My question is fairly basic, but I have some unusual circumstances that might change the answer. About 9 years ago I declared Chapter 7 bankruptcy. As a result, my mortgage was discharged (I think) but I opted to keep making payments and stay. However, the place is falling down around me and I’m thinking about exercising my right to just walk away from the house.
According to my research, because the mortgage has been discharged, I have no personal liability for the loan. That means that any foreclosures or late payments can’t be reported to the CRA’s, and if I walk away there will be absolutely no impact to my credit report. There may, however, be a court record of the foreclosure generated.
Obviously if I walk away from the house, I’ll need a place to live. Most apartments run credit checks, so I’ll need to be able to pass. Depending on the CRA, my FICO credit ranges from ‘fair’ to ‘good’ (though my TU VS3.0 score is 590, lol.) Complicating the issue is the fact that I recently got a couple of CCs (as part of an effort to rebuild credit) that haven’t showed up on the reports yet (a $500 Cap1 Visa and an $8K AMEX Blue.)
With all this activity on my credit report, a potential ’stealth’ foreclosure, and the wildly varying scores, how likely am I to be approved for an apartment?
What FiCO score you need for an apartment depends on the landlord. The landlord will set their standard based on the market. Hot markets like New York City, NY and San Francisco, CA basically mean 800+ for any kind of guarantee with 720+ having some kind of chance to swipe. In other places it would be lower.
As for the foreclosure I recommend that you look carefully at what you think is falling apart. Some major repairs are actually worth doing. Other repairs are harder to justify. Think well on how long you will be in the area. Also check your paperwork as the foreclosure might be reportable if you signed reaffirmation paperwork or even if some paragraph in the original agreement had certain clauses about bankruptcy. Lastly remember that you are walking away not just from a home but all of your existing payments toward it. Finally if you can get the lender to go along with it you can always sell the building yourself and maybe recover some of what you put in after payoff of the mortgage.
I would like to suggest that regardless of how much the house is "falling apart" that you talk to a real estate agent before walking away. I was considering walking away.. my house was 75 years old, the foundation had failed, half the rooms didn't have working electricity, etc. etc. I talked to an agent and we put my house on the market and it sold in 5 minutes, no exaggeration. I got twice what I paid for the house, and it sold for more then the listed price. In 24 hours I had over 30 offers. I thought the house was worthless.. but the fixer uppers wanted the house.
Thanks for the thoughts. A little more background: my fiancée was a hoarder. Since she passed away two years ago. I’ve made some progress getting to the point where you can move around the place, but it’s still a mess.
Shortly after she passed, I had a flipper come look the place over. He made an offer of $45k. Since I still owed $77k that wasn’t going to fly. The original loan was for $97k, and Zillow says the place is worth $147k. I know it’s not worth anywhere near that, but Zillow says the value went up $6k in the past month, so I guess that means my neighborhood is ‘hot.’ I’ll give a realtor a call and try to swallow my shame...
C'mon, not everyone is geared toward living in a home that could be featured in Better Homes and Gardens, myself included.
Ask around or check Home Adviser for some enterprising handyman to clean up the place, mow the lawn & trim bushes, maybe even make some minor repairs. There's no shortage of lowball flippers (the $45k guy), but there's also plenty enterprising folks who can see potential beyond the rough edges. I bought my home in 2005, a foreclosure with mountains of trash, and my first comment to the realtor when we first walked into the house was "it smells like someone died in here", it was a freezer full of meat with no electricity in an Arizona summer. Three months later after a lot of cleanup, new paint & carpet and minor repairs I moved in, and it's been my happy home ever since. Even if you can get $100k for it, but likely more, it would be a nice little windfall.
So I've talked to a couple of realtors and got varying opinions. One said she'd list the house for $90K (well 89,999.99, lol) if I fixed the furnace and got the junk hauled out. Another one said she could list it for $101K - $107K and said she thought I could get "fair market value" for it, whatever that means. She did specifically say that we'd have to limit it to 203(k) and cash buyers.
I also checked with a couple of mid-range to high-end apartments. Some of them were frustratingly vague about the application criteria, but a couple were very specific. They were looking for a 500 (!!) credit score - both of them, even the "luxury" complex. That along with no evictions, landlord problems, etc. One did specifically mention bankruptcy, but said that a 9 yr old Chapter 7 wasn't an issue.
And I talked to a lawyer about my Chapter 7 discharging the old mortgage. He said the problem with that theory is that I accepted a loan modification a couple of years later, which effectively put my back on the hook for the mortgage. So that's a non-starter. But at least it looks like I might turn a small profit out of this anyway.
That loan modification was illegal, with the loan disccharged in BK7 there was no loan to modify. But if you can get out from under it with a small profit that's the way to go.