I am thinking of allowing my rental property to go into foreclosure. I have been regular with my primary residence mortgage. How will this affect me?

Asked by Cristina52, Fillmore, CA Mon Jun 13, 2011

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John Arendsen, Agent, Leucadia, CA
Mon Jun 13, 2011
Justin, just for the record, I probably wouldn't have such a short fuse were it a first time home buyer or a naive underwater borrower. And BTW yes, I am upset that GM didn't SUCK IT UP! Seems to me that too many folks nowadays find it so easy to throw in the towel. Oh well, different time I guess. I came from that old model of following through with ones commitments. So by all means feel free to "go off" on that one my friend.
1 vote
countinuing from other post. Don't be so quick to judge. We are not living in the sam e world as it was in the back in the 50, 60, 70, 80, 90. Fannie and Freddie made the mess. They gave mortgages up to 125 % of the LTV. I had a closing where no one had no monies at the closing. So go figure. YOU SUCK UP. ,
Flag Mon Apr 22, 2013
Yes, the banks have all the money we bailed them out. In return nothing was done to help the middle class. Every corner all you see are banks going up. This is a domino effect. I have 6 rental properties (2 family ) I also had 4 rentals not occupied for over 4 months. We have put out blood and sweat into these apartments. First all let me tell you it's not that easy to be in this business. You have building inspectors to deal with, health department, lead paint issures and of course the evition proceedsings. When the judge look at Landlords they are in the tenants favor and it takes months to get them out. Then their are swatters the list goes on. I have been in the Real Estate/ Mortage business for the past 20 yrs. The banks tighted up the money and you can't even get a modification no to mention everyone has there hands in my pocket. High raising taxes, water bill, trash. If I had known what I no now this is one of the worst business to be in. They think the landlord has
Flag Mon Apr 22, 2013
Suz A, Agent, Longmont, CO
Mon Jun 13, 2011
Hello Cristina,
If you do let your investment property go back to the lender you're looking at four years of credit repair. I understand that the lender cannot come after you after a short sale - in California. That's not true in my state. But ... Get advice from a financial counselor or an accountant.

If you own other property in California, you might want to think a little longer about just walking away or asking for a short sale. Take a look at the chart on this page:

The reason real estate can't gain traction is because of the foreclosures. A recovery hinges on these foreclosures clearing out. If these people who walked away think their actions won't affect them, they're wrong. Fewer jobs. Sluggish economy. Beaten up real estate market. That's the likely result. If you own other real estate in California, the effect of all of these homes going back to bank is going to effect other real estate, whether you keep your job or business and how long it will take for prosperity to return.

I hope you will do what is prudent for yourself and your community.

PML of Longmont
1 vote
Justin Ruzic…, Agent, Greenville, SC
Mon Jun 13, 2011

Doing a short sale would seem like a good option for you to consider. As this is an "investment" the rules of the lose change a little bit so you want to make sure you protect yourself from the future of having to claim BK or anything like that after successful short sale.

Also advice as to suck it up, come on, this is not a moral obligation...this is business, didn't GM claim BK last year, are we upset they didn't SUCK it up? UGH, I could go off on that one! I digress, sorry...anyway, here is a quick blog about short sales vs foreclosure

1 vote
John Arendsen, Agent, Leucadia, CA
Mon Jun 13, 2011
I'm sorry but people have just become to cavalier today. I say suck it up and deal with it morally and ethically.
1 vote
Emily Knell, Agent, Huntington Beach, CA
Mon Jun 13, 2011
Please please Please, don't just "walk away" from the mortgage. It is ONLY in a short sale that you're going to be able to negotiate OUT of being liable for the bank to pursue you in the future for a DEFICIENCY JUDGMENT.

Also with a short sale we can minimize what you're going to owe the IRS for "income tax" on the negative balance.

Example: You short sell the rental property for $300K, you owe $400K, your tax liability is $100K. OR You just "let it go to foreclosure", the property Could end up selling at auction for $175K, now you're liable for $225K in "income tax" on the negative debt owed.

