Section 8 Housing popping up all over the place(thinking about walking away) (Phoenix: short sales, coupon)

[Juram]

I've noticed recently and had ongoing discussions with some of my neighbors regarding the widespread occurrence of Section 8 housing popping up in our North Phoenix neighborhood over the past 6-8 months.

Apparently people who were unable to sell their homes, had some sort of deal with a government agency that was purchasing them or renting them and then transferring them to Section 8 recipients. Now in the past 4 months, we've had more issues with home break-ins then at anytime in the past 8 years combined. We see the police more frequently in the neighborhood than ever before and with my home being $12K underwater, I'm almost contemplating the possibility of simply walking away from the house altogether as I don't see the value climbing much, nor the old safe nature of the neighborhood returning.

I used to feel incredibly safe in my neighborhood, amazingly safe, nice quiet, suburban area, families with children, now we're getting so many issues with crime and assorted problems that I'm not feeling comfortable here anymore.

Has anyone else experienced this in their neighborhood?

[crystalys]

I have not noticed an increase of Section 8 housing or crime in my neighborhood. I don't have the facts as to if one has a direct effect on the other. I do sympathize with your feeling unsafe in your own home. But the biggest thing in your post that caught my attention was that you say that you are underwater by 12K. Well personally I would consider myself very lucky and thankful if my house was worth only 12K less than what I paid for it. Most of my friends, relatives and neighbors are more like 30K to 100K underwater and most of them including myself have not walked away. So if ruining your credit and possibly affecting your future employment status if say you need to look for a new job at some point in time are worth 12K then by all means you should walk away.

[Captain Bill]

Before walking away there are several things to consider.

• You're still responsible for the home prior to the foreclosure sale
• When you vacate the home, your current homeowners insurance will probably be void because the home is now considered vacant property, and that requires vacant home insurance policy, which is more expensive.
• If someone is injured in the home, you may be held responsible, and your homeowners policy would probably not cover it.
• You will have a foreclosure record on your credit report for around 7 years.
• If the job you have requires a security clearance, you may lose your job.
• With the foreclosure on your record you cannot get a security clearance if a future job requires it.

The better alternative to walking away and being foreclosed on is to do a short sale. There is no foreclosure on your record, and you would not lose a security clearance. There are potential tax and recourse issues that you'll need to understand.

If you can, then stay in the home until it's sold, but if you do vacate, inform your insurance company to make sure you have the proper coverage.

Prior to taking either of these actions it is advisable to seek professional legal and tax advice, and consult with your insurance company.

[Zippyman]

Originally Posted by Juram

I'm almost contemplating the possibility of simply walking away from the house altogether as I don't see the value climbing much, nor the old safe nature of the neighborhood returning.

So you're going to "walk away" to where, exactly? An apartment? A rental house? Do you believe that landlords rent for below cost?

True example - I sold an old pickup truck earlier this week to a guy who lost his job last year, and ended up getting his old truck repossessed. Because of his bad credit, he's now driving a "beater".

His rent is $1100/month, even though the house next door to his rental just sold for $79k.

If his credit was good, he could buy the house next door for under $600/month - including taxes, insurance and a bad interest rate.

That's $500 a month, every month, that his bad credit costs him. His car insurance also doubled after the repo (apparently, bad credit makes you a bad driver).


On a side note - my in-laws are really worried about "crime" in their neighborhood.

They have one (1) 26" TV with a TUBE! ( It's one of those old "console" TV's that weighs more than most new cars).

There isn't anything in their home that couldn't be bought @ Goodwill for $20 - or $10 if you have a coupon and shop on Tuesday...

Those that have figured out how to "game" the section 8 system have much better stuff than you do - (they don't have a house payment!)

Their kids have $500 cellphones (with unlimited data plans), and those "Donks" on 20's in their driveways have better radios than what's in your car.

Don't hate the playa, hate the game!

If you figure out how to work the system, send me a pm!

[EnicAZ]

The popping up of Section 8 use throughout Phoenix neighborhoods has increased dramatically in the recent past. Unfortunately, home prices are plunging again and you are going to be more underwater for a long time into the future. Do what is best for you from a financial perspective. Remember that short sales are almost never worth it, as you may eventually get a bill for the difference. In the industry they are called "shorts sales" because the seller loses their shorts either way.

