Need advice on Las Vegas investment property

[Seeking answers]

I posted this elsewhere but thought it would be appropriate here as well:

I purchased a 2900 sq ft. rental home in a planned Vegas golf course community in 2005. I went 50/50 with a friend and we formed an LLC but the title and loans are all in my name. He thinks it is time to walk. I am worried about the risk of a huge deficiency judgement as well as other possible consequences. He tells me that deficiency judgements are highly unusual right now in Nevada and that I'm worrying too much.

Paid 494K. Still owe 450K. Foreclosures and short sales are going for around 220K right now.

First is with Wells Fargo (serviced by B of A) for 380K adjustable. Second is with B of A for 70K adjustable. Although it is rented, negative cash flow is ~1500 per month.

The problem is, I have other assets (>100K savings, >100K stable income, >200K equity in my primary home in California). He has better income than I do but is upside down on multiple other properties.


My questions are concerning the consequences of walking away:

- What is the risk of a deficiency judgement?
- What are the other costs involved such as lawyers, court fees, penalties etc?
- What are the chances for a short sale?
- What are the chances for a loan modification?
- Should I just hang on and look 5-10 years or more down the road? (My partner and I can afford to make payments and know we will continue to negative cash flow and eventually take a loss, but it seems like it might be better than risking a huge deficiency judgment/fees/penalties etc. based on a below market auction price.)

This is all causing such stress and anxiety!! I appreciate any help I can get from this forum. Thanks.

[vegasunderwater]

Seeking answers - I've been a frequent poster on this forum on and off for almost a year and have weighed in many a time on this very topic. You are by no means exclusive to this dilemma!

I would suggest you search my past posts via my user name for educating yourself, but I'll address your issues in a nutshell right here and now.

A little background on me: You think you have problems? I've got 7 underwater properties here in Vegas myself and have spent the entire last year going through a massive overhaul using a half-dozen attorneys to re-position and shield all exposed assets from the potential fallout. I saw it coming. I'm just now in a position to finally start defaulting in order to light the fuse for the long dragged out process of attempting to re-structure (loan mod) the debt. Realize that a loan mod for a non owner occ property has less than a 50% chance, although the odds are better now than 6 mos. back, so yes, absolutely pursue it as your first option.

I also have started to implement what most investors don't even know about or will never get to and will just give up and short sell (SS) or foreclose (FC): offer a rent-to-own (lease option) deal to increase cash flow as a means of salvaging the property while attempting to negotiate the loans/payments. It can be done with negative equity! You have to think outside the box. Most people, and even smart investors, never do, and just give up and walk away because they're getting poor advice from the wrong lawyers and realtors that only want to make a fee off their misfortune. Sometimes, there is no option left but to SS or FC, but why not try to do something creative first, and if it fails, THEN pull the plug.

In any case, you ALWAYS want to stretch out the time line for as long as possible to accomplish 2 things to your benefit. And always realize one thing: the lender is NOT your ally! They care less if you wind up a bum in the streets. Don't know if you caught this in the RJ just yesterday, but look at what Wells Fargo did to this guy:

HOUSING-MARKET MELTDOWN: Modification and misery - Business - ReviewJournal.com

You cannot trust lenders and need to use guerrilla tactics to hedge yourself into a position where YOU win, not the lender! Anyone who thinks they should put the bank before their own interests is a fool!

Yes, you're 50% friend is correct that in the majority of cases lenders aren't pursuing deficiency judgments (DJ) right now, however, they are leaving open the POSSIBILITY of later pursuing a judgment in the case of the language in their SS settlements (remember, the statute of limitations for pursuing a deficiency judgment on a SS, refi, or 2nd mortgage is 6 years vs. 6 mos. on a FC because a SS is considered a breach on contract).

The other issue you will need to confront is the 1099-C that the lender will issue in lieu of (but not always) a DJ. The way out of that? You need to be INSOLVENT at the time time it's issued.

I would STRONGLY suggest you consult with a qualified attorney and accountant that is well-versed in doing debt re-structuring and bankruptcy (even though you may not go BK, it's a still a tool that you may want to implement to force the lenders to re-negotiate). I can recommend a firm if you like.

So, here are the 2 things:

1) ABSOLUTELY, POSITIVELY, UNEQUIVOCALLY, sit down with an attorney that specializes in nothing but asset protection before taking the plunge and defaulting, short selling, and definitely foreclosing! I can recommend an excellent guy here in town that assisted me. I won't go into details, as this is HIGHLY individualized and, based on your unique circumstances and time lines, you may or may not be able do something to shield your cash & properties.

2) No matter what, ALWAYS keep your property leased! Realize that a new law was recently passed, the PROTECTING TENANTS AT FORECLOSURE ACT, that protects your tenants so that even the bank (if it gets that far) cannot evict them and have to give 90 days notice before doing so, otherwise, they HAVE to honor your lease agreement by law. So, no excuses for your tenants to say they don't need to pay rent because they got the NOD and think you're going to foreclose. Nope! They remain liable for the rent as long as you still the owner(s) and have a fully-executed lease agreement. There's a court case now to support that. So, the bottom line is that whether you are negotiating a loan mod, SS, or even know you are going into FC, keep collecting rent for as long as you can! At least you can get back some of your losses this way.

In closing, realize that you're deluding yourself into the belief that holding the property is a good strategy! I recently attended a meeting in which our local UNLV economist went into great detail with supporting charts and graphs to show why this doesn't make sense. Believe me, you will be losing substantially more in holding costs and negative cash flow than you will ever compensate for in the time frame it will take for values to restore to 06 levels. A conservative estimate is 10-15 years.

Bottom line: either make it cash flow positive (then, it doesn't matter how upside down you are) and sell it on a lease option subject to SS approval from the lender - or/and - get a loan mod that makes sense, if possible. Failing that, ONLY SS if the lender agrees to WAIVE the DF (you'll need a highly skilled attorney/negotiator - not some realtor) and if they refuse, threaten BK. Failing that, talk to the loan mod attorney about threatening fraud, RESPA, etc. violations against the lender. Failing that, have the attorney tie the foreclosure process up for at least a year (assuming you have been smart and shielded your assets) which is not hard to do with how screwed up most of these criminal banks are, and then pull the plug and walk.

Last, but not least, don't let emotion and self-pity override your zest for new opportunity. Resolve this blip as best you can, put it behind you, and MOVE ON and make more money doing more deals! If I can do it with 7 properties, you can too.

Remember - the worse it gets, the better the opportunities. And there are a BOATLOAD staring at us in the face daily - especially in Sin City!

[Seeking answers]

Vegas underwater,

Thanks so much for your detailed and informative reply! It sounds like you are extremely well-versed in all of this and I definitely would like to take you up on your offer. How can I contact you?

Thanks again!

[vegasunderwater]

Vegas underwater,

Thanks so much for your detailed and informative reply! It sounds like you are extremely well-versed in all of this and I definitely would like to take you up on your offer. How can I contact you?

Thanks again!

I don't know if there's a way to PM me on this forum since I never tried it before, or if you wish, just post your email address.