I'm going to short-sale my own rental

Foreclosures, Short Sales, Tax Foreclosures
1

I have this “rental” that I bought over 2 years ago. I bought it for $304,000. County says Market Value is $316,000 in 2007, $373,000 in 2008. HA! :bs The builder continues to build similar houses and sell them for $330’s or so. My monthly payments are $1898, but I can’t get a renter in there for more than $1400. Even more so since someone down the street that bought a similar house is now offering $1200 rent.
This house was never really supposed to be a rental; it was a flip. We bought it pre-construction; even before they had the sales office/trailer in place. When we signed, they was a gas generator space heater in there because they hadn’t ran the electricity yet. We thought that we were buying good. Fast forward to now, and we realize that we bought typical. In all reality, we didn’t buy “bad”.
You would think this house could sell for at least what we owe. We did have it listed on the market over a year ago and we got 1, one, uno, (1), person come look at it and they didn’t want it because it doesn’t have a basement. That listing obviously expired.

I’ve done enough with short-sales, so I got in touch with the lender and explained all this to them. The 2nd said to get it listed and bring all offers. I thought that might work, thus, I began to offer it as a Short-Sale, Bring all offers, starting price $262,000 + $1 (for the 2nd). Quantity of responses? I could have heard a pin drop. Just this weekend, I put up a FSBO sign in the most traffic heavy spot in the area. The sign said, “I will buy you a NEW CAR $25,000, if you buy my house for $321,000!”. I also placed the same add on craigslist. I got… 1 call. The guy wasn’t interested in the car… :shocked He hum’d and ha’d about buying the house for $258,000.

That’s it. I’m done with that house. I’m going to let it go. Here’s how I figure it. I foreclose. The bank reports on my credit. That will last a maximum of 7 years. In those 7 years, I can’t really think of any new loans I will need to get. If I need to get a house, there’s at least half a dozen ways to do that without credit. I easily have $50,000+ of available credit on various credit cards I have (Note: they’re not maxe out). I have over 10 years in my current career field and recruiters won’t stop calling me about going to a new job. I will save $400-$500 each month. That will equate to $40,000+ at the end of those 7 years. The only loan I can think of that I will really ever need again is to pay for my son’s college. He won’t be in college for more than 15 years. Thus, by that time, it will never have been known that I ever foreclosed, I will be up well over $50,000 and I can get loans out the wazzu after 15 years of credit history rebuilding.
On top of that, I can use this quite well in my short-sale presentations. “Mr./Mrs. homeowner. I know exactly what you’re going thru. I’ve been there. From all that, it motivated me to become more aware of the foreclosures so I can help other people avoid those difficulties, etc. etc.”

Welp. Thoughts? Ideas? Suggestions? Preperations for the next 7 years? Polishing on my new short-sale presentation? :biggrin Don’t worry, I’ll still be around here for a long time to come. :smile

Dean

2

Dr_white - I am sorry for the situation. Quick question - if you got an offer for $258,000 why you didn’t take it to the bank to try the short sale? It seems you owe a little bit more than that - don’t you think the bank might have accepted that offer?

The other thing to consider in your scenario is that if you get a foreclosure in your credit, you may end up losing some or most of the credit you have available. I believe most credit card companies will check your credit report once a year or even more often. The other impact is that they could increase your interest rates on the amount you already owe.

Other impacts for you to consider:

  • Insurance premiums may also go up.
  • I understand some employers check credit history - not sure how a foreclosure would impact your ability to get a new job (in case you need it).

Reading your posting I got the feeling that you were giving up on trying to save your credit and you are willing to live with the consequences. There might be other options that you are not considering (have you tried to do a rent to own?). You may be able to get a tenant/buyer there that will pay your mortgage for the next few months or couple of years. You would probably still be in the negative because of the taxes, expenses, etc… but it would probably be much better than today.

Another option - have you considered selling your home and moving into this investment property? Depending on the situation with your current home, you may be able to sell it for more than you owe.

Just some ideas for you to think about. Good luck!

3

All good points, j1dias, and most I have considered. Now, I’m not necissarily just dumping the house. I will do whatever I can to either sell it or get the payments in line to rent it until it sells. I’ve spoken with both 1st and 2nd lenders and explained this to them. However, I’m done wasting my limited resources, i.e. money, on something that will never bring me a return worth the trouble. I’ve fully accepted what will happen if I don’t make another payment on it.

