Is my Investor Property Hopeless?

[bradesp]

I know most of you are in MUCH worse shape than me, so I don't expect, nor am I looking for any sympathy.. I made my bed, now I have to sleep in it! That said, I would appreciate any practical advice and "out of the box" ideas, no matter how nutty they sound.

Here's my situation:

Income: 250K Year and at risk (company downsizing and I stand a 50/50 chance of getting cut in next 90 days and will have great difficulty finding reasonable employment at my level for 6-12 months.)

Homes Owned: 3 homes, 3 mortgages.

> Home #1 is the "true" home. 625K Value, 280K Loan

> Home #2 is a small weekend cottage purchased 10 years ago. Home Value 675K, 230K Loan

> Home #3 is beach home in North Carolina (1 hour south of Wilmington, 50 minutes north of Myrtle Beach). I built this home three years ago thinking it was a fantastic investment. No such lunck. Today the home is worth $800K, Loan value is $940K. The home value two years ago was $1.1M

Home #3 is my problem. I convinced myself that I could service the annual negative cash flow of $35K (it's a summer rental / vacation home) with the sale of stock from my portfolio. Three years ago my company stock was worth $750K... Today my company stock is worth $75K.. long sad story…

I have no other liquid assets, just the $75K Stock Portfolio and the equity in House #1 and #2. I wont be able to make up the cashflow next year and I don't want to wait to lose my job to find out I don't have time to do something about this.

The Servicing Company is CountryWide. I don't know who holds the paper. Also, when I purchased the beach lot for 500K I did NOT take out a construction loan, instead I used my HELOC's on House #1 and House #2 to finance construction (thinking I was being "smart" to save money on the closing costs associated with a construction loan). This proved to be a VERY dumb decision because when I went to secure a mortgage for my brand new house the mortgage company treated this as a cash out refi!!!

Again, I know I'm not as bad off as others, but for those of you savvy about the current mortgage crisis, can you recommend what you would do in my situation to escalate this with the banks in a way that stands a chance of resulting in a work-out without resorting to a walk-away situation? My concern about walk away is not just about credit rating, I’m also concerned I would not be able to obtain a similar executive position suitable for my background if this we’re to impact my credit report.

Lastly, my current mortgage is a 7 year IO at 6% with a monthly payment of $5,200. I’m in year three of the mortgage. I know it's unrealistic, but if I could get my payments down to $3,000 a month I would happily keep the home and mortgage for the next 20 years knowing I can break even on my cashflow.

Thanks for taking time to consider my situation and offer any ideas.

[Professor Shays]

The problem with owning three parcels of real property in this declining national real estate market is you get to experience the evaporation of your financial position at a much more rapid pace than most of us. My inclination is to suggest that you get your debt down to a manageable level by first concentrating on disposing of that which hurts you the most from a negative cash flow standpoint, and prune off the other assets in a manner designed with the recognition that we are officially in a recession (as reported this afternoon by CNN).

I would look at immediately placing Homes #2 and #3 on the market and price them to sell. Otherwise you stand the risk of riding this market downward to its bottom. I continue to stick to my 2011 estimate of bottom timing. Thankfully I made a similar decision in 2003, expecting the market to crash shortly after that year. I use to kick myself for not "hanging in" until 2005, but today am glad I took the approach I did.

Daniel

[bradesp]

Daniel,

House #1 is going to be the easiest to sell and should net me an amount that will allow me to pay cash for a home I would be quite content to live in for the next 20 years. I'm actively preparing the house for sale and am cautiously optimistic (we live in one of the few areas in the country that has seen very little depreciation in housing).

House #2 I can afford even in a downturn... Plus, (you'll have to trust me on this) there are unique circumstances that make the future value of this home relatively immune to even the worst case scenarios you describe.

House #3 is my HUGE problem... I literally don't have the cash to close this house at a price that someone my pay today... If I put this up for fire sale and get 800K, I still need 160K to close the transaction.

So my question is what you or others might suggest as a set of tactics for dealing with my #3 house?

Thanks!

[Professor Shays]

The obvious tactic is to see if the lender (aka your partner) has an interest in doing a short sale in full satisfaction of their debt. The obvious answer is "it depends." If they are smart, given your other assets my guess is they will say no. If they are overwhelmed, which is a real possibility, they will go along with the idea. So in essence, "there's no harm in asking."

A key factor in their decision making process is whether or not they can obtain a deficiency judgment after foreclosure in North Carolina. My research, although not entirely clear, indicates they can. You need to contact a lawyer familiar with real estate law and debt collection practices to provide an answer so you can make an informed decision.

Danie

[bradesp]

Daniel,

Thanks for the reply. Do you think I'm better off working with a local attorney or with one of the firms supporting this site that specializes in loan mods and short sales?

Thanks!

-brad

[Professor Shays]

The majority of laws effecting your rights in a foreclosure situation are State based. Given your location, I'd employ a lawyer licensed in North Carolina. Contact your local bar association or attempt to get a referral from a trusted friend. Your focal point should be to find a lawyer skilled in real estate law and debt collection practice.

Daniel