I owe $431k on a rental, can't make the payments anymore and no buyers, what options do I have?

Question

I owe $431k on the rental property, My rental income is $3000 but my payment is $4000, Can't continue making the payments, Due to the market no one will buy my property for $431k, What can I do?

Answer 1

Hand the keys to the lender. It will hurt your credit less than a full foreclosure.

Answer 2

Full disclosure: I am a licensed Realtor.

One option for you migh be a short sale? A short sale happens when you are about to go into foreclosure. A real estate agent will tell you what the market value is for the property. You might not be able to sell it right now because the market is not bearing the price which you need. Say the market will only bear 380K for it. The agent will put it on the MLS for 380K and hope to get an offer. Then the agent will present this offer to the mortgagee (the bank) and they possibly will take the offer because getting 380K now is better than going through the foreclosure process with you because that costs them money. So they take a small loss and it doesn't report on your credit as a foreclosure, but as a settlement with the lender.

If you can't raise the rents, consider that option. Talk to a Realtor who knows about short sales and does them often. They will know exactly how the process works and will be able to persuade the banks better than someone who's never done it before.

Answer 3

By first question would be how come the rental income is only $3000 a month & the payments are $4000. Is it a multi family property. Will need this info to answer ? better. Consider raising the rent.

Answer 4

If you try to sell it, it will cost you at least $15k for the real estate fees.

You may want to advertise for a partner in the ownership of the rental. There are people always looking to invest money in real estate. After a downturn in the real estate market, the market always comes back even stronger but it can take up to ten years. If you choose to go into a partnership, then have an attorney create a simple agreement. Most likely they already have a form online. (Shop around for attorneys since they all charge differently.)

I hope you put ownership of the rental into a corporation. It is cheap to incorporate and it saves you money in the long haul.

With a corporation (most state laws), if the property falls into foreclosure, your other poperties won't be affected as long as the other properties are not incorporated under the same name as your current rental.

Answer 5

Price out an interest only loan. Hypothetically, if you lock in at 7.25% on a I/O loan you are looking at a I/O payment of $2660 financing 440k. Check the I/O options. It will likely be an Adjustable Rate Mtg with a fixed rate for a certain number of years. I wouldn't recommend anything less than a 5 year rate lock so that you buy yourself some time in case you have to hold on to the property longer than expected.

The beauty of the I/O is that it now puts you into a positive cash flow situation instead of a negative cash flow. Keep in mind, you can always put money on the principle even on an I/O loan. Plus, if the property is still appreciating in value you are still building equity.

Answer 6

First, contact your lender and let them know what is going on. They may be willing to offer you a forbearance period or a loan modification in order to help out for short term assistance.

1. You can request a short sale from your lender where they will accept less than the full amount due as payment in full.
2. You can try and sell your home via land contract.
3. You can try to sell your home as a lease to own type deal.
4. You can ask the lender if they will take a deed in lieu of foreclosure. However, if you can not sell your home for what you owe on it, there is a good chance the lender will not allow you to give the home back to them. This is not as simple as it sounds from the first answer or two.

Good luck and sorry about your situation.

Answer 7

The best thing that you can do is to talk to your lender. They actually don't want to foreclose on the property any more than you want them to. They are in the lending business, not realestate. If they foreclose they will probably end up selling for a loss. If they do, you can still end up owing money to them to make up that difference, and believe me they will take you to court to collect. They would rather go with an interest only for a while in order to prevent that. On top of that your credit will be lousy for the next ten years.So talk to them and see what can be worked out.pp

Answer 8

Holy cow. If it is worth that much I would do everything I could not to let it go. You are still gaining equity in the property every month, and it is only costing you $1K a month. If you are that far in over your head that you can't afford $1K a month maybe you shouldn't have purchased a $431K property to begin with. Also consider the tax implications, and the hit your credit will take.

Answer 9

"No one will buy my property for 431k"

If you believe it, it is true.

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Now, are their people who would 'buy' the property on a lease option basis for $4200 a month with them paying the taxes and insurance?

This is what many flippers do ... 'sell' to someone who otherwise can't get the credit needed but does have the cash flow to make the payments.


Otherwise, you give it to the lender as others said.

Answer 10

Yes, do I agree with what someone else said, make sure you dont go into a foreclosure..they hurt your credit, not to mention your pride......or up your rent.....maybe you refinance to decrease the payments?