BiggerPockets

We have an investment property that we bought in 2004. We had an adjustable rate mortgage, so we refinanced in 2006 to a fixed rate, because we were to afraid of what the rate would be if we waited longer. We have a first and second mortgage. Both are thru Washington Mutual. We are current on all payments and have a 800 credit score.

The FMV of the property is about half what it was in 2004. Our first WAMU mortgage is for $315K, the second with WAMU is for 23K. The last condos in the same building like ours, went for 190K-226K with the 190K being the most recent sale. I believe they were short sales and foreclosures. The lowest priced one is listed for $245K and it hasn't sold for months.

My question is: Is there any chance WAMU would lower my principal to FMV and let me keep the property? I have spoken with them about a short sale and they have told me to list the property at FMV. If my principal amount could be the same as a new buyer's will be, on short sale, I could afford to keep it.

If this is impossible, we do plan to sell short. There are so many SS and foreclosures, it will take years before the value comes back, if ever. There is overbuilding in the area, too. I do rent it an do well enough that if my principal was lowered, I would be able to come out on it.

Thank you!

I do not necessarily agree with Richard. There is a slight chance you can accomplish both, but only if the following scenario has occurred and can be substantiated. There is a little known precedence regarding predatory lending practices that could allow you, under law, to stay in your property and seek restitution in the form lost equity. The caveat to this is, I am unsure if an investment property would be eligible.

In order for this to work, your mortgage broker would have needed to misrepresent your qualifications in order to get you qualified for the loan. Perhaps he/she inflated your income, called this property your primary residence, manipulated your credit report, etc., The theory behind this is that, had the loan officer not falsify the application, you would not be in the financial turmoil your in now. Now, the second part to this is you need to prove he/she was dishonest.

If you think you can do the above, contact me and we can talk.

Another solution, though I would not recommend this, is to find a relative or friend to purchase the house from you as a short sale and after a couple of years, sell it back to you. This, of course is slimey to say the least, but I have seen other people do this with success. Two or three years is suggested because it will a least be that long before your credit will recover anyway.

Otherwise, Richard is correct. There is no chance that WAMU will entertain a hit like that at this time.

I am not, nor do I plan to blame my mortgage problem on anyone but myself. Trust me, I take all this very seriously. I am very disappointed in myself for being in this spot and for buying the property in the first place.

*Did I tell the mortgage broker that it was a rental? Yes.
*Did he schedule the appraisal around a renter? Yes.
*Was I aware the loan was being written as a second home? No.

*Did he get a very high appraisal? Yes.
*Was I happy about that? Yes.
*Was it too high at the time? Yes.
*Did I tell him before he had the appraisal done that I was concerned the prices had dropped enough that we would not be able to get the money we needed? Yes.


I DO NOT blame the mortgage broker! We asked him to refi so we could get a fixed interest rate and that is what he did. He gave us what we wanted. I do not want to backlash now and blame him or cause him problems.

Of course, you are correct when you say that I would not give WAMU more than the payoff if I had made a profit.

My reason for asking the question in the first place, is because I am truly shocked that a thing like Short Sales, where the mortgage company is the one that takes the loss, exists. I thought maybe there are other options that would be just as shocking, that I don't know about.

Short Sales and foreclosures have contributed to our declining values, along with overbuilding in the area. I don't feel good about adding to that problem by selling short. The hurricane scares, gas prices and the economy has had a huge impact on the number of rentals and the rental rates. I can't carry it forever. The amount I have to pay above income is drastically increasing every year.

A person at WAMU told me that the payments being current would not affect their decision of whether to accept a Short Sale offer. I guess if I pay as long as I can, then they see there is no money left in my accounts they may accept it or I will stop making payments because it has run me dry. Then again, she could just be saying that to keep the money coming in. If I have to stop making the payments that will be something I have never done.

Thanks

I am confused. What problem does the OP have? Is the rent just not covering the loan/expenses? That would have little to do with the drop in value of the property. I think?

Short Sales and foreclosures have contributed to our declining values

This statement is wrong on so many levels it is not even funny. The value of your property is what someone else will pay for it or the cash flow that you can obtain from it....period.

I am so tired of the "short sale" ruined my comps argument. The people that over-payed for property "ruined" the comps in an equal and opposite manner.

Principal reduction loan is highly unlikely (as others have said) due to the fact that it is not owner occ. Principal reduction loan mods are mostly a figment of Barney Frank's imagination anyway, but with Investment property , they are even more rare...like never.

I help people navigate short sales full time and have learned to reserve judgment (specifically with failed "investors"). Having said that, it's time to be real.

I feel that negotiating a short sale with your lender is an honorable out. But I can tell you one thing, they are coming after any asset you have....They are looking for you to get some "skin in the game".

Then again, she could just be saying that to keep the money coming in

You got that right. Remember the phone recording, "We are attempting to collect a debt...."

Short sales and foreclosures have not in any way contributed to the declining market values. Any piece of real estate is worth EXACTLY what a willing and able buyer will pay and a willing seller will accept. If the sellers could get more they would, if they buyers could pay less they would.

