Ask Me Help Desk - New Home Concerns

I currently own condo in what has become an unsafe place to live and we are upside down on the value of the home. Our payment for our mortgage is going to go up in December and this place is not worth the amount they want and it will be too high for us to afford. We have never been late on a payment and our credit score is above 700, but we are going to become late if we stay. My father is willing to put a large down payment on a new home for us, but is afraid he could lose that money if we short sale or forclose on the condo. If we purchase a new home and short sale of forclose on the condo can they come after the new home? Should the new home be in my dad's name? What are we facing besides bad credit?

Your father should establish an LLC or limited liability company with your wife as a member. This will give you the protection against creditors. You should lease option your condo with the down payment for the difference of the adjusted rate. You need to exercise alternatives to solve this problem. I hope your answer is near.

Quote:

Originally Posted by calligaro7

My father is willing to put a large down payment on a new home for us, but is afraid he could lose that money if we short sale or foreclose on the condo. If we purchase a new home and short sale of foreclose on the condo can they come after the new home? Should the new home be in my dad's name? What are we facing besides bad credit?

Hello calligaro:

The bank won't even consider a short sale unless you are way behind on your payments. Of course, your credit will already be impacted by then. Plus, I doubt you'll be able to arrange a short sale if you tell them the truth - which is your father is going to bale you out. If anybody is going to be baled out, they want it to be THEM, and not YOU. In addition, depending on your state law, a short sale does not make you immune from the bank seeking a judgment for the deficiency. Should you enter into a LLC (as previously suggested) with the intent to defraud your previous lender, (and that looks to ME like what you're doing), then the corporate veil can be pierced, and those assets would be vulnerable. Plus, the above advice assumes that you CAN lease/option your condo on terms that are favorable to you... I wouldn't make that assumption.

Here's what I would suggest. You want to move. Instead of having your father put a LARGE payment down on your new home, have him put down just 20%. You can get a fixed mortgage without paying private mortgage insurance. That's good for you. Use the extra capital to refinance the condo loan into one with a low fixed payment. Your upside-down position is probably temporary and if you can wait it out, I suggest this strategy will be vindicated. With a fixed condo payment, you can rent it out at market rates.

This way, nobody is at risk. Nobody is pissed off. There aren't any lawsuits. You are in the landlord business (which can be profitable). And, most important of all, you maintain your pristine credit rating.

excon

Thank you for you advise. It was very helpful. We are having my father buy the new house with his name on the deed and then rent out the condo. This way no ramifications happen to my dad, we get into a house and the condo becomes profitable and doesn't hurt our credit. Again thank you for the insight on the promblem at hand.

Quote:

Originally Posted by calligaro7

Thank you for you advise. It was very helpful. We are having my father buy the new house with his name on the deed and then rent out the condo. This way no ramifications happen to my dad, we get into a house and the condo becomes profitable and doesn't hurt our credit. Again thank you for the insight on the promblem at hand.

That's the best scenario. I wish you luck in pulling it off.

However, concerning possible default on the condo and it's impact on the new home. If you are in a tenuous financial situation, close as quickly as possible on your new home. If you start missing payments on the condo (e.g. if your new tenants don't pay and you're strapped for the extra payments), your credit will obviously suffer. If the note (on the condo) goes into default and you don't want it to effect your new home, you may be faced with bankruptcy in order to liquidate or restructure burdening debt. Under either form of personal bankruptcy (Chapter 7 or 13), if you show that you can make the payments on your new primary residence, you'll have no problem keeping it.

excon is correct. Unfortunately, the bank won't help you until you have missed payments (usually 2 to 3), but by then you credit is already jacked. Then the game becomes a matter of deciding really what you want to do with the propert(ies) in the long run.

So you made a bad real estate deal and you want to walk away from it, not be responsible and just buy a new home,

Excon had the best idea, get a new mortgage not on a "NEW" home but on your old home, get a lower fixed mortgage and let your father pay off about 20 percent of that mortgage. That way you won't ruin your credit and won't default in any loan.

It sounds just like you want a new house.