Doesn't the loss give you a break on your taxes as a landlord?

Doesn't anyone have a problem with this "dilemma"? The OP has another home, but since the market has gone against them, they are planning to walk away from their home they can't sell,or should i say, can't break even on..Nice morals!!!
Where does responsibility for ones actions take hold? I am sorry you can't sell or rent at a price to cover your OBLIGATIONS, but who's fault is that? If i was your banker i'd come after you and your new home before i took a loss because YOU don't want to lose anymore $$$$..
Any i find it comical you are worrying about your great "credit score" and not worrying about the implications of the bank/mortgage company that holds your loan...

qdog I do have a problem with the ethics of just letting a house go to foreclosure because the OP doesn't want to take a financial hit. But I'm not the moral police, only the OP can decide for himself which is more important "manning up and taking the financial hit" or wimping out and sticking it to the bank.

I was buying and selling during the oil embargo of the late seventies, early 80's and had to take money to closing back then on a house I sold. Many people were in the same situation as I was and trust me no one was happy about sucking it up and losing money, but the thought never even crossed my mind to just let the house go back to the bank.

Cordovamom, the problem with that soltion is just about anyone who purchased in the last 3 years have homes that are worth less then what they paid, and perhaps some have a loan worth more then their value of their home..What if all those "underwater" did the same thing?...If you have no alternative,tossing the keys and walking might be the only alternative, but if the OP has enough resources to buy another home, the bank should not forgive the loan...

qdognj - I do have a major issue with it, just choose not to get into it. Got too much other stuff on my mind at the moment.

Obviously it's better not to let a house go to foreclosure, but as this is business, it must be approached as such.

First, I like the advice to consider going without tenants for a month or two -- if that's financially possible. Having been in this situation before, I can tell you tenants make a house hard to sell - if they want, they can make it impossible. Sometimes they even have a vested interest in the house not being sold, since they may like living there for below-market rent.

Second, talk to a lawyer about the consequences of foreclosure in your state (and the state in which the house is located). People with significant assets often cannot simply walk away from a house, because those assets can be attached when the mortgage holder gets a deficiency judgment for the difference between what you owed and what they were able to sell the house for -- plus lawyer's fees, expenses, etc.

The stronger your position is (based on your conversation with the lawyer), the more likely you would also be able to contact the mortgage company and arrange a "short sale," where the lender agrees to take less than you owe to avoid the time lag and expense of a foreclosure.

Finally, I would not sell to an investor or anyone who wants to buy on any basis other than a standard sale. In subdivisions all over within a 50 mile radius of where I live, you can see the result of this: The house is "sold" (basically given for a signature on a piece of paper) to an "investor" who then turns around and rents it to a tenant. Then, one of two things happens: Either the tenant does not pay, and, of course, can't be evicted for months, or the "investor" just pockets the money and never pays you, the original seller. Ultimately the investor defaults, and you get the house back -- except now it's a disaster that's going to cost you $10,000 (if you're very lucky -- often more) to get into condition where a realtor could even show it.

Second, talk to a lawyer about the consequences of foreclosure in your state (and the state in which the house is located). People with significant assets often cannot simply walk away from a house, because those assets can be attached when the mortgage holder gets a deficiency judgment for the difference between what you owed and what they were able to sell the house for -- plus lawyer's fees, expenses, etc.

Hopefully Tricia will jump in but I seem to remember her or one of the other posters linking to an article about consequences of just walking away.

The fact is that the OP has a 2nd home would worry me more then the hit to my credit score. I would worry about some sort of lien being placed on it.

Yes, and this is where the state laws come in, and the fact that she lives in Texas could very much work in her favor. Texas has a homestead exemption for bankruptcy that is in many cases unlimited, and also has generous personal property allowances.

But as with all legal matters, there are various exceptions, clarifications and interpretations that are beyond the scope of this discussion. That's why I suggest a consultation with an attorney sooner rather than later. Know your options, and then make an informed decision.

If you have other assets and it sounds like you do...the lender for your Arizona house will pursue deficiency judgment to the extent the law allows. If awarded a judgment they'll attach to your home in Texas, for sure.

As a lender looking to collect on deficiency judgments I've liened real property, taken cash accounts, stocks, bonds, cars, boats, motorhomes, motorcycles, & garnished wages. A lender does not just lay down & play dead when somebody walks from an obligation. Their recovery teams work delingently to recover every dime. A multitude of times, I've hired PIs to track down assets.

