Foreclosure in San Jose>Question Details

95123, Renter in San Jose, CA

i have a rental property where the rent does not cover the mortgage, I am considering walking away. Home has 10K in equity. Thank you!

Asked by 95123, San Jose, CA Fri Mar 23, 2012

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16
Hi 95123 and thanks for your post.

First, please remember that a "negative cash flow" situation (where the income is insufficient to cover the expenses) is pretty common for investment property. In most cases, savvy investors anticipate a a period of time when an investment property will be "upside down" and then when it will begin to make money. Seldom do owners of rental properties immediately find themselves in positive cash flow territory.

Now, as to walking away, unless you have a hardship--loss of a job, medical problems, divorce, etc., simply stating that you're not making any money on the investment or that it is costing more than income will not be a good reason for either a loan modification or a short sale. You need a legitimate reason to request forgiveness or modifications from the bank. And, in my mind, not making enough money does not constitute a good enough hardship. You can always ask for assistance from the bank, but they can say no without a good reason. Also, please keep in mind that owners of investment property (rather than principle residences) do not as easily qualify for assistance since this is an investment.

Finally, your only real answers on what to do next will come after talking with the most important advisors in your life--your accountant or CPA and your attorney. There are both serious legal and financial consequences for "dumping" your investment since you are unlikely to get the same types of protections afforded to homeowners facing similar problems for their principle residences. Before taking such a precipitous and costly step, talk with your advisors to get a better picture of the options you actually have and the consequences you might face.

Good luck!!

Sincerely,
Grace Morioka
Area Pro Realty-People's Choice
2 votes Thank Flag Link Fri Mar 23, 2012
This is a diferrent Idea and may work for you. I just had a client similar situation like yours with a low equity and I did not wanted to go through with short sale and ruin their credit. So what I did found him a lease option to buy tenant. I searched a family who lost their home to a short sale, but would have liked to buy again in 2 to 3 years, we entered to a 2 years lease-Option to buy contract with a higher fixed selling price, the tenant/buyer to put down a sum as Option deposit and making the entire mortgage payments. If buyer/tenant do not exercise their option, the option deposit will be forefeited by the sellers, anf if they exercise the option, the seller would walk away with much larger equity. If you like to like to know more details, please contact me.

Ali Shahidi
Broker-Owner
Realtor since 1973
True-Vision Network Real Estate
Office: 408-236-6650
Cell: 408-529=4098
ali@true-vision.com
1 vote Thank Flag Link Fri Mar 23, 2012
95123:

A Short Sale MAY be your best option; however, quite frankly, while the new law below prevents a deficiency judgment against you, given the fact the property is not your principal residence even a successful Short Sale will still provide potential debt forgiveness exposure from the IRS come tax time.

"CA Senate Bill 458 Now Prohibits 1st/2nd Deficiency Judgments*"
http://www.trulia.com/blog/steve_ornellas_mba_re_mastersgri/…

DO NOT spend your time on Trulia trying to cobble together a solution to your situation - you need to speak with a Realtor® to get you pointed in the right direction, which should be an initial consultation with a CPA to determine your actual financial position and/or a Tax Lawyer immediately to discuss your best move.

-Steve

The California Association of Realtors® website devoted to this subject of Short Sales: http://www.shortsalescalifornia.org
1 vote Thank Flag Link Fri Mar 23, 2012
Dear 95123:

You have several options, none of which needs to be a short sale or damage to your credit.

First and foremost, with the new HARP 2 program that will be live within a month or so, you can re-finance the property even though you have so little equity. Perhaps then, with lower mortgage payments, the rent will cover the mortgage. I am starting to take applications for such loans on Monday, but I suppose I could start over this weekend.

Second, if first does not look good enough, you can arrange a sale as a rent to own. This gives you the advantage of covering costs and getting it sold without having to take money from your own pocket. I am selling a condo in this manner as I write this.

Third, you can re-finance the property and then sell it.

Fourth, you can raise the rent, depending on rent control, whether there is a tenant in it now and such factors.

I can discuss all these options in detail for you. My phone number is 408-639-0211. My email is mitchell@handsonrealtor.com.

Mitchell Pearce
1 vote Thank Flag Link Fri Mar 23, 2012
What is your interest rate? Is it possible to refinance for lower interest rate?
Web Reference: http://www.homenet123.com
0 votes Thank Flag Link Mon Mar 26, 2012
Grace and others gave you some good advice.

The first thing I would ask you is what is your goal? With that then you can determine your options and what steps and when to put them into place. With out an end in mind the rest doesn't really much.

