house is a mess -- need advice

[boy_bye]

hey guys, i have a messed up situation with my house and i'm not exactly sure how to proceed. thought some of you might have some ideas?

the situation is this -- my fiance bought the house we live in several years ago (before we were together). it was a big mistake to buy this house, as it is a mess. we have the inside fixed up nicely, but the foundation is shifting, it looks like our roof is leaning on the house next door, and our kitchen -- a poorly built-on addition -- is literally falling off the back of the house.

we live in pittsburgh, where it is very hilly, and we have a shed and a parking space out back, about 3 feet higher than our little back yard. a few weeks ago, a hole opened up between our neighbors' garage and our parking space. it's about 3 feet wide and goes under the neighbors' garage (which is 2 stories -- shed on one level, garage on the 2nd).

i went to talk to my neighbor about it earlier today, and she said that she'd had her home insurance people come look at it. they told her that the problem was that the ground on our side was shifting, and they wouldn't pay for her garage to be repaired.

so, i'm thinking we are going to have to get that fixed. we don't really have the cash to get it fixed, but we'll have to figure something out, because it's really unsafe the way it is now.

the problem is, our house is only worth like $30k. so i don't want to pay any more than i have to, because we are never going to be able to sell this place anyway. we'd need to pour at least $30k into it to fix all the problems to the point where it would pass inspection.

honestly, at this point, i would be happiest to just move into a rental, treat our small remaining mortgage like a credit card debt and pay it off, and abandon this place.

i'm just wondering what the consequences of that would be. there are lots of abandoned houses in our neighborhood, and eventually the city comes and knocks them down. but would the city come after us for whatever reason?

i guess i'm just wondering -- what are some options for getting out of this place without having to pay double the property's worth for the privilege?

thanks so much for your ideas, i have no experience with real estate and no clue what we should do.

[TheDude]

Man that sucks sorry about your situation.

First you have homeowners insurance and they might cover the hole under your neighbors. I would definitely check into it.

If you are ready to move could you sell the house for anything? Even its 5k its better than just giving it away. Whats left on your loan?

[Another Reader]

You own the property, so if the City demolishes it, you will be charged.  In the interim, you will be liable for any damages caused by the house or injuries caused by defects in the property.  For starters, your neighbors will be looking to you to fix the hole.  A vacant, abandoned house is uninsurable, so there will be nothing to protect you if you are sued for damages. 

In your shoes, I would get rid of this alligator as fast as I could.  Can you sell it?  Can you pay it off and deed it to a charitable organization?  Maybe the City will accept a deed? 

[TheDude]

I dont think just getting rid of it takes care of the problem with neighbor. I agree he should try and get rid of it ASAP but he needs to look into his options with neighbor before he gets sued.

[boy_bye]

thanks for the replies. it's unclear to me whether the hole that opened up is our responsibility or theirs, as the guttering on the garage is completely grown over with plants, sp runoff water has been dumped into our parking space for years. i think being sued is extremely unlikely for that and other reasons.

i'm going to start by calling our homeowners' insurance monday and let the insurance companies fight it out, i really do think it is a toss up which of them should be on the hook for it ... we didn't do anything to cause this, whereas their garage is full of cracks and looks pretty shoddily constructed.

after that's settled, we'll look into getting out of here ASAP. maybe one of those "we buy ugly houses" places will take it off our hands, or something.

the mortgage is about $20k. we couldnt pay it off right now unless i cashed out my 401k which i am not gonna do.

[Another Reader]

In your shoes I would talk to a couple of real estate agents that specialize in the area to see if it could be sold as a fixer or teardown before I called the low-ball "we buy houses" folks.   By "specialize in the area" I mean someone whose signs are on a number of the listings in the area and has good references.  That's a good starting point for figuring out what if any value the property has.

Your insurance people may take one look at this and send you a cancellation notice.  They will still be on the hook for what happens until then.  If it's the neighbors' garage that's causing the problem, then the neighbors will have to deal with the hole.

Good luck with this.

[ShavenLlama]

If they own the garage and the water damage is caused by their neglect of the gutters, I think YOU might have a problem that THEY need to take care of.

