Legal Question in Real Estate Law in California

Re: forclosure/short sale

Let me start with the credit score issue. Unfortunately, at this stage nobody can really tell you with any accuracy how this might affect your credit. The foreclosure will remain on your credit report for seven years, but what weight it will be given in your overall credit score is unknown because the credit scoring models are proprietary. Further, with the radical changes in credit happening right now, its hard to know if those models will change - either tightening of modelling to reduce risk, or loosening to accomodate the numbers of people losing homes in foreclosure.

As to your question about staying in the house, or walking way, this answer is really not a legal answer. The typical rule of thumb for housing costs is that they should not exceed 35% of your gross income. In your case, that is $2,916.67. Between your interest payment, and your property taxes, you are paying approx. $2,433.34. Add to that insurance, and you are probably right at 35%, or slightly less. That being said, theoretically at some point you will need to start paying an amortizing payment which will be higher. You also have the problem of not being in a position to refinance because of the negative equity.

A lot of people are facing the same decision as you are. Its hard to tell you to continue paying on a home you are correct - you may never fully own. That being said, a default and ultimate foreclosure will definitely hurt your credit, and may prohibit you in the future from buying a home, a car, or obtaining other forms of credit including student loans if you are required to co-sign for your son. Additionally, by renting a home, you will now be saddled with the uncertainty that goes with renting. Frankly, this isn't a legal decision, this is a personal and financial decision. You can't be blamed for thinking that walking away might be the best option - $160,000 negative equity on a $240,000 home is a real tough deal. It could be a very long time before that turns around. Can you rent the home you are in for something close to what it costs monthly? Have you looked into a loan modification with a reputable law firm? These are things you should look into before you pull the trigger and walk. Good luck - I honestly hope you can reach a decision that you'll be comfortable with because there aren't many good options in what you have described.

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