, rent in the new city, put the tenant occupied house up for sale and buy a new house when the old one does sell.

She'll also have a much tougher time renting if her prospective landlord does due diligence and finds out she quit paying.


Not really. If it was strategic, I doubt they would make too much of a deal.

alamo11 said:   StevenColorado said:   CptSavAHo said:   Anyone care to point out that with a recent foreclosure she won't get a second house either? 90K mortgage is what, like $500 mortgage payment? Rent it, move, rent in the new city, put the tenant occupied house up for sale and buy a new house when the old one does sell.

She'll also have a much tougher time renting if her prospective landlord does due diligence and finds out she quit paying.


Not really. If it was strategic, I doubt they would make too much of a deal.


"Don't worry, Mr. Landlord, I was strategically late on all my bills... ignore my credit score..."


I agree she should at least TRY to sell it.

The investor vultures have hit my town, and as a result, my Realtor friends tell me that bargain-priced homes are selling within days - sometimes within hours - of being listed. (There is definitely a sweet spot - a home that is priced a little too high will draw absolutely no attention, but one that is priced just a smidge below market often gets competitive bids.)

Unless she is deeply underwater, her best best is to put it out there and see what kinds of bids she gets. Don't be discouraged by the fact that few people are moving into town right now - the investors don't seem to care (or know) about location. One of my friends is starting to specialize in sourcing homes in the grungiest parts of town - people who know the area would never buy there, but the investors are all "om nom nom." There are a few groups working pretty much exclusively through her - they think she's awesome, she thinks they're idiots but is happy to take their money.

Alcibiades said:   forclosedhome said:   She has very little if any chance of selling the home anytime soonWhy ?

Due to the limited people moving into the area.. not much happening in real estate sales in the area...

ankitgu said:   SUCKISSTAPLES said:   Well you left out a couple of the most important numbers

the mortgage is $90,000 but how much is the home woirth according to the market ?

Agree with everyone else that you do not want to take another mortgage out now and then default - the mortgages taken out after 2009 do not have the same protections and alternatives to foreclosure options as the ones originated before 2009

In addition to collecting rent money until it is finally foreclosed , many lenders are offering large cash payments of $15-$30,000 if you agree to do a short sale but it doesn't sound like the current mortgage exceeds the current property value

we need more numbers and more facts to give you better tips

OP - the above question is very important.


Although it has not been appraised, similar homes (comps) in the area are listed (I know this is not the same as actual purchase price) for about $110k plus...

How about renting the home and using the income to pay the mortgage? She might actually end up with cash-flow beyond rent if depreciation pushes her into a paper loss that she can deduct from her salary.

forclosedhome said:   Although it has not been appraised, similar homes (comps) in the area are listed (I know this is not the same as actual purchase price) for about $110k plus...
forclosedhome said:   ... outstanding Mortgage of about $90K.
Call this a crazy idea --- no foreclosure, no controversy, and you will sleep better at night.

List yours for $104,999 or 100k if you want a quick sale. You can walk away with 5-8k after all transaction costs.
/thread

Yeah - you're not going to be able to pull out the $20k equity and default so just do a regular sale

I guess you know It's bad when people who have equity don't even want to do a regular sale and would rather foreclose !!!

This could possibly be one of the dumbest FWF posts ever. I have my car worth $15k that I owe $5k on. I am just going to stop paying and let them repo it since I no longer need it.

I really don't understand. Even if she sold and brought a couple thousand to the table, it would be better that a forclosure. Why not try to rent it or sell it, before thinking about all these "controversial" ideas?

Sell it. uutxs is right. Maybe houses don't move fast at $110k but list a price at $100k or $95k and it will probably move. She should at least TRY to sell it. It could even sell for market, ya never know.

Jumping to foreclosure when you've got considerable equity doesn't make much sense.

The last three posts seem to indicate that readers are giving the OP the benefit of the doubt about what is being ask. Lets be clear, the OP is asking for suggestions on how to pull out as much money out of the property as possible so that the house is worth less than outstanding loans secured by it, and letting it go into foreclosure. As others have already mentioned, this is mortgage fraud and is illegal.

The way to pull the equity out in this situation is by selling it

SUCKISSTAPLES said:   The way to pull the equity out in this situation is by selling it


Or.. stripping it down to the studs and then short sale it. Tell the bank the property was vacant and someone broke in and did the damage.

forclosedhome said:   Let me begin by saying this may be a controversial topic. I understand this, but really only want ideas to how to go about this.

My friends sisters problem is that she has received a job offer in another city (200 miles away from current town). She has a small 3 bedroom home, with an outstanding Mortgage of about $90K. Market prices are over priced in this small town, and there is very little if any people moving into town. The size of the town is about 18K at best. She has very little if any chance of selling the home anytime soon.She cannot afford the price of two homes.

She is thinking of allowing the current home to go into foreclosure, but she wants to make the most out of the situation. Here is the controversial part -- What can she do to maximize her cash prior to the foreclosure?

In other words, can she refinance the home for remodeling/update, and instead of using the loan for refinance loan for the stated purpose, can she Keep the difference in cost?

Can she rent the home until the foreclosure actually occurs? She would not be making any payments on it, although I would collect rent monies.

