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Will letting my house go into forclosure hurt my student loan options? I plan on applying this cycle and wonder if I should keep paying on my house throughout the rest of this year or just let it go into forclosure and save up for law school. I am currently about 70-80k underwater and would love to keep the house and rent it but living in a house "morgage free" for the remainder of my time not in law school doesn't sound bad either when compared to being a long distant landlord.

Just exploring options.

Anyone have experience with this?

Currently have never missed a payment and have great credit. Is it worth the credit hit?

Maybe ask the bank about signing a Deed in Lieu of Foreclosure?

Edit:typo

There are companies that will manage it for you, and take a small cut of the rent.

Foreclosure is a pretty big thing to have on your credit report for 7 years, that should be an absolute last step.

HowDoMagnatesWork wrote:Maybe ask the bank about signing a Deed in Lieu of Foreclosure?

That's very, very state-dependent.

Letting your house go into foreclosure (if not doing so is an option) may be a source of difficulty when whatever State Bar has to pass on your character and fitness. It might not disqualify you but it will surely call for closer scrutiny.

Frankly, if your situation is this dire, you probably shouldn't be digging yourself in any deeper with student loans.

ExecDirect wrote:Will letting my house go into forclosure hurt my student loan options? I plan on applying this cycle and wonder if I should keep paying on my house throughout the rest of this year or just let it go into forclosure and save up for law school. I am currently about 70-80k underwater and would love to keep the house and rent it but living in a house "morgage free" for the remainder of my time not in law school doesn't sound bad either when compared to being a long distant landlord.

Just exploring options.

Anyone have experience with this?

Currently have never missed a payment and have great credit. Is it worth the credit hit?

If you can afford the payments, I think it is unethical to stop paying so you can purposefully go into foreclosure just because you are underwater and want to go to school. Rent out the house using a property management company if you don't want to worry so much.

Work it out with the bank. Call your lender & ask about forbearance programs. Some reduce you to zero% (0%) percent interest for two years in order to help get back on your feet financially. Do not just let your house go into foreclosure.

Remember - depending on the state, you may be responsible for the difference that they're able to sell it (following the foreclosure) for and what you owe on it, which could be a very hefty price tag (likely 70-80k for you)

You may try to engage in a short sale. Talk to your mortgage lender and see what the policy is. You will likely have to provide bank statements, write a hardship letter outlining your financial hardship and inability to continue with the mortgage, and work with the lender-appointed negotiator. Sometimes they will make you pay a portion of the difference between the loan amount and the sale price; other times they fully discharge the loan as paid in full.

All these options will severely hurt your credit, some less than others.

My opinion is call the mortgage company and explain the situation, explore your options. It is in their best interest to find a solution that avoids foreclosure (since foreclosure resale will be much lower than other options as well as missed payments and time languishing on the market). They may be less-than-excited about letting somebody voluntarily choose law school over staying with their job that pays their mortgage, but pragmatically, if you're committed to this, they will be vested in finding a solution.

to echo a previous poster, foreclosure could be a C &F issue. Also if you want to do gov work, it could also be a huge hurdle for security clearances.

Just hire a real estate agent to do a short sale. Make sure the person is a specialist in short sales.
As part of the process, they can make sure it doesn't hurt your credit rating.
Make sure you hire a real estate agent short specialist who is aware of how to preserve your credit rating.

Dman wrote:to echo a previous poster, foreclosure could be a C &F issue. Also if you want to do gov work, it could also be a huge hurdle for security clearances.

This. Rent it out...what I did. Rent covers mortgage, taxes, insurance, and management company. I cash a check once a month.

cattleprod wrote:Just hire a real estate agent to do a short sale. Make sure the person is a specialist in short sales.
As part of the process, they can make sure it doesn't hurt your credit rating.Make sure you hire a real estate agent short specialist who is aware of how to preserve your credit rating.

bolded is not accurate. It's going to hurt my credit. I'm pursuing this option right now.

I think the more pressing question is why are you considering taking out significant student loans while your house is getting foreclosed on? You do realize this is the worst legal economy in recent history, right?

blowhard wrote:

Dman wrote:to echo a previous poster, foreclosure could be a C &F issue. Also if you want to do gov work, it could also be a huge hurdle for security clearances.

This. Rent it out...what I did. Rent covers mortgage, taxes, insurance, and management company. I cash a check once a month.

I should add...I would definitely not pay your mortgage with student loans. You are converting dischargeable secured debt into non-dischargeable debt. You cannot walk away from student loans...even in bankruptcy.

I'd rent if you can so if you walk away it's after bar admission. My second choice would be a short sale (you show bank agreed and you did the best you could). Foreclosure looks irresponsible and will be a major C&F issue.

blowhard wrote:

blowhard wrote:

Dman wrote:to echo a previous poster, foreclosure could be a C &F issue. Also if you want to do gov work, it could also be a huge hurdle for security clearances.

This. Rent it out...what I did. Rent covers mortgage, taxes, insurance, and management company. I cash a check once a month.

I should add...I would definitely not pay your mortgage with student loans. You are converting dischargeable secured debt into non-dischargeable debt. You cannot walk away from student loans...even in bankruptcy.

I'd rent if you can so if you walk away it's after bar admission. My second choice would be a short sale (you show bank agreed and you did the best you could). Foreclosure looks irresponsible and will be a major C&F issue.

I would guess that if his house is $70k-$80k under water, he's probably in a situation where his house was overvalued before. Therefore, finding a renter (or group of renters) that would be stupid enough in a position to rent the house for three consecutive years at a price that would pay for the mortgage, taxes, fees, etc. without a lapse in renting may be pretty difficult. Renting is probably not a realistic option for OP

TommyK wrote:

blowhard wrote:

blowhard wrote:

Dman wrote:to echo a previous poster, foreclosure could be a C &F issue. Also if you want to do gov work, it could also be a huge hurdle for security clearances.

