I am new to this website. I have been reading a lot on this and other websites I have found a lot of useful information. However, I still have many doubts.
Back in 2001 I purchased a rental property in San Jose, CA. It was 100% financed with 2 loans from 2 different banks. Since then I have refinanced both my primary residence and the rental property a few time. At some point (late 2007) I consolidated the 2nd mortgage of my rental with my residence loan while refinancing the primary residence. Then (early 2008) I refinanced the investment property and pulled cash out. That was the peak value period for both properties and since then (in the last 2 years) they have both dropped in value to about 50% of the values at loan closing.
Both the loans are with Wells Fargo, and I was told that the loan on the rental is owned by Freddy Mac, while the primary residence is with Fanny Mae. I realize that due to refinancing with cash out my both loans now are recourse ones.
The rental has had negative cash flow since the very beginning. I kept losing money in hope the property value would increase in near future and that would allow me to sell it and recover what I had already lost. Currently on both properties I owe about 150% of the respective market values.
My tenants have just given me notice. The property condition has deteriorated and I know that in order to rent it out again even at a similar rate I would have to invest again in remodeling / repairs etc. and I do not have any more funds left to do that.
I feel compelled to walk out on the rental property. However I am concerned about possible consequences - financial, legal, tax etc. Therefore I have a few questions:
1. Can the bank go after my primary home, cars, etc., even though I have never been late on any payments yet, and still can afford to pay mortgage on primary home, my credit cards, car?
2. Based on what I have been reading, there is some help and protection in Law for those who have only residential property and non-recourse loan. What about rental and recourse loan?
3. I understand that bank will want me to pay deficiency balance but is there any hope that bank will forgive my debt? Or at least some % of my debt?
4. What is the chance that bank will sell my debt to a debt collector. Can a debt collector go after my primary home?
5. What is the chance that I will have a judicial foreclosure?
6. I was thinking about short sale or loan modification but my only hardship is loss of the rent (not yet, next month).
I have stopped worrying about my credit score (right now - perfect). I just want to take this burden off my shoulders and keep my primary home and have minimum or no penalties.
Thank you for any piece of advice.