Shortsale/Foreclosure and Security Clearance

[Anonymous]

Hi everyone.

I could use some advice for my brother who has gotten himself into quite a bind. He owes about $250,000 on our childhood home that is probably now only worth about $80-$100,000. It needs a ton of repairs (new roof, water damage, termite damage, you name it).

He has put a herculean effort into trying to fix the house up himself, but in addition to the financial toll, it is starting to take an emotional toll on him and his family. At this point, they just want to get rid of the house. However, if they do that, it would either mean a short sale or foreclosure. He has never missed a payment on the mortgage, so I do not know if foreclosure is an option. And I do not know what either --short sale or foreclosure-- entails.

Their entire salary goes into mortgage, daycare for their twins, and monthly expenses.

Does anyone have advice that I can pass along to him? I really don't know what to tell him. He has a DHS Security Clearance, so I am concerned about what this could do to his clearance when it's time to renew it.

Any advice regarding what he should do and how these options could affect his security clearance would be much appreciated.

Thanks in advance.

[Anonymous]

Can he refinance? Talk to a mortgage counsel maybe?

[Anonymous]

Sorry, but I have to ask. What did he do with the money he took out of the house?

Does he work in the DC metro?

[Anonymous]

Short sale is a better idea than a foreclosure. Get an attorney for him. Not sure how the feds will view it, but you would have to think there is some leniency for people who got caught up in the fallout from the housing bubble.

[Anonymous]

He needs to inform the security office if he goes into foreclosure. It is always better to be forthcoming and to inform the agency of significant events like this rather than to wait until the security office conducts their periodic reinvestigation.

[Anonymous]

OP here--good question. Most of it was probably him just being irresponsible. However, I do know that he consolidated his and his wife's debt to pay off her credit card bills when they were newly married, to pay his school loans, he put quite a bit into repairing the house (which is beyond repair, as it's a big and very old house), and he used some for household expenses. When his wife got pregnant with the twins, she was not working, so he was supporting a family of 5 (2 adults and 3 children) for about a year while she was pregnant and then until she was able to find a new job and return to work. Part of the second mortgage was used to help them meet monthly expenses due to her being out of work. So....the money goes quickly.

I think his problem is a combination of bad decision-making (i.e. taking the second mortgage), some irresponsible spending, and just bad luck (like his wife getting laid off and then immediately getting pregnant with twins). But my heart goes out to him because he is trying so hard and has really shouldered more than his share of the financial burden for the house, not to mention the burden of other household chores and family needs. His big mistake was buying the house. I think he was so nostalgic for our childhood home and didn't want to see it leave the family, that he made the decision without thinking rationally about exactly what he was getting himself into.

[Anonymous]

OP again--Good idea about informing the security office. I think it might be a good idea to try to talk to someone from the security office to see what impact either of the options could have on his clearance status.

[Anonymous]

Anonymous wrote:OP here--good question. Most of it was probably him just being irresponsible. However, I do know that he consolidated his and his wife's debt to pay off her credit card bills when they were newly married, to pay his school loans, he put quite a bit into repairing the house (which is beyond repair, as it's a big and very old house), and he used some for household expenses. When his wife got pregnant with the twins, she was not working, so he was supporting a family of 5 (2 adults and 3 children) for about a year while she was pregnant and then until she was able to find a new job and return to work. Part of the second mortgage was used to help them meet monthly expenses due to her being out of work. So....the money goes quickly.

I think his problem is a combination of bad decision-making (i.e. taking the second mortgage), some irresponsible spending, and just bad luck (like his wife getting laid off and then immediately getting pregnant with twins). But my heart goes out to him because he is trying so hard and has really shouldered more than his share of the financial burden for the house, not to mention the burden of other household chores and family needs. His big mistake was buying the house. I think he was so nostalgic for our childhood home and didn't want to see it leave the family, that he made the decision without thinking rationally about exactly what he was getting himself into.

Thanks for answering the question. I was wondering if he had used any of it for house repairs.

[Anonymous]

When I worked in personnel hiring for the department of defense the number one reason a security clearance was denied was due to financial issues.

[Anonymous]

Is he a govt employee or a contractor?

I ask b/c if he is a gov't employee who has a clearance and has it revoked he will still have a job. If he is a contractor - he may not continue to have employment.

[Anonymous]

OP again--He is a government employee.

I've advised him to talk to a realtor and a credit counselor. He has never missed a mortgage payment but he has to put a new roof on the house by July (estimated $15,000) or else his insurance company is going to drop him. So, not quite sure what he should do. He is going to talk to the mortgage company to see if they can help or provide advice as to a new insurance company because he doesn't have the money to put the roof on the house.

Thanks everyone for your comments. Eventually, it'll get figured out. These things always find their way to some conclusion one way or another...

[Anonymous]

If he has never missed a payment, the bank most likely won't let him do a short sale. Why should they, if he can make the payments? Think about that conversation: "Yes, Bank, I know I borrowed a lot of money from you, and I am capable of paying it back, but I'd rather not. I made some bad decisions that are taking an emotional toll on me, and I'd rather not deal with them. Can I please be excused from my obligation?"

If his insurance company drops him, the bank will force-place insurance on the property - and it will be hideously expensive. He should try to avoid that at all costs.

[Anonymous]

When I worked in personnel hiring for the department of defense the number one reason a security clearance was denied was due to financial issues.

He's already employed, so there might be some short-term consequences, but certainly he wouldn't do himself any favors by waiting for the security office to find out about it. Self-disclosure is always preferable.

[Anonymous]

Anonymous wrote:OP again--He is a government employee.

I've advised him to talk to a realtor and a credit counselor. He has never missed a mortgage payment but he has to put a new roof on the house by July (estimated $15,000) or else his insurance company is going to drop him. So, not quite sure what he should do. He is going to talk to the mortgage company to see if they can help or provide advice as to a new insurance company because he doesn't have the money to put the roof on the house.

Thanks everyone for your comments. Eventually, it'll get figured out. These things always find their way to some conclusion one way or another...

Wow! That's an expensive roof. He can apply for a special loan via the FHA for home improvements. I don't see any reason to think he wouldn't get approved.