Hello BP community,
I've heard about BP from a friend and told me how great this community is. I am in a situation right now where any help or advice will be greatly appreciated, and I thank you in advance for your time.
We bought a condo 7 years ago, we were first time home buyers, all we know we wanted a place we can call ours. The units used to be a resident-owned property only, there's a clause in the contract saying you cannot rent it out. But after few years, we started seeing owners leaving their units and also new people coming in and out of the property. We've talked to few of these new people and said they're renters. From then on, there were only few owner residents like us, trash everywhere in the parking lot, loud music, strangers coming in and out, etc. To make the story short the building turned into rental properties, which caused the value of our property to go underwater.
Since we have a growing kid, who cannot go out and play outside due to above reason, we decided to move to a new house. Since the property is underwater, we planned to rent it out to help out with the payment and request for loan modification to lower the monthly payment. Six months later, still no tenant, and we fell behind our mortgage (on the condo only), we requested loan modification but never heard from the lender, and now we got a foreclosure notice from the lawyer.
If it helps, here are the numbers:
Loan balance: $170K
Property value: Tax assessment $90K, Zillow estimate $120K
Monthly mortgage with PITI and MRI: $1250
PM Fee: $125 (10% of rent)
Asking rent: $1250, other units within the building ranges from $900-$1200
Looking at the above numbers, if we keep the property, we are going to have negative cash flow due to HOA and so we are leaning towards letting go of the property. So I guess my questions are:
1. Based on the numbers above, should we pursue renting it out or just let go of the property?
2. If we decided to let go, what is the best way out (short sale, deed in lieu of property, foreclosure, etc.)? How much will each of these options cost us or affect us aside from ruining our credit score? How about taxes (debt forgiveness), anything else?
3. Since we already have a foreclosure notice, do we still have a choice?
4. What's the possibility that the lender will pursue deficiency judgement? I'm from Hampton Roads in Virginia, by the way.
I would appreciate any advice or opinions on my situation. I am also willing to work with any professionals (please consider my location) here in BP or any referral, who can help us out in our case and minimize the potential impact (credit score, tax, etc) to us.
Thank you again for your time and looking forward to your responses (positive or negative)!
@Sheila Villa do you mind if I ask who the lender is?
One thing to consider is banks are not as forgiving as they were a decade ago and there will be a good chance they come after you for the deficiency. Who the lender is will play a roll in it so know who the lender is.
@Amy Herzing JP Chase Morgan is the lender
1) That's between you and your tax professional
2) Any of those three options could lead to deficiency. The first two can be negotiated in the agreement to waive deficiency sometimes. All three will impact your credit significantly. The first two are like a below the knee amputation on your credit score while the third option is amputation right at the hip. They all gonna hurt a lot is my point. None of them will "cost" you anything typically in the sense that you aren't cutting a check for one or the other however, all three have varying costs to the lender, which could ultimately end up being passed through to you in the event of a deficiency. Usually a deed in lieu is the cheapest as its only the cost of recording fees and title work usually.
3) Yes. All the way up to a few days before the actual sale and in some states, for a period of time after the sale (Depends on if they foreclose judicially or non judicial. On if you have rights of redemption or not).
4) It all depends. Unless they are prohibited by statute (They aren't) they can and will send you a bill if the sale (Short sale, deed in lieu sold as REO or foreclosure sale) is for less than total debt, which based on your numbers, is very likely.
My two cents is, work with the lender directly. It's always at no cost to you and in contrast to other valid concerns about free assistance being worth what you pay for it, it's not worth it to pay for assistance in a foreclosure unless you have a claim against the lender you want to pursue. Since the crash of 08' lenders don't mess around with smoke and mirrors. They have state and federal rules they must play by, whether its a government loan (Fannie/Freddie, etc.) or some portfolio loan owned by the lender. The consequences are too great to screw around. Yeah...I know...there are millions of horror stories about unscrupulous servicers and lenders but again, there are rules to play by for today's lenders that are still in business.
You bought your home about 2010 in the height of the crash so, I'm confident you have a normal loan (No neg am, option ARMs, prepayment penalties, or other funky stuff) and I'm confident it's full documentation (No stated or "Liars" loans). If you didn't put much down, I'm also confident it's Fannie/Freddie. You probably have other issues that will come up with your HOA if you are not paying the dues but that's another discussion. All in all, call your lender. Explain to them exactly what you explained to us. They will try to mod you first and then try deed in lieu or short sale and finally foreclosure. By Federal law, if you contact them, they have to put your foreclosure on hold for a minimum of 30 days (Assuming you have not reached publication on sale date yet in a non judicial foreclosure) if you don't have a sale date yet, to consider what is commonly referred to as, "Alternatives to foreclosure", or, Loss Mitigation Options. Then, just fill in the blanks on the package they give you. That's about all you can do or, you can do what you've been doing, nothing and just let the foreclosure work it's way through the system and then see if they come back after you for a deficiency (They will send a demand, they always do).
You said the lender is Chase. Chase is one of the big 5 subject to the National Servicing settlement by the 50 states attorneys generals (Google it). They are easy to work with on alternatives. Call them. heck, email them and get a loss mitigation package.
That's just my opinion. I'm not an attorney or CPA. I am a lender though and have been working with borrowers for the better part of 25 years on the exact subject your post is about.
Why are you asking $1250 when the range for the units is less? If you have been looking for a tenant for 6 months, your unit is:
1. Defective in some manner
2. Grossly overpriced.
If it's defective and you aren't able to repair it, then you should seriously consider letting it go. I can't improve on the advice already given above.
