It seems today this is the easy thing to do - just give it back. But this is exactly why we are in this mess and it will come back to hit us all in the future. I say stick it out and save your name and your credit. Ruining your credit is not the right thing to do.
Realty Executives e-Group
From your question, I gather that you were not able to rent out the home for "fair market value" (without a loss). I'm not a tax professional but suggest contacting your CPA or tax professional to find out the limitations of being able to do so year after year. You do not want the IRS to disallow your rental or take away your chance to depreciate this property as allowed. http://www.irs.gov/publications/p527/index.html look under not rented for profit.
Also, you do not indicate how long you owned the home in Dearborn. If it was less than two years, there may be tax consequences for selling. These are just my thoughts, again I am not a tax professional.
1.) Talk to your CPA (good point Keith). You do get to write off depreciation, interest, etc from your rental property. Maybe even think about whether your maximizing your write offs. Are you keeping good track of everything you spend on the rental home. There is a lot to consider at this stage also. Like how are you paying for the $500 expense? Does your paycheck cover it, are you draining your savings, taking loans from 401(k)'s, cashing in other assests to make it every month?
2.) If after CPA you determine it still isn't working, aboslutely talk to the lender and see what they can do in terms of a loan modifiction. This may save everything until you sell it for what you need out of it.
3.) If loan modification doesn't help, your draining your entire life savings, CPA says it doesn't make sense, then I wouild at least consider a short sale. While damaging to credit it's not as damaging as a foreclosure. And as you can see, if you've exhausted all your resources and the banks can't help with loan terms what else can you do? Don't let anyone try to make you feel like you're opting for the quick fix. There is nothing quick or easy both financially and personally about dealing with a problem like this. I've helped many people with short sales and it's heart breaking, but when it's over there is a huge sigh of relief.
If you know there is no way you can continue and you are on the verge of missing payments, absolutely consider a short sale. Speak with your lender, hire an experienced short sale Realtor and get the home on the market. Don't let thing gets too far ... be proactive.
Talk with a CPA about your tax situation. It may not be as bad as you think after taking into account your taxes
Talk with a Realtor about market value - as a sale, and as a rental
Talk with your lender about loan modification. Most lenders do NOT want to foreclose, and they do not want a short sale. Explain in a letter exactly what has changed so you can no longer afford the payments, and that you had to move.
Also, try to look long term. My family had a similar issue. It was very stressful for the first three years or so, but eventually values changed in 18 years later we sold at a profit.
However, I believe your best option is to negotiate with your lender to reduce your payment. This comment came from the Federal Reserve Meeting Yesterday: "The Senate voted 83 to 9 to consider authorizing the Federal Housing Administration (FHA) to help troubled borrowers refinance into more affordable loans if their bankers agree to forgive a portion of their debt."
It sounds like you have an unavoidable relocation issue, that is a legitimate reason for a lender to work with you to keep your home. If I can provide other resources, or you just want to talk through this with me, feel free to call me directly.
I actually have 2 short sales in Dearborn right now. One on Powers and one on Merrick. You definately want someone who knows what they are doing and likes doing short sales. A lot of agents just don't like all the extra work and I can't blame them. It takes twice as long as usually pays less. But, the market is what it is and all we can do is help as many people as we can get through these difficult times.
Have tried calling your bank and inquiring about a loan modification?
If short sale seems to be the answer, it is true you can try and work it so that banks will agree to not come after you for the deficiency, but it's never a gaurantee. I would love to speak with you more about it. If you'd some additional advice, please feel free to give me a call or email me directly. Here's also a good link for more info on how to avoid foreclosure: http://www.hud.gov/foreclosure/
Best of luck.
Find a local short sale expert and begin working on the bank to let you out of the property. Do a search for "short sale" on trulia and you will find plenty of information about the topic.
It is key that you want a short sale without recourse. In some states the bank can come back after you for the deficit even if they agree to let you sell short. This is definitely something that you will need to get in writing before the sell.