What other options does she have? Money is tight. She is open to constructive criticisms on her thoughts, but hope to avoid the moral/ethical issues here. Please provide your thoughts and ideas. She does not want to do anything criminal (one could make the argument that this is fraud, but one could easily counter that argument as well).

So let the comments begin!!!
Mortgage is 90k; comps are 110k listed. OP isn't confident about the 110k number; suspects the sale price is closer to 100k. So after selling costs the OP may walk away with 5k or even 0k. If that's the case, renting it out and ceasing payments, then in the end short sale or offer cash for keys, may be a better financial decision, but a worse ethical decision.

alamo11 said:   SUCKISSTAPLES said:   The way to pull the equity out in this situation is by selling it


Or.. stripping it down to the studs and then short sale it. Tell the bank the property was vacant and someone broke in and did the damage.


The bank would just make you file an insurance claim. If you are going to do that, just set it on fire. Insurance will pay off everyone as long as you don't get caught.

forclosedhome said:   My friends sisters problem


forclosedhome said:   She would not be making any payments on it, although I would collect rent monies.

Freudian slip?

civ2k1 said:   forclosedhome said:   My friends sisters problem


forclosedhome said:   She would not be making any payments on it, although I would collect rent monies.

Freudian slip?

Or OP is married to his friend's sister.

whodini said:   forclosedhome said:   Let me begin by saying this may be a controversial topic. I understand this, but really only want ideas to how to go about this.

My friends sisters problem is that she has received a job offer in another city (200 miles away from current town). She has a small 3 bedroom home, with an outstanding Mortgage of about $90K. Market prices are over priced in this small town, and there is very little if any people moving into town. The size of the town is about 18K at best. She has very little if any chance of selling the home anytime soon.She cannot afford the price of two homes.

She is thinking of allowing the current home to go into foreclosure, but she wants to make the most out of the situation. Here is the controversial part -- What can she do to maximize her cash prior to the foreclosure?

In other words, can she refinance the home for remodeling/update, and instead of using the loan for refinance loan for the stated purpose, can she Keep the difference in cost?

Can she rent the home until the foreclosure actually occurs? She would not be making any payments on it, although I would collect rent monies.

What other options does she have? Money is tight. She is open to constructive criticisms on her thoughts, but hope to avoid the moral/ethical issues here. Please provide your thoughts and ideas. She does not want to do anything criminal (one could make the argument that this is fraud, but one could easily counter that argument as well).

So let the comments begin!!!
Mortgage is 90k; comps are 110k listed. OP isn't confident about the 110k number; suspects the sale price is closer to 100k. So after selling costs the OP may walk away with 5k or even 0k. If that's the case, renting it out and ceasing payments, then in the end short sale or offer cash for keys, may be a better financial decision, but a worse ethical decision.


I think of credit score as being worth at least $1-2k a year probably more even without playing FWF games. A $90k home isn't going to rent for that much especially in the local circumstances the OP described... That is only a $650 mortgage so lets say they get $1000 (i doubt if they get that much) for a year that is $12,000. Making $20k is an extreme stretch and I give it a decent chance lots of games only makes $10k. Add to that the risk of the bank playing hardball, tenants not paying rent/having to deal with them etc. and all the bad things about the various other possible schemes and I just don't see any way they come out ahead even if they are very sketchy possibly into the realm of criminally illegal and the less sketchy they are the less the potential profit. The 7-10 years of bad credit just isn't worth it for the money sums and situation the OP described.

If by "controversial" you mean, "behave like worthless, vile, despicable scum," then... eh, I got nothing else to offer.

alamo11 said:   SUCKISSTAPLES said:   The way to pull the equity out in this situation is by selling it


Or.. stripping it down to the studs and then short sale it. Tell the bank the property was vacant and someone broke in and did the damage.


Sorry, what? Just how much do you think is in a home that's worth stripping? There maybe a few hundred dollars worth of copper *IF* the house is built with copper pipes, less not. And tearing up walls to get at wiring is a pain in the ass and really only worth it in a total demolition. The appliances may be worth, what a thousand dollars? A few hundred for the cabinets? $20 per door if you are lucky? These prices may be attractive to a drug junkie who is looking to get some cash for a fun weekend, but worthless to a homeowner looking extract value from a home. The house is worth more pre-stripping, vs post-stripping plus the value of the stripped stuff.

FSBox said:   The last three posts seem to indicate that readers are giving the OP the benefit of the doubt about what is being ask. Lets be clear, the OP is asking for suggestions on how to pull out as much money out of the property as possible so that the house is worth less than outstanding loans secured by it, and letting it go into foreclosure. As others have already mentioned, this is mortgage fraud and is illegal.

I'm not sure if there are any banks that still do 95% LTV on home equity loans. At 90%, $110k works out 99k or about 9k after the 90k mortgage. If the comps are 110k, you ask for $120k or $115k and settle for 105-110k. You may end up with the same amount of money, but you don't have a foreclosure on your record. That way you can still buy a home in the next 4 years. Also if the relo doesn't work out and she becomes jobless, about 15% of companies check credit reports and instead of getting to explain why you walked away, you just don't get the job and you wonder why they didn't call back. Probably not worth it for the few thousand you're talking about.

I think it's being charitable to say that this is not a very well thought out process.



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