Foreclosure in San Diego>Question Details

Home5904, Both Buyer and Seller in San Diego, CA

I have an investment property that is 40% below purchase price. The loan is an ARM that adjusts every 6 months. Should I let it go?

Asked by Home5904, San Diego, CA Sat May 22, 2010

The loan has recently adjusted resulting in a $700 loss per month. I have a primary residence that I plan to live in for the next 10 years. I do not plan on buying or financing any major purchases over the next 5 years. My wife has stopped working, to raise our child, and I have taken a $20K pay cut. I feel that I can put the $700 in better investments or into savings and come out ahead. What do you think?

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27
"Run like the wind" would be my first thought but there are always more variables involved. If you are going to leave the property definitely attempt a short sale but DON'T accept one that allows the bank to pursue you for a DEFICIENCY Judgment. If that were the case you might as well let them foreclose.

Look at it this way. You are losing 700 per month. That's $8400.00 per year I don't know the math on what you paid for the property but let's just say $300,000k to make math simple, given the 40% haircut in value you state in your title, your property is now worth $180k. That leaves a difference of $120,000. I would estimate it will take at least another 12 years to reclaim that value.

So here are the down and dirty facts.

In a short sale the worst possible hit to your credit will make it difficult (not impossible) to get significant financing for about 2 years. After that, it is like it never happened.

Over 12 years you will lose about $100,800 ($8400 x 12 years) paying into the negative cash flow of the investment, not to mention the time spent dealing with tenants and vacancies.

Finally you have the $120,000 in negative equity to make up over the next 12 years.


If this were a friend telling you about their situation, what would you advise them to do? To me the answer is pretty clear but it needs to be clear for you! Good Luck.
3 votes Thank Flag Link Tue Jul 20, 2010
Hi Home5904, I'm in a very similar position but I did sign the mortgage note on my house and I agreed to pay back the money that the bank loaned me to purchase the property. There was nothing in that agreement that said I could walk away if things didn't go my way. Purchasing real estate is an investment. Sometimes it pays off and sometimes it doesn't but our decisions lead to our consequences. The banks were not charging us more interest when property values were skyrocketing and our investments were yielding double digit returns. The decision to purchase and the responsibility for the purchase are ours. I am amazed at the number of people who look at this as a financial decision and not a moral one.
2 votes Thank Flag Link Sat Jun 19, 2010
Ahoy Matey! Jump Ship! I would love to know the specifics because I think you really need to do some math calculations to make the best decisions and yes as some have mentioned already, you really should run the whole scenario by your accountant and perhaps even an attorney but the long and short of it boils down to dollars and cents or in this case dollars and "sense".

I don't know you but based upon your question you are probably in your late 20s or early 30s. There is NO doubt that real estate will come back, particularly in San Diego. However depending on where you live that could take up to 15 years to get back to 2005 values.

Here is some simple math

Here is you. (sample numbers used)
Home value today is: 200k (-40% already calculated)
Home loss is: $700 per month
Home value in 2005: $335,000

You owe 335k your house is worth 200k and you are losing $700 per month in rent.

Here is your new neighbor
Buys house for: 200k
with FHA loan has payment of roughly: $1050

In 15 years guess what.

Your house is back to $330,000 your neighbors has climbed to $330,000. He just made $133,000 and is putting his kid through Harvard Medical School. You just broke even and are now going to be saddled with more loans or tell your kid to start practicing golf or tennis everyday.

You are probably now just getting enough rent to break even.

Your neighbor who has moved on to a bigger house decided to rent the one next to you and is making $700.00 a month in free cash flow after his mortgage payment.

Who do you want to be?

There are a lot of shall I say, less than informed agents and advisors out there that don't know anything about basic finance and business. Nor do they know much about real estate. In fact if you ask them how a house is built they will stare at you like a deer in headlights. Half the people that are giving you advice right now, are probably bankrupt and or in foreclosure themselves. RUN AS FAST AS YOU CAN away from their advice.

Don't sink your family ship. Even the best loan mod, still won't take away that $140k in negative equity and guess what..... 85% of the applicants get turned down anyhow. If this is a rental property and it sounds like it is, you don't qualify.

I am including a link below to the HUD site that let's you know if you qualify or not.

Also if it is between a short sale, foreclosure and deed in lieu. Always go with the short sale. I am the CEO of a Real Estate company that has handled over 500 distress situations in the last 2 years so when I am telling you this it is from real life experience not theory.