Please email or call me directly so I can see how underwater your property is. I can also talk to you about the TYPE of loans you have on the rental. If any of your loans are Equity loans or a Cash out Refi, I can let you know what the bank will want to completely SETTLE that debt.

I've had many clients short sell their investment property, all the while having a good amount of money in the bank, other assets & other properties. The bank is not going to go after your other properties or equity.

562-430-3053 cell
Realtor Since 1996
Short Sale Expert
1 vote
Jim Garcia -…, Agent, Englewood, CO
Mon Jun 13, 2011
As things currently stand, a foreclosure will affect your ability to purchase another property for at least 3 years depending upon the how the bankk views the foreclosure circumstances. A short sale will affect you for only 2 years, and banks are more understanding when you sell through a short sale because you've shown an effort to help out in a bad situation.

Foreclosure will hurt your FICO score more than a short sale. Go with a short sale versus a foreclosure if you can.
1 vote
Arnebry Knox, Renter, Sacramento, CA
Tue Sep 26, 2017
in know someone that stopped paying a loan payments so the property can go into foreclosure is that a criminal act
0 votes
Arnebry Knox, Renter, Sacramento, CA
Tue Sep 26, 2017
is it a criminal act to intentionally stop making mortgage payment so the property can go into foreclosure
0 votes
Lynnkiaa, Home Buyer, Los Angeles, CA
Tue Aug 18, 2015
Well this is a good news bad news situation for you. The good news is there is almost a 100% certainty the first mortgage will not pursue for more money. While the loan is recourse, if it was refinanced, they will almost certainly do a non-judicial foreclosure and will not be allowed to pursue you for more money because of California's one action rule.

Now the bad news. Any seconds, thirds, ect. will be allowed to pursue you. You may be allowed to pay them off, for less than what is owed but you can bet they will try and get some money from you. You also have no protection from cancellation of debt income because the loan is recourse, you took money out and it was not your primary residence. It is even possible, though unlikely, you could owe capital gains taxes because of all the deprecitation you have been taking. http://ForeclosureIQ.com
0 votes
Nancy Celis, Agent, Chino Hills, CA
Tue Apr 3, 2012
Cristina, sometimes there are circumstances that change your financial situation and in your case perhaps you may be suffering a financial setback, ie., renters moved out and you cannot afford to pay both homes. If this is the case, there may be options for you to avoid the foreclosure of your property and save your credit, and in some instances short sale may be the best option - but walking away would not benefit you, the ramifications of foreclosure are just not worth it, when you can just sell it.

I am a certified distressed property expert and can offer you the best advice in your situation, please visit my website below and get all your answers, it's free and you will find it informative. Im more than happy to answer any questions you may have. Call me 626.893.6070
Web Reference:  http://www.saveahome.net
0 votes
Peggypeachy, Home Owner, Vicksburg, MI
Mon Apr 2, 2012
I owe more on my house then what is worth..what would happen if I gave my house back?
0 votes
Alex Lopez, , South Florida, FL
Fri Sep 9, 2011
Dear Cristina,

It will go on your credit history, as any foreclosure would, and it would affect you for many years to come. On the other hand, if you do a short sale, the bank will release you from the mortgage and allow you to sell for market value regardless of what you owe and without paying the difference between the loan amount and sales price.

You can completely avoid foreclosure with a short sale and it would help you preserve your credit. It will still show up as a settled account on your credit report, but it is far less damaging than a foreclosure - the two don't even compare. To learn more about short sales, check out : http://www.shortsalespeople.com they offer free help and information to homeowners.
0 votes
Brenda Molloy, Agent, Irvine, CA
Wed Sep 7, 2011
Hi Christina,
My advice would be like many of the other agents who answered your question. Namely, consult a real estate attorney before you decide on what to do. If you have a foreclosure, it will definitely affect your credit rating and you may be liable for a deficiency judgement if you do a short sale.

I don't know if it's much comfort, but there are many people in your situation and some have or are losing their principal residence.