[boy_bye]

thanks again for the advice, it is kind of hard to say whose fault it is and honestly i don't care that much, i just dont want anyone to get hurt! i will definitely be in touch with the insurance company, but now i am kind of scared to call them. are they allowed to just take a look at a situation and cancel you!? what, then, is the point of insurance??

in the meantime we are blocking off the area as best we can, and seriously considering just walking away from the mortgage and letting the bank deal with it. there's not much else they could take in the way of assets, and having trashed credit for a while feels like a small price to pay for getting out of this house.

should mention that i am not on the mortgage or the title -- it's all in my soon-to-be-husband's name.

it's not an ideal solution, but i'm hard pressed to think of a better one. i am sure we have almost no chance of selling this house as is. we live in the ghetto, and there are lots of nicer houses that have been sitting empty for years ...

[HeidiO]

I know people will have lots of opinions on the ethics of this.  I, for one, have no ethical issue wwith letting a house be foreclosed on.  Especially b/c one person's credit won't be messed up.  That said - $20000 is not a lot of money in the big scheme.  I would work on selling it.  Pay off the rest with a loan from my 401K.  And move to a home that lets me rest easy, instead of being filled with worry.
Heidi

[Another Reader]

Again, talk to knowledgeable real estate agents and get their opinion of the value of the house.  It it's worth $5,000, it may be possible to short sell the house and have the sale impact your fiance's credit less than a foreclosure.  If this is a workable option, I would consider doing it ASAP.  The forgiven debt in a short sale will be tax-free only until the end of this year.  If the law is not extended, the forgiven debt will be treated like income. 

If no one will buy the property at any price, ask the lender if you can do a deed in lieu of foreclosure.  In this situation, the sooner you are off title, the less likely you are to have a liability issue.

Insurance companies do not want to insure properties with these defects.  They may cancel you according to your state laws if they perceive the house as an unacceptable risk, but they will likely have to give you notice.  If that happens and you cannot find replacement insurance, the lender will then try to place forced insurance at a ridiculous price. 

You did not mention if this was a purchase money mortgage.  If it was, it is unlikely the bank could pursue you for any deficiency.  In many states, refinances void that protection.  That's something to look into if the house was refinanced.

In your shoes, I would be looking at getting out from under this house ASAP.  It's a burden to you and your fiance.  Time to get past the mistake and get on with your lives.

[boy_bye]

it's not a purchase money mortgage as far as i know ... it's through a bank.

the money is far less important to me than just not being responsible for this place anymore. at this point, i really do think it needs to be put out of its misery -- it needs far more investment than it will ever be worth.

personally, i'd gladly agree to pay the $20k debt if we could be free of ownership. another reader, is that what a deed in lieu would accomplish? or is there another way to do that?

i will contact a realtor next week, but i just don't see anyone buying this place. there's also the fact that we are getting married next month and will be away for the month of october (out of the country). with the wedding and honeymoon prep, and everything else that's going on, the idea of also trying to move this year is more than a little daunting ...

another reader, are you saying that i should not be in touch with our insurance company about the hole just yet?

[totoro]

I'm in Canada and not the US but I would get a copy of the policy.  I found this online for you re. cancellation:  http://www.keepandshare.com/htm/insurance/home/C08_What_to_do_if_You_Lose_Your_Home_Insurance.php

Risk of cancellation seems less likely than risk on non-renewal of the policy.   

Given that this house represents a negative, I would think that foreclosure might be an option if it does not impact your credit too much.  In Canada it would not be an option as our rules are different and there would be significant collections actions ongoing for years and your credit rating would have a huge hit.

[boy_bye]

thanks, totoro, at this time we have been in touch with the building inspector who is aware of the hole and has issued the neighbors a citation. we haven't yet put up a fence because we think the garage will be demolished and we don't want to have a fence demolished as well!

we've also been in touch with a few people who are interested in buying the place. it doesn't look like it's going to happen before our wedding, but maybe soon after we get back from the honeymoon.

i just got a great job offer so our plan is to pay down the mortgage as much as we can and try to find a buyer in the meantime. after doing some research i know that a real estate investor could make a decent profit off this place for a minimal investment, so i think we'll be able to find someone to buy i -- we just need to be patient which isn't exactly my specialty!