Financial Suicide

**autoxer** · 03-17-2014, 07:28 AM

Over the past two years, has the rent covered the properties expenses?

I can't say that I understand a strategic default. There are so many negatives and unknowns that it seems like it should only be a last resort, instead of an intentional move. What is your long term plan? Do you have other mortgages or debts? Do you have other assets that you are trying to protect?

**ua_guy** · 03-17-2014, 08:10 AM

There really isn't any mystery in a strategic default. You stop paying, your credit gets trashed but recovers in a period of about 2 years, the bank eventually forecloses on the home. The only question thereafter is if the bank will pursue you for a deficiency. Plan B: Declare BK if they do. Pursuing a deficiency is more of a scare tactic for the average homeowner who has few assets. There's no value in the bank spending the time/money to pursue a deficiency if you have no assets or very little opportunity to repay it. When you declare bankrupcy, they can't recover from you anyhow. Chances are, unless you have substantial assets to cover it, they won't pursue you.

Your personal risk in all of this is time/stress and future opportunity.

Have you considered a short sale? This is a more cooperative process with the lender; banks are finding a better middle ground here and many have improved their processes- the volumes are lower and the process is now better understood. The goal here is to sell the property at a loss; the bank agrees in writing to not pursue you; you walk away with dinged (ok, dented) credit and a tax form.

**y26** · 03-17-2014, 10:58 AM

Hello and thanks for your feedback.

When fully rented it covers the mortgage, water bill and electric bill. Anything outside of that is all out of pocket. Plumber, electrician and other maintenance issue are payed out of my pocket. It adds up every year. I guess its not a strategic default because that when somebody can afford it and walks away. I have one tenant not paying going through eviction process and limited funds to fix the roof and update apartment to rent again. I can afford it now but its hurting my bank account. rents are comparable to what people are asking and the apartments themselves are a bit outdated so i could not even ask for more money.

I have to stop paying before they would even discuss a short sale correct? When i refinanced two years ago my attempt was to hold on until i could sell hoping a 3-5 year window. In the end the housing market is stale especially with investment properties in my area.

I do have a primary residence that i plan to stay at until kids are grown and gone. No auto loans CC debt which i used for the investment property. I'm 35 and only have 30,000 401 k and about 10,000 in savings. No stocks or anything like that. Probably not a strong candidate for them to come after me for deficiency.

**Randomsaver** · 03-18-2014, 06:37 AM

Originally posted by y26 View Post

Oh I still owe my interest free credit card 2,300 for money I borrowed for this investment property for repairs.

What's your interest free credit card? Would be nice for me to have that instead of my current BA card.

**ua_guy** · 03-18-2014, 07:57 AM

Originally posted by y26 View Post

Hello and thanks for your feedback.

When fully rented it covers the mortgage, water bill and electric bill. Anything outside of that is all out of pocket. Plumber, electrician and other maintenance issue are payed out of my pocket. It adds up every year. I guess its not a strategic default because that when somebody can afford it and walks away. I have one tenant not paying going through eviction process and limited funds to fix the roof and update apartment to rent again. I can afford it now but its hurting my bank account. rents are comparable to what people are asking and the apartments themselves are a bit outdated so i could not even ask for more money.

I have to stop paying before they would even discuss a short sale correct? When i refinanced two years ago my attempt was to hold on until i could sell hoping a 3-5 year window. In the end the housing market is stale especially with investment properties in my area.

I do have a primary residence that i plan to stay at until kids are grown and gone. No auto loans CC debt which i used for the investment property. I'm 35 and only have 30,000 401 k and about 10,000 in savings. No stocks or anything like that. Probably not a strong candidate for them to come after me for deficiency.

To my knowledge you no longer have to be delinquent on payments in order to initiate a short sale. The rules will depend on your lender- it's worth checking into, at least.

A strategic default is exactly that. You can afford the property but choose not to. But, that doesn't mean there isn't hardship. To qualify for a hardship you would want to sit down with a lawyer who is familiar with short sales and have them assess your situation.

My perspective comes from buying a short sale property last year. The homeowners were stretched between two properties, one they could not sell given the market conditions. It was sucking them dry. We as the buyers hired a lawyer familiar with the short sale process to facilitate the conveyance. The lawyer compiled documentation with the sellers to prove a hardship to Bank of America, per their process. There were other qualifications including the HAFA program. The sellers were still current on the mortgage but were spending every penny they made trying to keep payments current. BoA responded swiftly and we navigated the whole process in about 120 days from sending the sellers an email asking if they'd consider a short, to receiving the final HUD statement and signing our life away on a new mortgage. It would have been 90 days, but snags with our own lender in buying the property added a few weeks on to the timeline.

I would agree that you are behind on your retirement savings and your emergency fund could use some bolstering. If you feel like you're drowning, you probably are.

shortsalesuperstars.com is a good resource for short sale information.
youwalkaway.com is a good resource in your considerations of a strategic default.

**y26** · 03-18-2014, 11:17 AM

Originally posted by ua_guy View Post

To my knowledge you no longer have to be delinquent on payments in order to initiate a short sale. The rules will depend on your lender- it's worth checking into, at least.

A strategic default is exactly that. You can afford the property but choose not to. But, that doesn't mean there isn't hardship. To qualify for a hardship you would want to sit down with a lawyer who is familiar with short sales and have them assess your situation.

My perspective comes from buying a short sale property last year. The homeowners were stretched between two properties, one they could not sell given the market conditions. It was sucking them dry. We as the buyers hired a lawyer familiar with the short sale process to facilitate the conveyance. The lawyer compiled documentation with the sellers to prove a hardship to Bank of America, per their process. There were other qualifications including the HAFA program. The sellers were still current on the mortgage but were spending every penny they made trying to keep payments current. BoA responded swiftly and we navigated the whole process in about 120 days from sending the sellers an email asking if they'd consider a short, to receiving the final HUD statement and signing our life away on a new mortgage. It would have been 90 days, but snags with our own lender in buying the property added a few weeks on to the timeline.

