What do we do with a 6 acre vacant lot in CA with a $180k balloon payment in 2 years? We can't refinance.

Asked by Laurie, Junction City, CA Tue Dec 16, 2008

We have a 6 acre vacant lot in No. Calif. Purchased for $210k, worth on today's market (maybe $100k). We have a balloon pmt of $180k due in 2 years which we will be unable to pay. Bank won't refinance us, we don't have enough equity to build, and we don't have the $ to pay off the loan. Currently we are paying about $1500/month. What's the best option? We know we will take a hit on our credit, but it seems like we are thowing good $ after bad paying every month when we will never be able to come up with the balloon payment. Suggestions, ideas?

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Dp2, , Virginia
Tue Dec 16, 2008
Actually, you have several options. Although you never stated whether your loan is a commercial or residential mortgage, I'm going to approach this from a commercial real-estate perspective.

First, actually you can try to renegotiate the terms (reduce the interest rate, reduce the principal, increase the amortization period, etc) of your loan. (More on this later.) About a month or so ago several lenders have began to take more of a proactive approach on handling the loan re-modifications. They want to show good faith to Congress, investors, tax-payers and borrowers alike, and they want to show the aforementioned parties that they're trying to work with borrowers before a borrower gets into trouble (ie misses a payment or defaults).

Second, if your property isn't already zoned for its best and highest use, then you can go to your local office of zoning/planning to request to change the use (or zoning) of your property, so that you improve the land for both commercial and residential uses. Modifying the use of your property will immediately increase its value, because your property can be improved in more ways.

Third, while you're there at the local office of zoning/planning, also request to partition your 6 acre lot into several smaller lots. If they approve your request, then get a plat map, take that to the commercial banking division of your lender (or take it to a commercial lender of your lender doesn't have a commercial division), and ask to refinance or to modify the terms of your loan to include a partial release schedule. This way you'll be able to sell and/or rent your land as individual plots.

Fourth, if your land is in an area that's either in hot demand or in the line of progress, then you might want to reach out to some other developers and investors to see if they're interested in all or a portion of your land. If so, then you could either sell or rent the use of all or a portion of that land. If you opt to rent the land, then you should look into doing a ground lease.
1 vote
Luke Allison, , Asheville, NC
Tue Dec 16, 2008
Yes, currently there are no loan products out there to refi land. There are barely any products for buying land and/or construction. You could try a couple of options:
1) Divide the land and sell it off in parcels. Maybe the lender would approve a payoff in sections if you divided the lot. Then again, your buyers will have the same trouble with financing.
2) Wait the 2 years until the balloon is due. You at least have the opportunity for the land to regain some value and for new loan products to become available again. Plus, if there are still no loan products, maybe your bank will extend the balloon.
3) Walk. I am not going to call this "advice" per se, but only tell you that if that is your option, do it now vs. later. Only because that will give you time to reestablish your credit over time.

If you have any questions, you are welcome to call me.
Luke Allison
Flagstar Bank
0 votes
Seth Chalnick, Agent, Cardiff, CA
Tue Dec 16, 2008
This is a tough one… and unfortunately there are many people in this bucket right now.

It would seem that your ideal solution would be for the lender to modify your agreement. Unfortunately, most lenders will not negotiate with you unless and until you are 60-90 days late on payments, but this is a real problem, because it takes away the incentive to keep making payments on a depreciating asset (once credit is shot).

In this forum, I'd imagine that most agents would be reluctant to recommend "walking away" because we are not lawyers and everyone is afraid of liability. Frankly, I don't think many agents have a good idea of just what effect this could have on your future ability to make purchases and how it could impact the growth of your overall net worth. And I'm not sure I even know.

I would recommend, however, staying clear of "loan modification" companies, who promise to renegotiate your scenario on your behalf. Most charge a lot of money, whether successful or not, and it seems to me (as a real estate broker and registered mortgage advisor who has been approached many times to participate in loan modification business models) that anything they would be able to negotiate, so could you.

I wish I could be more help, but as you continue to research and digest your options, if you feel talking things out with a seasoned agent would be helpful, please call anytime.

Seth 619.251.8803
Web Reference:  http://www.sethchalnick.com
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