Actually, I didn’t get an offer for $258,000. I told the guy that he can take it for $258,000. He hum’d and ha’d and said he’d do some research and get back to me. From the listing, we did get an offer of $215,000… :flush Yes, I accepted it without hesitation. I’ll take any offer that the lender will accept. The only thing that means anything to me at this point is getting this house out of my existence, whatever means is necessary to do that. I’ve learned enough about real-estate investing that I can deal with this for the next 7 years and probably still come out well above on top.

I have tried rent to owns, lease options, seller financing, etc. for this house. I couldn’t even get people to put down a $3000 option fee. No one will pay the $1898 seller financing. Remember, rents are a pain to try and get $1400. I’m losing $500 per month with the only hope of breaking even at the next real-estate peak. After taxes, insurance, maintenance costs, vacancies, repairs, HOA’s, inflation, mental/emotional time and anguish it is NOT worth keeping my pride, i.e. credit score, just to maybe break even as long as I hit the next real-estate peak AND get a buyer to hit it just at the right time before it goes down again.
sigh
Anyways, yes, a more “ideal” situation would be to sell my current home and move into this :bs “investment” :bs . With that, I could host open houses and auctions whenever needed. With the current renters, that proves quite difficult. Problem with that is getting my current home sold. I have finished the entire basement now and am hoping to maybe make a few thousand by selling it. However, haven’t had many calls on it. Surprisingly, I have had many calls for renting it. But, people don’t want to pay the monthly $1750 that I would need to pay my mortgage. We’ll see I guess.

Dean

4

I’m just curious, did your lender even inquire about “financial hardships”? You didn’t mention it, and I’m just curious if at this point lenders even give a damn anymore?

5

The 1st mortgage holder finally concluded with “Get a third job” with a subtle ‘we’re busy with other things’ in “fine print”… Does that answer your question? :banghead

6

Hey Dr_white,

If you let it go to foreclosure, wont they come after you with deficiency judgments and the like and try and suck what ever money you have in your accounts, etc (after judgment)? Or is that just not a possibility?

In other words, what do you see as the risks aside from simply loosing the property and having a bad credit score?

7

Yep, that is a very real possibility. Most likely, the very worst case would be full foreclosure along with a full judgement where my wages would be garnished. However, its not in the best interests of the lenders to go that route. It can be very resource/money intense, take a long time, and I can drag it out even longer. As typical with short-sales, its mostly based off of numbers, but with a random portion of personal whims, from multiple venues, tossed in.
In any case, I’ve calculated things over and if I keep the house until it eventually sells, more or less, the outcome will be the same. Housing markets go in cycles, and in Utah, we are closely approaching a bottom leveling out point. It will be another 6-8 years before the next peak - according to historical data. A judgement against me will take 7-10 years to pay that off, whether I pay for it from a credit card, wage garnishment, et. al. By keeping the house that long, I will take about an equal loss from everything involved with holding a negatively cash flowing rental for a decade.
Its like pulling a band-aid off slowing. Just get it done and over with so I can move on to better things.
The second worst case scenario would be that I get a full foreclosure along with a 1099. 1099 is much easier to compensate for since it is income and factored into my 1040, not added directly to the bottom line. Also, it will only affect 1 year.
Aside from all that, the “best” case scenario is that the lender takes a discount and the house gets sold. Like I said, I’m currently in negotiations with both lenders and will do what it takes to sell the house and/or modify the loan to rent it till it sells. I’ll only do that up to a point. I have set a point where it won’t be worth any further effort. At that point, I will put on the Donald Trump hat, and, from a purely business numbers point of view, cut my losses. I’ll also quit wasting my time working on making it work and go out and start finding other short-sales to help people with as opposed to :banghead on a negatively cash-flowing “investment”.

Dean

8

Are the banks going after people with deficiency judgments? Im not too sure they have the time or resources at this point as it seems that it would cost ~20k to get a judgment against someone…

But you may want to look at youwalkaway.com or something like that… I have no affiliation with them, but they may be able to help or give some advice, but, im just not sure how it would play out… It also may not hurt to consult an attorney and see what the possibilities are…

9

With all the newfound scrutiny on lending practices in the midst of this national credit debacle, you may want to think long and hard before letting that property fall into foreclosure. Seven years is more than enough time for Congress to reinstate tight restrictions on lenders (remember, relaxed lending practices are what got us into this mess in the first place). If your car breaks down, or if you need a personal loan for any reason, you’ll be between a rock and a hard place for sure.

