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I want to give a full picture of our situation. I posted a while ago (somewhat controversial) about refinancing our condo and your insights paid off. We live in MA where the real estate bubble was horrible. In 2005, we paid $210K for a condo and now owe $190K. The area is not the best and it was originally a 3-5 yr plan - before kids, although now we have one and, round trip, I have a 3 hour commute each day. We need/really want out, which I'll explain so I don't receive "deadbeat" or "you're the problem with this country". The finances:

Mortgage payment: $1280 + $310 condo fee = $1590/month (taxes are ~$1,500)

Earnings/Savings: HH income of ~$160K give or take ~$10K; max out my 401(k); my wife contributes to SEP; 6+ month emergency fund; college fund for daughter; very low bills (no credit cards, one small car payment); however, separate from all of that, we have $70K set aside to buy a new/second primary home.

The idea was to refi to get the condo payment down and rent it out so we could buy a new home. We can get $1,200 in rent for the condo, which means we would pay $400 out of pocket every month to make up the difference. Horrible, I know, but walking away just isn't an option to us and we don't qualify for a short sale. We felt that we could take the $400 hit each month and "wait it out" perhaps forever/until paid off because I know this thing will never be worth what we paid (arguably, it never should be or the bubble will burst again). The "hit" would obviously be larger due to vacancy and maintenance etc.

However, I recently joined the condo board as I figured it would be a great way to stay close to the building/tenants when renting it out and then I quickly realized that the reserves are in serious danger. So many people have walked away w/o paying condo fees ($17,500 condo fees in collection). The building is historically registered (I learned a valuable lesson there) and the whole board is quietly questioning the building's future and we are talking about another assessment, shortage of fees/revenues, needing to increase condo fees, and while the expensive granite facade is beautiful, it's extremely costly to maintain. Essentially, I can't fathom how this building will be maintained, in the long run, due to his historic age and constant need of repairs.

Long winded, sorry. But the point is, not only is the condo unit a bad investment for us, which we were willing to ride out, but now the entire building just doesn't seem to have a bright future. This whole situation is very upsetting to us. Not a moment goes by without me stressing out about getting my young family in a house (schools etc.). Literally, whether right or wrong, I lose sleep over it.

I just had three CMAs completed - all came in close with a value of ~$120K-160K. There is no way we get $160K.

Say we could get an offer for $130,000: How effing crazy am I to give the bank my additional $70,000 now just to stop the bleeding and get this all behind us? Yes, we could rent it and take the $400/month hit (plus vacancies etc.), but that limits our next buy. Its such a crazy idea to give the bank our $70K, but I just think the whole situation needs to be over with. If we surrendered our savings, we could rent for year and then have a FHA etc. down payment for a house we want to be in. We would be out the $, but happy.

Please help. Am I nuts?

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NikeFace (Feb. 08, 2013 @ 5:20p) |

What are your actual costs?
Interest payments after tax deduction, building deprecation, taxes and maybe opportunity cost... (more)

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Expecting a lot of reds here, but... my opinion.
while yes, you should get the label of dead beat, and the problem with the country. putting that aside your alliance should be to your family first. If you take 70k in order to stop being a deadbeat, are you taking a lot of money that could be given to your kids, college, food? yes. if i had 70k and had to choose between funding my kids college, food, their future. or relieving any pressure of people not in my family, of calling me a deadbeat....
i would always do whats best for the family..
when someone is in the situation you are in, who made a financial mistake of your own choosing, you have to choose between having america not think bad of you, or doing whats best for your fam. what is more important to you?

NikeFace said:   However, I recently joined the condo board...I'm not sure I have any advice for you, but kudos to you for getting involved. Look how much more information you now have about the decisions you need to make. Don't get too doom and gloom on the whole building after just one or two meetings though. Dig into the financials a little and make some sense of it based on your own analysis. I wouldn't be too quick to throw in the towel. Figure out a way that you can bring some strength to the board and make the best of the situation. Don't put so much stress on yourself - your kid isn't in school yet, you don't have to move, you don't need to get out, you can afford the payment, you have a roof over your head and aren't over-extended. Take a deep breath and look at what prospects there are for salvaging this deal.

