Mortgage Forum

Joel Fraser

I need to sell my home, but I owe at least $25,000-$38,000 more than I can sell it for. Any thoughts, suggestions, information would be greatly appreciated. I've had a market analysis done (by a real estate agent) and he has suggested listing it for $239,000 and said I could expect to get $230,00 - $235,00 for it. That's after putting $5,000-$10,000 into a handful of repairs/upgrades. The house is in an older (1959), but very well-kept neighborhood in Troy, MI. It's in fair-good condition, but other than things like windows, roof, furnace and other maintenance items, everything is original (including the kitchen and baths). On the plus side, it's on a gorgeous corner lot (though the landscaping also has a bit to be desired). The primary mortgage is through Countrywide with a balance of $200,000. 30 year fixed at 6.875%. The payment (including taxes and insurance) is $1,766. I have an equity loan through GMAC Mortgage with a balance of $47,500. It's an interest-only loan with a variable APR. Right now it's somewhere around 6.5%, but has been as high as 10% in the last year. The payment is currently around $225 (but was nearly $400 a while back). I'm not delinquent (and never have been) on either loan. My only asset is a 401K account with a balance of around $55,000. My company allows limited hardship withdrawals. This situation would probably qualify, but after the limitations, taxes, and penalties, the most I'd net would be around $15,000. My monthly net income (after taxes, health insurance premium, contribution to a healthcare spending account, and a meager contribution to my 401K) is $4,300. I have approximately $50,000 worth of unsecured debt (credit card and student loans) and a son who started college last fall, but I don't know if that's going to be enough to make a case for financial hardship (though my plan all along was to sell the house when he started college). Despite the fact that I've been making the payments without fail for the last eight years, I've done it only by supplementing my income with credit cards to the tune of approximately $10,000 a year. I'm trying to figure out a couple of things: 1) How much work (sweat equity and money) to put into fixing up the house to get it on the market. We started to do some of it, but it's so depressing knowing that I'm going to lose money no matter what I do, so we kinda lost steam. 2) The liklihood of negotiating a short sale. I don't want to go through all the hassle of fixing up the house and putting it on the market, not to mention the hassle of negotiating a short sale, if it's just going to get rejected. From what I've read here, it sounds like that process can take 4-6 weeks and most buyers aren't willing to wait that long. Basically, I want to negotiate the short sale (or the possibility of it) BEFORE putting it on the market. A principal balance reduction would serve the same purpose (and would be preferable since it's essentially a guaranteed short sale). Adjusting the interest rate on either loan doesn't really help me as I'd like to be out of the house within 6-12 months. I'm okay with the possible hit to my credit due to a short sale (and have a general idea of how to work with them to get this reported in the most favorable way). I spoke briefly with a real estate attorney who advised me that Countrywide is not likely to negotiate either a short sale or reduction in balance principal as the sale of the house easily would cover what is owed them. So I'm left to deal with GMAC. However, he thinks given the market conditions in this area, it's possible they will forgive part or even all of the loan, and that they are likely to work with me up front before the house goes on the market. Best case scenario (house sells for $235,000), I'd need GMAC to agree to write off $24,250 (about 50%). Worst case, $40,000 (84%). In the last two years (as far back as I can get statements online), I've paid them over $12,000. I think I've had the loan for at least five years (I'll check my bank records), so I've probably paid them at least $25,000. I'm a bit overwhelmed as to where to begin. I'll keep reading things on this site, but any suggestions or advice anyone can provide in the meantime would be greatly appreciated. I'm also trying to get a straight answer on whether or not I will have to pay income tax on any amount forgiven (either through balance reduction or short sale). I forgot to ask the attorney about that and have seen some things about the "Debt Forgiveness Act," but can't tell if it was ever passed (and if it was, will it help). Obviously paying taxes on $40,000 is better than paying $40,000, but it's something that needs to be part of the equation! Many thanks!!