401K & Foreclosure

Updated on August 15, 2007
K.M. asks from Milwaukee, WI
7 answers

My husband and I are having a lot of financial struggles... since I started working first shift, and we've begun paying for childcare, we haven't been able to afford our mortgage payments. We haven't paid on it in 4 months now. We are now going into foreclosure. My husband has taken a withdrawal from his 401k so that we could avoid the foreclosure, but we got the check a few days too late. We have tried contacting the mortgage company to see if we can set up payment arrangements to pay our arrearages and get caught up on everything, but they said we can't because our debit to income doesn't support it. I don't want to pay them the entire amount we got from the 401k check right off the bat because to do a short sale on the house. If we pay the entire amount we are behind, we can't do the short sale and just go back to renting. Also, there just doesn't seem to be much interest for our house. So we don't know if we should let the house go through the foreclosure (and pray that we sell it first), and just move into an apartment before that happens, or if we should pay the balance that would bring our account current. Even if we do bring our account current, we still couldn't afford our montly payments, so we'd wind up right back where we were.
ALSO, we don't know what to do about the check if we let it go into foreclosure. Do we not cash the check and after 180 days it will automatically go back into the 401k account, or do we cash the check and just use it to pay other bills and let the house proceed with foreclosure.
We have no idea what happens to us if we go into foreclosure, no idea if we will then be penalized if we use the money for something other than saving the house (since it was a hardship withdrawal). Just so many questions and no idea where to go for answers.
If anyone can help, PLEASE do!

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answers from Milwaukee on

I'm so sorry for what you are going through. Unfortunately I don't have any good answers for you?! I would suggest talking to a lawyer...but that would cost money too, so I don't know what to tell you. Mainly I wanted to write and wish you good luck and let you know I'm thinking of you and that I hope this all works out in the end :)



answers from Milwaukee on

I think that if you took the money out of your 401k for the house then you need to use it for that. If you took it out as a general loan then you can use it however you want. Either way I would contact the 401k account administrator to be sure.

If it was you taking the job and paying childcare that is causing the negative income, perhaps you should look into a 2nd or 3rd shift job.

Good luck!



answers from Milwaukee on

I know how you feel. I used to work in the foreclosure area at a bank for five years. I know how the foreclosure process works. Have you talked to the bank about the different options that they have. I know you said they will not work with you, but you are talking to collectors and they are not always pleasant and they have one frame of mind and that is to collect the money. I also did collections for ten years. First, make sure they are following FDCPA (fair debt collection practices act) Calling hours 8-9pm (time zone within your living area. Second, make sure they are treating you with respect, no personal attacks. Make sure they don't keep calling your home after you hang up. Then if they are following the rules, each bank has an area that is referred to as a "workout" area. If you file bankruptcy the bank will generally not work with you, so try to avoid this. Hmm, hardship withdrawal. Yes you will get taxed on this, regardless of what you use it for. I think there are very few exceptions to this. If you cannot truly afford the home then put the home on the market. If you have two mortgages on the home look into a short sale for the second. Granted, you may not walk away with anything on the deal, however you wouldn't if they foreclosed on the home. Also there may be a "deficiency balance" Most banks do not pursue deficiencies on homes, but some do. As for this affecting your credit, yes it does. However, it will not follow you for the rest of your life. There will be lenders who will be willing to give you a home loan after you get yourself better situated. Granted you may pay a higher interest rate, but that will improve in time and you can always refinance for a lower rate. Besides, that is about five or so years down the road. I have so much useless knowledge about credit it's pathetic. I am going through the same thing that you are right now, we did file bankruptcy, chapter 13 and I would not go back and change it if I could. Our home is again in foreclosure. Not because I am spending money or things I don't need, but because we truly cannot afford the home any longer. It's sad because my brother built my home and my son has a lot of friends in the neighborhood. But he is young and he will find more friends. I had to stay home because my son is too ill to stay in daycare and that is where all of the problems started. Though I wouldn't change it for the world as my son is my love and my life. Yah, I guess my husband fits in there somewhere too....j/k. If you need anymore help or advice or if you want to compare foreclosure notes :) just email me ____@____.com care, hope everything works out for you...sorry this is soooo long



answers from Sheboygan on

I guess I'm confused as to why you are working a job that is costing you the possible loss of your home? When my child was born, I had been working a job, but when we looked into childcare costs, it turned out I'd be bringing home about a dollar an hour (back in the day). After doing the math and weighing the consequences, the contribution I would be making to finances wasn't worth what it would cost me and my child, not to mention that the changes that we would have to make in order for it to work (bottle instead of breast, paper diapers instead of cloth) would eat up what little I would make and then some. We did have to make some hard choices. We sold our new car, we traded down on our older car. We were living very close to the edge; and then he lost his job. It didn't take long before we were in the hole. Ultimately, we ended up filing bankruptcy, just so you know my comments aren't from a place of judgment. I've been there. I wouldn't suggest bankruptcy. It isn't pretty.
Taking a job with a negative financial consequence just doesn't make sense to me, especially since you must have been working it for several months by the sound of your post, and surely after the first month or so you would have seen the job was costing more than it was contributing. It seems there must be more to this situation than is presented. In any case, this website may help: www.daveramsey.com or perhaps Suze Orman's or Clark Howard's.
Life can throw some nasty stuff at you. There are still times when get too close to the edge for comfort through careless spending or and emergency that depletes us. We reassess what's important to us, scale down, and put our energy and resources where our priorities lie. Maybe it's time for you to do the same? Perhaps take a job with hours that allow you to work when your husband can be home? Sell anything that you are making payments on? Put a moratorium on spending: no new clothes, no going out, etc. Just being frugal for a set time, like 6 months, and then assessing if that's working.
Good luck,
K. Wildner



answers from Milwaukee on

The best thing to do would be to sell the house before foreclosure. Down the road it is something that will haunt you less when things turn around and you try to buy another home.

as for the 401K money, the chances of you being taxed highly for not using it on the house.. a banker should be able to answer that for you. you can just give one a call and ask anonymously.

You may want to check into bankruptcy also. By doing a Chapter 13, you may be able to retain the home.




answers from Duluth on

My husband and I have had the same trouble's, those letters are just to scare you, yes they mean what they say but honestly a forclosure can take up to 6-12 months, this is what I would do, (because we did the same as you), take that check pay up your house to date put your house on the market for sale, then try renting for awhile to repair your credit. We are currently selling our house to get into a cheaper house payment, I can not tell you how many times I have gotten those letters. If you need to talk you can email me at ____@____.com i have talked to others that know about these things and maybe i can help. Good luck in whatever you decide, and remember your not alone alot of us hard working folks get into those binds as well.



answers from La Crosse on

Would you be better able to afford your mortgage if you paid off some of your other bills? If you can't use the money for your mortgage could you use that money to pay down other bills/loans so that your main payment each month is just your mortgage. However, you should be able to pay at least some of what you owe to the mortgage company because last year my husband and I were going to buy a house that was in foreclosure and at the last minute the people who's house it was got the money together and made a payment and saved their house. No more foreclosure. Good luck to you, I know it is hard, especially with children to think about. We are having a bit of financial trouble ourselves and are trying to think of creative ways to get out of so much debt.

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