Case in point. My most recent short sale had a ZERO impact on the sellers credit rating and his trade line indicated that the debt had been settled. He is now shopping for a house and is eligible for a 3.5% down payment loan, 2 MONTHs outside of his short sale.

I know this sounds ridiculous, but because of our Country's current political and financial position this is the way things are right now.

You are in an opportunity window that you will not be available to you in the next 3 years so you better take it now!

God Speed!
2 votes Thank Flag Link Sun May 23, 2010
You are truly in a "hardship" situation. And this is what the banks are looking for in order to approve a short sale. You can walk away and not pay any taxes on the deficiency. You will still do a 1099 when you do your taxes but it will be a 1099c showing cancellation of debt. Also lender cannot come after you if you show you are "insolvent" meaning your debts add up more than your assets. There are accountants that are excellent in showing this. Contact me at 310-429-4170 and I can show you how. As of April 12th, 2010, the government is giving banks incentives to do short sales vs. foreclosures. The bank DOES NOT want your home back at all. Hope this helps. shy@shysells.com
Web Reference: http://www.shysells.com
1 vote Thank Flag Link Thu Jul 29, 2010
It is ultimately your decision, but as an investor and someone that deals with distressed homeowners and investors everyday...I would seriously consider a short sale. If you qualify, that may be the best option for you...



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0 votes Thank Flag Link Tue Sep 7, 2010
I dealt with a very similar situation a year ago and was fortunately able to do a loan modification. It all depends on your lender, Citi is the only company that I have heard of that are approving loan modifications and have a department devoted to the process. Feel free to contact me to discuss the details and possible options that you have. I definitely agree $700 extra money to put into your pocket per month is a lot of especially right now.
0 votes Thank Flag Link Tue Sep 7, 2010
This is a question for a professional but not a realtor. You need an investment counselor, tax advisor or financial planner. There are too many variables about your other investments, lifestyle and income to let a realtor give you advice. I am a realtor and I must say a fairly good one - but you should talk to someone that can advise you about investments, tax benefits in taking a business loss, etc. Good luck.
0 votes Thank Flag Link Sun Aug 1, 2010
If the loan is adjusting every six months and you are the sole income provider I would consider a short sale.
0 votes Thank Flag Link Sun Aug 1, 2010
I understand why you would feel they way you do. You have a bad investment that is not going to turn around to a breakeven situation for a long time. During this time you will be loosing money or loosing opportunity costs.

So yoiu are willing to :

Let your credit go bad
Willing to have all your credit cards and insurance premiums increase
Are secure in your job and don't feel this will effect your job or the ability to look for a new job
The possiblity for the bank to come after you for the 60% of value you have lost via a deficency if you let it go to foreclosure.


My question is why let the bank control your outcome? You can limit the losses and potential loss or deficency by working with the bank. The first thing I would do is contact bank to see if you can structure a fixed rate loan with a better payment. Then if that works, great. However, if that does not work, see if you can structure a short sale reducing the possiblity for a deficency or at least an amount that you tried to reduce the loss.


Keith Manson

First Weber Group

Certified Distressed Property Expert

Metro Milwaukee
http://www.milwaukeebailout.com
0 votes Thank Flag Link Sun Aug 1, 2010
Hi Home5904-
Even though the property is an investment you may qualify for a loan modification if you want to keep it and ride out the market. The next best option would probably be a short sale as it is less damaging to your credit and a more responsible approach then just walking away. If you opt for a short sale - choose an agent who is experienced in these transactions and has had some success with short saling investment properties as it can be a little more tricky than your average short sale. You have a genuine and documentable hardship so I can't imagine the short sale would be a problem if that's the route you choose.
Best of Luck to you whichever option you pursue.
Carole & Greg
0 votes Thank Flag Link Fri Jul 30, 2010
Talk to the bank first.

Would this be a house you can move into - and out of your current home.

Is your current home also down in value?

Thanks.
Web Reference: http://www.rentlaw.com
0 votes Thank Flag Link Wed Jul 28, 2010
Hello Home5904, I think it would be best to look at all of your options and not just walking away. I'm not sure if you know, but you could possible Short Sale your home. This option will not have the same credit implications as foreclosing. It may be your best option. Let me ask you this, has the loan on this property been refinanced or is this the same loan you bought the home with? CA is a non-recourse state so you will be protected in you didn't refinance. Even if you did refinance it’s okay, you can still have your lender forgive your debt. If you do decide to Short Sale, make sure you’re working with an agent that is experienced with Short Sales. Ask them to provide you with their last three short sale approvals. I have a book that you may be interested in reading. Visit my site below and request your copy. I'm always avail to chat or feel free to watch some videos on my other site: http://www.theshortsaleminute.com

All the best!

