Investor Loan Modifications Versus Bankruptcy

Posted on: December 7, 2009

Categories: Investors, Other Articles, Things To Consider

Author: buyfixandprofit

Upside Down Investor Mortgages

Did you get way in over your head during the housing boom? Are you now drowning in debt trying to keep up with thecrying homeowner 300x207 Investor Loan Modifications Versus Bankruptcy payments on your upside down investment properties? Did you cash out refi every penny of equity you could squeeze your mortgage broker to find for you? Do you have tenants that constantly miss payments and there’s nothing you can do about it because you have run out of money to evict them? Unfortunately, there are many real estate investors that can answer yes to these questions.

Upside Down Mortgage Options

First of all, don’t panic. The worst thing that can happen to you is that your credit score will be ruined for some time, maybe a long time.  But remember, this is NOT a life or death situation and there is no debtor’s jail. Do not let financial worries lead you into depression and health problems; it’s just not worth it.

Investor Loan Modification

This is the first option to consider. Investment property loan modifications are possible and are happening quite frequently today. First of all, you will not get a loan modification approved if you are current on your mortgage, period. You must also be able to show hardship, which in most cases is not that difficult for many people. Monthly mortgage payments can be reduced 20 – 60% depending on your situation and the bank.

Investment Property Loan Modification Denied? Try a Short Sale

If your loan modification is denied, you can try performing a short sale. A short sale is selling for less than you owe on the property with the banks permission. The problem is that most investment properties are upside down on their mortgages today and the markets are only moving for severely deeply discounted properties. There’s a good chance you won’t be able to sell your property at all. So now what?

Deed in Lieu

A deed in lieu (DIL) is typically only considered by the bank after an unsuccessful short sale attempt. This is where the bank agrees to take back the  property as-is with no recourse to the investor; basically just hand your keys over. Only do this with a guarantee in writing that they will not come after you for a deficiency judgment. Deficiency judgments aren’t that common right now, but they still are occurring depending on the bank and part of country you live in.

How to Deal with Banks Unwilling to Deal with Investors Looking for Help

We don’t advocate this option, but it is an option if you don’t have many assets left and bankruptcy is an option for you.

going out of business 150x150 Investor Loan Modifications Versus Bankruptcy Some investors have decided to screw the banks if they won’t work with them! There are many stories of banks not willing to work with investors looking for solutions to their problem. So here is what we have seen others do. Plan to file for bankruptcy and collect as many rents as you can in the mean time. The morals of this are a completely different story.

Foreclosures are taking over a year to complete in many hard hit areas across the country. Stop trying to make payments on your bad investment(s) and collect as much rent as you can until the property or properties are sold at the sheriff’s auction. This can add up to tens of thousands of dollars depending on how many properties you have left that are still paying the rent. Now this money can’t be spent on purchasing new assets, so consult a bankruptcy attorney on the details of this process.

A good bankruptcy attorney will help you understand the details of the timing of when you should file for bankruptcy and how the rents collected can be spent.  All deficiency judgments will be wiped out through the bankruptcy, but the landlord’s responsibility to the tenant will not be. Filing for bankruptcy does not remove an owner from title on the property. So if a tenant hurts themselves or sues you after the bankruptcy, you are still liable as the owner of the property until the day the property is sold back to the bank at auction.

Good luck and consult a bankruptcy attorney for more details on your specific situation.

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