I would agree that you are behind on your retirement savings and your emergency fund could use some bolstering. If you feel like you're drowning, you probably are.

shortsalesuperstars.com is a good resource for short sale information.
youwalkaway.com is a good resource in your considerations of a strategic default.

Thank you for the great feedback. I'm really trying to avoid wiping my accounts. Like I said the property needs some maintenance and that person I'm evicting, yes I just needed to pay 600 out of pocket to cover this months mortgage so you can subtract another 600 from that 4000 savings account. I want people to understand the last time I traveled was 2004, we don't take vacations. My car is going on 10 years. My wife car is newer but she had her previous vehicle for 12 years. I honestly have been trying to balance both properties while sacrificing 401k and emergency fund balance for 9 years. The more I think of it the more it feels like the right thing to do...

Finding an attorney is rough because there is so many of them and I have never consulted an attorney before either. This is new to me..

**y26** · 03-18-2014, 03:29 PM

Originally posted by Randomsaver View Post

What's your interest free credit card? Would be nice for me to have that instead of my current BA card.

Hello, I receive checks in the mail from my existing credit card companies trying to get me to transfer balances. I used one of those interest free until 6/2015

**Rachael777** · 03-18-2014, 07:49 PM

Hi. this may conflict w other folks on the board.. but I recommend you walk away and file for BK so you have NO risk of deficiency and less hit on your credit. late pays hurt your credit more than BK. I was in a similar situation and (people may not like this).. rental was underwater/had tried for 2 yearss for a loan mod but paperwork kept getting lost and loan sold every 15 months or sold... so I stopped paying.. in several months filed for BK and then got an attorney to delay the foreclosure.. total foreclosure timeframe was over 3 years.. for that time period I was able to pocket the rents and rebuild my savings some and get back on my feet. the reason the homes were underwater is because they were 'attached' by lawsuits w my ex.... so simply 'we let them go'. I do NOT regret it . do not feel bad... and know I would have had a hard time rebuilding if I had done a short sale snd carried the homes and was not able to pocket the extra income.. renters can stay (at least where I live) for 6 months past sale date..Hope this helps. Life is short.. I made a business decision. You are in a better situation than I as you already own a home (so maybe have no big credit qualification needs). I was in foreclosure where I lived too (attached in suits) and had to do a short settlemtn w hard money to buy it back.. I rebuilt to 720 score with 9 months of the BK (with active foreclosures still going on)

**KTP** · 03-19-2014, 05:00 AM

Where is 97guns who is always touting the merits of rental properties?

I sort of agree with the bankruptcy although I would have kept contributing the max to my 401k while letting the loan and credit cards go into default. 401K is protected in almost all bankruptcies if the contributions are normal and consistent.

**y26** · 03-19-2014, 04:41 PM

You know what ktp I didn't even think of that. I just thought about putting a few bucks a week into it (401K) so I can have the cash to cover expenses..

**y26** · 03-19-2014, 04:43 PM

Originally posted by Rachael777 View Post

Hi. this may conflict w other folks on the board.. but I recommend you walk away and file for BK so you have NO risk of deficiency and less hit on your credit. late pays hurt your credit more than BK. I was in a similar situation and (people may not like this).. rental was underwater/had tried for 2 yearss for a loan mod but paperwork kept getting lost and loan sold every 15 months or sold... so I stopped paying.. in several months filed for BK and then got an attorney to delay the foreclosure.. total foreclosure timeframe was over 3 years.. for that time period I was able to pocket the rents and rebuild my savings some and get back on my feet. the reason the homes were underwater is because they were 'attached' by lawsuits w my ex.... so simply 'we let them go'. I do NOT regret it . do not feel bad... and know I would have had a hard time rebuilding if I had done a short sale snd carried the homes and was not able to pocket the extra income.. renters can stay (at least where I live) for 6 months past sale date..Hope this helps. Life is short.. I made a business decision. You are in a better situation than I as you already own a home (so maybe have no big credit qualification needs). I was in foreclosure where I lived too (attached in suits) and had to do a short settlemtn w hard money to buy it back.. I rebuilt to 720 score with 9 months of the BK (with active foreclosures still going on)

Thank you for the honest feedback.. I appreciate it..

**Randomsaver** · 03-20-2014, 08:31 AM

Originally posted by y26 View Post

Hello, I receive checks in the mail from my existing credit card companies trying to get me to transfer balances. I used one of those interest free until 6/2015

Thanks for the tip.

**y26** · 03-21-2014, 05:01 PM

Made an appointment for Monday 1pm with an attorney. He is having me bring pay stubs. I wonder if he is going to put me through the bankruptcy means test. I'll follow up with everyone after.

**y26** · 03-24-2014, 04:49 PM

Had my appointment today. I may not completely accurately write down correctly just because this process is a bit complicated.. He suggested chapter 13.. Shortly after filing stop making payments on the multi family unit. He told me to think hard on if I just want to walkway or perhaps have him negotiate with the bank to reduce the balance to "market value". He didn't guarantee the bank would do that but it doesn't hurt to ask. He told me if that was to happen would I keep it. I couldn't answer at that moment.. So if I decide to let it go then I would just collect the rent and wait until foreclosure... My two CC debt would also be paid under the chapter 13 rules. Like I said I may have not explained things great but in the end I eliminate the risk of deficiency judgments and tax consequences from foreclosing on the multi family, I could be discharged under chapter 13 probably in a year if not 3 years, Also seems people credit score start to bounce back in two years.. Meeting again on Thursday...

Financial Suicide