Posted on 07/04/2012 5:40:54 AM PDT by Free America52
Lost my job this week which comes on top of 4 years of putting kids to college, etc. Cash funds are depleted and I am seriously considering something I never thought - doing a strategic foreclosure on my house, cashing in IRA / 401(k) funds and paying cash for a smaller house. Just curious about everyone's thoughts?
I agree. Things are bad right about now, but you have some options. Exhaust them before doing anything drastic. Prayers up.
One thing you have have to is not pay the mortgage, but don't move out. I'm in real estate and and I have seen people live in there house for 2 years without the bank setting up the court date but of course every state is different. People were able to put a lot money away before they actually had to get out of their house.
You may be able to get your mortgage monthly payment reduced by going this route.(bankruptcy)
The private sector has been hit so much more than public sector, we need to do what is best as long as it is legal to get though obama’s economy.
Now, as to the question: Since such a drastic measure comes with a lot of penalties - the foreclosure affecting credit report, the 401k cash out creating a big tax liability - the use of such a tool should be justified by a much better future outlook. Are you moving to where there are jobs? Lower property taxes? Lower cost of living?
If you are just shifting sideways in your present location and there's not a lot of great jobs available, then you're probably going to get into a lot of financial trouble for not a lot of gain.
I'm taking some random guesses here - you're somewhere near the Tech Triangle, but likely 45-50 minutes of commute away. Probably at least two cars, probably a large house with at least two extra bedrooms, and the house is probably 20 years old. A whole lot of neighbors are banks already. You're looking at the big picture, and downsizing the family home is probably at the top of the chart as your biggest expense.
But with little cash assets, it sounds like you should first go through your family expenses and cut out a whole lot of extra expenses - for a lot of families, there's a big number of hundred dollar expenses each month, and that can quickly add up to a house payment.
1) Notify your mortgage company about the change in your income. Ask for any assistance information they might have - some companies have a grace program that lets you skip a couple payments without penalty, etc.
2) Do not bother with public assistance yet - most programs work on what you earned in the previous quarter, not what you're earning now.
3) Pull out your most recent bank statements, credit card statements - take a red pen, and mark every vampire charge on that statement - Monthly phone bills - Do you need three phones? A MagicJack can replace a home phone. Downgrade handsets and drop data plans. Return cable/dish equipment. Remove kids from car insurance. Cancel gym memberships, end subscriptions. I'm going to guess that by the time you're done, you'll find out you've spent more each month on various charges, fees, and subscriptions than you pay for your house. Had a friend realize recently that he was paying Netflix, Hulu, a full cable bill, etc to just watch the over the air broadcast sports broadcast each week. Handle the yard work yourself rather than paying someone else, etc.
Once you've your expenses under some restraint, start networking with people you know - former clients, friends, family, coworkers, former coworkers - get it out there that you're looking for a job. If you're tech savvy, get it out there that you'd be willing to handle small tech jobs - fixing that blinking 1200, hooking up that TV, etc. If you're willing to relocate, make sure people know that too.
My sympathies to you and your situation. I can only offer sincere, positive thoughts to send your way and lots of prayers. God Bless.
See a bankruptcy attorney
See a bankruptcy attorney
I was in your shoes 2 years ago. It took me 6 months to find a new position. I did a multitude of things. There isn’t necessarily one right answer.
1) Take the unemployment - you paid for it - use it. This can lead to a frame of mind - why should I pick up a lower paying job than the unemployment! Been there - thought that- very depressing to acquire Welfare Mentality so quickly! However, your real issue is “Cash Flow.” Also - ANY income can REALLY screw this up. I was technically “on furlough” from my original employer, so I had health coverage still ( a god send!) but the state law where my company is located required them to pay me for holidays! 1 day of pay wiped out my income from unemployment for the week AND got them thinking I was working again! Took 2 weeks to get that straightened out without pay.
2) Selling the house in a depressed market MAY not solve your problems. Can you get enough from the house to give you a few years of cash flow and still have a roof over your head?
3) I wound up selling off Mutual funds I had purchased from an inheritance 30 years ago! This is much like your 401k answer without the negative tax implications for me. That is how I stayed a float and met my expenses without reducing standard of living. I’m not sure this was the brightest way to go. I’m now out about 30K in savings I use to have. It is what I did at the time. Vast reduction of expenses is a good idea.
4) Kids pay for their own college! That sounds heartless - but I have one in college right now! My Dad wound up going through a period like this when I was in college! It’s what got me independent! I paid for my last year 100% myself!
5) Internet sites like Dice, etc are only marginally helpful. I must have submitted 1000 applications in the 6 months I was unemployed. I did find out that you want to make your Resume searchable. That got me a few hits - directly sending your Resume to companies through websites doesn’t work at ALL. Work your contacts in your own industry, they are your best bet for re-employment. I got a contract job that was good for 2 months from one of the first people I contacted. He came through 5 months AFTER I talked to him! Then the searchable resume got me a couple of interviews, one of which got me my current position. Also - think about walking a paper copy of your resume in. That got me an interview. Finally - don’t expect to match every requirement in a job posting. If you are a 60% match they may look at you. The real trick is getting someone to really SEE your resume. Finally - the searchable resumes were found by “Head Hunters!” If I were to loose my position today, they would be the first guys I’d call.