This. Rent it out...what I did. Rent covers mortgage, taxes, insurance, and management company. I cash a check once a month.

I should add...I would definitely not pay your mortgage with student loans. You are converting dischargeable secured debt into non-dischargeable debt. You cannot walk away from student loans...even in bankruptcy.

I'd rent if you can so if you walk away it's after bar admission. My second choice would be a short sale (you show bank agreed and you did the best you could). Foreclosure looks irresponsible and will be a major C&F issue.

I would guess that if his house is $70k-$80k under water, he's probably in a situation where his house was overvalued before. Therefore, finding a renter (or group of renters) that would be stupid enough in a position to rent the house for three consecutive years at a price that would pay for the mortgage, taxes, fees, etc. without a lapse in renting may be pretty difficult. Renting is probably not a realistic option for OP

You'd be very surprised. In most (if not all) locations, rent did not fall proportional to mortgage payments. $80K is like $400 a month in mortgage payment. Even if he paid the $400 and rented to cover the rest, he'd be much better off. The falling housing market and unavailability of mortgages has actually driven rents up...not down. Rent is rarely tied to the underlying value of the house. That would make economic sense (why rent if you can buy) but it happens for a variety of reasons.

blowhard wrote: You'd be very surprised. In most (if not all) locations, rent did not fall proportional to mortgage payments. $80K is like $400 a month in mortgage payment. Even if he paid the $400 and rented to cover the rest, he'd be much better off. The falling housing market and unavailability of mortgages has actually driven rents up...not down. Rent is rarely tied to the underlying value of the house. That would make economic sense (why rent if you can buy) but it happens for a variety of reasons.

Being in almost an identical situation, I'm not sure I would be terribly surprised. My thought process has been, it's not the marginal difference between what I'm taking in and what I'm paying that is bothering me. I would be happy to throw away $200/month if I could keep my place. It's the months when they leave and I'm without a tenant, the damage renters might cause, and unpaid rent when they are there - this causes me concern. It's an added stressor completely avoidable and if short sale is an option, short sale is much preferrable to an unrented home, destroyed carpets from pets and damage to the walls, or a significant unforeseen expense and having to evict.

All of that is manageable with proper vetting. My tenant signed a 2-year lease. He is a doctor who walked away from his $7K a month house. He and his wife clear over $200K a year. They can easily afford my $1,400 a month house and they aren't eligible to purchase for another year after their lease ends so it's likely they will re-sign. I'm sitting on $3K in deposits and last-months rent. A proper management company can make a world of difference. The possible risk of them not paying or leaving is much better than foreclosure.

blowhard wrote: The possible risk of them not paying or leaving is much better than foreclosure.

agreed. I was arguing for short sale, not foreclosure though.

That sounds like a sweet situation you have. Congrats.

TommyK wrote:

cattleprod wrote:Just hire a real estate agent to do a short sale. Make sure the person is a specialist in short sales.
As part of the process, they can make sure it doesn't hurt your credit rating.Make sure you hire a real estate agent short specialist who is aware of how to preserve your credit rating.

bolded is not accurate. It's going to hurt my credit. I'm pursuing this option right now.

You can dispute just about anything off of your credit files.
Anyone that gives you difficulty can be dealt with a FCRA / FDCPA lawsuit in your local court.
They will typically settle by agreeing to delete any negative off of your credit files and they will pay you $1,000 as provided in the FDCPA and FCRA.
It is not worth the expense to fight you in court over the issue.

I can get anything removed from my credit file at the cost of a $73 court filing fee and $50-$60 for process service.
After that is just a few phone calls and negotiating with whoever responds.
If they don't respond, you can obtain an injunction from the court that orders the negative items removed from your credit files.

ExecDirect wrote:Will letting my house go into forclosure hurt my student loan options? I plan on applying this cycle and wonder if I should keep paying on my house throughout the rest of this year or just let it go into forclosure and save up for law school. I am currently about 70-80k underwater and would love to keep the house and rent it but living in a house "morgage free" for the remainder of my time not in law school doesn't sound bad either when compared to being a long distant landlord.

Just exploring options.

Anyone have experience with this?

Currently have never missed a payment and have great credit. Is it worth the credit hit?

DON'T DO IT. IT WILL AFFECT YOUR CREDIT SIGNIFICANTLY! IF YOU HAVE TO, RENT IT OUT AND USE THAT TO PAY FOR THE MORTGAGE! IF YOU DO DECIDE TO FORECLOSE:

1. It will affect your ability to get GRAD PLUS loans and private loans for school.

2. It will affect you when you go to apply for the state bar.

clarified_butter wrote:

ExecDirect wrote:Will letting my house go into forclosure hurt my student loan options? I plan on applying this cycle and wonder if I should keep paying on my house throughout the rest of this year or just let it go into forclosure and save up for law school. I am currently about 70-80k underwater and would love to keep the house and rent it but living in a house "morgage free" for the remainder of my time not in law school doesn't sound bad either when compared to being a long distant landlord.

Just exploring options.

Anyone have experience with this?

Currently have never missed a payment and have great credit. Is it worth the credit hit?

DON'T DO IT. IT WILL AFFECT YOUR CREDIT SIGNIFICANTLY! IF YOU HAVE TO, RENT IT OUT AND USE THAT TO PAY FOR THE MORTGAGE! IF YOU DO DECIDE TO FORECLOSE:

1. It will affect your ability to get GRAD PLUS loans and private loans for school.

2. It will affect you when you go to apply for the state bar.

Dude, this thread is months old.

Sorry about that. I didn't pay attention to the date.