In light of the economic meltdown that is fast approaching the US, I need some housing advice. We are 2 months late on our mortgage because our payment adjusted. We have an opportunity to pay a legal company (my friend works there) $2500 and they negotiate through the back door with my mortgage company. The deal they are looking to get us is 2% for the first 5 years, then it adjusts 1% each year until it maxes out at 4.9% and it stays fixed from then on. They do not reduce the principle and they add in all the missed payments and fees on the back end. The principle balance on our home is over $500K and it is worth around $300K. We have been planning to lose our home for the last year and really OK with it. The plan was to stay in our home as long as we could and use our mortgage payment every month to buy PM's. We already have 1600 oz's of silver stored in a safe deposit box at our bank. My last child is moving out in 2 years, so the hope was to stay in our house for those 2 years, invest the money then rent a house when we finally foreclose and my child moves out. I have done a lot of homework on this and I know staying in our home 2 to 3 years a good possibility. We are OK with our credit getting trashed and we are not interested in buying a home anytime in the near future. I don't want to fork over $2500 for a "chance" they could help us, when we could be investing it. My friend's argument was that, we're gonna have to rent anyway, so we might as well be using that payment on our own home. If the US goes into hyperinflation, I'm thinking that housing will keep going down because interest rates will be going up and that it could be 10 plus years until housing starts going back up. I'm not sure how the real estate market is going to end up. What do you think? Please send any advice or recommendations. Thanks
LOOKING FOR REAL ESTATE/FORECLOSURE ADVICE...PLEASE.
Before you do anything, it is highly advisable to speak with an attorney at a real firm. I have no idea what a "legal company" is. Many organizations in this field simply negotiate with the creditor. If there is no lawyer involved you have no stick. I would not pay an organization money up front simply to talk with the creditor.
Second, you need to determine if your state is a recourse state. This is also why an attorney is important, as the attorney will know. If your state is a recourse state, the creditor can come after you for the full amount of the debt, ie garnish your wages, execute on property, etc. If the state is non-recourse all the creditor gets is the house should you choose to walk away.
I have no opinion on the proposal as there is no guarantee you will get that. The decision is whether you want to stay in the house and continue paying on the hope that the value will rise in the future. If you think that the value will not rise, it makes no financial sense to continue in the home (unless your state is a recourse state).
While I would deem it bad form to purposefully divert your mortgage payment to voluntary investments, my opinion is inconsequential. Those are the rules and you are (apparently) using them to your advantage. It is true that foreclosure can be a lengthy process, though the exact timeline is state specific. Homeowners are often given a substantial redemption period, where they are allowed additional time to stay in the home after foreclosure and a final opportunity to satisfy the debt.
Bottom line is that you need to talk to an attorney.
If that is the case you should be in good hands (assuming your friend and firm are competent, which I have no reason to suspect otherwise). There remains the possibility of seeing no benefit to your $2500 as there is no guarantee. I did not mean to offend and apologize if the comment was too abrasive. There is no ethical component to your decision; it is only a financial (or lifestyle) decision. All parties are adults and must abide by the rules, the foreclosure process one such set of rules.
If a strategic default is an option, that is what I would do were I in your position. For long term viability, the debt needs to be renegotiated to a sustainable level. Without additional income to make the payments or the prospect of the home rising in value, extending the period you are in the home is simply making the situation worse. I take it you had an ARM? Although you may want to eek out two more years until you become an empty nester.
If you bought at the height of the market you I'm gonna guess you have about 24 years of payments left. At $3500/month you're looking at a million dollars in payments to keep the house.
I live in a small rural town. The population here has declined from about 19,000 to 12,000. I can't even count the number of times I've heard the same story: one spouse, then the other lost their jobs as companies here in town shut down during the past three years due to the "recession". Unemployment benefits didn't cover their expenses. They wiped out their retirement savings, borrowed money from family, or filed for BK in an effort to save their homes. In the end they didn't just lose their homes, they lost everything else along the way. Now there are houses here that have not just been on the market for months, but for over a year. There are lots of vacant homes that are still in some phase of foreclosure, too. None of the families I knew that went through this process had any of their lenders work with them to adjust their mortgages. Older houses that were selling for $159K a few years ago are listed for between $75K - $35K now. The newer homes built during the "boom" originally sold from the low 200's to the mid-300's can be bought for between 85-120K. Even the speculators have quit buying here. And, the prices are still falling as the inventory just sits. I think this town is just a microcosm of what is really happening in most of the rest of the country.... it's just harder to see when you're in a larger city. I don't think we're anywhere near the end of the housing collapse. I guess I took the long way around just to say I think you're tossing money to people that don't have you're best interests at heart (they won't give you a money-back guarantee if they fail, will they?), and that even if you did keep your home I think you're taking a really big gamble on that house EVER getting to the point where the P&I equals the future value of the house. But, I'm the pessimist in the family! :) I sincerely wish you the best, what ever you decide to do.
Laurich: I don't think you need any advice. You got your act together just fine. Just keep doing what your are doing and milk the free rental in the house you will never own and use what you save by purchasing precious metals. Stay the course!!! On the other side of the economic breakdown sure to follow, you are going to prosper.