BK and Loan Mod strategies

[towens8606]

Anyone out there pondering the idea of modifying rental property loans vs the possible loss of the BK option due to the loss of the neg cash flow pre-mod? In other words, if you are in the hole big time due to lots of neg cash flow, and the loan mods take that neg cf to essentially zero, or better, will that disqualify you since you now have too much income to qualify for BK down the road.

Thoughts?

Your questions are more of a legal strategy that should be formulated with the advice of an attorney. Preferably an attorney that practices BK law and RE law.

I can tell you that we are fielding these questions more frequently now, with respect to investment properties. Several people have inquired recently and each has multiple investment properties purchased in accordance with a "formula" that these "real estate investment gurus" sell you on late night TV.

They did not have an emergency exit plan for a reasonable divestiture of these properties. Depending on your own personal financial position, it can get complicated.

This is the reason I suggesting talking with an attorney you all ready know or one close to you.

[ashley112284]

I have a couple of investment properties and a primary I am thinking of letting the investment properties go but I'm wondering should I just walk away or bk its not like I only have one house to worry about repercussions I wish I only had one to worry about I'm stuck on what to do .when I ask professional such as bk lawyers and accountants they seem to look down on me as if I'm one of the people who started the sub prime loans

[cute101]

hi, we are in a similar situation,i want to get rid of my investment properties bec its killing me.im upside down and dont know what to do. im
going to talk to a real estate atty. to see whats the tax implication bec i cannot decide if its better to shortsale the properties or foreclose it.keep posted.thanks

[sparky]

I'm in same situation. I have investment properties. Have more than half of them up for sale, but no takers. They have so much to choose from. Trying to decide if just let them go to FC or short sale. My credit is gone now anyway, so don't know if it makes much difference. Would like to know what other investors are doing. I have heard that lenders don't do loan mods on rentals, but I have a couple that are still in process that they know are rentals. What's your exit strategy or Plan B??????

[purenergy]

We are in a similar situation to those who have posted here! Is there anyone out there who has some answers or can point in the right direction? What if you have a tenant in the property? Will they mod? What else is possible??

[Leigh]

Your initial question is one I still ponder altho I know with one of our homes, even the grandest of loan mods would have done nothing to mitigate the negative cash flow each month. I share a bit of our story in case it can help anyone.. Know that I'm certainly NO expert but have been to Hell and back this past year, so if anything we've been thru can help others, would like to share.

Speaking to a good BK atty (actually speak to several - the first session is often at no cost) as well as speaking to your accountant if you have one, is essential. If you're considering walking away, you have to know whether the state the home is in, allows for deficiency judgments. If so you could be responsible for the difference in what you owe and what the bank gets at auction (think that's the formula.. sorry been awhile since I've thought this way). Even if there's no deficiency judgment you may be responsible for "forgiven debt". You have to look at your loan docs as some indicate (and I'm probably going to botch the language here) that the home satisfies the loan. Often the "forgiven debt" comes from the 2nd mortgage company if there is one (again my technical speak is not great, and hopefully someone can interject with approp terms). There are so many things that go into this. If you have multiple properties, determining if they're in states with "deficiency judgments" is a good first step, then examine or have a good RE atty examine your orig loan paperwork. Many of the first meetings with these attorneys are at no cost/a consultation. We were advised by many to avoid a short sale (may be just our circumstances) due to the tax hit. Our Fl rental which is what killed us off, had a short sale offer for 150k less than what was owed. I never learned whether the lender would have taken as we pulled the offer quickly. We knew from talking to our accountant that we absolutely could not do this. (150K seen as forgiven debt and thereby seen as income next tax season/or the following). Anyway, bottom line, best course of action is to consult the professionals (and some good ones here too). We never in a million years thought we'd ever be in this boat. 2 of the 3 rentals we have, have great interest rates and payments are about what we receive in rent, but they also have the most turn-over and the most damage each year. Ultimately, I suspect all our properties but hopefully not our primary, will go to foreclosure (sigh!)... ugh.. not fun.. but we're beginning to see the light.. not an easy road. I wish you all the best!
Leigh

[sparky]

Leigh,

Thanks for this info. I think way back when all this started, I called attorneys in each state regarding the deficit between what I owe and what the bank will eventually get, but I think I need to re-check the deficiency problem for my rentals. I don't remember if this was covered. Thanks for taking the time to reply.

