So the house I currently live in is worth about $250K less than I paid for it. I’m not underwater because I was way up on the one I sold, but still it’s a lot of money.
So here’s the “Scam”
My wife and I get a divorce, she gets all the liquid assest, cars, contents, everything but the house. I take the house. I then stop making payments. In about 6 months they forclose, and my wife buys the house at the huge discount. My credit is screwed, but we get a much lower monthly payment. And all price increase is equity gained.
I bet this was your wife’s idea. Honey, lets get a divorve, I’ll take all the savings, the cars and anything of value, you get the debt and the worthless house. I’ll remarry you and buy the house, honest injun.
Maybe I’m just having an off day, but I’m missing the benefit to you.
You’ll lose your equity and your wife won’t necessarily get any better deal than she/you would by selling the house at market price, even if that’s less than what you bought it for, retaining the little equity that you have, and buying a different house in the same market.
Go for it. In 2-5 years time this period is going to be looked at as one of the great money grabs in our nation’s history. As it is basically everyman for himself, with the added safety net of the US gov’t to bail you out, there is little stopping anyone from making such plays.
Of course if you can’t get refinanced/remarried/etc you are screwed.
If I sold my house today I would have lost about $250k in equity.
1.) I’m guessing that if sold in forclosure, I could get it for about $100k less than if I waited around to sell. The bank will not want to carry it.
2.) I could live about 6 months rent-free about $30K
3.) My mortgage payment based on the foreclosure sale and lower interest rates would drop significantly.
4.) About $3k a year in property taxes.
5.) Based on Obama’s tax plan of increasing taxes on couples making more than $250k, but individuals making $200k, this would save us another $30k a year.
All told, I would start up about $130k, live in the same house, have a significantly lower mortgage payment, and pay less taxes…
I’m assuming this is just an academic exercise, so some thoughts, just to be contrary…
I think you’re wrong to expect an additional drop of $100k just because it’s in foreclosure…but then, I don’t know your real estate market. Even if that’s the case though, you could do the same by selling your house at market value and investing the equity in someone else’s foreclosure…maybe even upgrade a little without losing any equity and retaining your credit.
You wouldn’t live “rent free” for 6 months. That money would come out of your lost equity at foreclosure.
Since your credit would be ruined, your wife would have to qualify for the new mortgage on her own. It’s possible that she wouldn’t be able to qualify for the lowest available rate as a result.
Since your equity was lost in the foreclosure, she/you would likely have to come up with a significant downpayment independent of that lost equity.
It’s also possible that she wouldn’t prevail in a foreclosure auction. It would really suck if someone else bought the house out from under her/you!
Regardless of the circumstances here, you should be able to petition your local property appraiser to adjust the assessed value of the home if it’s dropped that much.
Although one of the few things that I believe when he says it is that Obama intends to tax the hell out of those makeing over $250k (it’ll be a lot less than that when all is said and done) I don’t know what that has to do with your house…actually, a lower rate on your mortgage will reduce your mortgage interest deduction and would therefore increase your income tax liability.
I have little equity left in the house, so If I sold it at market value, I would get next to nothing. Based on the number of days on market, this would take months. There are plenty of bank-owned properties. I’ve looked at the sales, they’ve been selling for about $100K less than others.
With no equity in the house, I would be living Rent free.
The wife would qualify, and we would have any money to pay for a down-payment.
Not getting the foreclosure auction would be the wildcard.
The local property appraisers are lowering property taxes, but from what I’ve seen they don’t agree with reality. Shocking the government doesn’t want to cut it’s revenue.
Mr. Obama wants to take away the mortgate deduction. But being divorced, we would have a $400k tax increase level -vs- the proposed $250k.
Assuming the wife is on the loan, her credit will get trashed in the foreclosure. On the plus side, the hit is somewhere between 200-300 points on FICO.
Why do you believe the bank will put the house on the block after foreclosure? Or are you planning on bidding at the foreclosure sale? If you are buying at the sale, that is a cash deal so you will have to have arranged financing in advance of the sale.
Depending on your location, it may be a recourse note. Same if there is a second, the bank can chase a deficiency.
I would not risk doing something like that if you don’t owe more than the house is worth and you don’t “have to”. Too many opportunites to screw yourself. The banks, the FDIC, and the investors are all hiring folks to investigate all types of fraud. The scams just keep popping up. I have seen lending guidelines change so much in the last 7 months. If it were me, I would understand that “equity” is a fluid idea. Sometimes it is there, and sometimes it is not. If you plan on staying in your home, why would you care? The market always comes back up. It may never again get to the stupid level it was at here in Cali, but, over time the market always increases in value.
Now, if you have a legitimate hardship, your pay has been cut, spouse lost a job, etc, you can ask the lender to modify the terms of your loan. I have seen rates reduced to 2% for the first two years, and increas by 1% for the next three, until in reaches 5%. I have seen some reduction of principal, although not very often. I have seen ARM’s turn into fixed and go from 30 to 40 years. So, if you have a genuine hardship the lenders are trying to assist.
Also, depending on the program you bought your home on originally, it might be a good move to refi. I locked a rate at 4.75 the other day on a 30 year fixed.
No she wouldn’t be removed from the Trust Deed and it would still affect her credit. She would be off the Grant Deed but not the T.D. unless refinanced.
No she wouldn’t be removed from the Trust Deed and it would still affect her credit. She would be off the Grant Deed but not the T.D. unless refinanced.
Yup. And if there was a recourse second, the holder could chase you into bk to get the deficiency.
I’m going to assume you are both on the home loan. If so, your divorce will have no effect on her obligation to the bank. Even if the divorce decree awards you the house, the contract with the bank still makes her liable. If you “get” the house and default on the mortgage, they will go after you, her, or both. She will not be free and clear and would not be able to buy the house.
I suppose, after the divorce, the bank may let you refinance and take her name off the loan. Then your plan may work. However, I have never heard of a bank willing to do that.