All the best to you.

BTW, I have a buyer looking for a home in Santa Teresa and Blossom Valley, if you are considering selling drop me a note and we could see if there is a fit.

All the best to you.
Web Reference: http://www.TerriVellios.com
0 votes Thank Flag Link Sun Mar 25, 2012
Let's take a look at refinancing your current mortgage under the new HARP 2.0 lending guidelines before you jump ship. Investment properties qualify regardless of whether you have equity or are underwater. I'll see if I can help. Give me a buzz or drop me an email

Glen S Etherington, NMLS #346658
877-223-1448
Getherington@castlecooke.com
Castle & Cooke - Since 1837
Straight Talk, Fast Loans - We Know a Quicker Way Home
0 votes Thank Flag Link Fri Mar 23, 2012
How far upside down are you each month? In the 40 years I've been licensed, I've seen home prices steadily rise (I bought my home for 24K) so even with the recent price drops, I still amassed a big potential profit. It would be a shame for you to lose any future gain as well as the money spent on improvements. If your negative cash flow is manageable, you could either increase your rental income or possibly do a rate and term refi under one of the available government programs. I'd have a talk with a reputable Mortgage Broker and/or call me to put the property on multiple listing to see how close you can get to a little better profit. A lot will depend on what condition your property is in. as well as the area.
0 votes Thank Flag Link Fri Mar 23, 2012
I'm sorry but I don't clearly understand .... what is your question ?
0 votes Thank Flag Link Fri Mar 23, 2012
How did you determine you have $10K in equity?

You may have more than that or less than that, depending on your calculations.

My team is experienced in short sales, loan modification and lien stripping, call me with any question, no obligation.

Thank you,
Wayne

Wayne Y Haraguchi, Realtor
408-390-3790
wayne@haraguchi.com
http://www.haraguchi.com
DRE# 00958201
Seniors Real Estate Specialist (SRES)

Member: Silicon Valley, California and National Association of Realtors
0 votes Thank Flag Link Fri Mar 23, 2012
It seems like your property is not underwater, just wondering whether you did any recent appraisal to know that you have 10k in equity.

It all depends on the situation and I would suggest to sit with a real estate professional to see what is best for you in this situation rather than walking away have foreclosure on your credit and since this is your investment property, you may have tax consequences. So, don't just walk away, consult with an experienced professional for your best option.
0 votes Thank Flag Link Fri Mar 23, 2012
Thank you for your question:

Essentially walking away means a foreclosure on your credit record. That is the worst thing that you can do.

There are a number of other options open to you that will achieve the results that you want without putting a foreclosure on your credit record.

For more information, please call me at my cell phone (408)509-6218.

Thank you,
Charles Butterfield MBA
Real Estate Broker/REALTOR
American Realty
Cell Phone: (408)509-6218
Fax: (408)269-3597
Email Address: charlesbutterfieldbkr@yahoo.com
DRE#00901872
0 votes Thank Flag Link Fri Mar 23, 2012
Have you tried to refi the property. I don't have your full picture but walking away should a last resort, not a first choice. If you have suffered a financial set back or lose your renter you may be able to short sale the home. If the home is in a good area for living or investing you may get a buyer to bring some cash to closing to cover any deficit. Call a realtor and speak to your tax consultant before you do anything.

Best regards,

Eric Soderlund
0 votes Thank Flag Link Fri Mar 23, 2012
Have you tried to refi the property. I don't have your full picture but walking away should a last resort, not a first choice. If you have suffered a financial set back or lose your renter you may be able to short sale the home. If the home is in a good area for living or investing you may get a buyer to bring some cash to closing to cover any deficit. Call a realtor and speak to your tax consultant before you do anything.

Best regards,

Eric Soderlund
0 votes Thank Flag Link Fri Mar 23, 2012
I would look into a short sale if you can not get a loan modification. Walking away I am assuming you are thinking about foreclosure. There are benefits to all.

I work with short sales and help to consult with people on what might be your best options. Let me know if I can help.

Pat Chadwell, broker
Ceritified Distressed Property Expert
Realty World - Residential Specialists
408-927-6565 x 11
http://www.patchadwell.com

CRS, SRES, CDPE, CIAS, ePro, SFR
0 votes Thank Flag Link Fri Mar 23, 2012
Have you considered doing a short sale instead? It would lessen the impact and longevity of a foreclosure on your record.
0 votes Thank Flag Link Fri Mar 23, 2012
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