Ryan Smith from Temecula, CA
0 votes Thank Flag Link Tue Jul 27, 2010
Let me help you save your credit and possibly your property. Dana Rosas 619-631-0188
0 votes Thank Flag Link Mon Jul 26, 2010
Try and get a loan modification if you can. IF the bank can get it at or close to rental income, keep it. IT may be of use to later in life if renting it out is not a problem and you can get bank to give you fixed lower rate.

IF all else fails, sell it. I always recomened to my clients to try and see what the bank can do first rather than jumping on the short sale wagon.


Roy Mason
Sapphire Realty / San Diego
0 votes Thank Flag Link Mon Jul 26, 2010
You shouldn't have to keep paying on a property that is drowning you and is a loss. There are ways on how you can do a short sale and still come out ahead. You need a proper CPA who is an expert in short sales and tax ramifications. I have one of the best in CA and who speaks and educates lenders, and realtors with the Department of Real Estate and gives lectures on this subject. I can refer you to her. The key word is INSOLVENT. You need to be able to show declining income, which you have, etc and some hardship, which you have and due to circumstances this is making you somewhat involvent. Debts are starting to add up more than assets. You can't get blood from a turnip they say. Check it out, if you want, call me and I'll give you her info to speak to this highly recommended CPA. You have nothing to lose. 310-429-4170 and everything to gain by having knowledge. Knowledge is power. Not knowing your options will drive you crazy wth anxiety. Or email me at shy@shysells.com Hope this helps. Shy:)
Web Reference: http://www.shysells.com
0 votes Thank Flag Link Tue Jul 20, 2010
To sell or not to sell is your decision, but know that there are trade-offs. Speak with an attorney who knows about real estate, foreclosure, estate planning. I work with one who is extremely familiar with these disciplines.

Calculate your inflows and outflows and along with improvements, depreciation and decide if this investment property is meeting your goals.

Perhaps you could do a 1031 exchange?

What would you invest $700 in and what is the expected ROI?
Web Reference: http://www.rebizbuzz.com
0 votes Thank Flag Link Tue Jul 20, 2010
You should allow me to sell it and get you a closing statement to save your credit. It cost you nothing and it is better than having a foreclosure on your credit. I have closed hundreds of short sales and can close yours as well. Dana Rosas http://www.danaleerosas.com
Web Reference: http://www.danaleerosas.com
0 votes Thank Flag Link Sun Jun 20, 2010
This may help answer your questions better, take a look at our site for details or give us a call.
0 votes Thank Flag Link Sat Jun 19, 2010
Home5904
Why don't you call the bank... try to get a super low fixed rate loan modification. I don't know all the details on your loan but purhaps that would take care of your current situation. I will tell you, you have to continually call and follow up however, the end results may be worth it to you. Call HUD if you need help, they are there for free to thelp you through the process.

If that doesn't work then consider a short sale, it will look better for you down the line all away around should you ever decide you want to purchase again.

Good Luck!!!
0 votes Thank Flag Link Sun May 23, 2010
Hi Home5904,

You are stepping into a joint legal/tax minefield with a surf board strapped to each foot!

ALL of the SPECIFICS of your situation must be identified and reviewed by a RE Attorney and CPA to make a prudent decision based on the collective advice of both professional disciplines. To do otherwise is simply foolish.

Best, Steve
0 votes Thank Flag Link Sun May 23, 2010
If it is not making the mortgage & rental equation, do a short sale.
Thats my suggestion.
0 votes Thank Flag Link Sun May 23, 2010
I specialize in these properties and can help you at no charge to you. My advice is free and so is my work. Attorney's just TAKE YOUR MONEY AND DO NOTHING! http://www.danaleerosas.com 888-408-4888 Dana Rosas
0 votes Thank Flag Link Sun May 23, 2010
Unfortunately there is one factor everyone fails to point out to you "the deficiency". Seeing this is an investment property and not your primary residence the bank will be looking to cover any deficiency.
You may be able to convince the bank to refinance, a modification will be difficult most are tailored toward the home being your primary residence.
Somebody suggested a short refinance again these are tailored toward primary residences but it never hurts to try.
Short sale or deed-in-lieu-of will for sure leave you holding the bag for the deficiency it is very rare that you find a bank overlook deficiency on an investment property. Also note short sale and deed-in-lieu-of are forms of foreclosure and as such will affect many things you do not even realize, it gives any credit related companies the freedom to raise your rates especially credit card companies, your insurance company will raise their rates (yes they charge more for people with bad credit records), and many companies look at credit when considering candidates for jobs or promotions these days.
At least with short sale or deed-in-lieu-of you can negotiate how the deficiency is dealt with, with a foreclosure you have no say, the bank will attach your primary residence, your pay, you name it, and foreclosure will destroy your credit for what seems like forever.
You need to get on the phone and start negotiating with the bank, they do not want another foreclosure and do not be afraid to remind them of that. I think your best bet is get a refi that reduces that $700 deficient, you are not going to eliminate it, and continue to rent the place. The market will come around and the need for rentals is ever increasing becuase of all the foreclosures that are occurring leaving families no where to live slowly increasing rental rates.