I have wavered on cases like these, but ultimately I agree with poese. The terms of your mortgage dictate that if you stop paying, you forfeit the property to the bank. Then you will be a deadbeat, no question. But you may need the $70k for something else. Not sure what recourse the bank has to get your money that is owed to them, I'm sure that will not be fun. At a minimum your credit will suck and you will have to rent and pay cash for things for many years, because nobody else will want to give you a loan.

NikeFace said:   

How effing crazy am I to give the bank my additional $70,000 now just to stop the bleeding and get this all behind us?

Please help. Am I nuts?


No less crazy than the bank giving you that money to begin with. The terms of mortgages IMO are pretty clear, we give you money to buy a house, and you pay us back (with interest). It is up to you to decide if you want to default and take the ramifications of it.

buncle said:   NikeFace said:   

How effing crazy am I to give the bank my additional $70,000 now just to stop the bleeding and get this all behind us?

Please help. Am I nuts?


No less crazy than the bank giving you that money to begin with. The terms of mortgages IMO are pretty clear, we give you money to buy a house, and you pay us back (with interest). It is up to you to decide if you want to default and take the ramifications of it.


Not exactly. I have no issue with OP doing what he wants but mortgage contracts absolutely do not say what you are saying. They define the terms of the contract. They then define what happens if you "breach the contract" which is what you would call ramifications. Under no circumstances does the contract allow you to default as part of abiding by the contract. It tells you what happens if you default.

ETA: MA is a recourse state so OP is limited in what he can do.

You're not nuts. The choice isn't between paying $70,000 and not paying $70,000; it's between paying $70,000 now vs. paying $70,000 later. In other words, the $80k or so in lost home equity is a sunk cost that's already gone and that you're not getting back (or at least not soon enough)

Maybe it would make you feel better to figure out the per-month cost of waiting vs. acting now.

Do what is the best financial decision for your family.

First; whatever mortgage rate you are currently paying, it is probably too high if you haven't refinanced within the last 6 months. Refi your mortgage to a new 30 year mortgage. It should get it down to around $850/month. That will help with improving cash flow so it is almost neutral if you do decide to rent the condo out instead of selling.

Even if you feel you "need" to move within the next couple of years, your current housing cost isn't terrible for the Boston area. You're socking away a good amount of money in savings, and should be able to put aside another $100K+ over 2 years. Assuming you use the whole $170K and get a "nice" place to raise kids for around $300-350K, your housing costs will still be about the same.

Since you're on the condo board, you should be able to get them to raise the HOA dues a small amount to get everyone to start building up an appropriate fund to pay for the maintenance of the property. There's no reason to let the building deteriorate. It'll hurt EVERYONE much more in the long run by decreased value, increased difficulty selling, and lower quality of living while you're still there.

Long term, keeping the property if it stays cash flow neutral(or even $100-200/month negative) will mean you'll eventually have the condo mostly paid for by someone else. What do you think the value of that condo in that area will be 30 years from now? Even if it is only double(which would be a low guess giving the Boston area and NE area long term prices in general), you'll still own a $300K+ condo that will probably be providing you with at least $1K/month in income after expenses.

Summary: refinance the mortgage, keep saving, stop worrying.

Thank you for the initial responses, and I hope for many more. Let me clarify one thing: I'm doing the opposite of "deadbeat." Essentially, I am proposing to pay the bank the difference between the sale price and what we owe... How on earth does that make me a deadbeat? Crazy or not, that means I am doing right by my contract and giving the bank every penny owed to them. Am I missing something?

Fundamentally, my hesitation, and question for all of you, is whether dropping the ~$70K to do the "right thing" is crazy considering it will take all of the pressure off of me and allow for a fresh start in a year or two.

MA is a recourse state. So, if we did do the deadbeat thing and walk away, our credit is murdered and the bank would likely come after the $70K anyway in addition to our other assets. Again, not an option in my book. Even if a short sale was possible, our credit suffers (although less) and once they see my savings, they would probably require cash at the table anyway (although savings/salary would likely not allow for the short sale anyway). So either way, I lose $70K, although likely more in the case of foreclosure and even possibly the short sale.

