Foreclosure in San Diego>Question Details

Shannown, Home Owner in San Diego, CA

Have a rental condo conversion, not sure to keep it or walk. $50,000 upside down today in San Diego, Walk now with 6 months rent or wait to make more?

Asked by Shannown, San Diego, CA Sun Nov 27, 2011

We own a condo conversion in a nice area of San Diego. We have renters where we are breaking even on the mortgage. We want to make money on it by selling it in the future but think it might make more sence to walk today and take the 6 - 7 month rent we would get ($7,000) while in foreclosure than to wait for the market to come back to make maybe $10,000 - $20,000. We are $50,000 upside down today. Is the market going to come back in 5 - 8 years to a price we can make money? We already filed a chapter 7 so our credit is already hurt. What to do?

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16
After reading your thread there is no reason that makes sense related to you walking away from your investment property. You are breaking even on your mortgage regardless of how upside down you are. Your position with the property is great compared to others who are under water and can't make a full mortgage payment and are coming out of pocket to avoid the consequences of foreclosure.

If your goal is to walk away because you are not making profit in the current market then I would suggest rethinking your situation and does it make sense to walk away. Good luck to you!
2 votes Thank Flag Link Wed Nov 30, 2011
Hello Shannown~ When you make a decision to walk away from a property that is upside down, it is called a Strategic Default. There are so many infinitely better options out there now. I agree with Leon, explore your options with a loan modification (although rarely a good outcome) and seriously look at a short sale option, it's doing the right thing, versus walking away, which is another form of bank robbery. There are several lenders now who have programs where you no longer need to prove hardship and they will let you out from under your mortgage and pay you to leave the home in good condition. If you walk away, you take the chance that the bank will come after you for the $50K loss...and now that you have filed BK, you are stuck with that lien until paid. Doesn't make a lick of sense does it? Feel free to call and see if your bank is one of those. If you want to look at all options, you can get a free report at the site below. Good Luck!!
Chris Gorno (619)788-4345
2 votes Thank Flag Link Sun Nov 27, 2011
Shannown -
I do have one more comment on this. Since this is an investment property keep in mind that if you are planning on collecting the rent and not paying your mortgage, this could be constrewed as skimming. You should look into this as it has legal ramifications, depending whether your loan was a purchase money loan or if you have refinanced.
Good Luck,
Jeff
1 vote Thank Flag Link Thu Dec 1, 2011
Shannon,

My answer might not be popular, and I know you bought this property to make money. But, you're also an investor, so you must have known that markets change. Many, many investors bought their rentals with 0% down - no financial risk whatsoever to themselves, and their tenants paid their mortgage. And your tenant is STILL paying your mortgage, so you're in a very good place. So far, your property is doing what it's supposed to do. The problem is, you don't have a ton of equity like you thought you would, so you're thinking you'll just take the rent - that should be going to your lender - per the contract you signed with them - for yourself. You can afford this property, and eventually, you will have equity. Is the huge hit you'll take on your credit worth $12,000? What are you going to do with $12,000 if you can't buy another property because your credit took a huge dive?

Also, you might be on the hook for the deficiency because the property is an investment and not your primary residence. Check into this. I'd just keep it and look forward. You're actually in a much better place than many in this market.
1 vote Thank Flag Link Mon Nov 28, 2011
If you have a paying tenant in there I do not understand why you would consider walking away. Do you have a hardship that would allow you to short sale it? Would you really let this foreclose AFTER you have been through bankruptcy?

So, you re admitting that you would collect rent from the tenant and keep that money for yourself rather than make your payments to the bank that holds the mortgage? And you are doing this so that YOU will have money? What about your commitment to the bank when they loaned you the money when you purchased the property?

Dot Chance
DRE #01494182
1 vote Thank Flag Link Sun Nov 27, 2011
Shannown~

There are a couple of lenders out there who are willing to let you short sale in your situation. Message me with the name of your Lender and who it was originally when you signed your loan documents...and I will let you know if your Lender is on that list. If so, they may also pay you $3,000 -30,000 to do a short sale on the property with no out of pocket expense to you. It is worth checking! Let's check all of your options...


Chris Gorno
DRE #0199885
chrisgorno@gmail.comm
0 votes Thank Flag Link Wed Apr 4, 2012
If you're still collecting rent, keep making the payment. Being underwater is more of a "so what else is new" reason for defaulting. Your credit is already shot and you're not going to be able to finance for a while because of the BK so just keep going and don't give it too much thought. Focus now on saving money so you can purchase more real estate or other investments using cash since financing may be difficult for a while. Best of luck to you.

-Chris Whittaker
Keller Williams Carlsbad
760-618-1490
http://www.NCSanDiego.com
Chris@NCSanDiego.com
0 votes Thank Flag Link Wed Apr 4, 2012
Additionally, Jeff's comment brings in a whole different perspective Potential fraud. Both civil and criminal.
0 votes Thank Flag Link Fri Dec 2, 2011
Wow! This is an interesting scenario. When you filed your Chapter 7 did you hold this investment out? Reaffirm it? If so why since you are so upside down? If you've already completed your Chapter 7 and didn't include the condo it will show up as a derogatory mark against you subsequent to your Chapter 7. Not a good way to start rebuilding your credit after a BK.