You are not the same Leigh that is on Mr. LL are you?

[wannamodify]

This is an interesting subject. The way I understand the whole process is that if the investment home is foreclosed on, then you could be responsible for the deficency (depending on the lender and the state).

If you short sale it, then the difference counts as income...WHAT? If I couldn't afford the mortgage, what makes you think I can afford the tax repurcussions on a deficency?

As far as the BK goes, I don't know. I suppose if you got a mod, then your income situation (at least with the rental) goes up and may change your status. But, that would have to be one heck of a mod!

Anyone else?

[Bella]

Originally Posted by purenergy

We are in a similar situation to those who have posted here! Is there anyone out there who has some answers or can point in the right direction? What if you have a tenant in the property? Will they mod? What else is possible??

We have a rental and we hired Pavilla. As of today, we are not being offered the principal reduction we were hoping for due to loan audit violations...now the lender is offering a deed in leiu.

We are not late on payments. Not sure if we will pursue this option, out tenants are happy in our rental, even if they are struggling and we did reduce their rent, and I may even reduce it again, a little, for the winter months...

All I want is to be out of this escrow account, but it won't happen.

I am sure there are loan mods for rentals, but the loan we have is fixed at 6%, and we have no second either...

So we are going to fight property tax reduction next, that will help a lot if they are reduced.

[classicgk]

Well Loan mods usually do not reduce principal. So a loan mod may help because it makes current cash flow workable. Bankers have recommended to me filing Chapter 11 - after appropriate asset protection strategies - of course and then in Ch 11 bringing down the rental property mortgages to current market values....

[cary_bouldin]

If it helps,

In Oregon, what I have been able to find out is that they can collect the deficiency from either a short sale or a a foreclosure on a non primary residence, a short sale would only be better provided the lender agrees in writing to accept the short sale price as payment in full. I understand that many times they do not or may even try to sneak it in to the sales contract, check the wording, have a lawyer review it if necessary.

Taxes for written off debt, in many instances, the primary residence is far enough underwater right now to make insolvency possible for those who don't have other assets and thus alleviates the tax consequences or at least minimalizes them.

[tomser]

Originally Posted by wannamodify

This is an interesting subject. The way I understand the whole process is that if the investment home is foreclosed on, then you could be responsible for the deficency (depending on the lender and the state).

If you short sale it, then the difference counts as income...WHAT? If I couldn't afford the mortgage, what makes you think I can afford the tax repurcussions on a deficency?

As far as the BK goes, I don't know. I suppose if you got a mod, then your income situation (at least with the rental) goes up and may change your status. But, that would have to be one heck of a mod!

Anyone else?

wannamodify

my lender is wells fargo

anyone out there give me some opinions

I have 3 homes one is primary and other two are both rentals
I am trying to loan mod all of them so best way is to do the 2 rental loan mod first if any lender help . After that the primary md , not 3 homes same time md otherwise including the rentals cauase high front end and back end raton certainly lender disqualify. is this a good approach when asking loan mod to the rnder??

tomser

[Angels]

because of one bad investment coupled with a bad economy, I am loosing two properties and both of them are in recourse states. I have a couple of other properties (one a former primary residence) that have positive equity. I am afraid that they may force me to sell them to pay off the short sale (if that even happens) or the debt if it goes into foreclosure. How do I go about protecting those assets? LLC?

[Angels]

any updates on the above posts? its been about a year now and if you can post your experiences that would really, really help.