ProfessorShays

  

Your situation presents what is perhaps the best example of what I'll characterize as the borrower having the upper hand. I know that seems strange, but by not having any equity and not having refinanced, you stand in the position of pointing to the non-recourse nature of your loans and the fact that all the lender(s) can do is resort to foreclosing on the collateral (see California Code of Civil Procedure Section 580b).

The single downside risk to you is the hit you will take to your credit score in the event of foreclosure. The reality of the market in Palmdale is market prices are likely going to continue to slide. So why not use all of this information to your advantage and take a "I'm in the driver's seat" approach to your lenders, simply explaining that they need an REO in Palmdale like a moose needs a hat rack.

So I guess I might start with a simple approach to negotiations. That is, summarize the situation in a simple, understandable manner that explains to the lender(s) that the choice it theirs. You will either stop making payments and live in the property during the foreclosure period 'rent free,' or they can start playing ball in a manner that maintains the situation by lowering the interest rate in a manner that brings your PITI costs more in line with what the fair rental value of the property is.

Their downside risk is considerably more substantial than yours because they could be stuck with one more vacant REO in a market that comes about as close to a disaster as one could describe in this market. Maintain the attitude that you'd like to do the honorable thing and not default in your obligation but need help from them in achieving this objective.

Take care,

Daniel