Is it worth it to foreclose?

A foreclosure is close to equaling a bankruptcy and will linger on their credit for years. Having renters to take up part of the rent and lessen the burden is better. Selling it at a loss is better. Negotiating with the lender to lower the payments is better.

Almost anything is better.

What happened is the housing market crashed, not that your parents were irresponsible.

Besides just their credit score… a three digit number that anyone only has access to if they give them access (thus making many people think it really doesn’t matter)... they will be declined on many future loans, or if they do get approved they will pay MUCH more for the same object now that they’ll have a lower credit score… and it will be much, much lower. The interest rate will be very high.

Since the house is in Vegas there should be plenty of opportunities for rental. I mean, it’s VEGAS.

just find a good Real Estate Agent to vet prospective renters and do background checks to avoid idiots trashing the place.

Have you looked at Cragslist for the Vegas area? Look in the housing sections.

Anything is better than foreclosure. Only the banks make money from that.

@Buttonstc Las Vegas is one of the worst hit in the country, it will not be easy, if even possible to find a renter

A foreclosure is very bad for future credit needs. The best thing to do is discuss the possibilities with the lender. They will have to be very persistant, because the lenders do not like to talk about alternatives, as they would much rather take the write-off.

I suggest getting a lawyer to handle it.

Have they stopped paying because they can’t afford the payments, ie loss of income? Or have they stopped paying simply because they feel the value of the house has gone down?

If it is the former then they need to get out from under as soon as possible. Renting in that case, is only feasible if they can cover the all house’s expenses. If not, if they can afford a one time loss, they should sell at a loss and move on. If that is not possible they should try for a short sale before foreclosure is forced on them. If they are bleeding money, they have to cauterize the wound quickly.

On the other hand, if their income is still stable and the payments are no more of a burden than they were 18 months ago,they would be foolish to jump ship now. I know it’s painful to be paying a $400,000 mortgage on what they perceive as a $250,000 house, but if the market hadn’t failed they would happily making those payments, right? Well the value of that house will come back. It may not increase 10 times and let your parents retire as multi-millionaires but it should pay for itself as a rental in a few years and be a retirement home or at least eventually return a small profit like a saving account for retirement.

Of course many people made mistakes, big and small, in the housing market
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Small-buying a house they couldn;t afford with tricky financing. Iy is easy to blame realtors or mortgage brokers but the buyers had access to mortgage calculators, too. Your mortgage should be in sight of a comparable rental. If you can only afford a $1000/mo rental payment, you can’t afford a $250,000 no down interest only mtg or ARM because on your best month you can scrape together the payment-it’s simple arithmetic not calculus.

Big-You invest only what you can afford to invest. You don;t buy a second home or borrow against your equity in the hope that you will get a ROI OF 20% annually for the next 30 years. The economy has never had a run like that and you are betting that you will have no personal economic crisis for the next 3 decades—that’s crazy!

Like @galileogirl said, it depends on whether they can afford to keep making the payments or not.

If they can, then they should, at least in the short term. They may not be happy about it, but their reasonable options are really to keep on paying or to sell it at a loss: to lose a little bit every month, or to lose it in one lump sum. If it recovers its value, whoever owns it then will get the profit: either them, if they keep it, or whoever they sell it to, if they don’t.

If they can’t, then they need to deal with it proactively. There are things they can do here—short sales, renters—that will mitigate the damage to their assets and to their credit rating. Just skipping payments and waiting for the bank to foreclose on them is about the worst possible thing they could do.

They should try to “Short Sell” first… this is where buyer will make an offer to the bank and the bank will sell the home for under the loan value that your parents owe thus “Short” sell… Many banks are doing this now and your parents credit will only be effected for a short time, unlike a foreclosure… It’s the way to go…. good luck!