18 months ago, you could have trash credit and still buy a car or get a card from someone. I reckon all that will be changing very, very soon. Just a thought.

TB
www.USHUD.net

10

Dr White,

Please contact me about your short sale thru my email at melissap1971@gmail.com. I might be interested in it.

Thanks
Melissa

11

Wow Dr. White. That’s a well thought out plan. I’ll pray for you and your situation. Keep us updated on what happens so we can reference to it in the future.

Good luck!

12

If I were a religious man (which I’m not) I would pray for Dr. White too. It would go something like this.
“Dear God,
Forget about world suffering for a minute, the hurricanes that devistated Haiti, Cuba, Galiviston, all that trivial crap, (excuse the “French” God, :cussing) Just please let Dr. White’s investment not go belly up. His credit…etc etc …Hey God ? he also wants to have first hand experience with short sales so he can make a profit on people who had equally bad timing.
Wow Thanks God.”
Sorry I couldn’t resist. :rolleyes

13

Well, SpaceAce, if you’ve got a better plan, you’re more than welcome to step up to the plate and present it. You’re more more more than welcome to acquire the property from me and make it something worthwhile. Impress us all! Let us know of your capabilities other than just complaining.
Mind you all, I’m still in the game. As I’ve mentioned, there are still several things that I’m going to do to work this out in the best way for all involved - me more than the rest, obviously. There will come a point where I will call it quits, though. There comes a point where you junk that old engine that burns oil because it will cost less to just replace it with a new one than do more fix-ups. I coughed up $150 to mull over everything with an attorney. He pretty much told me most of what I already knew. We concluded that there eventually comes a point where you just cut your losses and move on.
No amount of hocus-pocus ala “The Secret” style is going to change reality.

Anyways, I sent in the hardship package yesterday. 42 pages of fax!! I called the mortgage company and they’re realizing the dismalness of it all, too. Even more so since the renters aren’t paying rent because my wife spilled the beans that we’re working on a short-sale, thus, they feel that they don’t need to pay rent unless they want to. Lease contract says different. We’ll see what a judge says in about a week. Fun, fun

Dean

14

Easy Doc. I’m just saying it was humorous to me that someone would pray for a strangers investment when people in Haiti are sleeping on thier roofs and eating dead dogs. I know your under alot of stress but try not to forget to laugh.

15

Sorry for so long of an update. Central Mortgage moves piss slow! At their current snail’s pace, the person making the offer has made an offer on another property and is going to buy that one instead. Oh well.
A few more updates, the 2nd Mortgage holder, Countrywide, told me they won’t accept even $3000 payoff. They more or less want the whole thing, but did say to send us the HUD-1 that the 1st compiles and they will look it over. Otherwise, they will just write the whole mortgage off as a loss. Yes, instead of taking $3000, they will choose to take $0. Of course, issuing a lovely 1099 against me. They probably will claim mortgage insurance collections to cover what they will lose. Anybody know what percentage typical mortgage insurance covers? Maybe I can make an offer close to that and they will accept a payoff.

Now, back to Central Mortgage and the 1st. They told me that their investor(s) want me to pay a $2000 contribution to encourage the investors to take the deal. Yes, the actual word used was contribution. Screw that/them! If the home is truly a deal for an investor, $2000 isn’t going to make it less of a deal. :rolleyes On top of that, Central Mortgage said that by law the must issue a 1099, therefore the WILL be issuing one. Now, from what I’ve gathered from short-sale coaches/gurus/teachers/mentors is that a 1099 is a choice the banks/lenders have. Can anybody clarify on this?
In any case, with them issuing a 1099, I’m gonna need to save up for that instead of paying a $2000 contribution. Fun fun, huh? I told Central Mortgage this would happen if they didn’t hurry and accept the offer. It has been the only offer in 2 years. There has barely been about a dozen people to even see my property in those 2 years. There are 4000+ sq feet houses on the other side of town selling in the upper-mid $200’s and the offer for my property was in the low $200’s. Well, good luck Central Mortgage. Hope ya have your share of fun for the next 2 years. |_