Good luck.
0 votes
Joanna Jensen, Other Pro, Livermore, CA
Mon Sep 5, 2011
Hi Christina,

Before you stop making your payments you may want to see what you qualify as far as:

Loan Modification
Principal Reduction

Depending on who the investor is you may want to consider checking out your options first.

Because this is a rental property you may open your self up to greater liability possibly a deficiency judgment.

Best of Luck,

JoAnna Jensen
Volo Law
Web Reference:  http://www.vololaw.com
0 votes
Dan, Home Buyer, Alabama
Fri Aug 5, 2011
Investors who do a short sale on their investment property are more common then then ever. "

Whoa. I thought real estate was a great investment!
0 votes
Leah Henders…, , Columbia, SC
Fri Aug 5, 2011
Hi Cristine,
Please do not do this. How far behind are you on your mortgage payments? There are many options for you. I just finished a seminar on this topic. Investors who do a short sale on their investment property are more common then then ever. Some banks are approving their plea on hardship basis. Contact a local short sale expert to help guide you through this process.

Don't give up. Push through.
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Anthony Alti…, Agent, Pasadena, CA
Thu Jun 16, 2011
Hi Cristina
The foreclosure will not affect your primary residence but it will adversely affect your credit rating. Also there may be tax liabilities and a foreclosure does not automatically release you from all financial obligations. You need to consult with your accountant and a real estate lawyer to determine your best option and how it will affect you financially.

Why are you thinking about letting your rental property go into foreclosure? Are you struggling to make the payments? Have you experienced some hardship that has resulted in a loss of income? Or are you just underwater on the property? The answers will affect how you can and should proceed. If it is a 1 to 4 unit building, depending on the type of loan you have, see if you qualify for modification. If not, see if you can do a short sale, if you meet the requirements and guidelines.

And please let your tenants know once you decide on a course of action as they will be affected by your decision as well.

Best of Luck.
Certified HAFA Short Sale Specialist, Keller Williams, Los Feliz 323 252 9055
Website and Real Estate Blog: http://WWW.EASTBOUNDLA.COM
Web Reference:  http://eastboundla.com
0 votes
Deborah Grif…, Agent, Scottsdale, AZ
Mon Jun 13, 2011

You should call an attorney and they will explain your options as well as the consequences. When you are informed you will be able to make a decision that is right for you!

Just know…you're not the only one going through difficult times.

Best of luck!
0 votes
Eli Givoni-S…, , Boca Raton, FL
Mon Jun 13, 2011
A foreclosure will clearly have a very negative affect on your credit. You can do a short sale, which will affect your credit less. Feel free to give me a call, and I'll be happy to explain the process to you. I have been negotiating short sales since 2007.

Eli Givoni, Director
Short Sale Department, LLC
Serving all 50 states

MARS Disclosure for General Commercial Communications
Short Sale Department, LLC is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit.
0 votes
Ewa Reza, Agent, Los Angeles, CA
Mon Jun 13, 2011
There is a couple different ways to approch it and short sale may not be the best option. On trulia you'll get replies from Realtors. Most will advise you to short sale the property because it means business for us. But honestly the best thing you can do is contacting real estate lawyer FIRST. He or she will be able to lay out the best options for you. No doubt.

Ewa Reza
Realtor w/Milbank Real Estate Services
cell: 323-455-7575
0 votes
Sara Mehrpou…, Agent, Los Angeles, CA
Mon Jun 13, 2011
Hi Cristina. Visit http://www.Short-Sale-Vs-Foreclosure-Help.com I have had clients that have short sold their investment property and came out "okay". California has SB931 which means that if the first lender accepts a short sale on the property, they may not pursue the borrower for deficiency. You should consult with your CPA regarding taxes. You can keep your primary residence. You will need to show why you cannot keep your investment property. Good luck.

Sara Mehrpouyan, CDPE
Rodeo Realty
Direct: 818-903-2040
Dre Lic #01712757
0 votes
Kathleen Bec…, Agent, Santa Monica, CA
Mon Jun 13, 2011
Wow Christina:

Lots of information below...from short sale it to suck it up! You might want to also speak to your accountant to see how any of your options will effect you financially and with taxes...like capital gains.

