Two Properties - one with first mortgage, one with first and

R_L_Dugas · Joined: 03 Jul 2008 Posts: 3 2.82 Dollars($)

Hi,

I have two properties that have seriously devauled in AZ. The worst is my townhouse, on which I owe $111 to the first with SunTrust and $30K to a HELOAN with Bof A. Nothing is selling in that complex except for the REOs, which are selling for about $75K. I have put it on the market for $125K, which, after commissions and buyer incentives, will cover the first but not the HELOAN. I haven't had any serious inquiries, and I am not certain where I will come up with the difference, to be honest. This was my primary residence for 2 1/2 years. I moved out in October. I had a renter in there, but he destroyed the place. I have spent thousands of dollars fixing it up so it can be rented or sold again. I can rent it for $750, which will stil leave me in the hole $500/mo.

The second property is the house I am currently living in, which I bought in October 2007. I owe $163K, I'd be lucky to clear $140K. I could rent it for $850, which would leave me about $500/mo in the hole. I haven't tried to rent or sell this property.

I am current on all payments, but have bled my savings dry. I have good credit (720). I hate to trash it, but I can't go on like this.

In addition to the above, I owe $10K on my car, $25K in credit card bills from an unexpected medical problem that left me with no income for 6 months (also the reason for the HELOAN), and $160K in student loans. I make $120K/year now, should go up to $130K in October.

Basically, I am wondering what option will be the least destructive in the long run. Chapter 7 isnt an option with my income. Chapter 13 would be. But they would undoubtedly have me on the plan for 5 years, then I'd have a BK on my credit report for another 10 after that. Student loans aren't dischargeable, of course. I'd ride through the car anyway, since I need it. The credit cards would be gone. I'd probably give up both houses and rent. No deficiency judgment to worry about, if one applies in AZ on my HELOAN.

Foreclosure would be the next most negative, if I understand correctly, and on my report for 7 years after the sale. I think, with the HELOAN with B of A on the townhouse, I would have a hard time negotiating either a short sale or a deed in lieu. Any thoughts? Also, I am not certain, does AZ have anti-deficiency laws that cover HELOANS, or only purchase money mortgages?? If I am going to trash my credit, I hate to have to pay the $30K HELOAN.

I think I could try for a short sale or deed in lieu for my house. It's in a nice neighborhood, a cute place. But still, nothing is selling.

My final questions are-- is it possible to negotiate as part of the short sale that the creditor does not report the deficiency 1) to the credit reporting bureaus at all and 2) not report it as taxable income? And, how can I determine if I qualify for relief for taxation of the deficiency under the law President Bush signed last year?

Thank you so much in advance for your thoughts - I cant sleep at night.

Robin

larry · Joined: 27 Jun 2007 Posts: 3328 473.51 Dollars($)

Hi Robin.

Welcome to the forum.

There are other options also available other than deed in lieu of foreclosure, short sale or bankruptcy. You have excellent credit. So why do you want to have a negative impact on the credit? You earn enough now to pay the mortgage and also you are going to get a hike in you salary in October. So I suggest you to talk with the lenders and go for any repayment plan like loan modification.

Check out the article to know how can you avoid foreclosure at http://www.mortgagefit.com/foreclosure/17ways-avoid.html

Hope it helps. Feel free to ask if you have further questions.

Best of luck,
Larry

R_L_Dugas · Joined: 03 Jul 2008 Posts: 3 2.82 Dollars($)

I actually don't earn enough to pay both - I am -$250/mo right now. With my raise, I'll be +$250/mo. I have trimmed back my budget completely, I've been paying on any empty townhouse for about a year, plus the $6K in damage that the tenant I had did... it just isn't sustainable.

Thank you for ht elink, I will look that over.

Robin

Caron

Hi Robin,

I can very well understand your situation. But the thing is, even if you feel bankruptcy will hit your credit, I suggest you go for it if at all you qualify for Chapter 13. It's true that your student loans won't be discharged but you can pay off credit card debts and the mortgages to the extent that you can get current on your loans. And after you get current by paying off the dues, the lender would expect you to follow the usual payment plan. He may also allow you to refinance into a lower rate after the plan ends, so that you can pay down the remaining debt.

