Mortgage/Real Estate question

[Gopher]

OK, so I thought I would post this since my wife and I are in a bit of a bind. Here's the scoop.... The good news is that I received a promotion from my employer that included a very reasonable relocation package. Basically, all of our expenses are paid, as far as moving costs, realtors (for both selling our existing home and buying one when we move), lump sum for moving "inconveniences", rent subsidy (if we choose to rent when we move), as well as a "buyout" on our home. Everything sounds great, especially since the promotion included a very decent compensation increase as well.

 

The decision, at the time, to take the offer hinged entirely on whether or not the package would include the home buyout. In other words, I basically told them we were not interested unless it was included. We did not want to end up with a home on our hands that we were unable to sell, based on the market's condition at the time. So, after a little bit of negotiating, we find out that my company is willing to include the purchase offer in the deal. I accepted the promotion and began working in my new facility the following week.

 

To back up a step, we live in the NE corner of the Bay area, about 40 miles West of Sacramento, and 50 miles East of San Francisco. Before the promotion, I was working 20 minutes from home, in Benicia CA (also in the NE corner of the Bay). As a result of the promotion, I knew that I would be temporarily forced to commute to South San Francisco (right next to the airport), which is a 62-mile drive each way. Unfortunately, the mileage tells very little of what this commute actually entails, and I spend 2-4 hours a day in the car. That's with me "avoiding" traffic as much as I can... thankfully, my schedule is somewhat flexible, so I'm not forced to an 8-5 workday, or the 2-4 hours would be more like 3-5. There have actually been a couple of Fridays where it took me over 3 hours to get home from work. Doesn't matter if I leave at 2 PM or 7 PM, there are certain times of the day/week when the traffic is just ridiculous.

 

Back to the main point... So the purchase offer is based on two estimates, which we just had done in the past week or so. According to the guidelines of the process, a third appraisal was required because the first two were more than 5% apart. So, the relocation company that represents my employer informs me yesterday that they have the results of the 3 appraisals. Basically, the first was the highest of the three, the second was about $15,000 lower than the first, and the 3rd was slightly lower yet than the 2nd. Bottom line - They average the last two appraisals to give us the offer.

 

Here's the crappy part - The first appraisal (the one they didn't use) was $100,000 less than what we owe on the house. The other two were even lower, so in essense, we are being offered a "buyout" of approximately $120,000 less than what we owe, and we're expected to come up with the difference. Don't get me wrong... we somewhat expected this (although we did not think the "gap" would be this significant). We were thinking that we would be offered somewhere in the neighborhood of $50,000-$75,000 less than what we owe on our house. So, we basically have a decision to make:

 

1) Try to negotiate a short sale with our lender. I don't even know that much about short sales, but I am told that it is somewhat unlikely that our lender is going to be willing to eat 100K in loss. So, a short sale may not even be an option. I understand that, if we WERE able to negotiate a short sale, it would adversely affect our credit. We both have excellent credit, and if it comes down to lowering our credit by 50-100 points versus going 100 grand into debt, I'll gladly take option #1.

 

2) Hold on to our home and try to rent it out. We would probably generate 75-80% of what our monthly payment is in rent income if we chose to do so. However, the neighborhood we live in is getting somewhat worse, and my fear is that the market (at least in that area) will never recover, and five years from now we'll be holding on to a house that is still worth 100K less than what we owe. Not to mention, there are some other factors with renting that make it a less attractive option... finding reliable tenants, etc.

 

3) Just continue to live in our house and suck it up as far as the commute. There are a couple of problems with this. The financial "inconvenience" is not as significant as the time-factor. I figure I spend over $600 a month in gas/tolls ($8 a day crossing two bridges), not to mention the money I've spent on hotel stays just to avoid the traffic on certain days. That's nothing compared to the time wasted in the car. It's taken it's toll (no pun intended) on both my wife and I, since we see very little of each other during the week. But, if the first two options above are not realistic, we may be forced to just stay in the house, at least for a while.

 

Sorry this is such a long post. Anybody have any thoughts, suggestions, advice, or think of any options that I have not mentioned? If you're thinking we should just light a match and be done with it, we've thought of that one as well.

[darin3]

Hey man.... let me rattle the cages of a few people I know up there that are in the biz to see what they think. Oh, and hope to grab a at The Bottom before you leave.

Edited April 2, 2008 by darin3

[darin3]

I emailed my buddy (who actually introduced me to The Huddle many moons ago) who is a mortgage broker. He stated:

 

I would attempt the short sale. The worst the bank can say is ‘no’.

 

The short sale should not negatively affect his credit. If it does, the impact should be short term (12 to 18 months).

 

If you have any follow-up questions, feel free to PM me or post here and I'll pass it along. Still waiting on a reply from the other guy I emailed (also in the RE industry and lives in Vallejo).

