Thanks to everyone who has shared their experiences here, it has helped so much in alleviating my fear of this decision. Since Iíve got so much help from this forum, Iíll start my own story thread, since it seems some things have changed recently and my situation is a bit unique (as is everyoneís).
I bought my house in AZ in April 2007. It was the first house I bought on my own following a divorce 3 years before. I negotiated pretty hard and prices had come down from the peak of the bubble. I felt pretty good about it and intended to live there at least 5 years. Of course life intervened 2 years later in the form of a great guy that I fell in love with. We decided to buy a house and move in together. By that time we were both upside down on our mortgages Ė his much more than mine. We found the house we wanted Ė a great deal on a short sale. I could afford it on my own, so he stopped paying on his house and put it up for a short sale. After about 6 months, we closed on the new house, fixed it up and moved in. I put my house up for rent and rented it in Mar 2010. This was so at least one of us still would have decent credit (my score is about 860). Since I have a demanding full time job, I used a property management company. After 3 prospective buyers reneged, my guy finally let his house go into foreclosure (more than a year after he stopped paying on it).
Fast forward to now. The value of my rental has taken another nosedive. Iíve been losing about $400 / month for the last 15 months. Iím over $100 underwater. Iím 5 years or less from retirement. Iíve decided to walk away.
So far Iíve talked to an attorney and a real estate agent to get info on options. I have an appt scheduled with a CPA next week. Hereís what I learned so far:
- Short sales are now typically taking 3 Ė 6 months rather than 1 year like they were last year. Banks (some) will even talk to you before you miss a payment and set the minimum expected price in advance.
- Foreclosures are typically taking 12 Ė 18 months. This is due to a number of factors. The Notice of Trustee Sale comes fairly quickly, 3 Ė 4 months, but then the sale gets postponed month to month for several months.
- If you do a SS, be sure to get the approval letter that states explicitly that the sale cancels the debt before going to closing. If you donít have the letter, or if it isnít clear that the debt is satisfied, donít close Ė donít sign anything!
- The house is mine and the lease remains in effect until I sell or the bank forecloses. That means I continue to collect rent and the renter canít break the lease without consequences (lease term is through Mar 2012).
- Per my property mgt contract, I have to notify them when I get the Notice. If I donít remedy the mortgage within 60 days, the contract is void.
- My landlordís insurance says thereís no limit on how long the house can be vacant. (!!)
My strategy is as follows: stop mortgage payments immediately. Put the rent money in the bank for possible taxes later (should not be much, if any, since I have significant loss). Talk to the bank about the requirements for SS Ė I donít expect to qualify since I donít think I have a good hardship case. When I get the sale notice, Iíll notify the prop mgt company and the tenant. Iíll probably offer a rent discount (similar to what Iíve read here that others have done) as incentive for them not to break the lease or just stop making payments. Wait for foreclosure.
More to follow.