Regarding paying any deficiency, I should say that Arizona is an anti-deficiency state. So, the lender cannot file a judgment to collect any additional unpaid debt or deficiency.

You can negotiate for short sale but I don't that will be much helpful as because Arizona is going through declining home prices, so how much can you get from the sale? I think you should have a talk with your lender regarding the chapter 13 filing.

Good luck and let me know what you think.

R_L_Dugas · Joined: 03 Jul 2008 Posts: 3 2.82 Dollars($)

I am not behind on any payments and my interest rates are already low... I just don't see the value in paying into a Chapter 13 plan for 60 months to retain property that has devalued $100K. I really don't want to keep either place.

As for AZ being an anti-deficiency state- that only applies to purchase money mortgages, and refis up to the original purchase money mortgage amount, for primary residences. So, that is fine for the house. But the townhouse isnt my primary residence any more, and my original PMM is only $92K of the $142K I owe.

I can transfer the HELOAN to an unsecured line of credit I have now; then, give both properties back to the first position lenders and just deal with the tax and deficiency implications of the townhouse.

Or, give the house back and move into the townhouse myself and try to pay down the HELOAN to the point that I can sell and break even on the first mortgage.

I can't sleep at night, I am so stressed out. -- Robin

larry · Joined: 27 Jun 2007 Posts: 3328 473.51 Dollars($)

Hi Robin.

Welcome back.

If you are not behind and the interest rates are already low then why do you want go for deed in lieu. See the lenders will have to accept the DIL. So have to consulted with the lender regarding this? The market is down and you owe more than the worth of the property. So will they accept the DIL? You are not late on your payments. So may not be given priority as there must be other borrowers who are already in default.

So talk with the lender and see what he says.

Best of luck.
Larry

hanerywabege · Joined: 08 Jul 2008 Posts: 2 1.71 Dollars($)

Hello, I certainly agree with you. Thank you very much for sharing your information. It was really very helpful for me.
Thanks for sharing your tips!

[Link deleted as per the forum rules]

charlesarmbruster · Posted: Tue Jul 08, 2008 10:27 am Post subject:

I strongly recommend staying the course -- find someone anxious to manage your rental, something you've had problems with in the past - considering the damage sustained and the gap in income from this income-producing property. Certainly, you may still have negative-income but your current 1040 wages should allow your personal survival. Your property purchases are 2-1/2 years old and less than 1-year old -- average Deed turnovers range from 5-7 years, less in recent years in the Valley.

You don't mention a wife and family. Your $120K income should afford your CC, auto, 2-mortgages with disposable income to spare.

Thoughts?

Guest 0.10 Dollars($)

House: $1900/mo to maintain (mortgage, HOA, Insurance, utilities). Per today's comps from my realtor - $50K upside down, plus selling costs.

Townhouse $1300/mo to maintain (mortgage, HOA, special assessment, Insurance, utilities). Per today's comps from my realtor - $40-60K upside down, plus selling costs (retail units are selling for about $20K more than REO/short sale units).

Student loans - $811

Car - $300

Gas/Car Insurance - $325 (long commute)

Credit cards - $500

Food & Baby/Home Supplies- $500

Daycare - $800

Life and Disability Ins - $125 (I have a medical condition and need these )

Medical expenses - $150

Total: $6711 plus anything inceidental that comes up.

Right now, I take home $6400, so I am $311+ in the red every month. With a renter, at $750/mo (no luck finding one in a year's time, basically), I'd have $400/mo after by expenses.

I have a 19-month old son. No spouse, or additional income.

Taking such a credit score hit seems horrible to me, but I am throwing good money after bad. I have no savings left, nothing for my son's education, and I feel overwhelmed.

I have to decide soon if I will be paying August mortgage payments, and it all seems very hopeless

charlesarmbruster · Posted: Mon Jul 14, 2008 9:37 pm Post subject:

OK -- you do have a good handle on things, granted. I'll give you my reactions: as a parent, there are many choices available for child care, including Montessori which is usually less expensive than daycare; also, many religious organizations that make child care available on a pay-as-you-can basis. As a homeowner, I feel for you -- still, you don't live in either property currently, for some reason -- you're missing out on your Form 1098 mortgage interest paid deduction for 2008 in the townhouse.

