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My predicament

June 11th, 2012 at 02:02 pm

I've copied below something I just posted in the forums for those of you who don't frequent them.

I've posted about my situation from time to time, but I'll start with a brief refresher.

I took a job closer to where I grew up 4 1/2 years ago. We put our house on the market as we were moving. The value of the house has done nothing but drop since we moved. About a year after we moved we had an opportunity to move into my family's original farmstead home. We borrowed 70K from family members (30K from my aunt/uncle and 40K from DW's parents) to renovate the house. The original agreement was to pay back family after we sold our other home. Just during the last 4 months we have begun to pay them back slowly. $90/mo. to aunt/uncle and $120/mo. to in-laws. These are interest-free loans.

During this time we have had three different families rent our original house. At no time has rent matched our $1,026 monthly mortgage payment. The current renters expressed interest in buying the house when they moved in last July. We were going to rent the house for $800/mo., but we reached an agreement where we collected $900/mo., and the extra $100/mo. was their cost for us to take the house off the market for a year, to give them time to save/line up financing.

To no one's surprise, the renters are not in a position to buy the house. So, we reduced rent back to $800, and put the house on the market. We listed it for $69.9K, or 1/2 of what we bought it for in 2005. As far as I can tell, this price is reasonably close to market value. It's hard to tell because the market is so slow, There aren't really any comps. We owe $103K on the house. This will leave us in a short sale situation.

Here are my 4 options as I see them:

1. Continue renting the house at a loss until the market turns around, and we can sell the house for what we owe on it (that was our strategy up until now).

2. Continue paying the mortgage. Go the short sale route.

3. Quit paying the mortgage. See what happens first - foreclosure or the house sells as a short sale.

4. Get a commercial loan against the house we're living in. Set aside $30 - $35K to make up the difference between what we owe and what the house will sell for.

I'm honestly leaning very heavily toward option 3. Be done with it, and let the chips fall where they may. As I understand it, our credit will be trashed whether we go option 2 or 3.

My aunt has expressed her interest in helping us out. So, option 4 is possible. We would owe her a lot of money for a long time. I hate the idea of that, and hate the idea of not meeting our mortgage obligations.

We are working on getting a commercial mortgage on the house we're living in. The question will really be - should that money go to family, or be put on hold to shore up the difference when house 1 sells.

I've posted very recently about my other debts, but in case you are interested:

We owe about $7.4K in credit cards
We owe about $5.2K in a vehicle loan
Monthly net income is about $5.4K
Small $1.1K emergency fund

4 Responses to “My predicament”

  1. ceejay74 Says:

    No thoughts on that, but hard to believe your renters wouldn't want to buy for $80K when they pay $800 per month! They could probably pay about the same monthly on a 15-year mortgage and then own the place outright. Or is it more of a problem with down payment / qualifying for loan?

  2. creditcardfree Says:

    I would much rather keep my credit intact and be indebted to a family member...although I know Dave Ramsey might disagree. Renting at a loss would be my next choice...since it will not ruin your credit.

  3. wowitsawonderfullife Says:

    If I had any options (as you do) to meet my financial commitments then I would do it. So #3 wouldn't be for me.

  4. Jerry Says:

    It sounds like you had a bad string of renters. Is there any possibility of getting a lead on some more reliable people to rent the place out so you can continue with the mortgage until things improve? I'd rather have some insurance of not trashing my credit rating in this situation...
    Jerry

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