New York, asset recovery, jingle mail process... my situation

[wondering_what_to_do]

Thanks for a wonderful and informative site.
I'll be seeking legal council soon on my situation but wanted to be well prepared with questions, so I'm telling my story here:

I have a second home (in NY state) that's currently rented out, but the tenants have stopped paying rent (hardship) and will move out voluntarily within a month or two. My mortgage principal is 298,000, the market value is in the low 200's. I have an investment home mortgage on it. My rate has been rapidly resetting to a level that is unaffordable to us. Even when the tenants were paying rent, our negative cash flow was monthly around $1500 depending on utilities. I've been getting 1950 in rental income (covering utilities), but the rental market has collapsed also, so I doubt I could ask for more than possibly $1200 in rent (+ utilities).

We are up to date on payments, but it's a real struggle. We thought we'd be able to sell or refinance before the rate would go crazy and ride out the storm. But little did we expect so many surprises: the rental collapse, the sales market collapse, and now my job is also on the line.

I've spoken to a loan modification officer at Countrywide who offered to freeze the rate back to where it was in the beginning, so my expenses on the house would be 2200 (+ultilities). I have to get back to them with financial details. I guess they want to see the ratio of income to debt? Or Income to regular expenses?

I've calculated that if we manage to rent it out for $1200, and with my job gone, we'd be spending 62% of our income (including the rental income) JUST on two mortgages! Without the rental income the two mortgages take up 81% of our income (after taxes). And I haven't taken into consideration any other payments like cars and credit cards, utility bills etc.

What should we do? I can't claim hardship yet because my job only terminates in May. With my expected income for 2009, the ratio would be 54% during the first 4 months of the year IF we get it rented out.

We are up to date on all payments and have a good credit rating. We've worked hard at getting a good rating, but now the value of a good rating doesn't seem worth it considering how we are being drained.
We don't plan to move anytime soon from our primary residence because at least my husband's job is stable. We have a good fixed rate mortgage on that one, and even if we might be underwater with that house also, we don't care, as we'll stay in it for a long time.
We normally don't carry much of a credit card balance (but have a very large credit line). We might need a new car within the next 5 years, but could probably buy a cheap used one. What else could hurt us with a bad credit score?

Should we talk to Countrywide about a deed in lieu? Do I have to put the house on the market first? Do I have to get behind on payments first? At this point, I don't think a loan modification will cut it. Not if all they can offer is the initial rate frozen for 5 years.

If we do foreclose, how likely are they to come after our other assets? What is typically exempt? Retirement accounts? Primary residence (no equity in that)? What kind of assets are they looking for?

A final question: What is the actual process with jingle mail?

Thanks

[cactus77727]

You've taken the right first step. Get all the information you can, and make a business decision about it.

I don't know about New York so I can't speculate on your loans.

It seems you have some time, but I just wanted to urge you to get into emergency financial survival mode right now. My mistakes were underestimating just how bad the job market is, and waiting too long to make a decision.

Someone else on the forum should be able to help with specifics on your loans here shortly.

Good luck.

[The Professor]

I cannot adequately express just how important the advice Cactus77727 gave when he said, "but I just wanted to urge you to get into emergency financial survival mode right now. My mistakes were underestimating just how bad the job market is, and waiting too long to make a decision."

It looks to me like you are handling things well. But keep focused on it. Try to strike a deal with Countrywide as soon as possible that you can live with. I'd see if that modification can lower the rate as much as possible and focuses on paying interest only over the short haul.

Negotiating a solution is particularly important for two reasons. The first is that since New York law allows deficiency judgments (see New York Foreclosure Law ), you want to avoid that potential downfall. Second, since this is an investment property, you may well face "forgiveness of debt" tax liability.

Take care,

Daniel

[cactus77727]

So in New York, deficiency judgments are allowed on all homes? Whether they are primary residence or not?

What I'm getting at is: is there any benefit for them to move into the 2nd home, and then working to negotiate on the primary residence?

[The Professor]

I do not believe there would be a benefit relative to the issue of a deficiency judgment since there doesn't appear to be a provision in New York state law that provides anti-deficiency judgment protection. There might however be relief relative to IRS treatment if the home is owner occupied. The forum participant would be well advised to talk to a tax specialist on this issue.

Daniel