Posted by: union03g | February 3, 2010

Thoughts On a Recent Trib Article


http://www.chicagotribune.com/classified/realestate/ct-mre-0131-glink-20100128,0,2770832.story?page=
1
[My thoughts are in red]

Q: We would appreciate your advice on a challenging real estate situation we’re facing. This is clearly not going to be a real estate problem, but an education problem.

My husband bought a rental property in 2005 using a first and second mortgage. The property has since dropped in value and we now owe more than it will appraise for — not the first you’ve heard of that, I’m sure.

An easy mental test for new RE investors is this: if you need a second mortgage then don’t invest in the rental property. Even if the TV commercials and seminars (which have all disappeared) tell you too. Even in 2005 there were daily discussions of a bubble and that didn’t make you think twice?

The first mortgage is at 9 percent and the second is at 12 percent. These are horrendous loans that he’d be able to refinance out of within five years except the bottom fell out of the market.

A real investor (or in your case someone with basic common sense) would consider the worst case senario. When you were sitting in the lenders office (if he had one), didn’t you consider the effects if housing stalled or was sluggish in growth? How did you plan to cover 9% & 12% with rental income over that 5 year span? really?

We have tried for over a year to get someone to work with us to refinance these loans and have gotten absolutely nowhere. This is a really good sign from the lending industry.

My husband has been without a paycheck for six months, and we are reaching the point where we will have to either face foreclosure on this rental, thus ruining our credit, or sell it at a significant loss to a wholesaler and still owe on the property loans. I feel bad about anyone losing a job but my guess is his job was leveraged to the housing market (construction, painter, carpenter, sub-contractor) and this is how he got the idea to buy a property in the first place. He definitely wasn’t a numbers guy or “in” real estate. Your income shouldn’t be too highly correlated to your investments in case that industry goes gone.

Again, because of a lack of income for months, we have significant debt-to-income ratios that will also make getting a loan nearly impossible. Do you have any suggestions on a way to refinance this property so we can avoid a complete collapse of our personal finances? She just said debt-to-income… omg. She still wants to keep the property I see but somehow I feel that shouldn’t be allowed. The show is over.

A: I’m sorry, but I don’t have any easy answers for you. Without an income, you won’t be able to get any conventional lender to refinance your loans. read: go to your family for help.

Worse, this isn’t your primary residence. There are fewer lenders willing to give loans on investment properties these days, or modify the terms of an investment property loan. very true.

If you or your husband were employed, and your home had some equity, you could try a regular lender. But lenders who finance investment properties typically require a down payment of 25 percent in cash. It’s tough to meet that requirement if your savings are running dry. (Some investment lenders are now requiring even 40 percent down to finance or refinance investment properties.) Just imagine how much quality (equity) will be in the housing stock in 15 years. You’ll finally know that when someone owns a home or a property, they quantitatively deserve to own that asset. Unlike today, when owning a home isn’t a gauge for how well someone is doing financially. Cool stuff.

Although I don’t often recommend this, you and your husband need to seriously think about not paying any more on this property and simply turning it over to the lender and trying to negotiate a deed-in-lieu or short sale. Hiring a real estate attorney may help you resolve this more easily. But you can count on ruining your credit for the next few years.Good advice. I wonder if just hurting their credit is really enough. They should take a course called “what happened” with a guy who shows them an amort. schedule, goes through their old loan documents with them and tells them the story of the Tulips

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Responses

  1. Bravo


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