To foreclose or not to foreclose?

Question

Here's the situation: real estate prices fell, my mortgage is more then the condo is worth (which means I can't refinance). I am renting the condo out, but still have to come up with over $500 out of pocket every month to cover the HOA and taxes. I also have an adjustable interest (which will only keep going up). If I sell, I'm still going to own on the loan. I really don't want to foreclose. Can any one come up with any good ideas of what I should do?

Answer 1

1- if you go to foreclosure your credit will be ruined for 7 years and you will still owe the difference from the sheriff sale and the actual mortgaged amount.
2- I assume since you are renting it that you own another place that you live in. If this is so, then you should outright sell the condo- take the loss as a tax loss, and save your credit rating-- if possible, lease with option to buy and get a percentage down payment that would help reduce your monthly fees. The person you are renting to may be interested in that scenario since he is already there.
3- Are you sure your rent is high enough for the condo? that is another option to bring in more money/month.

If all of the above fail and you DO own another property- you might want to do a bridge mortgage and put some of the debt on your other home.

If you do not HAVE another home, then you have to save your credit or you will not be able to buy anything for 7 years--- you can go to the bank and see if they will do a "buy out" to save you from going to foreclosure. You actually just sign over the title to the bank and yes, you will have to pay off whatever difference there is left but at least it wont ruin your credit for life. Go to your bank-- have them discuss these option to you. If you have no other home - YOU should live in it and then you can write off the mortgage interest on your taxes----- you have options---- and there are attorneys who, usually are not well versed in real estate/mortgage options so I would choose one that specializes only in real estate law.... good luck to you.

Answer 2

There are a lot of good advice here. I, being a real estate investor and part time agent, would keep your condo. Here are my reasons.

1. Forclosure is a really crappy option. First, you won't get all of your money back and you still owe the bank. At least if you own the home you will get tax breaks and your credit will be saved.

2. Real Estate will go back up. Yes, the market is in the toilet but it will go back up. I would hold on to the property until at least you can break even and then sell it.

3. Consider Incorporating. You will have to talk to a lawyer or accountant, but considering putting this property under an LLC. You are saying, "If I change owners, won't the bank demand their money right away?" Not necessarily. You can do one of two things to avoid that. Either a) Ask the bank to allow you place the title into a corporation name or b) Place in a land trust. That will allow you to secretly change owners without the bank knowing. They would have to get a court order to find out who the owner is. Nifty, huh? Anyways, the point of incorporating is to write off your losses every year as a corporation. It will also protect you and your personal assets in case your renter breaks a leg by falling through the floor and blaming you.

4. Section 8 rocks! The government will ensure that you get your checks every month. Check www.huduser.org and find out what are the common rent rates in the area. If you are willing to house the more needy, you could come out pretty good. However, even though section 8 renters have a rep for wrecking the place, you are renting a condo out, which means you are only responsible for that unit, not the outside or roof or other things common with a house. Your expenses could be minimized.

Anyways, you did get screwed by falling prices. However, you are going to eat a big turd sandwich if you foreclose. If you can stand to lose (write off?) $6000 a year in losses, I would keep it because you will be losing money every month regardless without any of the benefits of home ownership.

Answer 3

If the bank forecloses the property, it simply forces the property to be auctioned. You will still be responsible for paying the remaining balance on the loan. You might as well preserve your credit and sell it yourself.

There are many alternatives to foreclosure. I strongly urge you to consider one of these options.

Option #1. Continue renting out the property
If you can afford it, continue paying the $500/month (note that this will be offset by tax benefits from property ownership). The market will eventually go up, and rents also will go up. In fact, I suggest you try raising your rent. You might be surprised how much of the gap you can close with higher rents. Rents are climbing steadily throughout the country.

Option #2. Sell the property for less than the mortgage
Let's say the condo is worth $250,000 and your loan is for $300,000. If you sell for $250,000, you then have two options for this cash.

The first choice would be to use the $250K to continue making payments on your mortgage. If you invest the $250K wisely (such as in a conservative stock and bond portfolio), the money may grow faster than the interest in your loan. For example, if your loan has a 6% interest and the stock market grows by 8%, the 2% profit could help you pay off the loan without additional expense.

A less risky option would be to pay off $250K of the $300K loan. Then, try to refinance the remaining $50K. Since you are renting out the condo, I am guessing that you own a different home that you live in. Perhaps you could refinance your current home and add the $50K to your loan balance. Or, you could refinance the $50K as a separate loan with your current home equity as collateral.

Option #3: Move back into the condo
I am guessing that you are living in another home besides the condo and paying mortgage or rent on your own home. You could sell your own home and move into the condo yourself to cut your monthly expenditures.

Option #4. Sell the condo to the renter
Renters often would like the opportunity to own their own home. You might consider offering "owner wraparound financing" to your renter (or anyone else for that matter). In this scenario, you sell your home to the renter in exchange for a higher payment than the rent in exchange for no-down-payment ownership. Here's how it works:

Offer your current renter (or a new one) a "rent to own" option. Set the price of the condo at current market rates with a 10% down payment. Since the renter will not have the 10% down payment, offer to raise your rent by $500/month and apply that toward the down payment. Your agreement should state that the price of the condo will increase by 3.5% (or some modest number) each year until the down payment has been raised.

There are a variety of creative ways to add value to your condo -- through flexible financing terms or fix-ups. They may not completely close the gap between the market value and your mortgage, but they will certainly be better than going to foreclosure.

Answer 4

If you foreclose, you'll STILL still owe on the loan. Foreclosure doesn't make the loan go away. You'll only get what the house sells for at the foreclosure auction and still owe whatever is left. The only way to make it all go away is to follow the foreclosure with a bankruptcy, and I really don't think you want to do that. Plus, those are much harder now.

I think your best bet is to stick it out, and chalk this up as a learning experience. It's not always a good deal to buy in a frothy market. Now you know.

Another option, of course, is to sell the property now, if you think the market won't come back soon, and get what you can, and just suck up the loss. You'll probably get more for it than you would have with a foreclosure auction anyway.

Best of luck to you.

Answer 5

How long have you had this condo? Were you one of those who thought that there would be another sucker be hide you to bid up the price and give you money? And good job with the ARM.

Since this is a rental i hope you have another home or condo. You need to foreclose. save the 500 each month, pulse the rent you collect and hid it some were. you will need this once the forgive the debit and IRS will call the forgiveness of the loan income and you get to pay.
Best of luck

Answer 6

There is nothing you can do, let it go into foreclosure. Get what you can off of it, why sell a home to still owe on it you won't be gaining anything but headache of paying a loan to nothing that you own. You should collect the rent as long as you can, stop paying for it and they can stilll stay there for at least a year until they have to move that way everybody is happy. That is crazy that you are still paying for someone else to live. Get you another home while you credit is good and file Chapter 7 (bankrupt)