Replies to This Discussion

Permalink Reply by Joseph Kuhl on February 15, 2012 at 7:16pm

"Do you think this is hardship?"

Doesn't matter what anybody thinks. If you convince the bank a short sale or deed in lieu is the best approach for them, they will do the short sale or deed in lieu. It's not an exact term in these kind of transactions. Losing money is not necessarily a hardship in the bank's eyes, if you can afford to keep doing it for years. Just your bad investment.

But having a non-performing loan that they will lose a lot of money on if they foreclose is a hardship for them. They will be interested in minimizing their losses.

This is business - the quasi-morality that plays out in residential short sales doesn't apply the same way. Hey, Donald Trump's RE companies have been in or close to bankruptcy 4-5 times. Does anyone remember or hold that against him?

Oh, and another bank hardship? Foreclosing on a property that still has tenants with leases and then either dealing with them, or trying to evict them ... that's a lot of fun.

Permalink Reply by Joseph Kuhl on February 15, 2012 at 7:00pm

I have done a number of these. First off, he has to stop paying the mortgages for a few months, or the investor/services will probably not take him seriously. The second related question is -- are the properties in his name and is he worried about his credit score? If the answer is yes to both of those questions, then he has a problem. He can try for a loan mod but why would he be given one when he is paying?  He made a bad investment decision - that's his tough luck as far as the bank is concerned, just keep paying.

That being said, the banks have to be convinced that it is in their interest to grant a loan mod, or, if he is willing to get rid of them, a deed in lieu.you need lots of figures and an explanation why the owner can not shoulder the loss. I have found commercial divisions more open to deed-in-lieu in NYS, where a foreclosure is likely to be bogged down in court for a few year, because they are faster than a short sale. Short sales are also possible, but again the banks must be convinced that it is in their best interest.

The final problem with investment short sales is that debt forgiven is considered income. There is no exclusion similar to SF residences. There are some ways around this, but they require a knowledgeable accountant.

The cynical business oriented approach is stop paying the mortgages and keep collecting the rents. This can be very profitable as long as it lasts. When the bank gets serious about making a deal, then negotiate a short sale or deed in lieu. If they are not willing at that point, then let them foreclose. At least you've recouped part of your investment.  Not for the faint-hearted.