What to do with house I owe $54000 on but is worth less than $16,000? Cant rent.

Foreclosures, Short Sales, Tax Foreclosures
1

I bought a house for $54000 that I have dumped too much money into only to have it vandalized or ripped off. I bought the house back in 2006 and had a good run of renters and actually made money. Then the quality of the neighborhood went to crap, the city and local charities built new junk homes down the road and filled them with tenants from a decommissioned housing projects.

The neighborhood went from a blue collar type to a ghetto, it’s flat out dangerous now and I can’t get the property rehabbed and now I cant afford it. The copper pipes have been stolen, the carpet is gone, my windows cracked, the hot water heater is stolen, the door got stolen. I have not been able to fix it for 2 years and it’s been vacant and now I am so behind on repairs I just pay the mortgage and move on.

I am not going to rehab this, I am not a full time investor nor do I have the capacity to babysit this thing day in and day out. Nobody wants to even work on it, and I am now afraid someone is going to kill themselves on the property itself.

Does this count as a hardship? I am financially stable but don’t have the cash to pay it off or even come close to paying it off. I can’t rent it out, no heater, no sink, no plumbing, no windows…

What is my best plan of action here?

2

First, some obvious questions…

Do you have insurance?
Does it cover Vandalism and Malicious Mischief?
How do you come to your estimate of current value? Fair market minus repairs?
Would fair market rent cover the PITI and maintenance today?

Frankly, it sounds like a total loss. Financially, you would certainly be better off to stop paying, put the monthly payment money in a matress or IRA and later, AFTER Consulting with an attorney to plan for the consequences, file BK.

3

I can make the payments right now, it’s a pain in the butt to fork over $400/month for nothing but I am more worried about losing big when someone sets up shop in the house and overdoses or something. I have insurance on it but they don’t realize it’s vacant at this point in time so I can only assume I am not covered.

The price is based on comps of other houses that were sold, I spoke to an agent that has done business in the area and he didn’t paint a bright picture. The house turned into ghettoville.

4

I’ve thought of renting it out for free with the expectation they would fix it up but I am worried i’d just set myself up to be a hostage of the tenant. Laws don’t work in my favor for that type of deal. :frowning:

I would say 100% there is no way to get a human being in that house that is worth anything.

5

Look, Gmt, you read like a rube. Take control, don’t let the property control you.

If you list the house for sale and do a Short Sale then, unless you have a reserve of approx 40K in tax losses that haven’t been realized yet you will have a Federal Tax liability on the amount of debt forgiven by the bank. IF you do a Foreclosure you will also have a Federal Tax liability on the amount difference between what the bank is owed and what they eventually sell it for…but it could be years before you know that amount. Same difference different paperwork.

Second, If you still have insurance then go to the property and secure it. Make it look like it was being remodeled by spreading some paint buckets and drop clothes around. Make an insurance claim for damages, Malicious Mischief, Vandalism, theft…read your policy and if you don’t understand it get a (competing brand) agent to explain it to you on the pretense of shopping for coverage. When setup, make a police report of the damages. With that in hand Make an insurance claim. Worst case is that it would be denied because you left the house vacant and unoccupied for too long, that is usually a requirement of most policies…but if they haven’t done a driveby verification and cancelled you yet then you will probably collect as long as you talk about your remodel project and your big plans for the house and how the buggers wrecked the place…

I recommend that you stop paying, NOW. I consider it foolish. Save your money for your attorney fees. Save for a rainy day. As you stated it is probably hopeless so take control of your life and take actions that will improve your position now.
None of this should take the place of the advice of your own attorney. It is just my opinion.

6

Look into donating it to a local do-gooder group that provides nursery care and preschool in low income areas. Or a group that does after school programs for kids.

7

Or donate to a battered woman’s shelter to be used as a halfway house.

8

I was under the impression,sometimes you can get hardship by just being upside down on the note. What is the property worth,turn key?
To you, it may seem like a dead deal…For someone else,a great opportunity!

I wish you the best

9

Hey M, I want to apologize for the tone of my earlier post. You were just providing personal real info and thoughts. I was a jerk. Keep at it. Good luck.

10

Hope you would taken care when you had you deal then you dint have to face such.

When dealing with potential buyer’s price is ultimately one of the most driving factors behind their purchasing decision, the price should be appropriate in spite of the requirement of the seller to sell property quickly.

I think you can take help from a Realtor of your area.Thanks

11

Apply for a loan modification. It is very simple to do loan modifications now. Just tell the bank that you are considering bankruptcy in your hardship letter and they will forgive a significant amount of what you owe. maybe if they make your new mortgage payment you could put another tenant in there for that same amount or slightly more.

12

I say let the payments fall behind and short sale it. No bankruptcy needed there and you can build your credit back up in 2 years.

13

Hopefully this could work for you. This is the strategy that we are currently using to sell REO properties we buy. Currently we buy about 50 a month.

First, find out what the average rental amount in the area for your type of property. Check Rentometer.com, call a Realtor, etc…

Once you know the avg. rental amount, you then subtract what it cost for taxes and insurance on a monthly basis. Let’s say you find out that your property will rent for $650 in good condition. Let’s further say monthly taxes and insurance is $150. So, $650-$150= $500. Now because of its current condition, let’s offer another 20% discount so this brings us down to $400.

You then put up sign on the house “FOR SALE! Owner Financing…$800 down $400 a month”. You then reverse engineer the numbers to get to the selling price. You will create a note on a 15 year term, 10% interest. If the payment is $400, interest is 10%, Number of payments is 180 months, this will give you a present value of $37,223. You’re selling the house for that amount.

You will create a promissory note in the amount of $37,223. You will sell the house on a Land Contract which means you control the deed. The deed only transfers once you receive your full payment of $37k. If there is a default, you will simply go through an ejectment proceeding similar to that of an eviction but faster than foreclosure. Selling it this way, you simply become the bank and not a landlord.

You do not need to fix the house. Explain to your buyers in exchange for 100% owner financing, they will be responsible for fixing up the house, paying taxes, insurance and utilities.

The reason people will be interested in this is because you are pricing the house lower than market rents. In essence, making it cheaper to own than to rent. This will attract people that want to buy but does not qualify for a traditional/FHA mortgage due to credit score.

When we evaluate buyers we tell them, credit score is not important but we do look at credit habits. As long as they have not been evicted 2-3 times and no judgments, we will consider them. Old medical bills, credit card collections on their credit report is not a problem. What is important is they have verifiable income. We look for an income of at least 4 times our monthly payment. If its $400 payment, we look for someone with at least $1600 a month in income.

Here is an example of one of our properties that we advertised on craigslist and is in the process of closing:

http://cleveland.craigslist.org/apa/1699900445.html

Using this strategy, we sell our houses on average 2-4 weeks. We’ve sold properties without a furnace, pipes missing, in rough neighborhoods, etc…There are people out there that are willing to buy homes even if it needs work especially if someone is willing to finance them.

Hope this helps.

14

You need to Short Sale this property, That is what I specialize in. This is where you sell for Short of what is owed to the bank, the Investor goes in with Cash to remove the Bank and then as the Free and Clear owner the property is resold to a new buyer.