Jingle Mail on Lemon House - Repercussions in Texas?

[christichris]

What negative consequences can come from choosing to walk away from a mortgage on a house that is falling apart and cannot be fixed? (Sold during the mortgage frenzy of 2005 - my first house)

Here are my questions:

1. Will this ruin BOTH my credit and my wife’s for a while, or just mine? (I owned the place when we married.)
2. Can the current mortgage holder come after our new property?

Details:

I was sold a Lemon in June 2005 of which the owner failed to disclose that the property had a severe lack of drainage. Not only does it flood when it rains, but the foundation moves and the frame shifts due to the effect of the excess moisture on the expansive clay soil.

I put up with the mess for several years, but got married recently and would not have my wife live in that mess, so we purchased a real house and moved out.

Meanwhile, it would take over $10,000.00 to fix the deterioration that has occurred as a result of the flooding over the past 3 years in an attempt to sell the place.

I could try to sell it as is but in this market I would have to come up with at least $10K to make up for it's decrease in value due to the drainage problem - probably a lot more.

My Dad insists that the bank that made the original mortgage did not give the place a thorough appraisal and that no bank would have loaned money on it were it not for the lending frenzy that was going on at the time. He says because of that, it would not be "the end of the world" if my wife and I just mailed the keys back to the current lender and wrote letters to them and credit agencies explaining that we had to get out because the place was falling down.

We have to do something now, because we can no longer afford both mortgages.

One other option would be to go ahead and spend the $10K fixing the place, and then make it a rental - hoping the market would get better and we could sell the property 10 - 15 years down the road.

It is in an upcoming neighborhood in NE Dallas where a new rail station will open in 2010. There's a lot of urban development planned there which should increase the value of the land even if just for a tear-down to put a Mc Mansion.

 

[FlyingRon]

Whoever's name is on the mortgage is going to have their credit absolutely trashed for stunts like jingle mail. They by the way still foreclose and come after you for the deficiency. If her name is not on the property, while her credit won't directly be affected, she may find it hard to get loans married to someone who is such a bad risk.

Your letters will mean nothing to the banks or the credit agencies.

Appraisals are to protect the banks interest. They also don't provide much information as to whether there are structural or systems defects. For that you need a professional inspection.

I'd do what you can to keep the property. It will save your credit, in the long term may be a good deal if what you say is true, and living up to your commitments is just the right thing to do.

 

[christichris]

Whoever's name is on the mortgage is going to have their credit absolutely trashed for stunts like jingle mail. They by the way still foreclose and come after you for the deficiency. If her name is not on the property, while her credit won't directly be affected, she may find it hard to get loans married to someone who is such a bad risk.

Your letters will mean nothing to the banks or the credit agencies.

Appraisals are to protect the banks interest. They also don't provide much information as to whether there are structural or systems defects. For that you need a professional inspection.

I'd do what you can to keep the property. It will save your credit, in the long term may be a good deal if what you say is true, and living up to your commitments is just the right thing to do.

Thanks FlyingRon,

My plan has been to make it a rental all along, but I have been getting a lot of unsolicited advice from family members who fear any sort of risk taking such as owning and maintaining a rental property. I put this post here hoping for such comments that supported the decision I had already made - just so I can say I checked.

 

[nextwife]

Condition has no bearing on mortgage liability. I, for example, personally own my home that I bought and then promptly put about $20,000 into. Why would the fact it needed a new roof, basement drain tile, electrical upgrades, and other work take away my liability to my lender?

It's NOT the lender's responsibility to insure CONDITION. I see homes bought every day in which buyers buy in various deferred conditions, even as tear downs.. Did you obtain a Home Inspection from an ASHI certified inspector, if future repairs were an issue??

 

[FarmerJ]

If your going to rent the home out plan on it for long term and make sure you learn your states landlord tenant laws as well as following them & creating paper trails for every communiction with tenants. Consider using a tenant screening service as well , one that does court records search so you can learn of past problems. Many people become LLs with out being well informed and then the lessons become expensive. ALL though not as expensive as walking away and letting a unit go into forclosure. BTW poor soil conditons are very common , one corner of my home shifts about this time of year every winter ,the door I use the most is hard to shut until some time in march. Talk to your city /county to learn what you are able to legally do that meets code to encourage drainage away from the home.

 

[Texas Pooh]

OP, you can't walk from the house.

In Texas, only your homestead is protected from creditor claims. Thus, they bank will foreclose on the second home, and sell it as a loss in this market. They will then sue you and your wife (community property state, so its her debt now, too) and get a judgment for the deficiency between mortgage and what they get at foreclosure. That judgment will then be a lien on the new home; while they can't force a sale of the new home, the lien will get paid if you ever sell it. The judgment will also trash your credit and your wife's credit, and may motivate the bank to seize bank accounts and do other nasty stuff.

Rent the place out. The prior advice on how to be a LL is excellent; also, use the standard rental agreements promulgated by the realtor's association.

Good luck!

 

[JETX]

In Texas, only your homestead is protected from creditor claims. Thus, they bank will foreclose on the second home, and sell it as a loss in this market.

If by 'second home' you mean the 'new' one.... that is a stinking pile of Pelosi!!!
A Texas property owner can claim only ONE homestead (protected) property. All the OP has to do is claim the current (new) property as their homestead and it is protected.

They will then sue you and your wife (community property state, so its her debt now, too) and get a judgment for the deficiency between mortgage and what they get at foreclosure.

More Pelosi!!
I guess you missed the part where the OP said the original (default) home was purchased PRE-marriage. It is EXEMPT from community 'debt' (property has nothing to do with this!!).