Posted on: 05th Jun, 2010 05:41 am
Hello,
My wife and I have a 2 bed 2 bath condo in Orange County, California. 2 years ago I got a job transfer to Michigan. We could not sell the condo due to market conditions, so we kept it and have had it rented. The current renters lease is up in September, 2010.
In Michigan, we have purchased a house.
The market price for rent in California has dropped, and we're now paying about $500 per month out of pocket to keep the place going even with the rental income.
Our primary mortgage payoff is about $175K, and our 2nd mortgage is about $45K. So the total is close to $220K, perhaps a bit less. The current market for a 2 bed 2 bath in that area is about $230K. So that amount would cover the loans we have, but it would not be enough to cover realtor commissions.
What is the most graceful exit strategy? We are considering stopping payments to the primary mortage for the next 4 months and walking away once the tenants move out.
Our reasoning is that if the banks can sell the unit, they can get $210K or $220K easily to cover the primary and 2nd mortage. We're not concerned about taking a hit to our (stellar) credit, as we already have a home here in Michigan.
Our concern is that the bank sells the condo for just the price of covering the primary mortgage ($175K) and we're stuck with paying back the 2nd ($45K). Is there incentive for banks in such a situation to get a sale price that covers both liens, or a law that forces them to try to get a market value for the home?
Are there other options at our disposal like deed in lieu?
Thanks for any advise or input you can provide. I hope I provided enough information for good advise but if you have any questions please let me know.
My wife and I have a 2 bed 2 bath condo in Orange County, California. 2 years ago I got a job transfer to Michigan. We could not sell the condo due to market conditions, so we kept it and have had it rented. The current renters lease is up in September, 2010.
In Michigan, we have purchased a house.
The market price for rent in California has dropped, and we're now paying about $500 per month out of pocket to keep the place going even with the rental income.
Our primary mortgage payoff is about $175K, and our 2nd mortgage is about $45K. So the total is close to $220K, perhaps a bit less. The current market for a 2 bed 2 bath in that area is about $230K. So that amount would cover the loans we have, but it would not be enough to cover realtor commissions.
What is the most graceful exit strategy? We are considering stopping payments to the primary mortage for the next 4 months and walking away once the tenants move out.
Our reasoning is that if the banks can sell the unit, they can get $210K or $220K easily to cover the primary and 2nd mortage. We're not concerned about taking a hit to our (stellar) credit, as we already have a home here in Michigan.
Our concern is that the bank sells the condo for just the price of covering the primary mortgage ($175K) and we're stuck with paying back the 2nd ($45K). Is there incentive for banks in such a situation to get a sale price that covers both liens, or a law that forces them to try to get a market value for the home?
Are there other options at our disposal like deed in lieu?
Thanks for any advise or input you can provide. I hope I provided enough information for good advise but if you have any questions please let me know.
I forgot to clarify. We're considering stopping payments for a specific reason. We would then have the rental income coming in, and not making the mortgage payment, and this would be about a $2K gain per month. At 4 months, thats $8K. If the bank sells the property for lets say $200K and our total obligations are $220K, we would probably be left with the $20K balance. Well, if we've just saved $8K from the last 4 months, we can make an immediate payment against that $20K balance, reducing our hit to $12K. That is our reasoning, just wanted to clarify. If this is a terrible decision please let us know :)
Just noticed, the message title is truncated. It should read:
Will a bank sell a forclosed property at a price to cover both the primary and 2nd mortgage payoff amounts, or just the price to cover the primary mortgage?
Will a bank sell a forclosed property at a price to cover both the primary and 2nd mortgage payoff amounts, or just the price to cover the primary mortgage?
ca is a nonrecourse state so this will support your “walk away†mentality.
the second mortgage holder will be served in the foreclosure suit and should be “wiped outâ€. not certain but suspect this will be nonrecourse also.
with two mortgage a dil is likely not a “real†solution.
resale after foreclosure will be “at market†or whatever a panicky mortgage holder is willing to take.
the second mortgage holder will be served in the foreclosure suit and should be “wiped outâ€. not certain but suspect this will be nonrecourse also.
with two mortgage a dil is likely not a “real†solution.
resale after foreclosure will be “at market†or whatever a panicky mortgage holder is willing to take.