You mentioned this was a refi and that probably eliminates any possibility WaMu would accept a reduction in the principal amount and let you just walk away from the difference. With a refi, in Florida, they are likely going to seek a deficiency judgment unless you get it negotiated out as part of the short sale. if you can get them to write it off instead of seeking a deficiency you will likely see a 1099 for the write off amount.

I think your central question is flawed in asking if they would just do a write down of the principal and let you keep the home. Why would they? How is that in their best interest or to the benefit of their shareholders?

I'm not sure how wedded you are to this idea but I will tell you there is a bank here in Georgia that has negotiated write downs of the principal and allowed the borrowers to stay in the home. However, these were primary residences, not investment properties. The two I have actually seen documentation on were a write down of 40% of the difference and 35% of the difference. In other words, if the loan balance was 100k more than current value they knocked off 40K and 35K respectively. In both of these cases, the borrowers will see a 1099.

What Chris is referring to is the fact WaMu no longer exists, as of about 5:00 PM this evening. Your new lender is Chase.

Word on the street is Chase did not buy all of WaMu's mortgage business. They have agreed to service it indefinitely if needed but the agreement with the Comptroller of the Currency allows them to pass on buying the riskier parts of the WaMu portfolio.

Currently interest rates are around 6% for 30 year fixed. Investment loans about a half a point higher. If you refied, and assuming your credit, income, and everything is still good, you should be able to get something around that.

I'd say there is zero chance of getting them to adjust it to 5.6%.

What's the first condo worth? When I did a refi about six weeks ago (ancient history, I know), I was told I could go up to 90% LTV with no cash out. Would $312K + $23K = $335K be under 90%? That is, is this condo worth more than about $372K? If so, do a refi.

But, I think this is the investment property you discussed at the beginning of the thread, and that its worth $190K. So, a refi is out of the question. Could you maybe sell this for the $190K, get WaMu/Chase, to take a $50K short and get them to give you a loan for the shortfall?

On the second, how much rent are you getting? Based on the loan you mention, I'd guess your payment at $1575. Using the 50% for expenses rule of thumb (read in the landlording forums), that says you need rent of $3150 to be breaking even. I suspect by breaking even you mean the rent is about the same as the PITI payment. That's not breaking even, its in the hole. As soon as you have a major expense (roof, furnace, AC, major tenant damage, and lengthy eviction, etc., etc.) you're going to be seriously hurting. Even minor and routine rental expenses, like a two week vacancy, cleanup, and advertising for and screening a new tenant will be out of pocket.

Why do you want to keep this? Property value are going to continue to decline in most areas. Unless there's something very local that makes this property more attractive OR it really is cash flow positive once you consider all expenses, I'd sell it in a heartbeat. If break even really means rent = PITI, and you think rents will fall, selling it will relieve some of the pressure on your primary.

If you can clean up your financial situation, there will be plenty of buying opportunities in the future. FL was vastly overbuilt, driven by the bubble. We're not going to see any appreciation there for a long time.

I don't really know what amount they might write off. Pretty sure they wouldn't write off the whole amount, though.

I'd talk to a Realtor about what you could realistically get for it. Subtract off the closing costs (about 8%). Assuming $190K is a good price, that nets you about $175K, which is $160K less than you owe. Call WaMu/Chase and tell them what you think you'll net on the sale. Ask them what they would do to help you get away from this property. Maybe they will do something, maybe not. But if they would eat some of it, and give you a loan for the rest, you could at least stabilize the situation.

What is the hardship? That's the first time you've mentioned that. The falling value wouldn't be considered a hardship. Not sure true hardships (e.g., job loss, medical issues, death of a spouse) have much weight for investment properties.

If they do take a write down, its forgiven debt, so it is subject to taxes. Its likely you'll get a 1099 for any forgiven debt on an investment property. That's been done away with for primary residences, but I think its still in effect for investment properties.

A writeoff will affect your credit. The only way to avoid a credit impact is to pay the loan off according to the original terms.

I would think they would only contact your employer for employment verification, same as on a mortgage. Maybe not even that. I certainly wouldn't expect them to start calling and asking a lot of questions.

I'd agree that I don't see $335K anytime soon. I'd say $190k may be about the best price you'll see in the next five years, short of some miraculous recovery. We would need to be right at the bottom, and then have 12% annual appreciation for five years to be back at $335K. Not happening. Wouldn't be surprised to see another 20% drop in FL condos (as you say, they're way overbuilt), then, at best 4% appreciation once the market stabilizes. If that's in the right ballpart, it will take 20-25 years before the value is back at $335K. Many dot coms stocks trade at a tiny fraction of their peak. One of my bad investments, ARBA, currently trades at $15 vs. its peak price of around $1000. Its possible, IMHO, that the value of this condo will never in our lifetimes be worth $335K.

Pretty sure just calling them won't affect your credit.

Man, do I feel for you. Even 18 months ago, ads abounded hawking these FL condo development deals. It was so easy to get wound up in these deals.