Foreclosue

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Subject

Author

Date

Foreclosue

Diane Oberman

08-29-2006

Jeff Strickland

Diane Oberman

Jeff Strickland

Diane Oberman

Posted by Diane Oberman on August 29, 2006, 7:06 pm

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Has anyone had this experience? Due to financial and recent medical
problems I need to get rid of my condo. Here in CO they is just a glut
of homes for sale. No luck. Have an FHA insured loan. Paid an upfront
fee for ins. and $57 a month PMI. If I walk away, will FHA cover the
difference between what I owe and what it sells for? I am on SS and a
retirement check, do they come after you and take that? any info would
be appreciated.
Diane,

Posted by Jeff Strickland on August 29, 2006, 10:16 pm

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PLEASE LOOK INTO THIS MUCH CLOSER. I AM A MORTGAGE LOAN OFFICER, AND HERE'S
WHAT i KNOW ON THIS TOPIC.

PMI is an insurance program where the FHA insures the bank (lender) against
a loan default. What FHA pays is the shortfall in what you owe and what the
bank gets when the sell the property. Let's say you owe 100,000 on the
remaining mortgage when you default. The bank takes the house back and sells
it at a foreclosure sale, and gets 90,000. There is a shortfall of 10,000
that the FHA covers via the PMI insurance.

THE REALITY
You want to avoid foreclosure at all costs if you can. You did not tell us
when you bought the unit, but if you bought it more than 3 years ago, you
should have equity that bears (bares) protecting. I'm in Calif., and have
little feel for what is happenting in your state, so I have little idea what
sort of equity you may have. Assuming you have equity appreciation, you can
sell the unit on your own at below market value but above your equity
threshold. If you have 50,000 in equity appreciation, and the current sales
are slow at that level, then offer for sale at a price that reflects 35,000
in equity appreciation. Assuming you sell at this price, you beat the
foreclosure proceedings and protect the vast majority of your equity
appreciation.

ANOTHER STRATEGY
Your bank also knows the market is soft, and they want the money, not the
property -- the first rule of lending is that the bank never wants the
property, they always want the money.

Sometimes the bank will allow you to make an Interest Only payment instead
of a full payment. Without the terms of your loan, it is difficult to give
an illustration, but let me make a simple point here. Assuming a 6.500%
interest rate, and 250,000 initial loan amount for 30 years, you would have
a payment of just under 1500 each month. If you could pursuade the bank to
accept an Interest Only Payment for a closed-end period, say 6 months, the
payment would be 1354, which would save you about 150 each month. If this
would help you keep the unit, the bank might accept your terms. They might
recast the note at the end of this to adjust the payment to recapture the
shorted pricnipal and still have the loan paid in full at the end of the
original term.

> Has anyone had this experience? Due to financial and recent medical

> problems I need to get rid of my condo. Here in CO they is just a glut

> of homes for sale. No luck. Have an FHA insured loan. Paid an upfront

> fee for ins. and $57 a month PMI. If I walk away, will FHA cover the

> difference between what I owe and what it sells for? I am on SS and a

> retirement check, do they come after you and take that? any info would

> be appreciated.

> Diane,

Posted by Diane Oberman on August 29, 2006, 10:55 pm

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I bought the condo in Feb 2005. Loan was $138,500 with a three year arm
of 3.75 till July of 2008. Have called and asked realtors and had a
market analysis done. I owe more than it is worth. There is no equity in
it. Appraised at around $110,000. I am from Ca. Daugter talked me into
buying. I am on a fixed income and with a medical problem that I would
like to deal with back home. Never should have bought it. Here in Co
they sell homes and condos for much more than they are worth. Hope this
clarifies. I am under the impression that that is why I pay PMI so if I
default, FHA picks up the difference. My only concern is making sure
that FHA pays the difference and they don't come after your and take
your income.

Posted by Jeff Strickland on August 31, 2006, 7:46 pm

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>I bought the condo in Feb 2005. Loan was $138,500 with a three year arm

> of 3.75 till July of 2008. Have called and asked realtors and had a

> market analysis done. I owe more than it is worth. There is no equity in

> it. Appraised at around $110,000. I am from Ca. Daugter talked me into

> buying. I am on a fixed income and with a medical problem that I would

> like to deal with back home. Never should have bought it. Here in Co

> they sell homes and condos for much more than they are worth. Hope this

> clarifies. I am under the impression that that is why I pay PMI so if I

> default, FHA picks up the difference. My only concern is making sure

> that FHA pays the difference and they don't come after your and take

> your income.

Yes, the PMI insurance is to pay the shortfall, in your case it appears to
be about 29,000.

You are getting ready to make a seriously bad mark on your credit report
though. This mark will affect your ability to rent or buy another home for
several years. A foreclosure is much the same as a bankruptcy from the
perspective of a future landlord or lender. If you gotta do it, then do it
and just be aware of the consequence.

They don't sell anything anywhere for more than it is worth, that is the
first rule of economics.

If they can sell it for that, then it is worth that by definition. Now, if
it was once worth that but no longer is, then that is another matter. But,
when they sold it, that's what it was worth or they could not have sold it
at that price at that time.

Can you rent your unit for the mortgage payments? Then in a year, sell it to
the renter or put it on the market or rent it another year. The rental
income has to cover the payments due plus the management fees that a local
real estate office will want to collect for handling your affairs while you
are away.

Posted by Diane Oberman on September 3, 2006, 9:33 pm

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Thanks Jeff. Unfortunately all my options are gone includng a friend who
is an investor and tried to assume my loan. CO is the number one state
in foreclosures and FHA loans default more than conventional loans
because they are much easier to qualify for. There are quite a few
condos in my complex where the owners walked away because they could not
sell them. I had a bankruptcy about 15 years ago so I know what
happens. Thanks again for the good advice.

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