Bankruptcy?

[Cluster]

What is the name of your state? Illinois

I need some guidance here...
My family is relocating across state to stay with the company I work for.
All of this came about right after we refinanced our mortgage. We now owe 132k on a house that is worth about 135k, and we were misled about prepayment penalty of 5% for the first 3 years (they said there wouldn't be one).

Now we have a house that would probably sell quickly for about 130k, but with Realtor/penalty/closing costs I'd be "upside down" for about 20k. We have no major assets or savings to make up the difference.

We are going to be moving soon, but will only have paid temporary housing until March. At that point we will need to be out of this mess and will nolonger be able pay for the old home.

My question is, should I buy a second house and then file bankruptcy to get out of the old? Rent the old house for about 80% (realistic charge) of the mortgage payment until I can pay it down? Or is there some way I could roll the approximate 20k into my new home mortgage?

Our credit scores are only average at about 670, but I'd still like to avoid bankruptcy if at all possible.

Thanks!

[pojo2]

The ONLY way you were misled is if the prepayment penalty is not in the contracct you signed and I am betting it is.

Pray tell what will you buy a second home with if you have no savings etc. There are cost associated with that too? In addition can you qualify for a second home loan?

Several states are now disallowing prepayment penalties check and see if you state is one of those.

You could also do a FSBO, god I can't believe I am saying that, and pay an Atty 500 to 1000 to do the paperwork.

You might just find BK is not as friendly as it once was.

[Cluster]

The misleading part was there was a box checked "may be a prepayment penalty" and another that was checked "no prepayment penalty". I asked about it, and was told no penalty.

We do have a few $k to get started in new area, but we don't need to buy a house right away, we might rent for a while.

A BK or even forclosure is a worst case scenario, and I do have the house FSBO, and am considering renting it, but I thought maybe an outside perspective might have a more appropriate solution.

[pojo2]

Originally Posted by Cluster

The misleading part was there was a box checked "may be a prepayment penalty" and another that was checked "no prepayment penalty". I asked about it, and was told no penalty.

My comment will do you no good at this point but for others who may come along and see this do not sign something where the terms are unclear or not to your liking, walk out the door!

What you were TOLD has no meaning in such a transaction. Again check you states regs concerning prepayment penalties.

[Samm1970]

I'd recommend you rent the home, perhaps rent with option to buy. I'd also recommend you not purchase a home in your new area until you satisfy your obligation on the old one.

Purchasing a home is not always the best answer. Sometimes renting a home, at least for a period of time, is far less expensive then buying a house. Trust me, you'll be glad in the long run if you take my advice on this.

In fact, this could turn out to be a blessing in disquise. Rents are beginning to increase in some parts of the country. If your unable to cash flow today on the old home, by renting in your new location, you're not taking such a hit. You still have the tax benefits of deducitble interest & real estate taxes on the old home. In time, you might find you can cash flow on the old home and actually make money. Think long term investment. Glass is half full, not half empty.