“A Pox on Both Your Houses.”

We bought our first house in 2004, somewhere in the middle of that notorious housing bubble.  It was by no means at the height of the bubble, thank goodness, but it doesn’t matter much, we’re still upside down on our house.  The facts are: we owe more than it’s worth.  This was no problem for us while our family was small- like it was when we bought the house as a “starter home”.  We loved it.  It was small but functional, and it was ours (well, the bank’s, but let’s not be nit-picky).  But when we went from having two kids to having four, our 960 sq. ft. house went from feeling small to feeling cramped.  We really needed to move.  So we did.

We started renting a bigger house and renting out our house to someone REALLY nice who, as a favor to us, paid us what our actual monthly mortgage payment was.  That nice big house we were renting was TOO big and had so many problems that we ended up moving back into our little house and looking at selling it so we could buy something else.  Our asking price on it was what we owed on it, not planning to make money on it, just hoping we could get rid of it.  While it was on the market only one couple went inside to look at it.  It simply wasn’t worth the price we were asking for it.  Since we couldn’t sell it, we decided to add on to it.  We spent almost $10,000 drawing up plans, getting them approved by the county and moving our leach field (we have a septic system and part of that system was in the way of the add-on, so we had to have an excavator move it).  In the end we didn’t get approved for a loan to add on to the house.  I was crushed.

After much despairing on my part, we started looking into buying a second home.  Amazingly we found a perfect house, just the right size with some room to grow, and that we could actually afford to buy.  

We made sure that we would be able to pay both monthly mortgage payments (barely) in case we weren’t able to get a renter for the little house.  Luckily my mom moved into the little house and we were able to get a little bit of rent from her.  it’s $700 less than our mortgage payment, but it allows us to have money for repairs on the houses.

The problem: Hubby gets a pay cut next year of up to $280.  And the year after that his cuts will end up equaling almost $500 compared to this year.  If that’s so, we won’t have the extra money from my mom’s rent to use for repairs.  And boy do we need repairs on both houses (I think we already have that “pox” on both of our houses).  The new house’s roof leaks, the car port leaks and is rotted, our driveway doesn’t drain, the little house will need a new roof soon, the vinyl floor is ripping, it needs new carpet, and the deck is falling apart. These are all things we could totally deal with: if we weren’t getting those blasted pay cuts.  And to top it all off, my mom is moving out.  This could be good OR bad.  Either we will end up with a really great renter who pays more than my mom, a really bad renter who pays more than my mom, or, horror of horrors, no renter at all.  Life would be so much easier if we could just get rid of that little house.

But is it ethical?

Plenty of people are losing their houses these days.  Some people just can’t afford their houses and despite their best efforts, lose their home they’ve worked so hard to keep.  Still others just let their house go by refusing to make any further payments, just counting it as a loss of an investment.

This New York Times article talks about the new phenomenon that lately more homes worth more than one million dollars are being foreclosed on than homes worth less than one million.  It says that “The rich are different: they are more ruthless.” “They may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest.”  True.  I know I’m afraid of the consequences of foreclosure/short selling.  I’m not sure what it would do to our credit, what the tax repercussions would be, not to mention if it’s ethical to just “let it go” if we are still able to make the payments.  But it sure is tempting.

Obviously we should talk to a lawyer and/or accountant if we are seriously considering letting our house go.  But ethically, what do you think?  Should we keep making payments until we absolutely would not be able to survive without doing so?  Or should we just stop making the payments so that we can have the money for our other needs/wants, including repairs on the house we actually want?  We don’t need good credit for anything for the next several years.  We have the house we want, good cars, and we would have enough money for any repairs they might need.  But morally, is it right to default on a loan when we can still make payments on it? We made a commitment to our lender to pay back the loan and shouldn’t we try to keep our promises whenever possible?  We don’t want to be liars or cheaters.  But things are going to get really rough for us.  That should we do?

0 thoughts on ““A Pox on Both Your Houses.”

  1. As someone else who bought their house in 2004, and wishes she could move, I’m totally sympathetic to the whole upside down thing! I would like to add that legally you are totally in the clear. When I mentioned the same delima, my brother the lawyer, called me to make sure I knew that the laws were written the way they were just so people like me could walk away from their loans.

    On the other hand, just because it’s legal, doesn’t make it right! This has to be a matter of prayer.

    (Oh, and we’re not experiencing a pay cut, per se, but we are paying more for benefits. And when you drive 2000 miles in a month, gas going from 3.50 to 4.20 HURTS! So, it’s an effective pay cut. I feel your pain there too. )

  2. As someone else who bought their house in 2004, and wishes she could move, I’m totally sympathetic to the whole upside down thing! I would like to add that legally you are totally in the clear. When I mentioned the same delima, my brother the lawyer, called me to make sure I knew that the laws were written the way they were just so people like me could walk away from their loans.

    On the other hand, just because it’s legal, doesn’t make it right! This has to be a matter of prayer.