6) Is there any line of business you can pursue out of your home, i.e. self-employed?
7) Age is a consideration. It ain’t legal, but it’s there. I shaved my gray beard off, and didn’t have anything in my Resume that gave away my age directly. I trimmed 15 years of experience off the resume too. Not telling any falsehoods -the experience wasn’t directly relevant to industry I now work in. Hiding your age in any way possible to get you in the door can help.
Sorry for your situation.
Instead of “strategic foreclosure”, have you considered simply walking into the bank and robbing them? If you get away with it, it won’t ruin your credit. It’s something to consider. Either way you would be stealing.
Exactly. No need to jump into the burning pit without first weighing your options. Give things time. Kids can get grants and scholarships or they can start paying a bit of their own way (McDonald's is hireing). Hang onto the 401K and the house. Cut everything thing you can NOW - magazine subscriptions, phone/cell extras, tv, don't eat out, stock pantry foods now while there is cash available. Call your credit cards and explain the situtation and ask for a lower interest if you have outstanding debt. Ask your auto insurance if you eliminate the "home to work" travel. Get the most important bills or monthly charges paid off NOW - all insurance payments (home, life, car), property taxes so they can't take your home later... yes, I know you said there is no money but take the $ that you can cut out and put it toward those important bills. If you don't pay your car insurance then you're subject to a fine if you're stopped and you're up the creek and can't go for job interviews if you have a wreck without insurance. Same with health insurance.
Then get your resume together and start looking for another job. Jobs are out there but many people think they're too high and mighty that they won't take a lower paying or lower prestige job. Don't be that guy.
So is up to $40K in equity in your home. Depending on location, this may allow you to stay in your present home with minimal effort.
But, again, Chapter 13 is a nuclear option to be considered as a last resort. The very threat of playing that card suddenly makes some creditors more reasonable. But it takes only one jag-off to say no.
If your company was matching funds, just figure that pays your IRS cash out penalty. Dumping a morgage and using what you can out of your IRA to get a smaller PAID FOR house and pay off all your debits is a good move, IF you cut up your credit cards.
However you have to have a block of cash to operate out of, say ten grand minimum.
If you are not going to fully embrace the debt free life style, dont bother, its like trying to stop smoking with only a cigarette a day.
Something to consider about your house, when applying for a new job many application want to know how long you’ve lived at xyz address. They’re looking for a stable employee so may not think favorably upon you if you have a new address.
It’s time to go through the house, garage, attic and kids’ stuff for a yard sale and ebay. Yard sales bring in more if done after paydays so hold it on the weekend after people get their first of the month checks or after they get their mid-month checks. The very best time is coming up the first weekend (Friday, Saturday, Sunday) of August since parents will be scrambling for back to school clothes, bikes, and school supplies. Whatever doesn’t sale in August might sell a couple months later so plan on another sale when the weather starts to cool off.
Thanks everyone again for all the good ideas. There is a lot to consider and this wound is still fresh, just found out 48 hours ago so the mind is working overtime on all the options.
To the d ickhead that said robbing the bank was the same thing ... I hope you never end up in a situation that you might have to do the same thing. I have been in my house for 13+ years and never missed a payment. But in desperate times, men do desperate things.
I had some $ in savings, my emergency fund, enough to float me for a year but it eventually ran out. As soon as I lost my job, I prioritized in this order – food (lots of beans and rice, store brand mac & cheese and ramen noodles), utilities, cell phone, mortgage, car insurance and car lease payment and I stopped paying everything else. I canceled the cable TV, downgraded my cell phone plan (didn’t have a landline), eliminated any unnecessary car trips – was within walking distance to a Target, Wal-Mart and grocery store, stopped running the air conditioner and when winter came, only ran the heat enough as to not freeze, fortunately I like sweaters and had a lot of them : ),
I had a few cc’s, and a few medical bills, none alone with huge balances but in total way too much so I stopped paying on them but the harassment was awful and constant.
Despite looking for a job, any job, receptionist, even Wal-Mart greeter, I eventually ran out of money and couldn’t pay my mortgage anymore. My car lease came to the end of its term so I turned it in and literally “walked away”. I moved in with a relative (and thank God for her and her husband!) while I continued try to sell my house.
I was fortunate that I had some equity in my home that I’d only purchased a few years earlier at a good price with 20% down payment and low interest rate on a conventional 30 year fixed mortgage, but then I had a home equity loan that I used to make some home improvements and pay off some CC debt as a result of my divorce, that put me a few thousand underwater, but mostly really due to the very depressed home prices at the time. I avoided a foreclosure, by two whole days by doing a “short sale” which is much preferable to a foreclosure. I also had a great real estate agent – she was a pit bull in negotiating the short sale, especially with dealing the second mortgage holder, who was miserable to work with and almost forced the foreclosure even though they would have lost money if that had happened.