You have several options. They are as follows:

1. Loan modification- there are many government programs available that are designed to help property owners keep their property. These are mostly due to the Obama Making Home Affordable Plan.

2. Deed in lieu of foreclosure - where you give the property back to the bank.

3. Short Sale your property.

4. Foreclosure.

All of these may affect your credit. If you are behind on your mortgage, that may have already affected your credit...it's just a matter of what you will want to do next? Purchase another property, refinance your primary residence? For those options, you may have to wait 2 to 3 years before you are able to do either.

The biggest question that I would ask is what is your situation? Why do you want to get out of the property?
And...have you attempted to work with the bank to resolve any issues?

Feel free to contact me if you want to discuss this further.

Good luck!

All the best,

Kat Becker
Prudential California Realty
0 votes
Pebble Singha, Agent, Woodland Hills, CA
Mon Jun 13, 2011
Pebble Singha
Certified Distressed Property Expert
Head of Short Sales Division Keller Williams Realty (northridge)

Hello Christina,
I don't know your entire situation , so i am going to give you a general advice.You should try and do a short sale. By letting your rental home go, you will be open to deficiency. Bythat i mean is , that your lien holders on the rental property can come after you for the difference of the remaining balance after it is sold at the auction.
Regardless of a Short Sale or a Foreclosure the impact on your credit will be the same until one of those is consumated. It is the recovery factor that plays out in a Short Sale. In a foreclosure your credit is said to be affected until 7 years, but their are a lot of other factors that contribute to that.
Short Sale will allow you to not only have the chance to negotiate with your lien holders and get out of deficiency but also the chance of reviving your credit within 2 years of consumating the Short Sale.
I highly recommend you to talk to a Realtor who has done Short Sales and can guide you the right way.Short Sale is the best option for you. I have helped so many clients with this scenario and they have been extremely grateful. It can be done. Talk to a good attorney and a CPA too.
Foreclosure should be your absolute last option.
Web Reference:  http://www.Pebblesingha.com
0 votes
Clint Lohr, Agent, Glendale, CA
Mon Jun 13, 2011
Your credit will be ruined for the next 7-10 years, which would affect your ability to buy future properties . If you can still make payments on the property, even if it is worth less than you paid for it, I would do so. Check with your lender to see if you could qualify for a short sale if you have not done so already.
0 votes
Eric J Soder…, , Pleasanton, CA
Mon Jun 13, 2011
Hi Christina,
My first questions is, have you looked into doing a short sale. It will be less detrimental to your credit.

With regards to your questions. Even if the rest of your credit is solid a foreclosure will still really hurt your credit and there could be other negative ramifications.

If your are unsure what a short sale is or how to proceed with one go to the web reference below. I have written a comprehensive blog series that will answer most or all of your questions.

Get informed before you make any decision of this magnitude.

Best regards,

Eric Soderlund
0 votes
Ron Escobar -…, Agent, Beverly Hills, CA
Mon Jun 13, 2011
Short sale is a much better choice... you will recover faster, and you will likely be able to negotiate any future collection law suits for the deficiency claim the bank will probably have over you (they can sue you for their losses since you failed to pay them)...

Find a local short sale expert, with experience. VERIFY the experience! Ask them to show you their recent closings in the MLS, ask for prior customer reviews and numbers, find out what type of support and staff they have... then see if you are a match in personality... only then hire them... You have choices when it comes to selecting an agent, do yur homework to make sure you are doing what is best for you... and don't believe anything so-called experts tell you.. ASK FOR PROOF!
Web Reference:  http://shortsalecentral.org
0 votes
Fred Glick, Agent, Mountain View, CA
Mon Jun 13, 2011
Hi Cristina,

This will affect your credit for years to come if it goes into foreclosure.

Try to list the property and have it go through a short sale first. This way would be the less of two evils.

Good luck!

Web Reference:  http://fredglick.com
0 votes
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