Good Luck
Bob Patrick
Buy a home after foreclosure expert
0 votes Thank Flag Link Sun May 23, 2010
You need to talk with an attorney. There will be some repercussions and you should know all your options. A loan modification might help, or a short sale...but be careful...

Let me know if I can help you in any way!


Joan Wilson (Realtor, SRES, Ecobroker)


California Cool 4 Sale
Prudential California Realty
Direct Phone: 760-757-3468
Fax: 760-946-7894
JoanWilson@prusd.com
License # 01341483


Know Your Rights Home Affordable Foreclosure Alternatives (HAFA) Program
http://HAFAHAMP.NET

Find Your Dream Home:
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Find Foreclosures: http://CaliforniaCool4Sale.com

Blogs:
http://blog.californiacool4sale.com/

Co-author of “Should I Short Sale My Home?” Advice on what options are available.
http://ShouldIShortSaleMyHomeNow.com
Web Reference: http://HAFAHAMP.NET
0 votes Thank Flag Link Sun May 23, 2010
Hi,
You may have options other than short sale.

You should definately look into a loan modification or a short refinance to reduce the negative equity in your home.

Depending on the lender getting out of the option arm shouldnt be difficult.

A short refinance could get rid of all of the negative equity and get you a new loan at 90 - 95% of current market value. If your still current I would try this definately before you short sale.

With the criteria you mentioned you are a great candidate for a Loan Mod or a Short Refinance.

I am happy to give a free consultation.

Lenders do loan mods on rentals, I am doing one right now with Wells Fargo. Also, the fact that your upside down and in a loan that most lenders want to get out of I think your chances would be very high for approval .



JoAnna Jensen
Realtor Legal Assistant
I work Hard to Keep my clients IN their Homes

925 699 5051
0 votes Thank Flag Link Sat May 22, 2010
A short sale may be the answer. The loss of income and the circumstance with your child will qualify you for a hardship which is exactly what the lender will need to see in order to approve a short sale. Also, fannie and freddie mac will qualify you for a home loan just 2 years after doing a short sale - compare that with 7-10 if you were to have a foreclosure or Bankruptcy. We just closed on short saling our own condo 2 weeks ago, and what a relief it is.

The only thing you may need to watch out for is the forgiveness of debt, which could bring tax consequences. If you've pulled out a bunch of cash from refinancing that property in the past, then this could be a problem. You may be able to claim insolvency if this is case so check with your CPA.

Shoot me an email if you have any other questiions if you want to discuss this further
Joe Rennick
joe@whisselrealty.com
View the status of the short sales that we are currently processing here: http://status.whissselrealty.com
0 votes Thank Flag Link Sat May 22, 2010
This is called a "Strategic Default".

There are many consequences and probably a deficiency judgement where you could owe the bank the money anyway. There are legal and tax situations involved too. It is not a simple yes or no.

Please see my Foreclosure Avoidance web site for 11 Free Reports which talk about the consequenses and the the benefits of doing a Short sale...if you qualify.

<a href="http://hosted.cdpe.com/DennisSmith/Resources.aspx">
Click here</a> to see the 11 FREE Reports.

Check out the site then call my cell at 760-212-8225, after 7:30AM Sunday.

We use attorneys to negotiate with the bank. They have more arrows in their quivers than do agnets.

Dennis Smith, ABR, SRES, e-PRO, CDPE, Realtor® Lic #00476662
Certified Distressed Property Expert
Taylor Place Real Estate, Carlsbad CA
dennis@SanDiegoHomes4u.com
760-436-0087, or cell at 760-212-8225
0 votes Thank Flag Link Sat May 22, 2010
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