    (Oh, and we’re not experiencing a pay cut, per se, but we are paying more for benefits. And when you drive 2000 miles in a month, gas going from 3.50 to 4.20 HURTS! So, it’s an effective pay cut. I feel your pain there too. )

  3. I think if you’ve A) pray about it you’ll know what to do B) you’ve done everything you can and thats the only option; it is going to hurt and you’ll feel a lot of guilt, but you’ve tried your best. We have tried numerous times to re-fi our loan, but because we are self-employeed it ends up falling apart right at the end. So I know the pain you’re in. We are trying to prevent from losing our house and because of greedy etc. the people who are really trying are being hurt the most. I wish you luck as you go through this difficult decision.
    P.S. Where is your mom going to?

  4. I think if you’ve A) pray about it you’ll know what to do B) you’ve done everything you can and thats the only option; it is going to hurt and you’ll feel a lot of guilt, but you’ve tried your best. We have tried numerous times to re-fi our loan, but because we are self-employeed it ends up falling apart right at the end. So I know the pain you’re in. We are trying to prevent from losing our house and because of greedy etc. the people who are really trying are being hurt the most. I wish you luck as you go through this difficult decision.
    P.S. Where is your mom going to?

  5. I know absolutely nothing about this housing stuff but, what if you sold the house for whatever someone will buy it for and then make payments on paying off the rest of the amount?

    1. In a short answer no–your home loan is based on the collateral of the house. If you don’t have the house anymore, they don’t want to be doing anymore business with you. In a long answer, you *could* attempt to sell the house for whatever it will sell for, then when you know the difference you write out a check to the mortgage company for the difference (known as bringing money to the table). Now the bank has all their money and they don’t care, you didn’t foreclose. I’ve had cousins who’ve done this recently. However, it’s unlikely that the Hills have that sort of money in their checking account, or they would have done this already. So, in order to bring money to the table they would have to take out a personal loan, one without collateral–essentially putting it on a credit card. This is bound to have an interest rate significantly higher than the mortgage, and be essentially the same as a house payment, only with out the house, and wouldn’t solve anything.

  6. I know absolutely nothing about this housing stuff but, what if you sold the house for whatever someone will buy it for and then make payments on paying off the rest of the amount?

    1. In a short answer no–your home loan is based on the collateral of the house. If you don’t have the house anymore, they don’t want to be doing anymore business with you. In a long answer, you *could* attempt to sell the house for whatever it will sell for, then when you know the difference you write out a check to the mortgage company for the difference (known as bringing money to the table). Now the bank has all their money and they don’t care, you didn’t foreclose. I’ve had cousins who’ve done this recently. However, it’s unlikely that the Hills have that sort of money in their checking account, or they would have done this already. So, in order to bring money to the table they would have to take out a personal loan, one without collateral–essentially putting it on a credit card. This is bound to have an interest rate significantly higher than the mortgage, and be essentially the same as a house payment, only with out the house, and wouldn’t solve anything.

  7. When you’ve tried everything you can do, when you’ve played fair, at some point you have to protect yourself and your kids. It’s a personal and HARD decision, but at some point you’re going to have to let it go if you can’t sell it. Short sale preferable, but “jingle-mail” (mailing in the keys) if necessary. It’s not a decision that would make it easy for me to sleep, but…

    And the article is right. Banks don’t play fair. Look at Morgan Stanley defaulting on a $3.3 *B*illion, yes folks that’s BILLION, loan in Tokyo. http://sherriequestioningall.blogspot.com/2011/04/morgan-stanley-defaulted-on-loan-and.html

    Pray on it, follow your instincts. $$ could be used for long term food & other storage in the face of coming inflation.

  8. When you’ve tried everything you can do, when you’ve played fair, at some point you have to protect yourself and your kids. It’s a personal and HARD decision, but at some point you’re going to have to let it go if you can’t sell it. Short sale preferable, but “jingle-mail” (mailing in the keys) if necessary. It’s not a decision that would make it easy for me to sleep, but…

    And the article is right. Banks don’t play fair. Look at Morgan Stanley defaulting on a $3.3 *B*illion, yes folks that’s BILLION, loan in Tokyo. http://sherriequestioningall.blogspot.com/2011/04/morgan-stanley-defaulted-on-loan-and.html

    Pray on it, follow your instincts. $$ could be used for long term food & other storage in the face of coming inflation.

  9. That is a tough decision. My parents who live in NorCal are upside down in their house and they’ve had it for over 30 years. Mostly it’s because they’ve refinanced a few times and put a nice roof on it recently. However now my Dad can no longer work, and they are close to retirement age. My Dad expressed the hope that someone would buy their home, but has considered walking away. The last of 7 kids graduates next year, and they can’t physically take care of the house or afford to hire someone to clean it. Anyway… Good luck, I hope you just find someone who wants to buy the house.

  10. That is a tough decision. My parents who live in NorCal are upside down in their house and they’ve had it for over 30 years. Mostly it’s because they’ve refinanced a few times and put a nice roof on it recently. However now my Dad can no longer work, and they are close to retirement age. My Dad expressed the hope that someone would buy their home, but has considered walking away. The last of 7 kids graduates next year, and they can’t physically take care of the house or afford to hire someone to clean it. Anyway… Good luck, I hope you just find someone who wants to buy the house.

  11. Well YOU guys are no help. =P just kidding. I really appreciate all your comments. We will definitely pray about it (again) and think long and hard about it (some more) and do the best we can.

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