Expert: Dick Dennis - 10/20/2008

Question
Hi Dennis,
About 3 years ago, I was in a good position but know I don't know what to do. I currently foreclosed of a primary house, Feb. 2008 paying ($1900/mth, 7%) that my mother and siblings were living in and know as of July 2008 foreclosure, a second home with 2 mortgages on it, paying $3000/mth ,9%(80/20) I am five payements behind and can't afford payments going forward. I can't make due on the payments being so out of my means. I earnestly want to fulfill my obligations but can't financially make due with a sick family. Can I be "walk away" from this with out any liability and if so, what should be my steps?

Answer
First of all, Emeka, if you walk away from any house you may be liable for a taxable gain on your income tax form for the year you do it (I strongly suggest you talk to a CPA or other tax expert to know how to treat this). Since you bought the house three years ago, that means you bought it right at the top of the market. The value of your house is most likely 30% below what you paid, so it is going to be difficult to refinance as per the recent help the FHA program offered as of October 1. When you talk to the tax expert ask him/her if the FHA program will help you. I wish you well.

Dick Dennis