I greatly appreciate the feedback, however, I want to stress that the question is around forfeiting our $70K in savings to do the "right thing" and pay what we owe - not to SS or foreclose. In other words, "breach of contract" is not, and will not, come into play. I hope that clarifies...

You can take a band aid off slowly and prolong the pain or you can rip it off all at once.

buncle said:   NikeFace said:   

How effing crazy am I to give the bank my additional $70,000 now just to stop the bleeding and get this all behind us?

Please help. Am I nuts?


No less crazy than the bank giving you that money to begin with. The terms of mortgages IMO are pretty clear, we give you money to buy a house, and you pay us back (with interest). It is up to you to decide if you want to default and take the ramifications of it.


Yep, and keep in mind what the Mortgage Bankers Association did in this situation (being underwater on a loan.) I mean, they are the MORTGAGE Banker's Association so if anybody should set the lead on this it's them. http://www.thedailyshow.com/watch/thu-october-7-2010/mortgage-ba...

It would certainly make more sense to take the $400 a month hit and still own it in the end, than it would to take a $70k hit and own nothing in the end.

I think before you go paying $70k to a bank, you need to take $500-$1000 and go visit a good real estate attorney to have him/her explain your options. At least then you really can have a clear head about it. This is too much (cash) money to be making this decision without proper guidance. FWF is not proper guidance, btw.

No. Just re-fi to a 30-yr 3.5% loan to get payments to ~$900/month. Rent it for $1000+ with a lease and a property manager and wash your hands for a while.

It shouldn't hurt your ability to purchase elsewhere when you have a lease with rental income. As long as you're in the green, it should be a wash and will be considered an investment property. Who cares if it's upside down...can the rent pay the mortgage???

Don't assume that you will not qualify for a short sale. At least, start the process and see what happens.

Also, have you looked into the HARP refi?

ryoung81 said:   I think before you go paying $70k to a bank, you need to take $500-$1000 and go visit a good real estate attorney to have him/her explain your options. At least then you really can have a clear head about it. This is too much (cash) money to be making this decision without proper guidance. FWF is not proper guidance, btw.
This is the best advice here!

I would refinance at 3.5% and rent it out. No need to sell and lose money

If it is a historical building, are there city, state, or federal funds to help maintain it?
Also, as much as I hate homeowner type fees, the board really needs to find a way to collect a good chunk of the fees that are owed.

As others have said, refi it to a more attractive rate - do it while you are still living there. You don't qualify for any of the loan modification or principal reduction programs that's been thrown around?

In any case, get the interest rate down as much as possible. If you can get a 4% rate, for example, the monthly principal + interest would be about $907, of which $633 is interest. Add in your $350 condo fee, and whatever you pay for insurance and property tax, I'm guessing you are probably in the $1100 to $1200 range - in other words, the rent would cover it. So you'll essentially break even renting it out, even if it's not cash flow positive.

If you go the refi and rental route, by all means do it before you move your family out. Getting a refi afterwards will cost you big dollars.

Q=zgirl1999;17545242]I would refinance at 3.5% and rent it out. No need to sell and lose money

How would he re-fi without bringing a Brinks truck full of money to the table? This is an actual question, as I have a relative in a similar situation.

I hope I am not missing some details, but the important items I noted is: you're making $160k/yr, and you're contemplating how to minimize the $70k in losses.

I would say you are in no way living beyond your means. In fact, you're probably living way below your means. I think the best thing to do is to hold onto the $70k, get your new place and rent out the old one. Having a couple hundred bleeding out does not sound like a huge strain on your finances and you are missing out on a key point. At the end of the 30 years, you own the property. So say you are losing $400/mo. After 30 years, that's $144k that you paid out of pocket on the rental place. (The tenant was paying part of the mortgage and HOA). After 30 years, you no longer owe money on the property but own it at $130k. So your total loss after 30 years is $14k. To me, that's a lot less than $70k. Yes, I realize I'm forgetting about maintenance and taxes, but I'm also not taking into account how you can write off the losses in taxes and how you might be able to increase rent, etc, etc. In other words, I'm saying you see renting it out as a really bad thing, but I don't see it as a huge financial loss.

