This reader is unemployed, has a home that's seriously underwater, and has $35,000 worth of credit card debt that she can't pay. What would you advise?
Here’s a question I recently received…
Just let me say I love reading your newsletter, there is so much to learn!
Long story short, I am a 58-year-old female unemployed since 2/2009 and am married to a 56-year-old accountant earning $42,000 who claims he can’t earn more that that. We are living in a condo that I own. (Just to let you know if there is a wrong choice to be made, I’ve made it!) At one time, this dumpy condo had a $192,000 worth, which I greedily refinanced twice, and now has an interest-only mortgage of a $107,000. The condo is probably worth $32,000, although Zillow puts it at $62,000.
My father, a real estate agent, and several other people recommend walking away from this condo, as it will never be worth the $107,000 loan on it. It’s one of the loans that made the economy what it is: The mortgage will go up to a higher amount next year.
My husband is paying the $710.49 mortgage payment and the $195 HOA fee with yearly assessments from $500 to $1,200. We were current as of last month but have decide to let three months go and then apply for a loan modification, and if that doesn’t occur, just walking away!
My intuition says that we shouldn’t do it, but like I said, I never seem to make the right decisions. What do you have to say about it?
It gets better: We have about $35,000 in credit card debt, and the balances never seem to go down even when I work, and they are all not being paid down or at all. I have been feverishly trying to find any job, but Phoenix does not seem to be hiring. What would you advise?
-Ready to Walk
Here’s my advice, Ready to Walk…
You need to see a credit/housing counselor immediately. Read 5 Tips to Find the Right Debt Relief Agency. I suspect that you might even be a candidate for bankruptcy: See Dealing With Debt: Bankruptcy.
As for whether or not you should walk away: Last October I wrote a post called Website Says It’s OK to Walk Away – No It Isn’t. The post was about a website that sent out a press release implying that virtually any homeowner – including those with the ability to pay their mortgage – was justified in walking away from an underwater mortgage unless the lender agreed to reduce the balance or otherwise work with them.
My take? The first two sentences of the post sums it up: “Some people seem to think they can morally justify walking away from a mortgage they could afford to pay, simply because their house went down in value. Time to man up.”
I take issue with people whining that the bank owes them a better deal simply because their house went down in value: If you can afford to meet your obligations, you meet them – period.
What I don’t take issue with, however, is people relieving themselves of an obligation they can no longer pay. If you can’t make it, you can’t make it, whether your mortgage is underwater or not.
Now that we’ve gotten that out of the way, however, I’m troubled by some of the other things Ready to Walk says in her email. See if you agree.
First, she says her husband “claims” he can’t make more than $42,000 as an accountant. Doesn’t that wording suggest that she doesn’t believe him? She also says she owns the condo and he makes the payments. Maybe it’s just me, but I think it sounds like she doesn’t like him very much.
She says that despite the fact that she’s feverishly looking for work, she’s been unemployed for two years and “Phoenix isn’t hiring.” I’m not going to say it’s easy to get a job in Phoenix or anywhere else, and I have total empathy for the long-term unemployed. At the same time, however, one has to question if her search for “any kind of work” is really “feverish.”
Most troubling, she says she “greedily” refinanced their mortgage twice, which suggests she tapped her equity to support a lifestyle she couldn’t afford, especially when you add in the $35,000 of credit card debt that – along with the mortgage – is no longer getting paid. She also says that even when she was working, they couldn’t pay down their debt: more evidence that these folks have made a habit of living beyond their means.
Bottom line? If Ready to Walk wants to try to force a better deal out of her lender by refusing to pay the mortgage, fine. My guess, however, is that the lender is unlikely to reduce the mortgage balance to a level that she’ll feel comfortable with. I also doubt the lender will grant a new, smaller mortgage to someone who’s not paying their other bills.
By going to a credit counselor and/or bankruptcy attorney, Ready to Walk might yet salvage her situation. But however this turns out, my guess is that unless she makes some big changes in her approach to money, this won’t be the last time she finds herself in financial trouble.