Foreclosure in 46321>Question Details

Dawn, Home Seller in Indiana

We want to let a house we don't live in go back to the bank. The mortgage is secured by the property.

Asked by Dawn, Indiana Wed Oct 22, 2008

We bought the house for $255,000 about 4 years ago and we owe $195,000. The house may or may not be worth that given the economy and the stigma associated with the natural disasters. We lost our tenants because of the natural disasters and we doubt we can find someone else willing to buy or rent a home in a proven flood prone area. We own, no mortgage, etc. the home we live in (it is not the home we are trying to get rid of) and do have other assets - retirement and savings accounts, etc. We do not want to jeopardize any of those things with any move we may make to cut the rental property free....Making the payments and repairs on the rental property has gotten to be a losing proposition and it may be years before anything changes. We want to be rid of it. Any suggestions?

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8
Irina Karan’s answer
The key to your question is if you have a hardship - to do the short sale, which is usually the best way out in case of investment property. If you prepare your Profit & Loss, as well as your net worth sheet, you might be surprised - and found to be insolvent, even despite your assets. This is because your mortgage is a huge liability, and the value of the property is much less than what's owed.

I have seen many people thinking that they didn't have a hardship, while they actually did.
This is a question for your CPA, who needs to understand your overall financial situation and your goal of ridding yourself from your investment property.

That's how luxury property short sales are done - it does not matter what income you have, if your expenses are bigger than the income...just to give you an example.

Other options are: having the buyer contribute to your "deficiency" amount, having "soft note" that you slowly repay to the lender after the short sale (if you are not able to obtain the waiver of deficiency), some people move into their rental properties to have the benefits of principal residence tax exemptions...Making this property your principal residence can open other options for you also (short refi, HARP).

You got to meet with your local CDPE (Certified Distressed Property Expert) realtor, a few of local attorneys (but not bk attorneys - as those might point you in the wrong direction), your CPA (if he is knowledgable about short sales and their tax consequences - because some aren't)...

Hope this helps,

Irina Karan
Beachfront Realty, Inc.
IrinaKaran@gmail.com
0 votes Thank Flag Link Wed Apr 25, 2012
As agents we are seeing more and more of this. In good times investments were made and now we are seeing those home owners facing distressed situations. First you need to see what the value is according to the market. Then I would suggest as others did to price it to where it makes it appealing to other investors or buyers. If you owe $195,000 and the home is worth less then you could come to the table with the difference. I just closed one and the sellers had to do that, but they too didn't want to jeopardize their assests or credit standing. An agent can help you as welll as your CPA as to your liability. If your home is in my area you can contact me at ajf45@aol.com and I would be happy to speak with you.
0 votes Thank Flag Link Wed Apr 25, 2012
Dawn, where is this property located? If you decide to keep it and rent it out again, I maybe be interested. Please contact me @ nunnswife@aol.com.
Thanks in Advance
0 votes Thank Flag Link Sun May 1, 2011
Tough to do a short sale on an investment property, but you should talk to your lender now. Maybe they can adjust your mortgage rate and you can find another tenant. There are new programs right now, but they are primarily for owner occupants. If that doesn't work, then it will go into foreclosure if you don't make your payments. Have you spoken with the realtor who sold it to you? Or call another realtor in that area. There are agents who can help you. Best wishes.
0 votes Thank Flag Link Thu Oct 23, 2008
Dawn, don't you have an insurance on the house that would do all the repairs on the house ?
0 votes Thank Flag Link Thu Oct 23, 2008
Dawn
Sorry to hear of your situation.
You have two great answers so far, I will try to fill in with a few comments.

In most markets areas values have declined over the past three years or so. We expect values to remain flat for the next three or four years, based on what we know right now.

From the lender's perspective this is what they would prefer you do:
1. Keep the home - make the payments with new tenants - Impact on your credit - positive
2. Keep the home, modify the loan to make it affordable, rent to tenants at a lower rate, Impact on your credit - positive
3. Try to sell the home as a short sale. Lender agrees to pay closing costs and absorb the loss, you bring no money to the closing table, however you'll need to prove hardship and also prove that you are basically broke by providing a financial statement including all assets and liabilities (in other words, be broke). They will go after other assets that you have (boats, jewelry, 401K, etc.)
Impact on your credit - 80-100 points or so. Don't plan on buying anything in the near future.
It is possible that they may agree to issue a promissory note for the negative balance which you agree to repay over ten years or so.

4. Let them foreclose - trashes your credit 150-250 points, you cannot buy anything for 5 years. Of course, you'll have a lot of company.

My suggestion is to have an expert evaluate your situation and provide you with your options, pros and cons. I would be happy to refer you to an expert in your area that can help you do it. Just contact me via my Trulia profile.

We had a situation like yours. We ended up keeping the home (18 years) and in the end made a lot of money. It was tough in the first five years, but the appreciation of the property and the tax consequences made it worth while. Talk with a CPA or financial planner as part of this process.
0 votes Thank Flag Link Wed Oct 22, 2008
Keith Sorem, Real Estate Pro in Glendale, CA
MVP'08
Contact
I think you should first determine what the home is worth in the present market. You could have an agent do a comparative market analysis of the home or if you want an totally unbiased opinion, hire an appraiser. Since you have other assets, the bank is probably NOT going to let you just walk away from this obligation. My suggestion is to fully disclose the flood/possiblity of and price it REALISTICALLY for present conditions of the market, even if that means you may still end up owing some money to the bank for it. You didnt say if the flood damage has been repaired, but if it has, I would try to find a new tenant and hang on to it, at least for another year or two.
0 votes Thank Flag Link Wed Oct 22, 2008
I would still try to sell it either outright or by Short Sale. You would have to make arrangements with the bank on the Short Sale. Have you had a market analysis done yet to determine the potential for selling it outright? If not, email or call me with the address and particulars and I would love to have one done for you. You may be able to make a positive sale.
Thanks.
0 votes Thank Flag Link Wed Oct 22, 2008
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