The real key is whether you have assets worth the lender's time/money to go after? If you do...then be assured the lender will pursue. Sometimes, even if a borrower didn't have any current assets worth pursing I'd get the judgment anyway. Then, watch & wait...and attach if something popped up. An example would be, say, a professional person with good income-producing potential. Even though they might be down on their luck now...it's likely they'll recover & rise again. In that type of case, I'd get a deficiency so I could lien when the borrower did recover. It varies state-to-state but judgments are usually good for between 10-20 years. They can be recorded & cloud title to basically all of your assets.

Not all states allow deficiency judgments. I believe, in Arizona, the lender can only obtain a deficiency judgment if the property is over 2.5 acres & not used as a primary residence...having the property rented 'may' muddy the waters. Is it a personal residence or 'income producing real property'? Check with your counsel because I've not foreclosed in Arizona in a long time.

In any event, walking away from your mortgage when you have the ability to pay is a cruddy thing to do. Yes, it affects more than your credit score. It affects your integrity.

/tricia

That's great advice, and the key - "check with your counsel," is critical. The lender will have legal counsel, so you'd better have it, too. And, no, I'm not a lawyer.

Same story, different players:

I was walking by this small crowd in the street. Turns out they were gambling on (spins of a wheel, whatever). For some weird reason everyone was winning at the time I looked in. Even the house was winning! So they were letting players borrow money to play, cause they made money each time a player won.

So I figured, why not? I joined the game and threw in a few bucks, figuring I'd take a vacation to Europe or something with my winnings. And for a little while, I was winning too. And the small crowd got huge fast. I took my vacation, and bought a nice car too while I was at it. Sure, I had to borrow the money, but I was winning...

Then something went bad. Some of the players got cold feet and left. Others who were looking on and about to throw their money in backed off. Still others left. Pretty soon the house got mad and started limiting the game, not letting players borrow too much to play.

Well... long story short... I ended up losing a bunch and owing the house big time, so I tried slinking away like I had seen others doing. But the goons saw me and came after me with baseball bats...

That last line is where the scenario diverges too much from this OP. Too bad.

Funny, but what you're advocating would end consumer credit as we know it. You may say, "good," but not if you think through the ramifications of that for the rest of the economy.

You could equate this to many different things, but how about shoplifting: Stores could virtually end it by putting all merchandise of value behind counters, under lock and key, or tethered down with security straps. But they judge that they make more money by putting merchandise out there where people can see it -- even if that does mean a percentage is stolen.

Lenders could virtually end foreclosures by making it hard to get a mortgage, but they know they're making more money by doing it the way they are now, even if it means eating some bad loans. So what we've got is what we've got, and you work within the system that's there.

It seems to me that one of the big mistakes that lenders made was allowing these "piggy back" loans, where a buyer could finance 100% and not pay for mortgage insurance. It seems to me that if banks had required mortgage insurance for homes that had more than 80% financing (1st and 2nd mortgages) then they wouldn't be in quite the mess that they are now. Of course the companies issuing the mortgage insurance policies could be having trouble.

And I know that a lot of people are letting their homes go to foreclosure despite their ability to pay because it's a "good business decision", but I consider it a bad moral decision.

Actually I was referring to reprisals, not prophylactic measures. Agree that restricting the market will hurt a lot of people, but look around - that's exactly what's happening in the mortgage industry now. And it's because the punitive measures aren't strong enough, with bankruptcy laws (ie loopholes) being taken advantage of and so on.

It's simple - go after defaulters with the legal version of baseball bats and watch the foreclosures decrease dramatically. This country has gotten too fond of passing the blame. Whatever happened to personal responsibility and paying the price for your indiscretions?

Anyone that has anything in the way of assets can't walk away from a house and can't normally file bankruptcy, which is why the problems have been mainly in the sub-prime mortgages -- the ones that were issued to people who probably should not have gotten them in the first place.

Your question about personal responsibility is valid - I wonder about it, too - but in a case such as this where someone asks for advice on something, because I do not know their personal situation, I'd rather approach it in a factual way and let them take up the moral side with their conscience or clergyman. Some people really are in a bad place financially, and they deserve to know what their options are. The "gamblers," to use your earlier metaphor, are there, but they do not make up the majority of the people with financial problems.

