Newbie - Need Advice

[drivehard]

Hello All!

I am a 30 year old engineer who knows little to nothing about the subject matter at hand. I am looking for some friendly advice from those of you "in the know". Here is my story...

4 years ago my ex-wife (wife at the time) and I bought a family home for about $127,000. I did good upkeep, fixed a few things, and have kept the home in good shape.

2 years ago my wife left me for another man. I was dumb, had no lawyer, and got a less than perfect outcome. I took all the merital debt, including the home.

I have since met the woman of my dreams and re-married. I moved in with her. She currently owns her own home...but can barely make payments...and ONLY if the child support from her ex comes in.

My old house has been on the market for a year now...listed at 119,900, which will end up with me owing several thousand if I get the asking price. I have not even had a single nibble on it. Between my current wife and myself, we are paying over $2K a month in mortgage payments. Together we make less than $80K a year...and have three kids between the two of us. Needless to say, things are thin...and there is not a single glimmer of hope of selling my old house.

I have heard about three options...and some "facts" that go along with each of them. I don't know what is true or not, and don't even know where to begin. I just need to get rid of that house! The rest of our payments/etc. are in fine shape. We have only two modest car loans (one $4,000, and one $15,000, and no equity in either). We have no other debts except one credit card with less than $2K and some school loans from college.

1.) Foreclosure - how does this happen? Is this something I can ask the bank to do without missing a payment, or do I just stop paying? What are the consequences? If I miss payments, it hurts my credit more than if I don't right?

2.) Bankruptcy - I have heard I can file a certain kind of bankruptcy that only effects my old house. I also heard this may be the best "out" with the least hit on my credit. How do I procede? Is this possible?

3.) Short-sale. I am already in a short sale price...I owe more than what I am asking after all the realtor fees, etc. are taken out. Is this the best route? I have read that I will get stuck with the balance no matter what...so what do I do?

My new wife and I want to get on with our lives. With the current housing market in the area, that house is not going to sell anytime soon...and probably not for years. We are desperate to get our lives on track, and moving.

Thanks,
DH

[JoeBankrupt33]

A bankruptcy is going to hurt your credit as will a foreclosure, but the foreclosure will stay on your credit for only 7 years and not 10 like the BK.

If you file bankruptcy, it affects all of your debts - you don't pick and choose. But, it sounds like a foreclosure might be what you need, since your student loans are probably not dischargeable and you don't have much other debt.

If you do foreclose, depending on your state, the bank can seek a deficiency judgement if they determine the fair value of the house to be less than the balance on the mortgage. If they do cancel debt due to a deficiency, you may also be liable for income taxes on the difference.

[OHBOY]

I believe the outcome of a foreclosure could be iffy...pertaining to how much the bank actually would come after you afterwards including their expenses...
What if they sell the place (maybe at auction ?)for 50% less then your present asking price.....

Personally I think I would be more interested in maintaining control over what is going to take place, and I would actually consider possibilities such as lowering the price of the house even more, to cut out the competition and to make it more attractive to a buyer... and 'eating' the loss,
OR .... renting the place out may well be another option. Around here I see more and more 'rent to own options' creeping up, which may not be the worst idea, especially as I would think that it MAY just (hopefully) give you a better tenant...one that MAY care about the place (?)

[OHBOY]

Oh, as you have your place mortgaged, I suppose I need to explain that 'rent to own' suggestion a little better. In your case you could i.e. offer an incentive and offer to pay the closing cost if they decided to buy it after renting it for 'x' amount of time.
Of course a lot hinges on your local realestate rental market, and demand, or lack of demand for rental units, and a lot also depends on the old adage: location, location, location ( even in this market...).

Of course you could utilize that example of offering to pay for closing cost ( that is if you can scrape up the $'s) also while you have your house on the market up for sale.

Personally I would also sell the place myself in order to save the realestate commission....that is, IF you have the time to do so, and are able to show the place at a moments notice.

Properly written ads, lots of word of mouth, signs, open house, ect. and having somebody in your pocket (like an attorney) to write the contract, if you are not familiar with writing a realestate contract, (and most are not...)
IF you think you know how to write the contract, always make it 'subject to' buyers and sellers attorneys approval, just to cover your butt.