BiggerPockets

I'll give you some conflicting thoughts because I'm personally conflicted about what's right in a situation like this.

First thought. I'm your lender and you come to me asking me to cut the interest rate or to cut the loan balance.

First I'd ask you why you thought these terms were acceptable when you bought it, but you think they are not OK now. Yes, the value has gone done. So? Your payment is the same and the place you're living is the same. Anybody who buys a brand new car is underwater a week later, but they don't go to their lender asking for them to cut the balance. I'd ask why you will walk out. You don't say anything about a job loss, medical problems, or something else. So I assume you're just unhappy with the value and terms.

Then, I'd ask you if you'd be coming back to me if your unit was worth $125K offering to share your profit with me. "Of course not", you'd say. So, I'd ask why is your loss my problem but your profit would be all for you?

Then, I would figure out where I stand. If I just take it back, I have to fix it up and try to sell it. Even if it really worth $75K (which I doubt, given those two comps), I'll still have some costs for the fixup and selling costs. And, that will take some time. So, maybe I can put in $5000 and sell it for $70 with owner financing at about 7% for 30 years.

Or, I can reduce your loan payment based on 6% interest on the remaining 22 years for $82,000.

Or, I can reduce your balance to $75K and stay at 9%.

All that compared to just leaving you where you are.

The payments on those are $466 for reselling it, $653 for cutting your balance, $560 for cutting your interest rate, or $714 for leaving you alone. Now, I guess that inflation is 3% for the future and compute a present value for those payment streams. Respectively, those are $110K, $126K, $108K, and $138K. So, I really want to just leave you where you are. Of those choices, cutting your balance to $75K is preferred.

I would ask myself whether I thought reducing your payment from $714 to $653 would really make much difference. If I thought it would, I might agree to that.

If you did (or do) end up walking away, rest assured I would be sure this goes onto all your credit reports. I'd be forced to do a foreclosure, which is not cheap, and takes a long time. I would probably incur $10K in costs to foreclose. I'd end up reselling it for the $70K. So, you'd owe me $12K for the new, lower price and $10K for costs. If I thought you had any assets, I'd sue you to recover that money.

If you can to me and said "I'm leaving, I'll give the place back to you", I'd consider that. I'm still out the shortage, but I don't have the costs. I'd ask if you were willing to give me a promissory note for the shortage. Or, for part of it. At the least, I'd want a few grand just to deal with fixing it up to resell. If we could come to terms, I might agree to not report it to the credit bueaus.

Second thought. You bought this for a price you though was OK and with terms you thought were OK. You've put some time and money into it. You're only down $7K, maybe less. Less than 10% of what you owe. If you really want to sell, you could find the cash and bring it to the table. Lots of people are underwater 50% of what they owe or more. You're not in a very bad situation, all things considered. Why do you want to walk away or why do you think your loan terms should be adjusted?

Third though. This doesn't work very well for you because you're not in a very deep hole. Walk away. If you have no assets and don't plan on buying another house anytime soon, walk. Yes, you will suffer the consequences, but you'll be rid of an debt. Now, this makes a lot more sense for people who own $500K on a house that's now worth $250K. $250K is a LOT of money. Payments on that are even more. So, you can suffer a lot of pain for that kind of payback. Your position is not at all bad, and I don't think its worth this pain for the same gain you would achieve.

Before going into being a landlord, read in the Rental Property forum. To be break even on a rental, you need the rent to be at least DOUBLE the P&I part of your payment.