No. of Recommendations: 14
While visiting my sis over Christmas...learned they are in an upside-down home loan + have $30,000 credit card debt.

And did they cut back for Christmas by not giving any gifts and having cheap meals? Or did they continue to live above their means by charging things on their cards "because it's Christmas"?

They have apparently refinanced home several times during past decade & included in the 'refinance pkgs' their credit card debt, car loans, remodeling & new furniture expenses, etc. Now, their home appraisal value < mortgage balance.

Okay, so they used their house as a 4-sided credit card to enable them to live above their means. And then further compounded their mistakes by using credit cards to continuing living above their means. As a result, they are upside down on their house due to consumer debt, and have additional consumer debt besides.

B-I-L lost job during 2008...resulting apparently in 'taking cash advances' for monthly living expenses & poor-judgement spending binges.

So apparently the shock of a job loss didn't spur them into trying to live within their (even lower) means.

They are behind 2 months in $1500 monthly mortgage payments(& now accumulating late $350 charges) PLUS credit card $600 finance charges exceed the $500 minimum required payment...a no-win situation.

A co-worker just successfully completed a modified mortgage, supposedly based upon earlier legislation passed by Pres.Bush. I am not familiar with this 'modified mortgage program'...so not sure if this would be of help to sis' plight or what other options are available to them.


There is legislation that is designed to help homeowners with mortgages that have/will become unaffordable due to rate resets. And mortgage companies are trying to work with homeowners who have mortgages that meet this criteria. However, in this case, the mortgage is unaffordable due to job loss, which is a different circumstance.

Have Sis/BIL been talking to their mortgage company? I am sure that, being 2 months behind, the mortgage company has been trying to contact them. If they are burying their head in the sand, the first thing that they need to do is to take their head out of the sand and talk to their mortgage company to see what options their mortgage company can suggest.

Some possibilities include:
- Forebearance/Restructure - if BIL has regained employment at a similar compensation level, or believes he will soon, the mortgage company can allow 3 - 4 months of minimal/no payments, and tack the missing payments onto the end of the mortgage

- Mortgage modification - if BIL has regained employment, but at a lower compensation level, but still enough to afford the house, this may be a possibility. Basically, they will have to reapply for a mortgage, with updated income/debt statements. If the mortgage company can find a mortgage that they can afford, they will try to work with them. Modifications may involve lower rates, longer terms and/or giving up some of the gains in their house when they sell, possibly in return for some principal forgiveness. However, if Sis/BIL cannot afford any mortgage for their house because their credit card bills are too high, or because BIL is still unemployed, this probably isn't a good possibility.

- Short sale - if the possibility of BIL getting a job soon isn't good, then they can put their house up for sale, and try to negotiate a short sale. If they live in a state that allows deficiency judgments, they need to make sure that the mortgage company is willing to forgive the debt rather than get a deficiency judgment against them.

- Deed in lieu of foreclosure - if they don't think that they can sell the home in a short sale, then this is probably better than a straight foreclosure. Sometimes, if the home is in good shape, the mortgage company may even provide some help with moving costs in order to avoid the legal costs of foreclosure and eviction

- Walk away/Foreclosure - Probably the easiest option for them in the short-term, if they are going to lose the house anyway. Failing to make payments and ignoring the attempted contacts from their mortgage company will result in this. One day they will get a foreclosure notice, and they should plan to be living someplace else by the date of the sale, or they risk having the sheriff come to evict them. Since they are currently 2 months behind on mortgage payments, this will probably give them at least another month, and possibly longer, depending on their state's foreclosure laws, of living in the house without having to pay for it.

- Bankruptcy - for a while, this will shield them from being foreclosed upon, and it has the potential to wipe all of their debt away. However, it comes with a credit history hit for at least 7 - 10 years (depending on which chapter is filed) along forever having to answer "Yes" to the question "Have you ever filed for bankruptcy?" on any loan application in the future. And if they want to keep the house, they will eventually have to come up with a way to make payments on the house. Filing for BK while BIL is unemployed will probably give them the best shot at qualifying for Chap 7 - which is the type of BK where all unsecured debts can be forgiven, and there isn't a payment plan. If this is the option chosen, Sis/BIL need to start saving some cash, since BK lawyers generally want payment upfront before filing - for some reason they don't like to extend credit to their clients.....

As already mentioned by SP & Nancy, the main thing that Sis/BIL have to do is to start living below their means. If they can't do that, none of the above options will help them in the long run.

If they have access to a computer, suggesting that they join TMF, or at least look around at some old posts, might be a step in the right direction.

AJ
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