Two incomes are always better than one -- obviously, you know this. Work is a good place to post 'available rental' notices; realtors are great folks to place a lease/purchase arrangement, even if it is at a loss in the future -- perhaps by then, you'll have found a second income to help you raise your child, and you can postpone the anxiety you face now; the same realtor might be able to find a good series of renters for you, too; there are renters services out there, too. I can see that you are carefully diagramming your costs to include your utilities, some of which the renter can pay.

If you'd really rather be done with both properties, simply consider what your total monthly costs would tally-up to with a rental figure instead of two mortgages with costs amounting to $3200, credit score be damned. You'll sleep better, you'll have funds for your child and you'll have some money saved to handle life's emergencies, including monies still due following short sales. Either work to keep your investments or cut the cord -- I agree that bankruptcy may not be the best avenue.

My last comment -- you bought these properties to rent them out -- go rent them! Best of luck to you -- you do have choices, albiet hard ones.

Guest 0.10 Dollars($)

Thank you for your thoughts. I did move my son from a daycare to Montessori, which cut costs. I had him with a donor - no second wage earner Smile

I work as many hours as I can manage, physically. The Montessori school is right by my job, and is open from 7:30 to 6, so I can maximize my work time and still spend time with him every day.

Basically, I have had the townhouse on the market for rent for a year with a realtor, and for lease/lease-option/purchase for a few months. I haven't had any offers, not even low ball ones. If I walk away from the townhouse, there is no deficiency judgment on the 1st mortgage (in AZ, there is no deficiency if it was the purchase money mortgage, and it is a one or two family dwelling on less than 2.5 acres of land), but I will have to contend with the possible tax implications (there is a balance sheet insolvency exemption that may help, but there still may be a tax hit). And, there is the $30K HELOC I'll have to transfer before doing anything. I have to pay that, ergardless of what I decide.

I do live in the house right now. It isn't on the market, but I will be putting it up soon. If I am going to trash my FICO, I'd rather get out from under both houses. I may move in with my boyfriend, he really wants me to. Or, I may rent. Again - no deficiency and no tax on the house (it's my personal residence).

I guess, if I decide to walk away, I'll sock all that money away for the 5+ years it may take to rebuild my credit. At $2K/mo, that's a WHOLT LOTTA money. Not to mention, sleep...

Thanks again

Niicss · Posted: Tue Jul 15, 2008 6:03 am Post subject:

Welcome Robin.

Ok so you don't want either of the property. But have you informed this to the mortgage companies. If you simply walk away that will not have good impact on your credit. If you don't want either of the properties then I strongly recommend short sale. At least that will show that you have tried to pay off the mortgage company. Now if you cannot sell the property then you can certainly request the mortgage company to accept DIL.

Let me know if you have any further queries.

Guest 0.10 Dollars($)

Well,

I have decided to move back into the townhouse, and try to negotiate a short sale with the lender for the house. I have a better shot of selling a single family house than a townhouse, the townhouse is cheaper for me to maintain, and even if I did a short sale of the townhouse, I'd still be responsible for the $30K HELOC. As Charles mentioned above, I will keep the mortgage interest deduction, and I'll have a safe place to live that i can afford, regardless of the negativeimpact on my credit. I was concerned about finding a good place to rent, with such a ding.

I wont miss my first house payment until Aug 1st, but I'll will begin immediately after that trying to deal with the lender on the house.

Wish me luch!

Robin

larry · Joined: 27 Jun 2007 Posts: 3328 473.51 Dollars($)

Hi Robin.

Welcome back. I think this is a good decision on your part. Best of luck to you.

Keep us updated.

oshinaopika · Joined: 24 Jul 2008 Posts: 5 2.39 Dollars($)

Hi
You have done a good question, it’s really interesting. If you get any good reply, so please let me know. So I’ll also get some good idea.
Thanks for your future help.

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