Our property is $60,000 underwater. Should I foreclose on my ARM mortgage?

My wife and I purchased a 20-year old home in 2005 just before the real estate bubble burst in Florida. At the time, based on practically everyone’s advice, it seemed like a sensible idea to take out a 2-year adjustable rate mortgage, invest a bit into increasing the property’s sagging resale value and sell the home in a couple of years.

Everyone knows what happened then.

The property is currently valued $60,000 less than what we owe. I haven’t heard a single estimate that predicts the value of the property reaching pre-crash market value for at least a decade and with our state now losing more residents than its gaining even that estimate seems unlikely. It’s an adequate home in a quiet and safe neighborhood but its definitely not what we had in mind as a long-term, permanent residence which is what it looks like it has become if we stay in it since we obviously are in no position to sell it.

We’re always a month behind on the payments now so our credit has been compromised. We can’t re-fi. But the mortgage company (which has changed hands four times since our purchase but always the same overseas call center with inconsistant responses to our questions) informs us that we’re not delinquent enough to warrant any assistance or programs.

Fortunately, at two years, the ARM reset at a lower rate which has probably been the saving grace so far but it will reset again in less than 5 years, presumably to a higher rate.

We are are a one-income family right now and my salary was cut 15% as a result of the recession. My wife was let go six months ago. Her prospects are terribly limited and any offer she considers needs to account for the expense of day care to make it worthwhile. Even with our monthly spending cut to bare necessity we dip into savings each month. At some point we will have no savings left to pull from. One medium-scale disaster and we’re wiped out. We haven’t had any significant extra money to save or put into 401K in over two years.

So given the state of our home’s value, its longterm outlook, the condition of our mortgage and our household income we feel trapped. Our options are minimal at best. We’d hate to foreclose. And while we’d feel bad about doing it it seems like having the extra money a rental would provide us would come as an enormous relief. We could put it into savings, invest it, etc…

We’re thankful that we have each other and we try to keep an optimistic outlook but I seriously question the long-term payoff of sacrificing so much just to keep this property.

Should we bite the bullet and walk away despite everyone’s insistence to avoid foreclosure at all costs? Should we get more delinquent with the payments to qualify for assistance programs (whatever those might be)? Or should we continue along as we are, making the payments as we can and hope that things just improve at some point despite any solid evidence to give us reason to be optimistic?

Sell House Quick