Buy another house. Use creative finanancing if you have to. Then, simply walk away from the condo.

First thing first, In your condo insurance you have an option to take out an assessment option. This means if there is an unexecpted assessment the insurance will take care of that. It's only a few $ so definitely worth getting.

I would rent the unit and pay the variance to cover the mortgage and condo fees. In your taxes you can claim the loss that you are taking and get some credit back during taxes.

If you have some money to put down for a house, you're in better shape than most buyers so use some but not all of your savings to ensure you have cushion for your rental property.

Good luck!

Thank you all. As you can see my OP was long, but not long enough I guess... We did refi just shy of a year ago. Due to being so underwater it took nearly 3 yrs to pull off. HARP 2.0 finally gave us an option. We have a rate of 4.25%. Unfortunately, refi'ing again is not really an option because we just used HARP and we would have to bring more than the $70K to refi through a conventional mortgage.

What's your monthly mortgage and what do you think you can get from monthly rent? Check zillow.com for a rental estimate if you have no clue by plugging in your address.

Here's my two cents, also being from MA.

a) Refi the Condo.
b) Rent it out, so that your "loss" will be somewhere between $200-400 per month, cash wise.
c) Use your savings to BUY ANOTHER HOUSE. Dont leave anything in the bank. Move out.
d) IF, and only IF, you are faced with a large special assessment, with the Renter living in the Condo, then just walk away (and cut your losses).

The bank cant come after your new home (Homestead in MA, protects upto $500k in Equity), and you would not have to keep throwing $$$ down a potential money pit.

Your credit will be shot for 3-4 Yrs, but that vs. $70k is a better alternative, to me.

if you are going to dump the 70K anyway, pay down the mortgage, then refinance at 3.5% for 30 years. This should bring your monthly payment to just shy of $1000. Live there one more year, save up a new down payment and then decide if you want to sell or rent. The 70K is gone either way, this way at least gives you some options. Also, many lenders are doing mortgages with 5% down, so you don't need to save up as much as you think for your down payment.

Suddenly prospects are looking better for the housing market. Like fsx only keep checking with mortgage brokers and credit unions next year to refi investment property with less equity percentage, tax deductible interest and maintenance and depreciation, when hopefully the principal whack will be less. Present value of $4800 lost yearly discounted at only 5% takes 24 years to equal current $70,000; sometime during which inflation will bail you out if you hold on. Bad credit carries for 7 years on credit report and may haunt you even later.

Less than 15% of all the HARP loans that have been started have been approved. I work for a mortgage company and we stay as far away from anything to do with the word HARP. Giant pain in the ass but what do expect from a government run program.

I would rent it out, values may go up. In between you are paying it down. You can claim deductions on it which would lower your tax liability and may even get a refund depending on your situation. I personally wouldn't ruin my credit by walking away. Not when renting is a viable option. Have you thoroughly checked out rentals in your area, talk to a real estate agent to see what rentals go for. They may be higher than your estimating. I charge higher deposits than most people but I figure if your going to pay more you have a higher stake in taking care of it. So far its worked out.

1. Become Too Big To Fail.
2. Bailout
3. ... ?
4. Profit


NikeFace said:   We felt that we could take the $400 hit each month and "wait it out" perhaps forever/until paid off because I know this thing will never be worth what we paid (arguably, it never should be or the bubble will burst again).In practical terms perhaps, but as long as there is inflation, the price will eventually reach what you initially paid for it. But then it would be in devalued dollars and you lose out on the time value of money.

Rather than paying the $70k, could you walk away and be prepared to pay the $70k should the bank come after you since you're in a recourse state? Maybe they'd settle with you somewhere in between?

Threads like these make me happy to be a renter. Why are you in such a rush to buy again? One of the first negatives of your current condo is your 3 hour daily commute, whose to say that you don't get another job soon after you move in to your new house that also has a rough commute?

