2 WA state rentals- foreclosure or short sale???

[stephanieb]

Hi everyone. My husband and I bought 5 rental properties in WA in 2005. In hindsight, this was the worst decision we've ever made. We managed to sell 3 of them in the past 3 years. Unfortunately, we are left with the worst 2. Both are negative every month to the tune of around $900 total (when you add in vacancies, repairs, etc., we think we probably are losing $14,000 per year between the 2 properties).

We've been working with the loan companies on modifications which has met with some success. However, the negative $900 per month is with those new payment amounts. Prior to the loan mods, we were closer to $1300 in the hole every month. On one of the houses, we owe $215K on a 1st and 2nd, both with Specialized Loan Servicing and it's worth about $150K. The other one is just 1 loan through Homecomings for $250,000 and it's worth around $180K. According to our property manager/ realtor, he thinks it will potentially take 10 years for the properties to increase in value back to what we owe on them.

We have depleted our entire non-retirement investment/ savings account over the past 3 1/2 years paying on these rentals. If we hold onto them, we'd have to start dipping into our small 401K's. Clearly not what we want to do (we'd like to be able to retire someday ) We've tried to avoid having to consider foreclosure, but I think financially it's really our only choice.

I think the loans have a power of sale clause. Here is the wording used: under a section titled Acceleration, "Lender shall give notice to borrower prior to acceleration following borrower's breach of any covenant or agreement in this security instrument. The notice shall specify:a) the default, b) the action required to cure the default, c) a date, not less than 30 days from the date the notice is given to borrower, by which the default must be cured, and d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this security instrument and sale of property at public auction at a date not less than 120 days in the future. If the default is not cured on or before the date specified in the notice, Lender at it's option may require immediate payment in full of all sums secured by this security instrument without further demand and may invoke the power of sale and/ or other remedies permitted by applicable law.

So, am I reading this correctly, that this is a power of sale clause? And if so, does this mean that the worst that will happen is we will get a 1099 and have to report the difference between sale price and what we owe as income on next year's taxes? We really don't want to lose our main home if they could come after that. It's my understanding that if we tried to do a short sale that the bank could come after us for the difference. Is this accurate?

Sorry for the long message, but we're just trying to figure out our best move at this point.

Thanks for any advice!

Stephanie

[Dan Bailey]

stephanieb,
Here is a link to the implications of each choice :The affect on your credit from foreclosures, short sales and deed-in-lieus

You may also want to read up in the "Deed in lieu/walking away" section of the forum. Prof Shays has excellent insight into the implications of making these choices.
Good luck!

[nogero1]

Hi Stephanie,

I'm in almost an identical situation as you on investment properties in Oregon. Since your message was from March has anything happened with your situation? I'd love to hear an update on what has transpired. I hope all is well and is turning out ok for you.

Thanks!!!!!