[Ponderosa]

Zippyman makes some good points. And don't think a short sale doesn't hurt your credit. It's bad news in an age where credit ratings are used for so much.

I was in a similar situation as yours many years ago when I bought in S. Phoenix area. The hood was going downhill. My neighbors were moving out and the rentals and bums were coming in. Times were tough (early 80s) like now. I held on and things improved and I sold at a profit. In the meantime, I never got robbed or had my car stolen though I worried about it.

You are not much under water and the recession is rapidly coming to an end. In a year or so, you may be able to move out without destroying your credit. I wouldn't let the Sec 8's raise havoc with several years of my life at this point if I were you.

[rjrcm]

Originally Posted by EnicAZ

...Remember that short sales are almost never worth it, as you may eventually get a bill for the difference. In the industry they are called "shorts sales" because the seller loses their shorts either way.

Actually, it may be worth your while. Consult with a appropriate legal and tax professionals, and if good for your situation, find a Realtor experienced in short sales. Part of the short sale negotiation should be to minimize or eliminate any liability post-sale. Your credit hit will be less than that of a foreclosure.

[EnicAZ]

rjrcm,

Good idea to be consulting with legal and tax professionals. I can't recommend short sales though, because the small credit score save is not at all worth the time and hassle for the sellers. I know that commission sales people like to get their hands in there, but it isn't right at the expense of sellers going through a rough time, only to get billed with the loss at a later time.

[MN-Born-n-Raised]

Originally Posted by EnicAZ

rjrcm,

Good idea to be consulting with legal and tax professionals. I can't recommend short sales though, because the small credit score save is not at all worth the time and hassle for the sellers. I know that commission sales people like to get their hands in there, but it isn't right at the expense of sellers going through a rough time, only to get billed with the loss at a later time.

It sounds like you went though the wrong person on your Short. It's never good to go at it alone or with someone inexperienced.

[Captain Bill]

Originally Posted by EnicAZ

rjrcm,

Good idea to be consulting with legal and tax professionals. I can't recommend short sales though, because the small credit score save is not at all worth the time and hassle for the sellers. I know that commission sales people like to get their hands in there, but it isn't right at the expense of sellers going through a rough time, only to get billed with the loss at a later time.

If you're advising people to go through a foreclosure instead of a short sale, you are giving bad advice. I have to hope that readers understand that a foreclosure is the worst case scenario in most cases. Before one elects to just walk away, they should consult an attorney and a tax adviser, and their insurance company.

The extent of damage a foreclosure can cause to a homeowner is not a "small" difference; it is a "huge" difference.

A foreclosure on your credit record for 7 years; the resultant hit on the Fico score of 150-200 points; and not being able to get a security clearance can be very damaging.

In a short sale, it's possible to negotiate with the bank to forgive the deficiency. When the bank forgives the deficiency, they do send in a 1099. However, the debt forgiveness act remains in place until the end of 2012 so there is no tax in certain circumstances.

Even if the bank does not forgive the debt, a "short sale" is not recorded on the credit report, and the point degradation is only for missing the payments. Also the deficiency becomes a demand for payment without any collateral. It is an unsecured demand note from the bank. The homeowners can easily figure out how to deal with that.

Also, you should know that banks will not do a short sale without the home being listed on the MLS, which requires a Realtor to be involved.

The OP's concern is for his safety. That is the reason he feels like walking away.

He has these options:

• Walk away -- this is probably the worst decision
• Short sale -- if he finds that moving is in his best interest for safety; and if he has a hardship that will qualify him for a short sale. With no hardship there can be no short sale.
• Stay put -- If he can see it through to live there for a few more years he should benefit financially.
• Rent the house out -- Use the rent money to rent a home in a neighborhood more desirable to him. (Probably not the best choice, but an option to ponder)

We have been skirting along the bottom for over a year. The job market here is improving; and if sales begin to pick up we could see some price increases by the end of 2011.

The tax breaks extension is likely to be approved this week
The unemployment benefit is likely to be approved in that package.

This may help the housing market.

Selling at the bottom of a market is not good for any seller unless they are going to buy something else right away.

However, this owner is concerned about safety. Everyone has their own needs and requirements. They need the proper information so they can make their own decision.