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Need Some Advice

February 3rd, 2013 at 01:57 pm

Another one of the kids moved out of my rental property. That only leaves 2 and they can't afford to pay the whole amount. They don't know anyone else that could move in there.

I can't afford to make the payment without having the rent covered...I can't even afford one month without renters. I think I need to get out of the rental business. I would put the house on the market but I can't afford to pay the mortgage until it sells.

I am thinking of going to the bank and doing a voluntary foreclosure. My credit is already bad so it wouldn't really affect that...might even improve the debt to income ratio. I think there might be some tax implications by doing this but I don't know.

I am just at a loss. I don't know what else to do.

** Forgot to mention that I wouldn't make any money on a sale...I would actually be lucky to get what is owed on the property.

8 Responses to “Need Some Advice”

  1. jp Says:

    can you hire a management company to help you out? They can find competent, REAL renters and help manage the property. Our management company charges 10% of the rent, but they have been able to rent out our home for more than I was ever able to on my own. They are also much better at screening tenants and know what you can and can't do with regards to a lease. might be something to look into.

  2. MonkeyMama Says:

    Personally, I would look into the foreclosure option. IT is hard to say without knowing *all* of the details. But a lot of the fiscal horrors I See are with people just in denial/unwilling to let go of an impossible situation. So, my perspective it is probably best just to be rid of the place and to move on.

    That said, you could always list it in the interim and see how that goes - I think it's good to at least try and sell it. I am not sure of the legal details if you fall behind on payments while trying to sell - but foreclosure is usually a pretty lengthy process. It could make more sense to fall behind on other payments while you just get it sold. But I just don't know in your case what would be best. I do think it would make sense to try to sell before just giving up.

  3. MonkeyMama Says:

    P.S. Also talk to the bank about short sale. Just tell then what is what, and see what your options are.

    There is no tax ramification in 2013. There could be some state tax ramifications. But any "forgiven debt" will not be taxable for the Feds - they extended that tax break for 2013. Except I will edit this to say that is for primary residence. I suppose you could have a tax issue as it is not your primary residence? I do not know the answer off the top of my head. Could be tricky - how much is the loan?

  4. creditcardfree Says:

    Talk to a realtor, call a management company, talk to your mortgage company, talk to a bank about refinancing or short sale.....talk to everyone you can about the property to get all the information you can. I'd be looking for renters, at the same time.

  5. jolie Says:

    I know nothing about the rental business nor about voluntary foreclosure, but I would do what you can (with good advice) to no longer own the property. With renters there is always that fear of 'what if', and I don't know that that is the best place to put yourself in these days.

  6. Bob B. Says:

    I'm in a similar situation.

    Consider consulting an attorney, one with specialization in foreclosures/short sales/taxes. We did, and we got some good information.

    MM is the tax expert, but my understanding is that unless you've lived in the house 2 of the past 5 years, it is an investment property, and you would pay tax on any forgiven debt.

    Also, yes, definitely be proactive, and talk to your bank about a short sale. What we did is contact our mortgage company, and found out the appropriate department that handles loss mitigation. Send them a letter (via FAX or email) explaining in detail your situation. When we did that, they sent us a packet of information to fill out. We did that back in August. It took August/Sept/Oct just to get the paper work through. And, we were aggressive with it.

    Also, another option is "deed in lieu of foreclosure". That's when you transfer the deed over to the bank instead of going through the foreclosure process. Less expensive for the bank. (Maybe that is what you mean by a voluntary foreclosure?) You definitely need an attorney on your side if you're going that route.

    None of this is fun. And, I'm not sure from a credit score stand point if short sale/deed in lieu/ or foreclosure really makes much difference. But, if you simply stop paying the mortgage, you open yourself up to future law suits from the bank. They can (will?) sue you for the balance owed. Deed in lieu or short sale avoids that possibility.

    Also, one last note. How much equity do you have in your current primary residence? If you have much at all, your bank could try to take a second position on your house. That is, they could force you to take out a second mortgage on the house you live in to cover (at least part of) your deficiency on your rental. If you are upside down on your house, don't worry about that.

    Hope this helps. Consult an attorney.

  7. MonkeyMama Says:

    @NGG - You do not need to pay tax on forgiven debt if you are "insolvent." So you may qualify for this route too. It is extremely complicated. OF course you need good legal, tax, real estate advice, but the problem is getting that advice when you don't have the means. I have a number of "well off" friends who went the short sale route. They hired attorneys and yadda yadda. But I don't see how you are going to get the best advice and be able to pay for all this, unless you have some lawyer/real estate friends willing to help you out.

  8. Looking Forward Says:

    I agree that it will be better for you to get rid of this house.
    Deed in leiu of foreclosure seems the best route??
    Good luck! Frown

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