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russeeee · Joined: 18 Feb 2011 Posts: 3 1.61 Dollars($)

Hey all,
I have a rental home that I owe 245k on and it's only worth 170k. I eat about $800 dollars a month. My renter lost his job and this house is sucking my savings dry. I have a first and a second (equity line of credit). I've tried to refinance but the lenders won't touch it. What should I do.
I have a 775 credit score and don't want to lose it but probably will.
Even when the renter pays rent on time I'm still behind 800 a month.
What are my options?

gmakerley · Posted: Fri Feb 18, 2011 11:33 am Post subject:

Your options are, of course, to keep the home and continue to suffer your loss; or to default on the loans and lose the property and suffer a big-time hit on your 775 credit score.

I gather that this property is a single family, inasmuch as you noted only one tenant. No matter, but you'll continue to suffer a loss regardless of who your tenant is. Even with a new tenant at a higher rental, it'd seem pretty clear that you'll still show a deficit - unless you find a new tenant who'd pay what must be higher than market rent to keep you whole.

russeeee · Joined: 18 Feb 2011 Posts: 3 1.61 Dollars($)

Would a deed in lieu be the best option?

gmakerley · Posted: Fri Feb 18, 2011 12:06 pm Post subject:

I can't speak for the servicing departments of the lenders out there, but a deed in lieu of foreclosure was long the method of choice to cut everyone's losses. The benefit is that there's no prolonged period of legal motions back and forth as with a foreclosure; and the lender gets to calculate its losses much earlier in the game. If a property goes to strict foreclosure, they then must market and sell it, not knowing quite what kind of bids will come in from prospective buyers. With the deed in lieu, they don't have to worry about legal fees eating up their profits so much and they can structure a sale (typically) much more easily.

It's worth having the discussion with the lender at the same time you discuss all your other options with them.

russeeee · Joined: 18 Feb 2011 Posts: 3 1.61 Dollars($)

I owe 170k to the primary and 70k to the equity line of credit, which is a different bank. What might happen with that 70k? I really appreciate your responses.

gmakerley · Posted: Fri Feb 18, 2011 12:38 pm Post subject:

The second lienholder is going to lose some money in any event - whether you sell the property, let it go to foreclosure, or do a deed in lieu to the first mortgagee. They'll charge off whatever they've lost and seek to recover that charged off amount from you down the road. It's impossible to use real numbers, as disposing of the property will cost something by any method, and if it went to foreclosure, the costs would be extremely high...higher than by any other method, of course.

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