Q. My wife and I purchased a four-unit rental property for $935,000 in 2006 and put 10 percent down. The lender split our loan into 80/20 and we have a loan balance of $650,000 and a HELOC balance of $192,000. We have an ARM payment on our first mortgage and our monthly mortgage increases annually. It’s now getting to a point where we can’t pay anymore.
Currently, the property value is $625,000, so we pretty much are upside down. The bank doesn’t want to adjust our loan because it is a rental property and they won’t refinance. We also have a problem with a tenant who could not pay rent because she lost her job, and it is hard to find tenants due to the economic downturn. I would like your honest advice on what I should do. Should I just walk away?
A. It will not be a consolation to you, but I am receiving questions from many, many readers with similar issues. Unfortunately, there is no easy answer. The federal government and many state governments have started implementing plans and programs to assist people who are in your situation, but there still remains a lot of confusion — and indeed distrust — of many of these operations. More importantly, many lenders are unwilling to work with people whose properties are underwater.
A number of options are available — but only you and your wife can make the final decision. You can file for bankruptcy relief, but you must consult a bankruptcy attorney to determine what the consequences will be.
You can try a short sale. Contact a local real estate agent, and see if there is any market for your property. Obviously, your lenders will have to approve, and this can take some time.
You can ask the bank if they will take the property back. This is called a “deed in lieu” of foreclosure. Or you can just walk away from the property, and let the bank foreclose. However, once again, you have to determine the consequences.
Many states allow lenders to go after their borrowers for a deficiency judgment. Let’s take this example: You currently owe a total of $842,000 on both loans. If the bank sells the property for only $600,000, that leaves a balance owing of $242,000. This is known as a “deficiency.” You have to talk with a local attorney to see if your state law permits — or prohibits — lenders from seeking that additional money from you.
Q. Are monthly condo assessments required before purchase? Considering your experience, I was hoping you would be able to shed some light on the subject.
A. Absolutely not. You become legally obligated to pay condominium assessments only upon becoming a unit owner. At closing on a new condo unit (also called “escrow”) you may be required to pay two months’ additional condo fees as a “start-up” for the new association, but that can take place only when you are an owner.
If you are being asked to pay an assessment before you buy, something is wrong and I would like to get more details about this.
Q. How can I obtain foreclosure lists for my area? I thought this list was free, but everyone seems to be selling them. Any recommendations?
A. That’s a surprise to me, since there are literally thousands of Web sites that list foreclosed property — 871,000, to be exact, when I did a search. You can also contact local banks and see what they have in their inventory.
But a word of caution: Do your homework, inspect the house, and consult legal and financial advisers before you sign a sales contract.