You really don’t want a foreclosure if you can help it. Keep in mind that it will ruin your credit rating/report more than anything else and many employers now days do credit checks as part of their hiring process even if the job is not related to finance or cash handling. I know in a couple of cases I was turned down for jobs because of the credit checks (my background is in payroll, HR and accounting so I was especially screwed) until I eventually got a part time seasonal job at Target. (Say what you will about Target, but they were great to work for and hired me when no one else would: ) ).
I eventually got a full time job at half the salary I used to make at a job and for company I hated but at least it was a steady paycheck and provided some basic benefits. I continued living with my relative for a time, using their second car to get back and forth to work until I saved enough to get a “beater”. After selling my house I put my stuff in storage and I eventually saved enough to move into my own apartment and got a newer, more reliable small car, even got financing for it. In between I declared bankruptcy, didn’t want to do it but it was the best thing I ever did. Last year I got a much better paying job with a great company that I love. I’m slowly reestablishing good credit but continue to keep myself on a very tight budget. It’s amazing how having “stuff” and expendable income for things like eating out or going to movies is put into perspective when you come very close to losing everything you own and becoming homeless. I live a lot simpler now, value my good friends and my family and in some ways this was the best thing that ever happened to me.
My advice to you is to file for unemployment tomorrow, if you haven’t already. Make looking for a job your full time job and think outside the box when it comes to what sort of work and pay you are willing to take or qualified for and, network, network, network! Get in touch with your references, especially former supervisors and co-workers and let them know you are looking for work and confirm they are willing to give you a good reference or even a letter of recommendation and who knows, one of them might even have a job for you or a lead on one. Brush up your resume and tailor your resume and cover letter to each job you apply for; as someone working in HR, having a good, concise resume that fits the job description and excellent references helps a lot.
Notify your mortgage company and any other creditors tomorrow of your situation and work out the best terms you can, try to negotiate better payment terms or a lower interest rate or minimum payment and don’t be discouraged if they seem to not be willing to work with you and pressure you to pay what you can’t afford, you will have at least have it on record that you contacted them tried.
Then find a good real estate agent, someone who is very experienced at short sales if you are underwater or at distressed sales and list your home now! Think about renting an apartment or home or even moving in with a relative until you are back to work full time. If you have stuff you don’t need or want anymore especially if you are considering downsizing, consider having a moving or yard sale and raising some much needed cash. And consider that even if you can scrape up enough cash to buy a home outright, you will still have property taxes, possibly HOA fees, maintenance costs, utilities and in some areas of the country, school taxes…not to mention new utility accounts that may require a hefty deposits and then there are the moving costs alone and if you have no income coming in; that could be a disaster IMO. Going through a foreclosure and then buying a home for cash and then loosing that home too in a tax sale? Think about how long you can realistically maintain a home with no or little income coming in.
And carefully consider the tax implications of cashing in IRA/401k. I’m still making monthly payments to the IRS and the state of MD with hefty penalties and interest that continues to accrue on back taxes from myself employment income and cashing out a very small 401k account and bankruptcy won’t protect you from them.
Good luck and keep us updated on your progress. As desperate as things seem now, it will eventually turn around if you work really hard and don’t make any rash decisions.
My suggestion is to go into survival mode. Spend nothing that you do not HAVE to spend, including college tuition. I understand that you don't want to do that, but your SURVIVAL and the SURVIVAL of your kids is the number one issue.
I would get out from under the mortgage and pay cash for everything from this point forward.
But I am just some guy on the Interwebs.
Please go here:
P.S.
You can bring 2 kitty cats and 2 dogs. They must have their proper shots before coming to Pananama.
You can own firearms, but they must be purchased here.
You should be writing a financial column. Lots of information in there and flows very well. I had to quit working in 1999 due to chronic medical problems. Have been living off the IRA and 0% or low interest bank loans ever since. It is amazing I saved that much money (for a “rainy” day — that’s lasting a lifetime) working in an ordinary job in IT — is it not? Yes, I have to pay the penalty but the 72T strategy was not going to work for me. Still not 59 1/2 even now. Then a relative had some kids she couldn’t raise at the time so we have to do that, too. Downsized to a mobile home park but it actually does have its advantages, believe it or not. I put in energy improvements equal to the cost of the house and have been accruing the benefits for 13+ years now.
I feel your pain. I was forced to close my business of 17 years in June 2010. They finally regulated me out. I hope you manage to hang on.
Consider doing day work. Temp agencies usually have odd jobs that just need someone for the day. Nights and weekends pay more. Avoid those that want someone for 3-6 probationary months as that’s usually a scam where they string people along and then fire them right before the end when they are required to hire them. Day work will give you your own schedule so you’re free to go for interviews at real jobs. It won’t bring in much but will put food on the table and pay the utility bill.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.