I can't understand how your rent is 600.00 less than the mortgage? That seems like a lot for a military market- did you buy too much house to begin with?
So you've got military retirement check and TRI-Care health care and now may have a pretty cushy civil service job or military contractor (even more cushy), a second home and just want to bail. If you retired at 20 your probably btw 40 and 45 and plan on working another 15-25 years - time to recover financially. I'm with qdognj and all the other military people who have been here before over the decades who end up renting or doing the "right" thing - sell and take your loss or try to get more rent, or buy a smaller house in TX. Hopefully if you go bankruptcy route you'll never get security clearance should you need one.

I guess we're dispensing "tough love" without the love.

ky114 - normally I try to stay positive or at least neutral and to the specific question but this just seems over the top. So many people struggle so hard at low wages to get into a house for their families and then struggle to stay there only to end up losing.....I apologize if there's something not said here about their financial situation but otherwise yea, not much love.

Yes, and there are those situations where you have to say things that may not be easy for someone to hear but that they ought to consider - so the original poster has to consider that, and if the shoe fits, wear it.

And you're right that a lot of people do struggle to get what they have, and for someone with plenty to flippantly say, "Oh well, I'm bailing," is not right. But I'm just not sure that's what's going on here. I guess my thought process comes about because I was brought up around many people who had little, so I think I have the superstition that if I'm too insensitive to others' plight, it will one day be me that's in a difficult situation with no one to turn to.

Lets work with what the OP gave us. He's retired. He is facing a negative of $600 per month. If he was an Admiral I think he would have mentioned it so we can assume that he is receiving less than marvelous retirement money. Yes I know there are other benefits but you need to be near a post to actually get them. Military pay is never wonderful and in fact many young service families I know qualify for food stamps. So let's leave the moralizing for Sunday & try to answer the question.
Arizona is a trust deed state and an anti-deficiency state. So that means that the bank/lender will go to a Non judicial foreclosure to get the house back.(Its fastest) That does not result in a court judgement or a lien. A lender can go after you for a money judgement but unless you have trashed the house badly that usually does not happen.
There used to be a 1099 that the lender sent you after the foreclosure and made the foreclosure a taxable event. the amount was the difference between what the house sold for at the foreclosure sale and what the mortgage was. I understand that the federal govt. removed that penalty. Check with a tax adviser. A state may have some penalty-- again check with a tax adviser for Arizona. If you have been deducting the loss and depreciation there may be some tax consequences. However, up against a $600 a month loss those taxes may be minor.
Talk with the lender--offer to do a deed in lieu of foreclosure. That cuts the banks foreclosure costs. For heavens sake don't waste your time with a branch office of the bank. Offer to do a short sale. See what they can suggest. Find out if your tenant would be willing to buy if you could do a short sale.
Enjoy your retirement; some of our family members didn't come home.

We've owned our house for 11 years. We live in a good area with lots of jobs. There has never been a foreclosure problem in our area.

During the housing boom we watched while housing prices just soared upwards. We kept getting home equity line offers, weekly. First, we had 100K equity, then 200K, then over 300K and almost 400K. We couldn't believe what we were seeing. We work too hard for our money to blow it on a European vacation or a big screen t.v. But, our 40 yr old house needed updating, so we decided to do some improvements. We thought about selling and moving into a bigger home, but we just didn't think we could afford it. And you need to be able to afford your house payment!

Long story short, we did the improvements (which weren't cheap) and suddenly the bottom fell out of the market and the value of our home has tanked. There are foreclosures all over my neighborhood. Homes that were going for well over 500K are now selling for about 350K. How low will it go? Hard to say. When all is said and done, we could find ourselves in a negative equity situation. What happens to us if we have to sell?

Over the years, we have also scrimped and done without to save for our own retirements and our little boys' educations. Now, all of that is at risk.

No, I have zero sympathy for the very stupid situation the OP has gotten herself into. I do feel for her neighbors, though.

Anyone that has anything in the way of assets can't walk away from a house....

What about a short sale? My friend did one and they were unable to touch her (and her husband's) 401K's.

Why doesn't the OP pursue a short sale? My friend had a realtor that was very experienced in it and it went off very smoothly.

