If we default on an Calif FHA loan for purpose of ‘strategic foreclosure’, what are long/short term impact?
Originally purchased Manufactured Home in 2000 in California. Non-predatory lending, put 5% down for 120,000 home (3BD/2BA). We refinanced for lower (fixed) rate in ’08, w/ payoff of 3 credit cards & some cash out. Current loan balance is $ 170,000… but other manufactured homes are Short-Selling for $ 75K or less… and some are selling REO at $ 14,000!!!! At this rate — we know we won’t see recovery for 30+ years (we won’t live that long).
We do NOT qualify for Short Sale (we tried), bank will not lower rate (which isn’t really the problem). We technically CAN afford our monthly payment — HOWEVER, our home is on a Land-Leased program, where we pay IN ADDITION to the mortgage….. $ 650 per month!!! Since we are approaching our 10 year mark living here — the Land Lease is jumping UP to $ 924!!!!
We have 5 kids (ages 14 – 4) and we feel like we are throwing GOOD MONEY at BAD. We know the 7-year rule about credit damage… but frankly – that is easier to swallow than 30+ years… and leaving a burden for our children.
By foreclosing and choosing to RENT — we can save money for our kids college education… rather than throw underwater-mortgage money PLUS land lease rent away each month for something will will NEVER own. Refinance was 82/18, so it is FHA technically. Bank will recoup from FHA, but can/will FHA/HUD seek DEFICIENCY JUDGMENT since government programs are not bound by Calif Law (ie, non-recourse)???
Thanks so much!!
FHA does not do refi’s? Then, why are my Loan Docs on HUD forms, and why do I have MIP (mortgage ins premium) taken each month?
I think I find my answer:
If a homeowner refinances the property with a new loan this then becomes a recourse loan. Often with a refinance there is an equity withdrawal sometimes called a “cash out” refinance. A recourse loan means that the bank or lender now has recourse from the homeowner. In the state of California the bank or lender typically foreclosure by Deed of Trust or Non-Judicial foreclosure. Therefore the ‘recourse’ isn’t typically pursued with a Non-Judicial Foreclosure for a lender in first position, even with a ‘recourse’ loan.