Short Sale or youwalkaway.com

[crucifixion]

What is the name of your state? CA

In 2005, I purchased a townhouse in Los Angeles for $426K. $0 down, 100% financing, interest-only. First was $340K, and second $86K, both with WFB. I purchased in 2005 because I just got a new high paying job in 2004, so I was ready to buy (or else I would've bought earlier). Plus, my fiancee at the time was scheduled to finish her school and start her career. For administrative reasons out of our control, she won't be finished until this June (nearly 2 years after we expected), so I've had to support us on one income since, in a house we expected to have two incomes to pay. Now we're married but in debt as I needed credit to get by these past two years.

So anyways, here is where I stand.
Still have a first at $340K
Refinanced the second with BofA to $111K (not a heloc, still a mortgage)
Credit card debt of $50K (but via cash advance at 3.9% so I barely get charged any interest)
I currently make $75K (could be $85K in October), wife starting in June will be $60K
We've had to move in with my parents and rent the townhouse for the last 6 months, but starting in June, moving back in.

I've met with an agent who specializes in short sales and will start the process in June when I move back, so we can have 'Open House' and see what we can get.
FYI there was a short sale in my complex in January for $336K, and a real sale in February of another in my complex for $390K. Both those places were 3bd and 2.5ba wherease mine is 2bd and 2.5ba (altho the square footage is exactly the same). My agent is saying we'll only get action on a short sale if its $300-$330K.

Now, my credit back when I bought the house in 2005 was 750, and I don't see why it should be anything less than 700 right now.

With all that said, here are my questions:

1. If I do a short sale, where do you think my credit would fall to, and how long for me to recover?
2. If I just do a foreclosure instead, where do you think my credit would fall to, and how long for me to recover?
3. Based on wife's income, we'd basically be breaking even if everything stays 'as is', however, if I get rid of the place, use her salary on our credit card debt, we'd be debt free in a year. This is why I'm leaning towards www.youwalkaway.com and just stop having to make payments, take a foreclosure hit, and in 1 year be 100% out of all debt. Then in a couple years buy again when I really can afford it.
4. My main concerns in either a short sale or youwalkaway.com is the second coming after me. This I'm not familiar with. My second was orgingally with WFB, and then when I refinanced, I took the second to BofA. The current second is not a Heloc, its listed as a mortgage at BofA, so I'm thinking its not a money loan? If not, then they can't come after me, since this would be my primary residence right? I'm not afraid of my First, but its my Second that scares me because if they can come after me then whether its a short sale or youwalkaway.com, I'll still owe 100% of the $111K, right?
5. If I do a shortsale, how many years before I could buy again?
6. If I do a foreclosure, how many years before I could buy again?
7. If after a shortsale or foreclosure, I look to get another job, would they be able to see that I had a shortsale or foreclosure when they do a background check?

Thanks for the help.

 

[HUD-1]

Fannie Mae is moving to a 5 year period after a foreclosure before you could buy again.

The second mortgage holder will have to agree to a short sale and will force a full payoff or a foreclosure if they are not in the negotiating mood. You cannot do a short sale without them. If you walk away, they may persue a deficiency judgment.

The foreclosure will be on your credit report for some time (7 years)

 

[Zigner]

And, as for youwalkaway.com...just remember the old saying about if it looks to good to be true...

 

[crucifixion]

So even in CA the second can come after me?

But I would think they would still be willing to deal with a payoff rather than spend the resources trying to get the full balance right?

I have $111K on the second. If I stopped making payments and just walked away / foreclosure / whatever, and then told them "OK, lets make a deal, here is $10K. You take this $10K and release me of the other $101K obligation". Won't they be OK with that? I can get a $10K loan from family/friends wherever, not concerned about that. But thinking the best thing for me is to get out from the $451K debt of the house now, and I can short sale or foreclosure and I dont have to worry about the first, and cut a $10K deal with the second, right?

I'm aware of the credit hit as the main negative, but this is the mess I got myself in.

 

[Zigner]

I have $111K on the second. If I stopped making payments and just walked away / foreclosure / whatever, and then told them "OK, lets make a deal, here is $10K. You take this $10K and release me of the other $101K obligation". Won't they be OK with that? I can get a $10K loan from family/friends wherever, not concerned about that.

