Hi All! I'm hoping you all can offer advice or something. My wife and I are in a bit of a dilemma. Three and a half years ago, my wife and I bought a house. At that point I was working in Lancaster, and she was working in Newport News. We had an apartment in Newport News. Once I got my teaching gig in Lancaster, I was living with my mom so as not to commute every day, and then going to Newport News on the weekends. We ended up buying the house in Gloucester, which was roughly midway between the two area. We bought the house for $163,000. Last May we decided to put it up for sale. We had just had our daughter in January, and both of us were working in Lancaster. We didn't like commuting an hour both ways with the baby. Our realtor, the same one who helped us buy the house, suggested we put it up at $199,900. We thought this made sense, considering we had taken out a home equity loan and seriously spruced the place up. (New Heat Pump, water pump, water softener, wood floors, etc.) We ended up decreasing the price to about $194,000. Then our realtor bailed on us. We were assigned another realtor, who was the head of her office. Shortly after a faulty water tube leading to the upstairs toilet burst, and the entire house was flooded. Meanwhile, we had moved to Lancaster. I had inherited a small two-bedroom house after my grandmother died, and so we're living there. This was a good thing, considering the house was basically ruined. After 2 months of waiting for the insurance company to get off its butt, we finally had a contractor start on the house. It was finished in late March, and the house looks gorgeous. Of course, the housing market took a swan dive in the mean time. Our new realtor explained that houses are selling, but only those which are priced right. People had always come in go in that neighborhood, and houses were constantly selling. However, there were a few houses which did not sell. These were grossly overpriced, so it made what the realtor said believable. Based on the market prices and comps in the neighborhood, the realtor suggested we price our house at $169,900 to get it to sell. Granted my wife and I just want to be rid of that wretched place (We swear it must be built on an Indian burial ground or something...) that listing price is only $7,000 more than what we paid for it. Based on the balance of our mortgage and the equity loan we took out, we need to sell it at $182,000 to break even after considering the 6% realty commissions. In other words, after the decrease in price and probably having to pay the buyer's closing costs, we're going to be out $15,000+. We've basically just decided to suck it up and deal with the fact that we're always going to be in debt, though we could probably pay off the loss in about a year if we kept paying the same amount of our mortgage payment towards that debt. However, I was wondering if this loss was something that could be deducted on next year's taxes. I know that the big push for buyers now is that they can get an $8,000 tax credit for buying a house. Does anyone know if anything is being done for the sellers? Thanks, Matt
In a situation comparable to yours, we followed the advice of the excellent real estate attorney and writer Robert Bruss, and did a lease-option. We had people lining up to take advantage of this, collected fair rent for 3 years, with 50% being applied to purchase price (a major incentive for the renter to buy), then selling to the renter. If you do a Google search for "lease option" +Bruss you'll find lots of good information on this process. (We followed his exact wording to find prospects: "a classified ad headlined "$10,000 MOVES YOU IN." Of course, change that amount up or down for your situation. Then describe the house or condo benefits, the monthly rent, and key words "Rent to Own" or "Lease-Option.") Good luck with your process.
Assuming you could get a loan for 15K, you could cover this yourself- a short sale destroys your credit for at least 8 years...which may be a problem if you think your 2 bedroom is temporary and may need a mortgage again. Is your home equity loan secured by your home? In other words, do you have to pay it off when you sell your primary home? If not, keep that loan going and dump your primary. By the way, you don't always have to be in debt. You can live debt free- and without sounding like an info-mercial, check out The Dave Ramsey Show on Fox Business News, he'll get you on the right track. You can watch him on www.hulu.com search "the dave ramsey" for his show.
Thanks everyone! We're in the process of listing the house. We're just hoping to get it sold. The price is a lot lower than those other houses in the neighborhood, so we hope it will sell quick. We've accepted the fact that we'll take a hit, but we decided to just suck it up. We'll take out another loan to cover our loss, and just continue to pay it off. It'll take about a year, but it'll be worth it. If we stay in the place we're in for another 2 years, we should be able to make good progress. My wife is planning on starting a DL program with Drexel in Higher Ed Administration. The program takes 2 years, so when she's finished we'll probably start searching for a new place. Right now we're living in the country where all of my family lives, but with our skills and education, we're going to have to move to a more urban area to really make headway. Once we sell the "Money pit" it'll be a lot easier! -Matt
I asked a real estate lawyer (my neighbor) about this (since there are a lot of short sales in my area) - his response "Not necessarily - yes if it is a foreclosure - otherwise it depends on the mortgage holder. However the difference between the selling price and the mortgage amount is considered taxable income. Also laws may vary state to state."