Dean

16

New update. Things are looking a bit bighter! :biggrin I happened across a commercial auction company middle of last month. When I went to, the houses were similar to mine and the bidding prices were close to what the lender wants. Hey, let’s put my house in their next auction. So, I did that. For $1000, they took pictures, website, advertised, held two open houses and the auction is tonight. From all that, we got a written offer for what the lender wants. Nice! Now, tonight, the auction will hopefully bring in some more and help to motivate the lender to take this offer. Very nice! I’ve got some good vibes finally about this house. Granted, its still going to be short, but it may be enough to pay off both the first and the second and call it a bad $%&#$@! rental. We’ll see tonight!

Dean

17

… and, its all over and done. As of July 14th. Bank foreclosed. See this thread: http://www.reiclub.com/forums/index.php/topic,42179.msg208789.html#msg208789 for some specific details. From the first missed payment, until the courthouse auction, its been 11 months. 2 mortgages, 22 late mortgage payments. Honestly, I’m kinda excited to see what my credit score will look like. Haha! :shocked I’m not overly worried about it, though. Next month, there’s gonna be 3 on-time mortgage payments, plus about 10 on-time credit card payments. My score will probably jump back up rather quick. It will be fun to watch it rise.

Well, I guess some lessons learned. Start off with buying. We really didn’t buy all that bad. I would say that we bought Ok. However, we bought Ok at the wrong time. Right at the very peak of the market.

Another lesson, don’t get into real-estate investing if you have small children. Self-starter real-estate investing just can’t be fit in with a newborn and 2yr old.

Do get a pre-nuptial if you plan on going into financially stressful stuff like real-estate investing. Sorry, it will take too long to go into details on that one…

Countrywide is sh!t and I hope they choke and die on a rotten bowl of cold f_ck. (As much as that sentence is obviously pushing the envelope, I think that it might actually not get censored. :halo )

With short-sales, know when to walk.

Know what your rental market is and tell everyone that thinks you can rent a multi-million dollar home for over $5,000 that they are full of sh!t until you see the tenants’ check cashed.

Tenants may pay on time, but they don’t care about your rental.

Mortgage company’s short-sale departments don’t care about you nor your short-sale.

Some short-sales can take more than a year.

Half the battle is finding buyers. The other half is getting them to stick around until closing.

A lot of real-estate investing has nothing to do with real-estate.

Know what your bottom line is and walk if it can’t be met.

This one the gurus will spew, but it is true: If the deal is right, the house will almost sell itself.

Getting the deal that right is often time more luck than anything.

Don’t base your (real-estate) business on luck.

A house does NOT sell itself.
(Hope ya all loved those few contradictory lessons :brow )

I’m starting to scrape the bottom of the barrel now, so I guess I’ll leave it with that. Hope everyone enjoyed this little saga.

Dean

18

Even though it has been tough, thank you for sharing. There are lessons there for all!

19

Second mortgages often are not protected with PMI, hence the higher interest rate charged for the second.

On top of that, Central Mortgage said that by law the must issue a 1099, therefore the WILL be issuing one. Now, from what I've gathered from short-sale coaches/gurus/teachers/mentors is that a 1099 is a choice the banks/lenders have. Can anybody clarify on this?

By law, the lender is required to issue a 1099C if they are forgiving any portion of your debt. Your understanding from your coaches and gurus is imperfect.

20

Expect your credit score to take a 300 point hit, expect the foreclosure to stay on your credit report for the next seven years. Expect at least two years of on time payments before you can get affordable interest rates if you can even get another loan.

In the meantime, expect to see your home insurance and auto insurance premiums rise significantly. Expect to see all your credit card issuers cut your available credit to something just above your current balance. For the credit cards where you might carry a balance, expect to see your interest rate jump to the default rate (maybe as high as 32%). Expect to see your HELOC loans frozen so you can not withdraw any more money against your available credit.

There is a chance the hazard insurance premiums on your other rental properties will also increase because your credit score will put you into a higher insurance risk category.

Your issue is not with CountryWide. CounttryWide is wholly owned by Bank of America. Your issue is with BoA policies and procedures. Remember that BoA lost $20 billion on the Merrill Lynch acquisition, so they are probably not feeling very generous right now.