Admiral sentiments Marge and that's fine. I just want to point out though that I've been in and around the military for 24 or so years and never known anyone on food stamps. Yes I've seen some young kids struggle really hard - those that get married right out of boot to a virtual stranger, buy a really nice car, toys, and have kids one after another on E-2 pay. I work with lots of E-4's, E-5s etc. who have made better decisions and they do fine, with wives and kids.
And I made the assumption - could be wrong - that when you retire to Texas as military - its because there are a lot of military related civil service and contractor jobs there - and a post (or more likely base) to utilize.

I have not read all the replies, but I will tell you my experience: We let our house go into foreclosure because we thought we didn't have any other option. There were tons of factors that led to it, all ultimately our responsibility, but it happened. For us, letting our house go into foreclosure was a bad idea. We were stupid for letting our house go into foreclosure--we tried to give it back to the bank but they didn't want it, so we saw it as our only option. Now we know it was a huge mistake.

However. The biggest reason it was a huge mistake was because we cannot get a mortgage now. You're already in a house, so that won't affect you like it did us. I know that there can be some tax repercussions if the house doesn't sell for what's owed on it. You can end up owing tax on the difference. (We didn't.) Beyond that, I just don't think that it's going to have a huge effect. I'm sure that a lot of the other posters will disagree with me, but that's my opinion and my experience.

Have you talked to the current renters about buying it? Have you talked to the bank about a short sale or a deed in lieu? Consider those two options before you walk away, but in the end, I honestly don't think it's going to make that much difference to you.

I don't know that short sales are an easy way out either, these days. The bank may let you off the hook but will your neighbors?

After all, if your short sale effects the value of other homes in the neighborhood, can't your neighbors sue you for damages?

busymom: "After all, if your short sale effects the value of other homes in the neighborhood, can't your neighbors sue you for damages?"

LOL. No.

(Well, I suppose technically, anyone can file a lawsuit for any reason, but this one would be dismissed as soon as the judge stopped laughing.)

Oh well, can't win 'em all.

The biggest reason it was a huge mistake was because we cannot get a mortgage now"

And this is a surprise?

Besides not getting a mortgage you'll also pay higher interest rates if you want to finance a car or even on credit cards...if you can get credit at all in today's lending climate.

Your credit score even affects how much you pay for insurance.

/t

Here is a link that might be useful: Credit Score & Insurance Rates

It also might effect the rent you pay. Folks with poor credit do have higher security deposits I hear.

marge727, if you read the post carefully, you'll see that even though he is retired from the military, he also has a new job in Texas.

Anyway, I'm tired of people who buy more house than they can afford...and if you buy without selling your previous house first, and can't afford the mortgage on both, then that qualifies as buying more house than you can afford in my book. I don't think it's right to let the house go into foreclosure, and imagine you'll be quite sorry you did at some point in the future.

Just to clarify - I meant the rent/security deposits on both primary and vacation homes. You would also pay more for your vacations.

Also, I can't imagine you would be able to get a rental car too easily.

"'The biggest reason it was a huge mistake was because we cannot get a mortgage now'

And this is a surprise?"

Nope, not at all. We knew it would be an issue; however, we underestimated how much of an issue. (And yes, I know that sounds stupid, but there you have it. It was stupid.) My point was, since he already has a mortgage, the biggest problem with foreclosing would not apply to him.

It has not affected the rent we pay, deposits we put down, getting credit cards, or getting rental cars. Just getting a new mortgage.

You bought another house when you had this monkey on your back?????? What is that all about?

Seems as though a lot of people "accidentally" bought houses they couldn't afford during the subprime boom.

Then they "accidentally" moved to another state and bought another house - "Oops, I forgot I had a house!"

Then they suddenly realized that they don't really need two houses. "So, like, isn't it totally o.k. to just stop paying for one of them? I mean, isn't everybody else doing that? They are, aren't they? Nobody will take my Ipod away, will they?"

Oh, way dude, foreclosure rocks!

Lemmings.

Some of these comments are really making me sick. Why don't you start your own threads titled "I have never made a mistake" or "Post your high and mighty sarcastic comments here." Better yet, why don't you devote your time to something more productive than posting on message boards? Obviously you are better than the rest of us. Go try to do some good somewhere. I'm sorry I'm not more articulate but I'm just so annoyed right now.
Things happen, and it doesn't always involve buying too much house or using the house as a piggybank to buy big screen TVs and more.

busymom: "Also, I can't imagine you would be able to get a rental car too easily."

