Is there a way out???

Question

Underwater on a duplex in a depressed so. Cal area. Currently worth about 90k (and dropping). Owe 130K. Barely breaks even because market won't allow raise in rents. Appreciation is, of course, a distant pipe dream right now.

I desperately want out, but how? I realize this is probably no-win situation, but what would be my least painful and costly option?

James Ward · Answer

You do not have to be behide on your mortgage for a Lender to consider a Short Sale!  If you are behind, it makes the process eaasier.

James Ward · Answer

Lenders will consider Short Sales on investment properties.  They are less likely to allow the investor to walk "free and clear."

But there are many variables that a Lender will take into consideration.  Each case is reviewed on its own.

REMEMBER:  a Short Sale is a business decision for the Lender. Plain and simple.

Bill Gulley · Answer

Hi, good suggestions, but ther is an old saying, you can't make a bad loan go good! Putting other properties at risk, increasing your obligations in order to save one property needs careful consideration. Not saying don't do it, just saying, plan for the unforseen as well! At you age, I'm guessing your income will probably not significantly increase in your retirement. Good Luck, Bill

Jon Holdman · Answer

A similar alternative might be to ask the lender to accept a promissory note for the shortage.  Getting cash out of your other properties may prove difficult.  HELOCs on investment property are unheard of these days, and to refi you're probably going to be limited to 75% of the current value.  With good credit and good income the lender might go for this alternative.

Vernon Henry · Answer

Thanks Tim, for you perspective. Besides my personal residence, I have two other properties -- houses in much nicer areas which cash flow.

I want to get rid of that one because I don't see that neighborhood turning around anytime soon if ever. It's a high-turnover, high maintenance situation that's a complete pain in the ass.

Perhaps taking some cash out of one of the other properties to pay down the principle on this one might be the way to go.

Timothy W. · Answer

Ok Vernon,
          I slam SoCal a lot because...well it's fun.  The truth is there's only one SoCal and once America gets it's collective head out of it's collective ass you'll be fine.  As you said, you're barely breaking even which sounds like you're not losing a ton of money - and every month you're principle is being paid down a little bit more.
          
          I have to ask what all the pissing and moaning is about?  You're staying afloat and building your equity.  Every business has hard times when you don't feel like you're making a dime and you HATE HATE HATE your business.  What gets me through the times I HATE HATE HATE real estate is talking to the right people, getting my head straight, focusing on what I have been doing right and moving toward the right exit strategy.  Just like you shouldn't make investment decisions based on emotions, you shouldn't make your exit strategies based on emotions either.
          
          Sure this one is underwater ON PAPER, but tides rise and fall.  If the US dollar collapses, the value of that mortgage ON PAPER is going to drop like a rock.  Think about it.  Your mortgage is not for the value of dollars today, it is for a fixed amount of dollars regardless of their value.  As the dollar loses value the spread in your on paper loss will decrease in it's real impact on you if you play this right.  Use these market conditions to your advantage to make dollars elsewhere.

You're looking for a way out when you need to be focusing on a way up.
          
          Tim

Bill Gulley · Answer

Or, you can go for a short sale with perhaps a deficiency judgement against you. Still, keep the Healy! Bill

Vernon Henry · Answer

No, I have not spoken to my lender yet. I'm still in the idea gathering stage.

Bill --
Could you elaborate on the quit claim suggestion and the deficiency judgement?

J Scott · Answer

Your lender *might* allow you to just quit claim the deed back to the lender (in other words, just give the property back to them).  They don't have to spend any money on foreclosure processes or deal with kicking out tenants or worry about you destroying the property on your way out.  I don't hear about this happening too often, but it can be a win/win for both sides.

As for deficiency judgment, that's where you sell the property for less than you owe on the mortgage and you receive a financial judgment against you for the difference.  Ultimately, you owe the difference to the lender, but it's handled after the property has been sold.

Is there a way out???

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