Once our tenants move out in September, is there a recommended best practices method to inform the bank of our intention to stop payments and/or hand over the keys? Or any "gotchas" that we need to avoid? Thanks for any reply or a link to another comment thread that may already address this question.
hi cz!
welcome to forums!
as far as i can understand, you are planning to walkaway from the property and handover the keys to the lender. i don't think this would be a good option. rather, i would suggest you to contact your lender and apply for a deed in lieu of foreclosure if you're facing hardship and want to get rid of the property.
if you walkaway from the property, the lender will foreclose it. you would be liable for the deficient balance resulting from the sale. in case of a deed in lieu of foreclosure, you won't be liable for the balance dues.
feel free to ask if you've further queries.
sussane
welcome to forums!
as far as i can understand, you are planning to walkaway from the property and handover the keys to the lender. i don't think this would be a good option. rather, i would suggest you to contact your lender and apply for a deed in lieu of foreclosure if you're facing hardship and want to get rid of the property.
if you walkaway from the property, the lender will foreclose it. you would be liable for the deficient balance resulting from the sale. in case of a deed in lieu of foreclosure, you won't be liable for the balance dues.
feel free to ask if you've further queries.
sussane
Hi Sussane,
Thanks for the information. The prior response we had to my post said that "with two mortgages a DIL is likely not a "real" solution". We have a primary and second mortgage on our California condo.
We're not really facing hardship. The issue is that we are renting the condo currently, and rent prices have fallen to the point where it does not cover the payments, and we need to add about $500/month to keep the rental going. We can afford this at the moment but it's not a viable longer term option for us.
The current market price for the condo is roughly $225-$230 and our primary and second mortgage total are right now about $220. So we're not quite upside down, but if we sold through a normal sale, we would need to pay commissions and the sales price would not allow for that.
My wife and I have stellar credit history and have a home in Michigan. We are not too concerned if we get a forclosure on our credit - it's not our first choice, but it isn't the end of the world either. Our main concern was if we forclose, would the primary mortgage holder sell the condo for just the cost of covering the primary mortgage ($175K), which would be well below the market value of the condo? Or would they also factor in the 2nd mortgage ($45K) and then try selling the condo for $220K, covering both mortgages? Both our primary and second mortgage have been re-financed, so I think in the case of the second mortgage, it would be a recourse loan, even though the condo is in CA.
Your advise on options for a exit strategy would be appreciated.
Thanks for the information. The prior response we had to my post said that "with two mortgages a DIL is likely not a "real" solution". We have a primary and second mortgage on our California condo.
We're not really facing hardship. The issue is that we are renting the condo currently, and rent prices have fallen to the point where it does not cover the payments, and we need to add about $500/month to keep the rental going. We can afford this at the moment but it's not a viable longer term option for us.
The current market price for the condo is roughly $225-$230 and our primary and second mortgage total are right now about $220. So we're not quite upside down, but if we sold through a normal sale, we would need to pay commissions and the sales price would not allow for that.
My wife and I have stellar credit history and have a home in Michigan. We are not too concerned if we get a forclosure on our credit - it's not our first choice, but it isn't the end of the world either. Our main concern was if we forclose, would the primary mortgage holder sell the condo for just the cost of covering the primary mortgage ($175K), which would be well below the market value of the condo? Or would they also factor in the 2nd mortgage ($45K) and then try selling the condo for $220K, covering both mortgages? Both our primary and second mortgage have been re-financed, so I think in the case of the second mortgage, it would be a recourse loan, even though the condo is in CA.
Your advise on options for a exit strategy would be appreciated.