The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: shortstache on December 21, 2013, 09:58:45 AM
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I have been working to get out of debt for several years. In February of 2010 I had 255k in debt. Part of that was a home mortgage. Instead of filing bankruptcy or walking from my home I worked incredibly hard, sacrificed and I know have $29k in student loans left and $113k on a mortgage plus $10k in a DSELP grant I got when I bought the house. I no longer live in the home with a mortgage and have been trying to sell it for several years. I got my first offer for $55k on the home. I bought the home through a CDA mortgage with the state of Maryland. The state wants me to sign a note for $20k + $10k and they will eat the rest. I am so pissed that I did not let the home foreclose and just file BK several years ago. Maryland is a recourse state so if I just walked from the home and they could have come after me for the difference. At this point I am so angry I just want to walk from the home pay off my student loans and file BK so I don't have to pay that 30k. Oh, my based salary is about 96k a year but I made about an xtra 40k through side work in 2013. I live in NJ, very expensive and have a wife and kid. Give me some MMM wisdom her please?!
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Is the property rented? If not, can it be rented?
In your shoes, I would try to rent the place out and have the tenant pay as much of the loan off as possible. Even if the contract with the state technically does not permit renting, I would do it anyway. The state would probably be much happier with a performing loan than a note and your credit would be preserved.
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I have been trying to rent it for the past few years and it has been going pretty bad. Lost about 10k this year, made $100 last year, lost 10k the year before that.
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I am so pissed that I did not let the home foreclose and just file BK several years ago.
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Give me some MMM wisdom her please?!
Let go of the past. Forget the sunk costs.
Think about what would be the best move for you right now. Determine what information you would need to make that decision, then seek it.
Be at peace with the decision you come to.
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"Forget the sunk costs." "Think about what would be the best move for you right now"
Aren't these essential for moving forward and figuring out what "the best move" right now is? Do I continue throwing more money at a bad investment? The house has for the most part been a money pit. So do I continue to hold on and manage with a very real possibility of losing $30k over the next 2.5-3 years? Do I just suck it up, sign the note, and spend 1 more year spending every weekend working to pay off debt? Or do I just walk at this point and file for BK? I am 36 years old, I have $40k in a retirement account and no other assets.
I am posting to get feedback on what information I need to make the best decision.
Thanks
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"Forget the sunk costs." "Think about what would be the best move for you right now"
Aren't these essential for moving forward and figuring out what "the best move" right now is?
Not only are they (the sunk costs) not essential, they are completely irrelevant, immaterial, and likely to lead you to the wrong conclusion.
In your shoes (keeping in mind I only have the scant information you posted, no info on the rent, mortgage payment, etc.), my order of preference would be:
1) Some sort of short sale getting them to waive the right of recourse.
2) Signing the note.
3) BK
4) Keep the house.
4 however, could move up to number 1 or (more likely) 2 depending on your local housing market, the house itself, etc.
Bankruptcy is the "easy" way out, but with your salary (nearly six figures) and the small amount the debt will be (20-30k), it's not worth it, IMO.
That will depend on you as a person though.
As I said, you need to determine the information you need to make a decision, then once you have that information, solicit advice. Right now you seem to be fumbling in the dark without much of an idea of your options, the pros and cons of each, etc.
Best of luck.
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You may not even qualify for a chapter 7 bankruptcy with your income. Before you make any decisions I recommend getting a free consultation from a bankruptcy attorney to see if it makes sense for you.
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Like Angie said, I think you'd have trouble with BK based on your income. The initial cut off on the means test for a family of 3 in NJ is about $86,000. It's unlikely you'd qualify for Chapter 7.
Short sale seems like a better option given what you've told us.
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Thanks for the feedback. Yes, I checked a CH 7 calculator after I saw Angie's post. When I posted this morning I felt myself leaning towards just signing the note. I just wanted to get some feedback outside my normal circle. At this point I will just have to buckle down for another year and work the OT and side job. The State will spread the note out 15 years @ 5.25%. Most likely I'll just pay down the notes and then get back to snowballing my SL (SL @4.5%). Sigh...well I guess my 40's will be when I start really building a stache.
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What's the rate and payment on the mortgage, and what can you rent the place for?
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The mortgage is 1100/mo. I can rent it for about 1300/mo. But, I need a property manager because I am so far away which is about $100/mo. Also, the quality of tenant I get is very poor. This past years tenant paid the first months rent and then complained about a shower head leak and never paid rent again. I had to have the Sheriffs evict her. I am suing her but have been unable to get service yet bc she is MIA. The year priors tenants paid late and I had to file with rent court every month in order to get my $. The tenant the prior year stopped paying rent as well and I had to have the Sherriff evict her. The law firm is still trying to get service on the tenant for my lawsuit stemming from that. Also, this past year someone stole the air compressor for the central air from the back yard.
It is not the nicest house but I am not a slum lord either. Everything is maintained and I would rather have something fixed then let it go. The problem is that I have to pay someone bc of the distance.
Thanks for all of the questions.
I am going to sign the note
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You are accepting the wrong tenants. Wouldn't it be better to drop the rent from 1300/mo to 1200, or even 1100, and have a choice of a buch of tenants who know they're getting a deal, so you can pick ones with stable jobs, good credit history, etc.? And then actually get paid.
You'll still be cash flow negative, but it will be much, much better than never getting paid and then having to evict.
Up your tenant screening filters until you do decide to sell/whatever.