Here is my husband and I's current situation. We have been trying to sell our condo in River Forest, IL for the past two years, on and off, consistently now for the past 4 months. We haven't had any luck. It is on the market listed at $135,000, and we actually owe on it $166,000. We stand to lose a lot of money. Also, I am pregnant, and to our surprise (big surprise), we found out that we are having twins! We are super excited of course, however, we do realize the additional financial strain that this might cost. And, to top it off, I am a teacher who is in my last year before I receive tenure, and like so many districts in Illinois, our referendum didn't pass and all non-tenured teachers were laid off. So, now I am unemployed. My husband works full time at DePaul University and makes about 43,000 per year. He is also a part time graduate school student. We have never once been delinquent on our mortgage payment and we have paid every payment on time and in full for the almost four years that we've owned this property. We also have an excellent credit score and apart from car loans and student loans (and this mortgage of course), we have no other debt to call our own. We have moved out of our condo already and we are living, rent free, with my parents in hopes of saving some money once we sell so that we can eventually own a home of our own. Obviously, the fact that our property won't sell is holding us up, and the fact that as of June 1, I no longer have a job, just making those mortgage payments are going to be a struggle. My question is this: Should we apply for a Deed in Lieu of a Foreclosure? Will our credit be destroyed if we do? When would we be able to secure a home loan again in the future if we do do this? We are hesitant to do a short sale because we would still have to find a buyer, and it just doesn't seem like that will happen. Plus, there are other short sales and foreclosures on the market that we are competing with, and they aren't selling either. We want to avoid a foreclosure at all costs.
Getting your financial situation in hand now will help with your change in family situation. I identified the following issues in your question:
Foreclosure is the legal process through which a lender (most typically a mortgage lender) repossesses an asset from the consumer borrower who has defaulted on their mortgage payments. Because foreclosure is expensive and usually results in a poor return, lenders do not like foreclosure any more than homeowners do. Accordingly, learn more about the Home Affordable Foreclosure Alternatives (HAFA) program, which is a federal program that offers financial incentives to lenders and homeowners to avoid foreclosure.
In Illinois, Code of Civil Procedure, (735 ILCS 5/Art. XV heading), Article XV, Mortgage Foreclosure appears to indicate that the mortgagee (lender or servicer) may obtain a judgment for the deficiency balance. However, if your servicer participates in the HAFA program (see below), then according to the federal guidelines, the servicer may not pursue you for the deficiency balance.
The foreclosure process is expensive for all parties concerned, and the cumulative effect of many foreclosures can depress housing prices. To stabilize the housing market, the Obama administration created the Making Home Affordable (MHA) initiative. One program in MHA is Home Affordable Foreclosure Alternatives (HAFA). HAFA sets guidelines for short sales and deeds in lieu of foreclosure for distressed homeowners. If your servicer (the financial institution collecting your mortgage payments) participates in HAFA, then the servicer must follow HAFA's guidelines and deadlines. The guidelines provide financial incentives for both servicers and homeowners. The homeowner must also be eligible for the Home Affordable Modification Program (HAMP) as set forth by the program guidelines.
As you had not mentioned how much you owe in credit cards, student loans, or car loans, you may want to look into ways to reduce these monthly payments, if any.
You do not mention whether you researched the possibility of refinancing. As you know, a mortgage lender wants three things from a potential customer: Steady income, a relatively clean recent credit history, and a debt-to-income ratio of 35% or less. Customers who qualify for a mortgage or a mortgage refinance have all three of these qualities, plus a down-payment in the case of a mortgage.
Start with the Bills.com article How Do I Get a Mortgage Refinance Loan? Next, I recommend you download a Uniform Residential Loan Application (Form 1003), complete it, and start your refinance mortgage loan shopping. Then, go to the Bills.com mortgage refinance saving center for no-cost, pre-screened quotes from mortgage refinance lenders.
Next, go to AnnualCreditReport.com to get a no-cost, no-obligation copy of your credit report from each of the three major consumer credit reporting companies (commonly called "credit bureaus"). Review your report and dispute any inaccurate listings.
To find out more how your credit score is calculated I recommend you read an article I wrote explaining FICO score calculation. This should give you a much clearer understanding of how credit scores work.
You indicate that your credit is good, however, you mention car loans, student loans, and the mortgage. If your credit score is 700+ then you have strong score and lenders use this in part when determining your eligibility for a loan.
Finally, lenders calculate and analyze your debt-to-income ratio to determine the size of the mortgage or mortgage refinance you can afford. See DTI: Debt-to-Income Ratio Information to learn how to calculate your debt-to-income ratio.
An appraisal is necessary for a mortgage or a refinance to determine the market value of the property. You do not mention whether your property is listed with a real estate agent, but I have assumed it is. The agent would have done a comparative analysis to determine the sale price. Ask your agent how close this price would be to the appraised value. If you have to short-sale the property, the lender (servicer) will do an appraisal to determine the bottom-line for the property.
This is written in early 2010. The last three years have been brutal for housing values across the US. Some areas have seen market values fall 50%, where other areas have dipped 15%. If the value of the properties in your neighborhood have held steady the last 12 months, you may be in a situation where the appraised value on your property is the same as it was when you purchased it.
Bankruptcy is a complicated process. Chapter 7 and Chapter 13 bankruptcy are the options appropriate for most consumers seeking debt relief. Unfortunately, after the passage of the Bankruptcy Reform Act in 2005, it became harder to file for a liquidation bankruptcy, and there is now more complexity to an already intimidating process. Filing bankruptcy can be difficult and, though a consumer can do themselves, I advise consumers to consult with an attorney licensed in their state to ensure the filing is completed accurately.
Research the HAFA program. This appears to be the best solution in your present situation. If you are unable to do a short sale or deed in lieu of foreclosure (options that will not affect your credit score), you may wish to let the property foreclose and take the hit on your credit. Yes, this will affect your ability to purchase in the future, however, with twins on the way and only one income, saving some funds (401(k)) and paying off your other debts is a priority. If you need to file bankruptcy, contacting an attorney in your state who has experience in bankruptcy is the best course of action.
See the Dept. of Housing and Urban Development resource Avoid Foreclosure in Illinois for more information.
On a separate issue: Child care costs are costly. You may want to reevaluate your potential employment income to child care costs in your area. There are tax implications and much more. I advise you speak with a tax professional.
I hope this information helps you Find. Learn & Save.