Walk from rental, keep primary?

[ryano]

First post here. I've read tons of helpful posts on other threads, and I've just scraped the surface of all the great info here. I've been putting off making tough decisions for several months now. My rental property is underwater big time, and my tenant of 2 years just called and said he will be leaving soon (month to month lease).

A little bit of history. I bought a condo (Fairfield, CA) for about $245k in 2004 and lived there for 2 years. I had no cash (but a good paying job) so I borrowed 100%. Eventually I refinanced the first loan to a 3 year fixed I/O, which has now gone to 1-year adjustable including principle payments. I refinanced the 2nd in 2006 and pulled out ~$50k in order to put a down payment on a home in Davis, Ca, which I now live in with my fiance.

As of now, this is where I sit...
Condo (rental)
1st Loan w/ Citimortgage - ~$215,000 balance
2nd loan w/BofA (interest only) - ~$80,000
Total owed = $296,000
Condos with the same floorplan are now asking ~$120,000.
I am losing approx $600 per month at current interest rates.

Primary Residence
1st Loan w/ WaMu (now Chase) - $364,000 (7yr I/O)
2nd Loan w/ Chase - $44,000 (30-year fixed)
Total Owed = $408,000
Purchase price was $455,000 and value has held fairly well. I'd say current value is somewhere in the low $400's.

I'm not sure what I can do at this point. I have very little savings, yet a good income. My fiance is a student, so I am the sole income provider. The rental has drained me over the past 2 years, and there is no way the value will rise anytime soon. I'm also very happy with my home in Davis. No way do I want to lose it.

I've pondered 'walking' from the condo, but I don't know how this will affect my ownership of my primary home. The fact that I have a 7-year I/O that will reset in 4 years causes great concern. I think I need to refinance to a 30-year fixed (if that's even possible) before doing anything that will affect my credit. But I know nothing, so I need help. And I'm not ready to trust someone I hear on the radio or in the mail.

What is the logical course of action at this point? Has anyone walked from a rental, and still held onto their primary home? I'm eager to read as much as possible about my options. Even a link to other useful resources would be greatly appreciated.

Thank you so much,
Ryan

[The Professor]

You would be wise to adopt as a first step refinancing out of that existing loan that will reset in four (4) years into a thirty (30) year loan. You won't be able to do that when your credit score is adversely impacted as the result of defaulting on your first loan on the condo. Here the second loan on the condo is your real problem. Given the condo's value, there isn't equity to even cover the amount of the first loan. Fortunately they will likely resort to non-judicial foreclosure, losing their right to seek a deficiency judgment. But once they complete their foreclosure, you can expect the second lender (who will be unsecured) to require that you keep their loan current or face aggressive collection action.

Daniel

[ryano]

Thank you very much for the response, Professor Shays. Yes, the 2nd on the condo is definitely a concern. I do not want aggressive collectors ruining my life over this. I think my first step will be to look at a refi to a 30 yr fixed on the primary. Again, I don't even know if that is possible. Should this be as a loan mod or a standard refi? A refi would mean the loan switches over to recourse, but as you've indicated the lender will typically not seek judicial forclosure. Of course, that assumes I would be forclosing on the home I want to keep. I doubt a loan mod would result in a 30 yr fixed... so I might have answered my own question - refinance.

As for walking from the condo... Well that's the last thing I want to happen. I got myself in this mess and would like to do the right thing to get out of it. I can make payments right now, but I am at the mercy of interest rates. Man, what a mess.

Thanks again!

[bubby]

Im in a very similar situation to you. Ive been late on my condo (rental) for 60 days, and B of A just called yesterday and said they are going to modify the loan. 2.5% fixed for 5 yrs, then 5.5% fixed for 35yrs. At least the rent will now be able to cover the mortgage hoa etc . Try for a mod, cause you never know.

[ryano]

Thanks for sharing your experience, bubby. It sounds like you have both loans with BofA. Was the loan mod on the 2nd or 1st? It seems they would be more interested in giving in so that they don't take a double hit. Was there any grief for the home not being your primary? Good point, I can't get what I don't ask for.

[larryb]

Im going through the same process in Michigan

im letting 3 rentals go and keeping my primary. Last payments on the rentals were in december.

[QuayzyCrazy]

I'm on this same boat. Was just wondering if any of you had any luck. I need to send my payment tomorrow 6th for my primary residence and the payment for my rental on the 16th. I'm hesitant but I think I should start by not sending my payments. I need the banks to be willing to talk to me. I wanted to do this whole thing with the rental first and then after been able of sorting that property out, continue doing the same with my primary residence, but today I thought, "I guess if I'm going into deep troubled waters, I might as well do this whole thing at once for both apartments". I'm not sure what are the advantages or disadvantages for this position. I have never been late in any payment. Always current, but I read that they may not take me seriously.
The problem is that on the rental property the loan is with Wachovia with also a Line of Credit with Bank of America. On my primary residence, the loan is with Countrywide/BofAmerica. On both I lost all the equity that I had, based on today's market figures. My debt is too high and the value of my properties is way low.
I'm very nervous but what else can I do? I cannot qualify for NACA because I have the 2 properties. I wish someone could help with some good advice.....