You are a member of a growing group of home owners and investors. The main question is can you hang on through this downturn?
Just being "negative on my mortgage" if not a hardship. Many home owners and investors are paying the monthy mortgage payment through these times, knowing that real estate is cyclical. It goes up and down, but the general trend is up. So if you can afford to make the payments, or the rents cover the payments, then hang in there. As they say, this too shall pass.
Now if you have a sincere hardship, (your income has gone down, your payments have gone up, you have depleted your savings trying to hang in there) then you need to look at ways to get out from under this burden. These are some options.
1. Call your lender. Tell them your true situation. Lenders do not want to own homes. If you can afford a reasonable payment, even though this is an investment property, many lenders will work with you. Be aware, though, some of the people answering the phone will tell you that you have to be behind in your payments. DO NOT LISTEN TO THEM. Hang up and call back. Repeat until you get someone who will listen and try to help you.
2. If you cannot afford a reasonable payment, then a short sale is an option. Again, there needs to be a hardship. And, make sure you work with an experienced short sale listing agent who has actually closed short sales on non-owner occupied homes. Be aware, this will affect your credit as the banks report the sale as a negotiated account settlement. However, the hit to your credit is less than a foreclosure or bankruptcy, and currently there are no federal guidelines regarding how soon after a short sale you can purchase a home again. (Such guidelines do exists for foreclosures).
3. Foreclosure may NOT be a good option for you. GET LEGAL/Accounting/Professional ADVICE before allowing this to happen. Since this is an investment property, you probably are not protected by the laws passed recently to protect "homeowners" from tax ramifications of a foreclosure. Also, the bank may come after you for any deficiencies on the loan. And lastly, this will have a large negative affect on your credit and prevent you from obtaining a federally insured home loan for 3-5 years, depending on the circumstances of the foreclosure.
Remember, do the right thing. No one complained when they were making obscene gains in equity. No one wanted to give some of that back to the bank or the community. So, don't run away from the property simply because you are negative on your mortgage. Think of this comparison. Have you ever purchased a new car? Did you drive it off the lot and then immediately turn around and ask that the loan amount be reduced or that the dealer take the car back and let you out of the loan? Well this experience is a little like that experience. Unless you put 25% down on the car, the minute you drove it off the lot you were negative in your car loan. This however, if where the comparison ends. Cars rarely, if ever, go back up in value. And if history is any indication of the future, homes inevitably DO go back up in value. Its just a matter of time.
Hope this helps. Contact me directly if you want to discuss your options further. Dare to Dream.
Real Estate Consultant
RE/MAX Palos Verdes Realty