Relocated for Work - Exploring Options

[MattEV]

I've been doing some reading here, and am very glad to have found this resource. Thank you for creating this website!

(If there's a better place for this thread, please move it as needed.)

I have a probably-not-too-unique situation.

First, background:

In 2006, I took a job in Phoenix, AZ. (Yeah, I know. )

Doing what I always do, I bought property near my place of work. I prefer to have someone help pay my mortgage, and I like rehabbing properties, so I bought a fixer with a guest house in a historic district near work.

$258K, with 20% cash down. Then put $40K (+/-) into it, cash and credit cards.

Fast forward to late 2006, job market in Phoenix starts to show signs of stress. I take a temporary position in Oregon, which is supposed to end in June 2007. Rent the Phoenix house to a friend who was to get a tenant for the rear house. A disaster on all counts.

Refinance the Phoenix house in early 2007 to clean things up, pay off the credit used to rehab, and save money (better rate, etc.).

First: $232K, 5.5% recently adjusted to 4.5% fixed for 5 years, then adjustable
Second (HELOC, same lender as first): $35K, 4.5% adjustable
Third (HELOC, different lender): $42,500, 4.75% adjustable

House is now mortgaged to about 97% of 2007 value. (Valued in 2007 at about $315,000.)

Job in Oregon became permanent. Good thing, because my previous employer in Phoenix had by then laid off 50% of staff. I would have been unemployed by late spring of 2007, in a field with zero prospects in Phoenix at present.

Switched to management company on Phoenix property after a series of disastrous (and expensive) tenant nightmares necessitating multiple trips to Phoenix and multiple repairs.

Bought a house in Oregon, walking distance to work, currently rehabbing. (That's why you hear plastic flapping in the background. It's not a cosmetic rehab. But it was cheap and close to work.)

Currently spending $900 a month in excess of the rental income to keep Phoenix house payments, taxes, insurance all current. So, a $900/month operating loss, assuming the place remains occupied and there are no unbudgeted repairs or maintenance costs. (Spreading actual repair costs from the past year out, we can add another $100/month loss -- $1,000/month total.)

Had a 6-month vacancy this year, during which period I spent $2,000 a month to keep everything current. Eliminated my savings in the process. Had to stop contributing to retirement savings, and can now only afford minimum payments on credit cards . . . which I continue to use for materials for the Oregon house.

Phoenix house is presently valued at about $200,000, possibly $180,000. Zillow says $170,000, but doesn't include the two new kitchens, the new hardwood floors, the new bathrooms, new HVAC, new carport . . . etc.

An AZ real estate attorney's recommendation is to stop paying everything in Phoenix and let the bank foreclose. I will then face a possible deficiency judgment on the first mortgage, and collection action and/or lawsuit for the two HELOCs. He says they will typically settle for 20% of the debt, and would either do a payment plan or garnish my wages -- up to 25% of take-home, or a bit under $1,000/month. They can't force sale of my house in Oregon because it presently has no equity ($30K homestead exemption in OR). Heck, it presently has no interior walls.

They CAN, it seems, wait for four years (the HELOCs, not the first) before pursuing action against me, by which time the Oregon house will be finished and have more than $30K equity. They could then force its sale to pay the debt.

I have tried working with the lender in third position to move the HELOC to my house in Oregon, and change it to a fixed rate. They cannot do this, for whatever reason, regardless of appraisal value. Bank policy.

I have asked them if they can cash-out refinance the Oregon house and use the cash to pay off the HELOC. No, regardless of appraisal value; they currently do not do cash-out refinances.

I have worked with the first holder to get a rate adjustment (noted above).

I have discussed the possibility of borrowing from family for the second and third mortgages. Not an option.

I don't like the idea of walking away from my commitments. I did legitimately borrow money, which I fully intended to pay back. However, one more vacancy will lead to default anyway . . . and one of the leases is up in February. I just can't keep doing this indefinitely. I literally spend my entire paycheck on bills, then wait to see what rent I'll get so I can eat for the month.

The other alternative coming to my mind is to try to short-sell for the first mortgage, and keep the second and third current. Possibly the first and second would go together with a short sale (same lender)?

I'd then be left with either $42.5K or $35 + 42.5K = $77.5K in unsecured debt for a house I no longer own, with adjustable rates that will go through the roof as soon as the economy starts to move again and inflation hits. In other words, a personal bankruptcy waiting to happen. So, it would appear that I'd short-sell the first (if the lender will accept that), and then later default on the HELOCs and try to negotiate the principal down, or something . . . Or would they immediately go into collection anyway once they became unsecured?

Would it make sense to default on the HELOCs but keep the first current? The HELOCs would have no motivation to foreclose (they'd get nothing), I could negotiate them down and get a payment plan established, then short-sell the property for the first. Does that make any sense?

I really don't know what else to do, but as I said, I don't like walking away from my commitments. Does anyone have a brilliant suggestion?


I should probably add that I have no desire to go back to Arizona -- there are no jobs in my field anyway -- and do not want to remain a long-distance landlord any longer than is necessary. I'm not interested in keeping La Casa de Albatros.