We bought our house 5 years ago. We refinanced it after 3 years. When we refinanced it we assumed it would include principal, interest, taxes and insurance. We found out later the bank screwed us. Not only did they charge a high interest rate, we also had to pay out of pocket for the taxes and insurance. We put the house up for sale for 6 months, and hardly got anyone that was interested. We got to a point that it was just too much for us, so we moved out of the house and began renting from my in-laws. We decided to either rent it or sell it, we found some renters. The renters signed a year lease (the lease is up August 09). The problem is the rent is not covering the mortgage payment, taxes and insurance. We are having an extremely hard time paying for everything.

We would like to sell it but we owe more than it is worth. We have contacted the bank asking them to work out something with us, refinance or loan modification, but they won't because we have not been late on the mortgage yet.

We think we are just going to let the house foreclose. It's not worth it to us to hold onto... we just keep paying and paying and feel like we will never get ahead, and they won't work with us anyway.

However, what do we do about our renters? We know it takes 4-6 months for a foreclosure. We plan to give our renters their deposit back. Do we accept their rent if we are not paying the mortgage? It just doesn't seem right. We don't want to get into any trouble. But we don't NOT want to take the rent and have the renters destroy the home or have it be vandalized or something.

What should we do?

If we foreclose on our home, we owe $105,000. If the bank ends up selling it for say $85,000. What amount shows that we owe the bank on our credit report? $105,000 or $20,000?

There is another option available. You can take the rent from the tenants and send in that amount to the lender every month. Since the rent is less than the total monthly payment you will end up being late on your mortgage. After a month or two the lender may be willing to at least discuss a modification with you. At that point you can try to get the payment lowered to an amount equal to the monthly rent or possibly arrange for a short sale of the property.

But you should definitely let the tenant know what's going on. If the lender begins foreclosure proceedings they will notify the tenant as well as you, so they're going to find out sooner or later. Better it should come from you. It's possible that they might be willing to buy the house and you could arrange a short sale. In the meantime the fact that you're making "some" payment is going to be far better for you in the long run than if you just walked away.

There is another option available. You can take the rent from the tenants and send in that amount to the lender every month. Since the rent is less than the total monthly payment you will end up being late on your mortgage. After a month or two the lender may be willing to at least discuss a modification with you. At that point you can try to get the payment lowered to an amount equal to the monthly rent or possibly arrange for a short sale of the property.

But you should definitely let the tenant know what's going on. If the lender begins foreclosure proceedings they will notify the tenant as well as you, so they're going to find out sooner or later. Better it should come from you. It's possible that they might be willing to buy the house and you could arrange a short sale. In the meantime the fact that you're making "some" payment is going to be far better for you in the long run than if you just walked away.


Thanks, that is a good idea. But the problem is we still have to pay taxes and insurance on it, and can't afford that either. We really just don't even want this headache anymore.

The taxes and insurance should come out of the monthly rental payments. Use the rent to pay taxes and insurance first, then use whatever is left for the mortgage payment.

If we foreclose on our home, we owe $105,000. If the bank ends up selling it for say $85,000. What amount shows that we owe the bank on our credit report? $105,000 or $20,000?

I've merged your thread. The answer is that it depends on the lender. They may only report a foreclosure and not the shortfall. Because they may send you a 1099 for the shortfall.

Have you checked into the provisions of the stimulus package. There is a lot in there for people in your situation.

I've merged your thread. The answer is that it depends on the lender. They may only report a foreclosure and not the shortfall. Because they may send you a 1099 for the shortfall.

Have you checked into the provisions of the stimulus package. There is a lot in there for people in your situation.

What is a 1099 for the shortfall? I've tried to talk to our bank about a loan modification or refinance but they will not work with us.

The lender may "forgive" the shortfall between the sale and the balance of the mortgage. That forgiveness is deemed as income to you and you will get a 1099 and have to pay taxes on the income. Stilll much less than having to pay the balance, plus they won't come after you.

The lender may "forgive" the shortfall between the sale and the balance of the mortgage. That forgiveness is deemed as income to you and you will get a 1099 and have to pay taxes on the income. Stilll much less than having to pay the balance, plus they won't come after you.

Thanks for the info! It helps!