Monday, October 13, 2008

Townhouse Status


So, I’m finally getting a handle on the whole townhouse issue. Last week I talked to a couple of advisers and got all the relevant info sorted out. The bottom line is that I can start the sales process at a moment’s notice, depending on how things shake out with my job, the economy and every other ball that is still up in the air. This is an awesome development and has allowed me to breathe a little easier this week. Here is a summary of my thought process on this whole issue:

As I mentioned in an ealier post, the options on the table are the following: (1) rent; (2) sell; (3) short sale; (4) deed in lieu; or (5) foreclose. At this point, it is pretty clear that it makes no sense to rent the townhouse, unless I am prepared to kick in a not-insubstantial amount to cover the mortgage every month. This wouldn’t be a problem if I actually expected to be able to sell the townhouse for some kind of profit in a couple of years. However, that’s just not realistic. Selling the house outright is probably not going to work either given the state of the market and the fact that even if I were to find a real buyer they might not be able to secure financing (banks are basically turning down people with great credit due to the credit crunch).

One option that I’ve already discounted is to just walk away and let the banks foreclose. It’s something more and more people are doing the longer this housing crisis continues. On my end, I am the perfect candidate for walking away. As I’ve mentioned before, I paid literally nothing, nada, 0, zip, to buy this place. The mortgage was fully financed and the seller paid all closing costs. All I did was put my stuff in a moving van and unload when I got there. As for the monthly mortgage expenses, let’s just say that after getting a check from my tenant and annualizing my home interest tax deduction I’m paying a ton less than what my peers pay for housing. Put it another way, since I moved into my townhouse I am actually SPENDING LESS $ on housing than anyone I know. Bottom line, I don’t feel as if I have anything invested in this house so why shouldn’t I just walk away outright?

The answer is it would be the worst possible decision. Aside from all the moral qualms that walking away from a mortgage elicits, anyone who does walk away may face a ton of tax liability, not to mention the fact that the banks may come after you to get their money back. This is stuff that I just do NOT want to deal with in any way shape or form.

Which basically leaves me with two viable options on the table: a short sale or finalizing a deed in lieu. There are some drawback to both options, but nothing insurmountable or horrendous.

So, to sum it all up, I will most likely put the house up for sale first and see if I get any bites. If not, I will just negotiate a short sale or, if that fails, a deed in lieu. Not the most simple process in the world. But hey, there is nothing wrong with facing some complexity in order to secure long-term simplicity.

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