You CAN'T be serious! What makes you think they'd just say "ok, we don't need that other $100k anyway..."

 

[crucifixion]

^^^ Well the thinking is, if I stop making payments, then after say 4-6 months of no payments at all, they would see I'm willing to walk away and take a foreclosure, and thus $10K is better than $0K.

Even with my real estate agent (I spoke to a few of them) and if I do a short sale, they said that the banks will accept the lower offer to get out from having to hold the house during foreclosure. Maybe not $10K, but I'm just using examples.

 

[Zigner]

Your income is increasing by 80% in a month and a half. You coudn't stick it out that long in order to fulfill your commitments?

 

[crucifixion]

Yes, but based on our income/expenses, we're only going to break even every month with the wife's new salary. This is the main reason we're $50K in credit card debt since I had to use credit to break even.

We just got married last year and in a year or two we want to start a family. So I don't want to be breaking even every month, and starting a family while $50K in credit card debt and owning a home that is $100K-$150K under water.

So I don't mind walking away from the home, or short sale if that can work, and then use the excess cash from the wifes salary to pay off the credit card debt, and 12-15 months from now be 100% debt free. Yes, my credit will be screwed, but we can rent for 2-5 years and then buy when the score is recovered, thats not a problem.

So based on this line of thinking, what answers to my original questions can you provide?

Thanks in advance.

 

[Zigner]

Why do you think you'll be able to rent so easily with a negative mark on your credit report?

 

[crucifixion]

A few reasons:

1. In today's market, landlords know that people with foreclosures can't really pack up and run because they have no where else to go to. I've been personally told by friends who are owners that they have no problem with a renter who was foreclosed on. These are people who made good enough money to qualify for a house, but various things prevented them from making the high payments (rates reset, etc).
2. By not having a first or second, and with the wifes income, we'll have about $4000/mo extra. The plan was to use that every month to pay off the credit card debt, but I can make a minimum payment for a month or two, so that I can pay $4000-$8000 upfront in rent. So again, I'm not too concerned about issues with renting.
3. Lastly, we can do what we are doing now while renting out the place, which is living with my parents for free. While I'd prefer not to take this route, if all else fails, I can do that.

So I'm thinking living somewhere wont be a problem.

If after a shortsale or foreclosure, I look to get another job, would they be able to see that I had a shortsale or foreclosure when they do a background check?

 

[Zigner]

I'm STILL confused about your actual financial situation.
If you are currently renting out your house, are you bringing in enough per month to pay your mortgage?
If not, will you be once your wife starts working?

The problem I have is that you seem to be doing this for convenience, not necessity. I could be misunderstanding your situation, I suppose.

 

[crucifixion]

Yes, we found a short term renter who was willing to pay enough rent that we break even on the monthly bills. He is moving out in June, basically around the same time wifes checks come in, so we'll continue to break even. However, its breaking even while making minimum payments on $50K cc debt and a mortgage that is $100k under water, which means no end in sight

I can see why you would think this is more of convience that neccissity. Right now this very moment, and for the next few months, yeah maybe its convience. But looking long term- If I can find a way to free up enough cash where a)we can pay off our debt within a year, b)start making 401k payments again (stopped last year), c)start saving and putting aside for future kids, among other reasons, I look at my situation and looking for a way out of the debt as a necessity, and not convience.

I guess I came on here to see what recourse the second could come after me, and I'm still kind of confused. I also was hoping to be able to find out what the best course of action for me in my situation was, if I didn't want to break even and if I were to choose one of either short sale or walking away. I'm still confused on how much worse it is to foreclose rather than short sale. I mean I can figure that a short sale is better than foreclosure, but don't really have an idea how much of a difference.

 

[HUD-1]

With a short sale, the lenders have agreed to less than full payoff as satisfaction of the debt. Credit is still affected, but no deficiency judgment. In a Foreclosure, credit affected AND they can come after you for amount not paid in the form of a deficiency judgment.

I'm not sure how excited they will be offering a short sale to an investor. (now that you do not occupy the property)

 

[crucifixion]

Thanks Hud-1, that helps.

Also, I'm moving back in on June 1, so I will be living in it.