BiggerPockets

We are a one-income family. I found a job out of state so last fall, we moved out of MI. We were able to rent the house out, but now our tenants have given us 30 days notice that they are going to move out, and we are scrambling trying to figure out what to do. The mortgage is a 80/20. For the past 6 years, we've always made our payments on time, never missed a payment. Now, we may or may not be able to find anyone to rent, and I want to find out what our other options may be.
We bought a house in our new state, and we don't have much in terms of assets, just plenty of debt. I want to do the right thing, and will try and pay the mortgage for the MI home as long as we can afford to, but not by using up all of our meager savings. Any advise?

Any chance you can sell the house in MI? How much is it realisitically worth and how much to you owe? A short sale might be an option.

If you're determined to keep this house, you need to scrape up some savings to deal with situations like you have now. Tenants moving out and having to make at least one payment with no help from the tenant is something you should expect. Its part of the landlording deal, unfortunately.

I'd get that sucker listed and sold, with a short sale if necessary, ASAP.

Unfortunately, its unlikely the market anywhere in the US will recover to the lofty peaks of 2003-2006 anytime in the next 20 years. If you purchased or refinanced during the boom years, you're going to have to wait a long time to get that equity back.

To top it off, its Detroit. Detroit is losing jobs like crazy, and its very unlikely those jobs will ever return. We see offers here almost every day for houses in Detroit for only a few grand. I assume yours is in a nicer area, but there is still an huge oversupply of houses in Detroit that's unlikely to be absorbed. I think you're better off selling now for whatever you can get. Most likely, its more than you will get anytime in the next five or 10 years.

The right thing to do is to figure out how to make up the difference. The lender might be willing to give you a loan for the shortage.

A short sale may be an alternative. If there are no assets for the lender to come after, you'll probably avoid a deficiency judgment. There are potentially tax consequences. Forgiven debt is treated as income by the IRS, and is taxable. There is a temporary exception for homeowners who have to sell their primary residence. Since you've bought another house, though, and turned this into a rental, that exception may no longer apply. There is also an exception if you can show the IRS you are insolvent. It would be worthwhile spending a little time with a knowledgeable CPA to be sure you understand the tax consequences.

A short sale will smack your credit hard. Is your current mortgage fixed rate? You say you have lots of debt. Credit card debt? If so, they will see the changes in your credit as a result of the short sale and will jack up your rates through the roof. Anyway you could dump every penny possible to the credit cards and get rid of them before you start the short sale?

Any way your husband could get a night job so he could care for the kids during the day and you at night? Or, could you get a second job?

That doesn't sound so bad, then. You should be able to avoid getting jerked around by any of your creditors.

Freddie Mac is the "owner" of your loan. The bank you're sending the payments to is the "servicer." Freddie Mac and Fannie Mae are the two main buyers of mortgages on the "secondary market". The bank who originally made the loan sold the loan to Freddie Mac. Freddie Mac is the one who will ultimately have to approve the short sale, but you should start the process with the servicer. You'll need the broker you're using (interview several) to prepare a BPO - broker price opinion to show what the property is worth now. You provide this to the servicer, along with an explanation of why you can't pay, to convince them to take the short sale.

Not sure if they will agree or not. Unfortunately, your reasons aren't the best ones. Had you been laid off, forced to move, had big medical expenses, etc., you'd probably have a better shot. Since you voluntarily went into this situation, they're going to have less sympathy. Nevertheless, its worth a shot at getting them to accept the short sale. Perhaps they would consider a partial short where you agree to pay something, but they forgive part of the debt.

You're not going to sell it in two months. Even in a very hot market, that would be difficult, just because of the time it takes to get a contract and then to close. I don't think there is any worse market than Detroit right now. If you want to try to move it quickly, tell the broker you want a price that will generate a contract within 90 days. You can reinforce that by only doing a 90 day listing agreement.

Debra where is the home located? How much do you owe on the home? How many bedrooms and baths does the home have. I will send my realtor by to take a look at the home for me. You can call or email me. my email and phone number are in my signature block.

This is a Non-Owner - It does not fall into any of the government relief programs

Be careful - your lender has two options in a short sale depending on MI state laws...
1. Deficiency judgment
2. 1099 - C

It's a non-owner / you will owe taxes on the amount your claimed deficient (deficiency balance) There are steps you need to take to protect yourself prior to the sale and before tax season comes....

Look into insolvency and try to get the short sale approval from the lender to state that a judgment WILL NOT be issued. Also, if they come back and want you to sign a promissory note - say no!

Michigan
Security Instrument: Mortgage / Trust Deed
Judicial: Yes
Non-Judicial: Yes
Initial Public Notice: Publication
Time Frame: 60 days
Redemption Period: 1 to 3 Months
Deficiency: Dependant on individual situation