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!

Unfortunately, if government lets the whole system just collapse--which is what you're suggesting above--the pain will be acute to the entire nation and the world. So certain priorities must be chosen and the priority is for owner occupant properties--not entrepreneurial purchases of real estate. Here is where your ability to put your life in perspective comes in. If the worst thing that ever happens to you is that you temporarily fail as a real estate investor and suffer a foreclosure, you will have lived a charmed life. Seriously.

dmj4, neither bill--Mortgage Forgiveness Debt Relief Act of 2007 and Emergency Economic Stabilization Act of 2008--is a friend to investors. Neither politicians nor banks care one whit that an investor (1) made a bad investment that doesn't cash flow and/or (2) lost value in his investment property. You WILL receive a 1099 for the "phantom income" inured to you when your property sells at either (1) short sale or (2) foreclosure. Unlike a primary residence, you, the investor, are supposed to (1) know what you're doing and (2) buck up when your property loses value. Sorry, but there's no mercy for you in the current environment nor, dare I say it, should there be.

Caitlyn, I agree with the statement you made, "Sorry, but there's no mercy for you in the current environment nor, dare I say it, should there be." I did make bad decisions and I have been paying for them and will continue to as long as I can, which I hope is forever. I also feel there should be no help for anyone, except maybe people that were truly deceived when signing their mortgage. I don't even agree that people should get help because they sign an ARM, then the rate increases. I made sure I got and refi'd to a fixed rate mortgage long before mine adjusted. With the second one, I insisted on a fixed rate from the beginning. If we make a bad decision we should all have to pay what we promised to pay and we should have to give a little skin in the process. We should have to do without other things to continue to pay the loans we signed. Bankruptcy, short sales and foreclosures should all be stopped, except in cases of medical bills or "true" disability. We all know people that chose bankruptcy just because they didn't want to pay any longer. Many of them go on to buy again, later and then file bankruptcy a second or third time. I could probably prove my broker did something he shouldn't have when doing my refi. Was I aware of it at the time? No. Will I do this? No. I have put the second condo on the market. It probably won't sell, but at least I am trying. In the meantime, I will try to rent as much as possible. I work the rental part of it for a few hours everyday so I can continue to make my payments. I have rented each condo for 275+ days in 2008, so far. My other job will just have to continue to pick up the slack. If it gets to where it can't do that, then I will get a third job. We have held and paid for the first condo for 4 years; hopefully, we will be able to continue to do so. Anybody want to rent a week in newer a gulf front condo? I keep the rates competitive to keep it rented. Thanks for your answer to my question. dmj4

If you actually know someone who's done this in your area, you should speak with them. There could be a couple of things happening. One is that if they've walked away in the last six months or so, maybe even a year, the bank may just not have gotten around to doing anything about it. Another is that they may have been slapped with a deficiency judgment and given a 1099. Or, they may be on their way. Its an investment, and sometimes investments go south. With a straight up stock purchase, at least you'll never have to pay to sell a loser, and you might even get a little money. Had you paid cash for these investments, you would be in the same situation. But, leverage is a two edged sword. If prices rise, you get all the appreciation with a minimal investment. OTOH, if prices fall, even a little, you can end up having to pay to get out. A stock broker will let you buy stock on margin. But they will demand cash as soon as its even a little under water, and will sell it without a second though if you don't pay up quick. And they would come after you for the shortage. To some extent, its too bad real estate investments don't work like that. You would have been out of this property long before it fell this far. A lot of this stuff going on to relieve debts is aimed at owner occupants. Its not going to do much, if anything at all for us investors. Call the lenders and talk to them about what they will do to work with you. Krzysztof may be overstating it, but there's an element of truth to what he says. Since these are investments and not owner occupied properties, the lender may well try to come after other assets. A talk with a knowledgeable real estate lawyer might be in order.

I'd love to move to the Bahamas. I'm sorry, It seems I must have given the wrong impression regarding our current money situation. I do have money put back to live off of. I just know that I have been seeing others here in FL walk that have far more than I do, they evidently came up with a hardship.

Is it possible WAMU will lower my principal?

Donna J

OP

AL · Member since 2008 · 25 posts · 1 vote

17y

Caitlyn,
Thanks again for your response.

I knew when I typed that message that collapse would be the outcome of my suggestions. I don't want that, of course. You are also correct regarding putting this in perspective.

Is a modification even worth attempting on a second home? If I negotiated with WAMU to add the second mortgage to the first, spead to 40 years so I can wait out the decrease in values (may take 40 years in Panama City Beach) and lower my interest rate, what would be the lowest interest rate I would have a chance of negotiating? Would I even have a chance at a lower interest rate since it is an second home? We are currently at 6.625% on the first and 9% or so on the second owing 23K on it. Is the current rate still at 6%?

We have contacted WAMU about a short sale so they have it noted in our file. I really don't want to do that, even if it were possible.

I don't know if any of this matters, we have made all payments timely and I have even paid a few months ahead on the second mortgage. while the rent was high. We have a very high credit rating and have never defaulted or been late on a payment in our lives.

Seriously, I want to thank everyone for your imput.

dmj4

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Account Closed

CA · Member since 2008 · 277 posts · 11 votes

17y

dmj4, here's the thing. I've done short sales on 2nd homes and investment properties, so your property being a 2nd home isn't a bar to a short sale. I don't know about a loan modification.

The reason you would give for hardship is:

"I have been asked to explain the reason for requesting approval of a short sale. The general decline of the economy forces liquidation. I am requesting permission to short sale this property to avoid further deterioration of the bank's collateral. Signed,"

There's not a whole lot more to say than that.

If you consent to a short sale, the seasoning period for you to qualify for another Agency (Fannie/Freddie) loan is two years vs. five years for foreclosure. At this point, the subject property isn't a viable business asset. The only compelling reason to keep it is to preserve your credit, but the practical reality is your FICO score will be compromised (not destroyed) for at least two years.

Face the music on the tax due for phantom income via 1099, square your shoulders and keep investing--this time with more insight gained from this experience.

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Scott Hubbard

Rehabber · Tucson, AZ · Member since 2008 · 1k+ posts · 802 votes

17y

dmj4- I run into a lot of investors who are in your position. I belong to an investment club and am asked to buy them out. Now, with short sales, I can get 30 to 40 percent off of FMV, so after I tell them my offer, they usually cringe and say no way.

Caitlyn is right, your better off selling short and live to fight another day. There is an opportunity of a lifetime in real esate today. It is doubtful that any of us will ever get this chance again to buy real estate at such discounts. The other day I bought a 2 year old home for 68 dollars a square foot!! That is 25% below replacement value.

I tell you this because you should be thinking about particpating in making new money not trying to count lost money!!

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Donna J

OP

AL · Member since 2008 · 25 posts · 1 vote

17y

Scott,
If I bought something now, wouldn't it interfere with my short sale? I have not started the process, yet. Should I try and buy something now, before it hits my credit? Are you just buying homes or all types of properties? What are you doing with them while you hold them or do you plan to try and sell for whatever gain you can get right now?

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Donna J

OP

AL · Member since 2008 · 25 posts · 1 vote

17y

I got a letter and Chase took my mortgage from WAMU on the property I want to SS. Any tips for dealing with Chase on a short sale?

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Is it possible WAMU will lower my principal?

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