Property debt

[skibumma70]

I bought a townhouse back in 2004 for 162,900. Others in the complex are listed for sale for in between 115,00-125,000, and not selling. Ones that have sold are closer to the 100,000 marked after being listed for quite some time. I owe 140,000 on the property, and don't have 40,000 to pay off to sell the property if it did sell for 100,000.

Three years ago, I moved out and got married, and have another house in her name, which we currently reside. I have been renting the townhouse out, at a loss for about $175 a month after condo fees, and not including any additional maintenance that needs to get done. Taxes and condo fees have gone up this year.

It is currently rented for $975 a month. I could try and raise the rent to cover some of the loss, market value is probably around $1000-1050 a month for similar townhouses rented. The renters lease is up at the end of July.

I haven't struggled covering the loss on it, as the mortgage on my current house is low, I have a brand new car with no loan, and no debt -- other than the townhouse. I know it's my fault for a bad investment on the townhouse -- I get that. I was hoping at some point the market would come back to at least where I could break even so I could sell it. I just don't see it, as like most people. I am fed up in pouring money into the pit hole of a property I will never again use.

So my question is, am I better off stopping payments on the property and let it go into foreclosure where I already have another house, a new car, and never ever use credit cards for anything and letting my credit start repairing now?

Second question is, it is a split loan 130,000 on the 1st and about 10,000 on the second (home equity). Is the second HELOC loan treated differently? Another words, can they come after me personally for my car, and other house if it is not repaid?

Third question is, when would my credit start repairing itself if I did let the property go? I would like to someday retire and buy a house down south, and I dont want my credit ruined forever. At what point is it forgiven, 7 years?

Thanks

[josetann]

I think strategic defaults may be shunned here.

The way I look at it, is first look at just the numbers. THEN add your emotion to the equation. So just by the numbers, maybe defaulting is a good idea. If so, then you should realize that...and THEN add your emotion back into the mix to make the final decision.

I can't answer your actual question...but I think an important thing is if you live in a state where they can sue you for any deficiency (I don't remember the term...non-recourse, or judicial something or other, or whatever). So I'd look that up. Get all the facts together before you make any decision. Maybe even ask a lawyer, I dunno.

[disneysteve]

Ones that have sold are closer to the 100,000 marked after being listed for quite some time. I owe 140,000 on the property, and don't have 40,000 to pay off to sell the property if it did sell for 100,000.

am I better off stopping payments on the property and let it go into foreclosure

What about a short sale? If you could find a buyer for $100,000 and get the bank to accept a short sale, that would be a little better than a foreclosure.

[skibumma70]

Short Sale

I had thought about the prospects of a short sale. I'm going to have to call the bank. The problem I was thinking with a short sale is that I would have to continue making payments if my tenants move out in the meantime, and it takes a long time for the process of the sale to go through.

So where I am not living there, I will have to pay the mortgage for a long while if the property is vacant while trying to get a short sale done. I have heard it takes a long time, sometimes up to a year. I will have to do some research to see how that works. I am just starting to explore the possibility now.

[NuggetBrain]

Why not just raise the rent to more in line with what it's worth, continue to pay on the house and then put it on the market when it hits $100k?

[Jon991]

I had thought about the prospects of a short sale. I'm going to have to call the bank. The problem I was thinking with a short sale is that I would have to continue making payments if my tenants move out in the meantime, and it takes a long time for the process of the sale to go through.

So where I am not living there, I will have to pay the mortgage for a long while if the property is vacant while trying to get a short sale done. I have heard it takes a long time, sometimes up to a year. I will have to do some research to see how that works. I am just starting to explore the possibility now.

Wait a minute...short sale? I thought this was only an option if you cannot (financially speaking) make the payments. Sounds like you have the ability to make the payment but just don't want to any longer because the value of the townhouse has decreased. Additionally, you have other assets (house, new car) to your name and I will assume at least one of you work (if not both).

If this can be done without the mortgage company/bank coming after your other assets (suing you in court), please let mw know, I would love to do this too.

[BMEPhDinCO]

Can you take out $40k in equity from your current home? How long would it take you to knock it down to $100k if you sent all extra money to it?

I would first: Raise the rent to market value, shop craigslist, forrent.com, etc to find that number. Especially with condo fees, those should be included in rent.

Second, I would see if you can come up with the $40k in 1 year. If yes, keep going, if no, then:

Call regarding a short sale, if they can't do it in 3 months, then allow it go go into foreclosure.

It takes 10 years for anything bad to come off your CR, SS or F are treated the same.

However, near the end of those 10 years, it's usually not a huge deal.

[bjl584]

I'm thinking either raise the rent or take out a HELOC on your current home in the amount of the difference between what you owe on the condo and what it is sold for.

There is absolutely no reason to let it foreclose and have your credit trashed in the process.

[cypher1]

So basically you're thinking of potentially ruining your credit history for the next 7-10 years since you don't want to pay the extra difference (give or take $175) from the current rent? I could understand foreclosure/walk away if it's a choice between paying mortgage vs not eating that month. But if you can clearly afford the monthly payment which turned bad investment, it's harder to relate or justify. As others said, I'd up the rent if you can, and/or look at short sale options.

If you live in a non-recourse state, I believe the original mortgage is what lenders can't sue you for. There may be other catches or stipulations involved. However most of the 2nd mortgages they can legally go after you. You'll need to do more research for your location/situation.

[LivingAlmostLarge]

I heard it's state dependent. A friend said the second mortgage can go after you but not the first where we live. I'd really talk to a tax/property lawyer to get the true laws in the state you are dealing with. If it costs $500 it still money well spent.