January 11, 2010

Mortgage Tetrameter

Hi Paul,

My soon to be Ex-Husband and I bought a home in December of 2008.  We are currently going through a divorce.  I chose to stay in the home with our children, after our seperation.  Now, several months later, I am unable to make the $2,200.00 Mortgage Payment on my own.  We have only owned the home for 1 year and our principal has only decreased by about $6,000 since we purchased it.  This leaves no room to pay a realator’s comission and the closing costs, even if we could get it to sell for the original purchase price.  To make matters worse, our neighborhood builder went bankrupt.  We now have a new builder.  The new homes that are being built are smaller, but also much cheaper.

I have almost maxed out my credit card, taken a loan out against my 401K and borrowed money from my parents, just to pay the mortgage by the end of each month.  I have not yet fallen behind by 30 days, but I am creaping much closer. 

My real estate agent suggested a short sale.  My credit is not super and I am very concerned that by doing a short sale, it will drop my score considerably.  I have three children to support and need to be able to find somewhere else to live.  I want to make sure that my decision is a sound one. 

My lender (Citi Mortgage)offered to lower my payments to $1,450 for twelve months and submit a loan modification request to FHA (I have a FHA Loan – 30 yrs fixed @ 6.25%).  However, Citi Mortgage would expect a baloon payment of $10,000 at the end of the 12 months.  I can’t afford to pay that kind of money.  If I was to request the Loan Modification, would I be allowed to put my home on the market? 

I am having a very hard time figuring out what to do.  I can’t afford to pay the Mortgage and am starting to drown in debt because of it.  Which of these options would you suggest, given my circumstances?  Loan Modification or a Short Sale?  Any advice that you can offer would be great!!

Thanks,
Renee

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Hi Renee,

I would say that the most favorable option would be to reconcile with your husband and keep the home.  If that’s not possible then you should know that what Citi has offered is a repayment plan.  It sounds like your husband is an obligor on the loan, so if he is still gainfully employed then it may be difficult to qualify for a loan modification.

Similarly, a short sale would also factor in the husband’s income if he signed on the promissory note and could also present a challenge if your combined incomes are sufficient to cover the loan given your debts.  It is possible for the short sale to be approved and HUD may demand a promissory note be created for the deficiency.  It should be noted that HUD requires that an FHA loan be 31 days or more delinquent to close an FHA short sale or what HUD refers to as the ‘preforeclosure sale’ program.

I’m reminded of those famous words of Rodney King: “Can’t we all just get along?”

Which brings me to my advice for married people, which is always the same: stay married.

Thanks for the questions and hope this helps.

Paul

Did I ever tell you about the young Zode,
Who came to two signs at the fork in the road?
One said to Place One, and the other, Place Two.
So the Zode had to make up his mind what to do.
Well…the Zode scratched his head, and his chin and his pants.
And he said to himself, “I’ll be taking a chance
If I go to Place One. Now, that place may be hot!
And so, how do I know if I’ll like it or not?
On the other hand though, I’ll be sort of a fool
If I go to Place Two and find it too cool.
In that case I may catch a chill and turn blue!
So, maybe Place One is the best, not Place Two,
But then again, what if Place One is too high?
I may catch a terrible earache and die!
So Place Two may be best! On the other hand though…
What might happen to me if Place Two is too low?
I might get some very strange pain in my toe!
So Place One may be best,” and he started to go.
Then he stopped, and he said, “On the other hand
though….

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