If it's not defective, then your pricing is way off.
**First rule of renting, potential tenants don't care what you 'need to earn'.
If you've been vacant for 6 months asking for $1250 and tomorrow you moved someone in, at the end of 12 months, you would have $7500. And probably a six month period where stress levels were steadily increasing, tempers were getting shorter, and the ability to objectively look at your situations is decreasing along with the options available to you.
I would recommend you drop your rate to get the property filled fast. The income won't hurt and could very well buy you some breathing room to catch up some payments and regain some control of the situation. It may not change the ultimate resolution, but I bet it would lessen that helpless sensation of being completely overwhelmed.
@Ron S. Thank you for the very thorough response. It's nice to hear advice from the other side of the table. We started calling the lender trying to reach the right person, to hear what other options we have but we will definitely bring up the options you presented and figure out what works best for us. Thank you again for your time and sharing your knowledge.
@Steve Zidzik Thank you for your advice about renting. The unit is very well-maintained since it's been our home for the past 7 years though I agree with it being slightly higher than the other units within the building. And you're right, it's quite overwhelming, and I should have reached out for help sooner before I ran out of options. Thanks again for your opinions.
@Sheila Villa I ask because I work in a loss mitigation dept for a lender. I would disagree with @Chris Seveney on the fact that the banks don't want to help you. I have dealt with many banks/lenders (and have worked for some) with in regards to loss mitigation and they do not want to foreclosure. That's a lot of headache and extra money they don't want to spend. They would rather work out a deal with you, if there is a VALID reason you are asking for assistance. Unfortunately I don't think neighborhood safety is a legit reason to move in the eyes of HUD, but I could be wrong. If you lost your job or out of work because of an illness or surgery or your expenses exceed your income, they may be more willing to work with you.
Chase should have a package of documents you can complete to file a request for assistance (whether you are looking for a interest rate deduction, short sale, deed in lieu, etc). They must respond to you by law, so definitely follow up with them if they aren't responding to you.
Personally, I would try to short sale it or try to break even on a sale. The numbers don't look promising in my opinion and I would never want to be cash flow negative on a property. Good luck!
Just an idea, since it sounds like it's all renters now, and no one else is following the HOA rules/guidelines... and also because it sounds like an area where individual rooms are in demand. If I were you, I'd try renting out each room for $500 (assuming it's 3 bd) and then paying a cleaning person $100/mo, to hopefully maintain the property. As long as you screen properly, and make sure everyone is respectful, then it's worth a shot.
Other than that, your best option would be to take a loss and price it correctly around $1100-- check other units.. price makes the market move! Do a $200 move in special! We normally rent our homes out within a few weeks, so 6-months is obviously not the correct price.
Think about your renters, and what they want.. as others have stated, they couldn't care less if you make/lose any money.
Although not a popular option, don't take a straight foreclosure off the list of options. If the rest of your credit is very good, then the hit may not be as bad as you think and and it's over and it will would cease being a problem on your credit report 7 years later. If the property values have declined because of a general decline of the neighborhood, you could get another 7 years in, and discover the value of the property dwindling faster than the principal amount and back to the same place.
My wife and I were in a similar situation in 2012, just 8 years after we purchased a property near a rapidly improving area where we hoped to remodel and flip. Unfortunately, 6 months later, the remodel financing was gone and buyers disappeared. Hoping the market would bounce back, we struggled for years to keep it current and keep it occupied. A fire at another property forced us to seriously look at things. We had a no-doc loan at 6.75% with $115 still owed. Property appraised about $90k at the time.
We called Chase, who was the lender at the time and told them we had made our last payment, but we would work with them on a short-sale or deed-in-lieu only with a full waiver of deficiency. We would also accept a mod of the loan if the principle balance was reduced from $ if they would mod the loan to a value of 80% the market value at the time.
Oops, didn't mean to post the above, I was called away and meant to save and finish editing past later...
Since it was a rental property, most of the modification programs weren't available for us and those that were didn't offer terms that would that made the idea of holding onto the property any more palatable.
@Amy Herzing I don't think the comments 'the bank doesn't want to help you' and 'the bank doesn't want to foreclose.' are necessarily conflicting statements. in many situations. After all, if you are underwater on the property and the decline in value is related to general neighborhood depreciation, the only upside you get is a credit report showing current payments. Is it actually in the borrower's best interest to get a lower interest rate or terms extended to reduce the monthly payment to a point where it can be more easily afforded?
When I first received the loan mod package, the first thing I noticed was that the application seemed to be a worksheet designed to determine the best way to attach assets and/or wages/income for a future deficiency claim.
I took out a non-traditional loan on a property so I do bear responsibility to that note. Allowing the priory to
@Sheila Villa I don't know your states deficiency laws but you will want to look into those before resorting to just let the property foreclose.
It makes no sense to keep a rental that is costing you money and you are upside down on. Just short sell it and be done with it. 95+% of all short sale approvals are still full debt forgiveness with deficiency waivers. If you're already behind then likely proving a hardship wont be too hard...find yourself someone local that does a ton of short sales and get moving. This is likely your quickest and easiest and least damaging way to end this situation for good.
How did you get approved for a mortgage on the 2nd property? If you were approved for the new property loan then your income should be enough to cover both payments.
Thank you all for your advice. We decided to move forward on short sale.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Join the Largest Real Estate Investing Community
Basic membership is free, forever.