Q: I was divorced 4 years ago. I decided to stay in our house and my ex-spouse agreed to let me keep his name on our mortgages (we have a first and second with two different lenders) as I didn’t qualify on my own. I have since had my own bankruptcy two years ago, but that had nothing to do with the house.
In the past 9 years that we have owned this property, we have never been late on any of our payments. However, we made a huge mistake in taking out the second loan, as the lender gave us more than we could really afford.
The biggest problem is that we now owe more than the house is worth. Our first mortgage is down to $54,000, but our second loan is for $32,000 and the payments are interest-only.
My ex-spouse has a new wife, and they own another home. I am living out of state and we have rented out the property. We’re not making any money — in fact, we each pay $50 per month to make the mortgage payment since we could only get the tenant to pay $800 per month in rent.
I don’t want to sound like a bad person, and I don’t want to stick it to my ex-spouse, but I cannot go on with this house under me. I have bad credit, and if I never own again, it won’t bother me.
I know that a short sale is not the answer really either.
What will happen to me if I simply throw my hands up? Will it then be on my ex-spouse? What effect did the bankruptcy have as far as my liability goes now?
Foreclosure wouldn’t bother me, but will it relieve me of this responsibility? I’ve killed myself working 2 jobs for 4 years now, and have no plans to quit either my part-time or full-time job, but this is a monkey on my back, and at the time of the divorce I planned on being there indefinitely.
I am grateful for your wisdom and advice.
A: While you seem completely, and understandably, frustrated by your financial situation, I’d like to start by urging you not to simply “throw up your hands.” It won’t do you, or your ex-spouse, any good.
On the face of it, you and your ex-spouse own a property that’s mortgaged for more than it’s worth. You blame the lender who gave you a home equity loan or line of credit for more than the property was worth, but you should have known that it didn’t smell right.
Either you were taking out 100 percent of what the property was worth or more than that, and were relying on past home appreciation to make up the difference, or you just wanted the cash and didn’t really ask any questions. Owning a home comes with a great deal of financial responsibility. I don’t think you can just blame the lender — or, maybe you can, but it won’t help you now.
It sounds like your entire contribution to the property at this point is $50 per month, or $600 per year. That doesn’t sound like much, although you make it clear that you feel pretty stretched and are already working a second, part-time job.
Perhaps the problem is how you’ve organized your budget. You can find a reputable budget counselor through the National Foundation for Consumer Credit (www.nfcc.org), and you should be able to get some budgeting help for free. Maybe there is a way to free up the $50 per month that you need to keep this house and mortgage afloat.
You should also talk with your ex-spouse about what can be done to fix the situation. In the short term, you might not be able to do anything. Or, perhaps he is able to cover your payments and refinance the mortgage to this property.
If you can hold on for another year or two, you may be able to charge more in rent, or property prices will have recovered enough to allow you to sell the property and get out whole.
But if you just stop making payments, you could destroy not only your credit, but your ex-spouse’s as well, and that’s just not fair.
So get some free budgeting help, sit down with your ex-spouse to discuss your options, and come up with a 3-year plan that gets you where you need to be. I know you can do it!
Sept. 11, 2007.