Again, to those that keep talking about "walking away:" I repeat, we have no plan on walking away. Its one of two things: 1) sell the place for a large loss and pay the bank the difference in cash (e.g., ~$70K), make good, move out, rent, re-save, and buy a home 1-2 yrs later, or 2) buy a primary home and rent the condo at a ~$400 loss/month, plus vacancies and maintenance, and essentially pray another option revels itself before tens of thousands of dollars, to the tune of $70K, is depleted.

To everyone else: Thank you for reading the entire OP and giving insight. Keep it coming...

Just to clarify, you are also out-right refusing to short-sale and negotiate with the lender for the amount you will pay them on the difference?

NikeFace said:   Again, to those that keep talking about "walking away:" I repeat, we have no plan on walking away. Its one of two things: 1) sell the place for a large loss and pay the bank the difference in cash (e.g., ~$70K), make good, move out, rent, re-save, and buy a home 1-2 yrs later, or 2) buy a primary home and rent the condo at a ~$400 loss/month, plus vacancies and maintenance, and essentially pray another option revels itself before tens of thousands of dollars, to the tune of $70K, is depleted.

To everyone else: Thank you for reading the entire OP and giving insight. Keep it coming...


I think it's pretty clear. Rent for $400 loss. You can rent it for 15 years, losing 400/month and it will cost you ~$70k. At that point, you might owe half of $190k you owe now, and the house will have appreciated. And the value of the borrowed money will be higher than your actual cash now due to inflation.

So after 15 years and $72k/loss. You'll have a house worth maybe $200k, owe $80k, and not be out your cash.

Just think in the simplest terms...how much is a $400/month loss against the $70k??!!

On issue of keeping the association solvent, you can go after the delinquent units for their association fees by foreclosing on them. You'll get paid before anyone else will. I think it would be worth your while to solicit some advice from a Massachusetts real estate lawyer on how fast you can expect this to go. The lawyer may also be able to give you some advice on the building's historical status and what corners you could potentially cut. Have you checked with whomever is responsible in your town for approving changes to these buildings on what other assistance is out there?

Also if you were surprised by the state of your association, likely other owners will be too. Perhaps having an association meeting, and if necessary sending each unit owner a letter informing them of the finances will help you settle on whether to get out now or get out later (i.e. after an arbitrarily chosen amount of monthly loss). The other thing that time will buy you is setting aside enough money that you won't have to draw down the $70,000 from other accounts.

You don't mention where you are in MA, but I'm a broker in MA and in general prices are starting to firm up a little and are heading up in some areas. In your case it might make sense to rent it out for a year or two and instead of a 70k loss, it might diminish to a 50k loss. It seems like the number of foreclosures and short sales have decreased and the banks have been better at taking care of their foreclosures so that they don't depress the market as much. Rents have also gotten stronger in some areas. Now would be a bad time to try and rent out though, you'd probably get better luck later in the spring or summer.

People who push the short sale don't realize that it doesn't work if you have the assets to cover the difference. Usually the banks will want a financial statement and a good reason why they should approve the short sale like a job loss or an illness and none of that would apply in this instance.

If I were in your situation if I read correctly I would do as follows:
1. Figure out where you want to live and find a reasonable house there. Buy it. Move in. You can basically ignore your current house. With your savings and income you will be approved for another mortgage.
2. Put the house on the market and sell it. Maybe it can be a short sale. You lawyer and real estate agent will help you figure out your options. Renting is a pain, it lowers the value of the condo even more, it makes it harder to sell, its just a bad idea.

Do not feel bad. You are not "NUTS" at all. Because of the housing market and the fact that you are buying another house you shouldn't think about being underwater. If the situation was the exact opposite you would be no better off. Say your condo was now worth $300K. Thats nice but you still need a place to live and your new place would be $100K more. So end of the day you end up at the same place.

If you are moving to a bigger and more expensive house you are actually BETTER off being underwater on your low cost condo. And buying a big house that is at a 15 year low in price.

Walk away. dont look back.

Skipping 43 Messages...
What are your actual costs?
Interest payments after tax deduction, building deprecation, taxes and maybe opportunity cost.

Your mortgage payment is NOT a cost. It's a cash flow concern. Moving liquid dollars to illiquid real estate .

How do costs compare to rent? And what's the NPV of rents verse the possible sales price?



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