[CaP'N GRuNGe]

I thought I saw something the other day that said a short sale had about the same effect on your credit score as a foreclosure does. I'd check more into the negative effects of that before entering into one. Of course if you're stuck, you're stuck, but good knowing what you are getting into.

[Atlanta Cracker]

I thought I saw something the other day that said a short sale had about the same effect on your credit score as a foreclosure does. I'd check more into the negative effects of that before entering into one. Of course if you're stuck, you're stuck, but good knowing what you are getting into.

 

And even if the negative effect isn't quite that bad any negative impact could hurt your chances of buying a new home or at the very least subject you to a higher interest rate.

 

 

Another option would be to list it yourself and try to sell it that way for a little more than the buyout offer. The appraisals are based on what's sold recently and if someone had a fire sale or foreclosure what will negatively affect the appraisal of yours. You may be able to get more out of it by listing it yourself. I'd talk to a few real estate agents and get them to give you an estimate of what they think you could get for it by listing it.

[Gopher]

Thanks for the responses. Again, sorry for such a long post (and thanks to those who took the time to read/skim it). To clarify, the relocation program works like this.... Once we receive the purchase offer, we have 60 days to sell the house ourselves (through the realtor that we chose, but are not paying for). If we sell it within the 60 day period, we receive an incentive of 3% of the sale price (maxes out at $15,000 though) IF the price is MORE than the offer. I guess it's just an incentive for us to sell it, rather than just sit and wait for the 60 days to expire, as the relocation company doesn't want to have to sell the property themselves if they can avoid it. We can also apply for extensions (one month at a time) on the 60 days. From what they told me, given the current market, it is not uncommon for people in this situation to apply for the extension for several months, hoping to find a buyer or for the market to level out or change directions.

 

That said, we clearly are not going to be able to sell it for more than what we owe, but we may be able to sell it for more than the offer (and get some incentive back). But, the incentive maxes out at 15,000 and is basically peanuts compared to what we could be losing on the sale.

 

As far as the short sale and credit implications, yeah.... we would probably not be able to buy, or at least get a good rate if we buy. Part of the relocation plan is a rent subsidy, where my employer pays half of my rent for two years if I choose to rent. Once again, this is an incentive... to keep their employees "relocatable." But, there is a catch with this as well.... The 50% rent maxes out at $5,000 yearly, so in essence, we're talking about $400 a month, which isn't quite 50% of most rental properties in this area. In fact, it's probably more like 15-20% of what we would pay in rent somewhere. But, it's definitely better than nothing.

 

Basically, we're going to probably explore the short-sale option. LIke Darin said, the worst that can happen is they say no. We have excellent credit, so even if we take a hit in that department, it's not like we're dropping into the 500's (assuming the impact is 50-100 points as I have been told). Since the rental option is looking somewhat attractive (although rental property is very high right now), we're not necessarily worried about mortgage rates that we might be able to get, at least not for a couple of years.

[CaP'N GRuNGe]

What about renting out your current home for 3-5 years until the market is better to sell it? There are companies you can pay to manage it for you. Might be worth checking into...

[MrTed46]

This is what I would do

 

- Keep the house the market will get better. It will take 2-3 years but it will get better. In the meantime, shop it around and wait till you are satisfied with a price and sell it

 

- Rent the house until it is sold. You stated you can get about 75-80 of the mortgage payment, so you have to put in 20% of the difference every month. Do the numbers and see if this makes sense. Also, take into consideration your tax benefit from owning a home.

 

- If possible, since your rent maxes out at 5k a year, try to find a smaller apartment (temp.) so rent doesnt kill you until you get back on your feet...again I am saying if this is possible I dont know your current situation with rentals.

 

Honestly, I wouldnt do a short sale but thats me. My credit is very important to me and I wouldnt want to affect it at all. You are in a sticky situation and dig yourself out. It is possible. Its not going to be easy but its worth it. losing 100k on your home isnt an option to me either. Wait it out, make some cuts and everything will work out.

 

Granted I do not know all the facts and dont have accurate numbers so I am talking on my 1st pass on things. I am also assuming that your mortgage is on a fixed rate and not adjustable. And if this is the case maybe you can re-fi to lower rate. If you are on fixed rate, also remember you may get more promotions over time which will help you since your mortgage payment is constant.

[Grimm74]

I would base your decision solely on the math of it all since we are talking time and money. Before short selling I would be absolutley sure it will not impact your credit score since you seem to think you will need to rely on it.

 

If you go the short sale route make sure you know how bad it will hurt your score and what you can expect for the next 7 years in interest rates.

 

AS for your time on the road GET RID OF IT. The only thing we own in this world is our time... Use it wisely. 3-5 hours on the road is insane. I get sick to my stomach when it takes me over 20 mintutes to get home.