Short Sale or Foreclosure?

[DistressedInSTL]

I'd like to get some honest and informed opinions on our situation. Here is a quick run down of where we're at on an "investment property" in St. Louis, Missouri:

Owe: $239K (only one mortgage)
Worth: ~$200K
Monthly Cash Flow: -$623

We originally bought the property in 2006 as a primary residence. Moved in 2007. Tried to sell it, couldn't, rented it out. Refi'd in 2010. Our current tenants' lease is up at the end of September.

My question is, should we try to negotiate a short sale with our bank (Regions Financial), or just walk away from the property? Before you answer, here is some other relevant information:

• We own another home in another state and don't plan on selling it anytime soon.
• We currently make decent income and have some savings, but only because my wife is working two jobs (i.e. in the bank's eyes, we can "afford" the property). We'd rather not go through the process of showing our financial statements to the bank and hearing them say something along the lines of "I don't see what the problem is".
• We've already lost tens of thousands of dollars on this property in negative cash flow over the years, and we never intended for it to be an investment. We're sick and tired of trying to "ride it out" and wait for the real estate market to come back.
• Because of this property we have put off grad school, having kids and used up most of our savings on this alligator, not to mention we never wanted to be landlords in the first place, so we do NOT want to keep this property.
• Obviously we're worried about a deficiency judgment if we walk away and having our savings zapped and wages garnished (we likely wouldn't be able to declare bankrupcty). We're also worried about the tax implications.
• We're not worried about our credit score being impacted.

So what would you do... short sale or foreclosure?

[Cat Damiano]

There is a really good discussion thread that you can look through about this and see what others are doing here;

Short Sale Outpost

[American_Nightmare_in_GA]

Hi Distressed, I'm in exactly the same boat that you are in. It was my primary home, could not sell it, so rented it out, became unwilling landlord, and nothing but negative cash flow ever since, even with tenants in it.

Your big concern is to protect your financials and assets from the lender. You can't do that with a short sale. From everything I've read here about the short sale option, it's not in your favor. Lawyers & real estate agents can make money off of that. I would (and I am) doing a foreclosure.

Big factor: Your state laws. Here in GA, they have a right to seek deficiency but the rules for them are so strict and the timeframe so narrow that they don't tend to seek deficiency on residences (I've yet to find a single GA case where they did). Each state is very different. Have you looked into your state laws regarding recourse?

Best to you!