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Bailing on underwater house
DEAR BENNY: My self-employed son and his new wife built a house several years ago at the top of the market. Last year, they decided to take advantage of slightly depressed real estate values in another state, and contracted to build a house there. The first house was put on the market at substantially less than they paid for it. They got no offers until someone asked to rent it with an option to buy.
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FHA program funds fixers
Investors have been taking advantage of low interest rates and discounted prices to buy run-down foreclosure properties, sometimes 10 or so at a time. They fix up the properties enough to be rented until the market turns, which could take years. When the time is right, the investor puts the finishing touches on the improvements and hopefully sells for a profit.
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Pros' guide to window screen replacement
It's getting to be that time again. The windows are open, and the bugs are clamoring at the window screens, trying to come in and join the party. If a few too many of these uninvited guests are getting in, it's probably time to get that damaged screening replaced. Luckily, this is a great do-it-yourself project that you can take care of in no time.
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Buy now, sell later?
Plan for the worst and hope for the best. This is a reasonable course of action if you're planning to sell your current home and buy another one in the current market.
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Roof shingles to rave about
When it comes to shingles, there are choices galore. But one of the most attractive from a number of standpoints is the laminated composition shingle. Durable, reasonably priced, and compatible with a wide range of architectural styles, laminated shingles long ago destroyed the notion that composition shingles are suitable only for lower-end housing.
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Bailing on underwater house
By Benny Kass
DEAR BENNY: My self-employed son and his new wife built a house several years ago at the top of the market. Last year, they decided to take advantage of slightly depressed real estate values in another state, and contracted to build a house there. The first house was put on the market at substantially less than they paid for it. They got no offers until someone asked to rent it with an option to buy.
Under the supervision of a property management agency they signed a one-year lease with the renter, who recently defaulted in December. The house now is vacant, and despite their substantial downpayment, cannot be sold for anywhere near what they owe on the mortgage.
After a year of paying two big mortgages, they are desperate and almost ready to sacrifice their credit to a foreclosure. What is the best way of getting rid of the first house under these circumstances? --Kris
DEAR KRIS: Because this is really no longer their principal residence, they have more problems than if this were their main home. But here are some possible options. First, they should talk with the lender on the first home. Can they work out a loan modification so that the mortgage payments will be reduced -- at least temporarily? Will the lender accept a short sale, so that the house can be sold at a more realistic price?
Will the lender accept a deed in lieu of foreclosure? This means that your son and his wife will deed the house back to the lender so that no foreclosure takes place. This can be a win-win for both sides, because the lender does not have to incur a lot of costs for the foreclosure and your son will get rid of the house. I assume that he is current on his mortgage payments for the first house.
Finally, if all else fails, stop paying on the first home's mortgage and let it go to foreclosure. However, your son should discuss the situation with a local lawyer. Most states allow lenders to go after their borrowers for the deficiency, which is the difference between what the lender received at the foreclosure sale and the current outstanding mortgage balance. If state law permits, the lender could sue your son, get a deficiency judgment, and then go to the state where he now lives and try to collect on that judgment.
DEAR BENNY: I have a rental property that I had purchased in 2005. I was going to hang onto it and sell it a few years later. Since that time the real estate market has not been good. My property is now worth less than what I owe on it. I have only a first mortgage on the property.
In a previous article you stated that with having only a first mortgage the option of asking the lender to take back the deed and cancel the mortgage would be a lot easier. What sort of risk to one's credit rating would this have?
I still have excellent credit but am unable to continue pulling out of savings to make the mortgage. Is there something that might be able to help me convince my lender to take back the deed? --Yvonne
DEAR YVONNE: I have given up trying to understand what motivates banks. If you have good credit and get the lender to take back the deed (this is called a "deed in lieu of foreclosure"), it will still have an impact on your credit standing -- but not as bad if the property went to foreclosure. By taking back the deed, the lender is giving up a portion of the mortgage that you owe, and that information will no doubt be reported to the various credit-reporting companies.
Try to talk with the highest-ranking person in your lender's office. Explain the situation. But keep in mind you are not the only one in trouble; the lender probably hears similar requests on a daily basis. The lender may ask you to try a short sale first, because legitimate lenders do not want to own property. If you give the deed back to the lender, the lender will have to pay the real estate tax and the insurance, and the lender clearly does not want to do that.
You may also want to work out a loan modification. But any activity that you take, short of keeping current with your mortgage, will impact your credit scores.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column.
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