Rental car agencies do not run credit checks on renters. You just show up at the counter with a driver's license and a credit card and you are on your way.

I realize that you are trying to be helpful, but you seem to have a lot of misconceptions in this area. Neighbors can't sue owners for short sales, renting a car is not more difficult for people who have had their homes foreclosed, and vacations don't cost more.

Summerskye - I have made plenty of mistakes. But, I don't think I have ever ripped anybody off.

I understand that bad things happen to people. Nobody is immune to that. And, yes, no matter how carefully we plan for ourselves we can't plan for everything that comes our way. People lose jobs, husbands leave, people get sick. When that happens, sometimes there is no other choice but to go through foreclosure or bankruptcy.

But I do take great issue with the cavalier attitude that I see these days when it comes to foreclosures. A lot of it boils down to greed and bad investment choices that people want out of. They don't want to deal with the consequences of their own decisions. Instead, they want to walk away and pass the costs and consequences onto innocent (and blameless) people. It sickens me to see others encourage or minimize this sort of selfish behavior.

Foreclosure is not victimless. Real neighborhoods and real people have been hurt. That is my point. Sorry your annoyed.

If the bank was dumb enough to let the OP finance more than 80% LTV without some other type of protection such as mortgage insurance, then perhaps they should take the hit for making such a bad business decision.

But it sounds like the OP has sufficient financial assets where the bank would probably be able to recover some of what they are owed, as triciae described.

The OP should suck it up and sell the house for what they can get and come up with the difference to settle the debt, if they can.

Rental car agencies do not run credit checks on renters. You just show up at the counter with a driver's license and a credit card and you are on your way.

I know someone that filed bankruptcy and has no problems renting a car as long as he has the Visa (attached to the bank account)

I actually figured he'd have a hard time getting car insurance since it was a bill he was late on, then got included in the bankruptcy but no problems with that either. I figured they'd have him pay it all up front but no, they allow monthly payments

Once you've filed bankruptcy you can't do it again for a bunch of years, so actually someone who just cameout of bankruptcy is a fairly safe credit bet.

I've known some people who have gone through bankruptcy (due mostly to a serious health problem) and it was no easy ride for them. They eventually were able to get credit again but it took a while. And they weren't able to get decent interest rates for years.

It isn't the walk in the park that some people describe. At least not from what I've seen.

actually someone who just came out of bankruptcy is a fairly safe credit bet.

I wouldn't bank on that lol
The person I know is back to the same old spending habits that got them into trouble to begin with. It's been 1 year and he's paying for things with his bank Visa and over drawing his account.

In what city in Arizona is your house located? I have been looking for a house in central Tucson but the market is red hot and nice houses at reasonable prices are being snapped up before the MLS# is assigned.

Is it possible that you could be getting more rent? I have a rental house in AZ and I am putting the rent up an additional $200 next year and I am pretty sure that I will get it.

The OP signed on the day they asked the question and have not posted on this thread since.
To answer your question the main military bases in AZ are
Luke AFB - Phoenix
Davis Monthan - Tucson
Fort Huachuca (sp?) - which is I think out in the desert nearish Tucson
Yuma Proving Grounds

"actually someone who just came out of bankruptcy is a fairly safe credit bet."

"I wouldn't bank on that lol
The person I know is back to the same old spending habits that got them into trouble to begin with. It's been 1 year and he's paying for things with his bank Visa and over drawing his account."

The CC company has 7 years to go after them, and under the new rules it is much harder to simply discharge (cancel) debt.

Devorah,

I'm surprised the Tucson market has rebounded so quickly. I recently checked the MLS for our old neighbourhood btwn Cortaro and Ina off Old Father and there's still many listings and prices are WAY down.

We sold our house for $220K in Oct, closed in Dec. The same floor plan in that neighbourhood is now listed at under $175K.

I am only looking close to the university - that may be why I am seeing prices that have held and new listings disappear so fast. There were 2 houses listed last week that I missed out on.

Has the OP ever responded?

If I were you, I would make sure that any jobs/ future jobs would not need a security clearance because I hear you lose one/might not be able to get one with a foreclosure on your credit.