If you have renters and they are covering your nut you may want to consider keeping it and waiting it out for a few years as it will eventually turn into an assets vs a liability. You will be paying down the mortgage while appreciation begins to tick up.

You may not see the dramatic and unrealistic appreciation we've recently experienced but this is certainly a great way to start rebuilding your estate and most importantly your credit. If you just walk away (strategic default) you will look all the more flakey and no one will want to touch you. It's your choice but I'd certainly think long and hard about this.

$50k upside down in the San Diego market is not that bad in the overall scheme of things. Now if you were in the Salten Sea or Needles area I'd be a little more concerned but the San Diego market is reviving and still remains one of the worlds most desirable areas to live in.

If you are insistent about bailing get in touch with us. We specialize in distressed property acquisitions and would be happy to take a look at your situation.
0 votes Thank Flag Link Thu Dec 1, 2011
Hi Shannown -
Sorry to hear about the situation, but you have a lot of really good advice in the answers already given here. Remember if you are an investor you need to think like an investor, real estate is a long term situation, particularly in this market. I would suggest going back to your original goals of the purchase. If the goal was to spec the condo and make a quick profit, that option is gone. So now you may want to consider a more long term goal of buying, holding and having someone else make the payment, then eventually selling for a profit or better yet, do a 1031 exchange to another property, avoiding capital gains and maybe having a property with the potential to supplement your active income with a passive rental income!

If this is a break even now, let the tenant make your payments and build equity for you. If it turns out later to be a negative monthly situation, then reconsider your position. Only then try for the the loan modifications and short sales before the strategic default, which can affect your credit for 5-7 years!

Good Luck, I hope this has helped.


Jeff
0 votes Thank Flag Link Tue Nov 29, 2011
Hi Shannown,
I would not walk away from the property if it is not costing you money to keep it. You have stayed with it through hopefully the majority of it's depreciation, so walking away now doesn't seem like a good idea. Due to all the foreclosures and short sales, the rental market is very strong and will most likely stay strong for the forseeable future.

No one can tell you when or how much the market will come back, but I would hang in there.

Thanks & Good Luck,
Sinead
0 votes Thank Flag Link Mon Nov 28, 2011
Hello Shannown,

I am not sure why you are considering walking away, as doing so is an intentional foreclosure. It will have an effect on your credit score and could cause tax consequences as well, as your property is not your primary residence. Since you have renters in the property and are breaking even, it may be prudent for you to wait until the market improves or until you are losing money, and then to weigh other options first.

Before making any decisions, I highly advise you to consult your tax professional and/or financial advisor. Walking away should be used as a last resort, when other options are not possible.

Best of luck,

Rachel LaMar, J.D.
LaMar Real Estate, Inc.
0 votes Thank Flag Link Mon Nov 28, 2011
Shannown,
If you are breaking even on the mortgage why would you even consider walking away from it.? You should really explore all other options first to make sure this is the only way. A short sale is much better for your credit than a foreclosure and it hardly seems worth it for only $7000. Besides what if your tenant stops paying rent when they receive the forclosure notice? Also verify with an accountant that you wont have any tax liability since this is not your primary residence.
Good luck!
0 votes Thank Flag Link Sun Nov 27, 2011
Hi Shannown, An almost perfect strategy. And yes, ur not alone and we can assist u with the best plan for u! Ur the owner and it is your tenant and your rental income! Pls call me to re-invest and make up for your condo lossses in the future and to list and sell as a short sale. I've been short selling sellers listings for over 35 yrs.. We've had short sale experts that Leon (c below) owns and they rock!! maureen@bellrealtygroup.com or 760 622 6855
Web Reference: http://www.coastal.biz
0 votes Thank Flag Link Sun Nov 27, 2011
Be sure about it's present worth. Get an appraisal, talk to Realtors in the area. derk@derk1.com
Web Reference: http://derk1.com
0 votes Thank Flag Link Sun Nov 27, 2011
Shannon,

That's a great question, and one many homeowners are asking themselves in today's real estate market.

Here's a few things to consider before making your final decision.

I would first approach your lender/servicer about a loan modification, although it is less common to receive a loan modification on a investment property it is possible. Due to increased legislative pressure lenders have become more aggressive in approving loan modifications. A successful loan modification could mean lower payments which would increase your cash flow and ROI.

If Loan modification doesn't work out next try a short sale. Contrary to popular belief you can qualify for a short sale and benefit from one after a bankruptcy and on a rental property. Lenders have beefed up their short sale offerings and are now helping homeowners with relocation and cash for cooperation. We have helped homeowners who have received as much as $30,000 to cooperate with a short sale. You can learn more by reading this article at http://www.shortsaleexpertsinc.com/blog/big-banks-offer-big-…

If the lender does not approve the loan modification or short sale you still have increased your cash follow because of the additional time it will take the lender to qualify and approve/denied you.

The bottom line is to exhaust your options. When used effectively the programs do have benefits that could make a big difference in your decision making.

If you have questions about Loan modification our short sale you can visit our site at http://www.shortsaleexpertsinc.com. Want to know how to get your short sale started? Download our free short sale EBook and you will get all the help you need to get started and keep you going. Or call us today for a consultation – it’s always free and there is never any obligation. 888-746-7820.
0 votes Thank Flag Link Sun Nov 27, 2011
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