Mortgage problems in southern California?

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kwirl
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Mortgage problems in southern California?

Postby kwirl » Wed Feb 11, 2009 9:10 pm

A close friend bought a house in San Diego a few years ago, and has been paying the very high cost of it, which until the job market collapsed, she could afford. She has never been very good at long term savings, and now without a high-paying job, the mortgage she was paying is steadily eating away her savings.

Is there anything in the financial recovery/stimulus plans that affects people like her, that overpaid for a house that obviously is impossible to sell without eating a massive loss that she can't afford? What kind of options/considerations exist for her to either lower the payments relative to the new value of her home or find a way to sell the home without going financially bankrupt?

Or is this just a 'sucks to be her, she's screwed' case?
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Re: Mortgage problems in southern California?

Postby Sarvis » Wed Feb 11, 2009 9:32 pm

Any chance she could rent out a room or two, maybe even rent out the whole house to people and move into a cheaper one?
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kwirl
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Re: Mortgage problems in southern California?

Postby kwirl » Wed Feb 11, 2009 9:36 pm

I was actually talking to her about that, the thing is she sometimes has trouble getting along with people, her bipolarity is more severe than mine, to the point of occasionally crippling her from being able to work.

I found a link to an interesting NPO, http://www.hopenhousing.org/ that looks like it might have options.
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Re: Mortgage problems in southern California?

Postby Corth » Wed Feb 11, 2009 9:42 pm

My understanding is that California purchase money mortgages (mortages used to purchase the house, not refinance) are non-recourse. That means the bank cannot sue for a deficiency judgment in the event that it forecloses upon the house. The extent of the homeowner's liability is the house itself. That is why a lot of homeowners, particularly in California, are walking away from their homes altogether. In many cases its the best financial move. A lot of people in California, I have heard, are buying units in the same development where they currently live, at a huge discount, and then letting their current home go into foreclosure.

On the other hand, if she really wants to remain in the home, she can potentially apply for a mortgage modification. This can allow her to potentially get a reduced interest rate or possibly even a reduction in principal balance owed to the bank. There is no standardized system for mortgage modifications as of yet. Each lender more or less has its own requirements. Generally, my understanding is that few modifications are given if the homeowner is current on the mortgage. The bank has no incentive to work with anyone unless their is a perception of impending default.

I am not licensed to practice law in California, and nothing in this message should be construed in any way as legal advice. I am simply parroting what I have read on web sites such as Fatwallet.com, etc.
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Re: Mortgage problems in southern California?

Postby kiryan » Thu Feb 12, 2009 8:41 pm

From what I read, mortgage modification programs are not happening and don't deliver workable terms even if you manage to get a modification offer.

I have 2 friends who own houses in San Diego, both are over 150k under water. My advice to them is stop paying their mortgages. You're not going to get government or bank help if you're making your payments. Freddie Mac I believe put a moratorium on foreclosures (read people are living in their houses rent free).

My advice to them has been to stop making payments. They'll get at least 3-6 months rent free (banking about 18k) which they can use to put down on a new house. They'll end up paying higher interest, but in 2-10 years they ought to be able to refinance for a lower rate. If you think about it, they immediately save 150k + interest and all they have to give up is a good credit score and a chance that their house will start appreciating again rapidly.

People get emotionally attached to their houses and they need to be realistic. Why are they essentially paying 150k to maintain a credit score and social status?

Its unfortunate your friend is bipolar, but she apparently doesn't have the financial resources to continue to coddle herself. This is where the rubber meets the road and bipolar or not its time to make changes or lose everything. It sounds like she needs to increase her income. Roommates, a 2nd job, a significant other would all help to that effect. If I were her, I'd think about taking in room mates and stop paying the mortgage... depending on how much savings she has, whether or not she can get a 2nd 3rd job or better job and how much she is underwater in the house. Then again, waiting for the government to bail everyone out seems to be a successful strategy these days.
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Re: Mortgage problems in southern California?

Postby teflor the ranger » Sun Mar 01, 2009 7:20 am

As a side note, if her condition is preventing her from working, she might want to see about disability benefits.
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