Upside down in Las Vegas

**mindzeye** · 08-19-2009, 10:49 AM

Hello all,

My brother-in-law and I purchased a house in Las Vegas in 2005 with the intent to use it as a rental property. We purchased the house for $350,000 and today it is worth $183,000. At the moment, we have a 1st and 2nd on the house and we are only paying interest only (10yr interest only). We both split the mortgage payments, which are about $1900 a month. The rental proceeds we receive every month is $1080 ($1200 minus the property management fees), so we pay about $400 or so out of pocket each.

The house is under my name and I don't mind if my credit is dinged for a while since I do not plan on making any big purchases in the near future. I currently own two properties in the Los Angeles area - a primary residence and a rental property - both of which are in the black, equity wise.

With the state of the economy, we are thinking of getting out of this house ASAP since it seems like it will take a long time to break even or get positive. We are looking at our options, but it looks like it will come down to short selling the house. What other options do we have? I briefly remember someone trying to explain a strategy to me over some drinks, but alas, I can hardly remember (gee I wonder why

). It was something about stop paying the mortgage asap for a few months, and then talking to the lender about giving up the property for less than what it is worth (is this a type of short sale strategy?).

Any help is much appreciated.

-M

**Glennet** · 08-20-2009, 06:03 AM

Hello-

The problem with both of those strategies is that you have other assets. In both of the scenarios you mentioned - it will require you provide the lender with your full financial statement. The bank may be willing to go along on a short sale or signing over the deed - but it would probably mean you agreeing to set up a repayment plan on some if not all of the shortfall. If you do not agree to this - and say let the property slip into foreclosure. As part of that process the lender may seek a deficiency judgment against you to recover some or all of the losses.

Concerning both of these strategies - you should consult with a local attorney with foreclose / short sale experience. They could offer specific guidance on your situation, and maybe some insight as to how your specific lender may react to your plan.

Another option may be to approach the lender - give them the details of the negative cash flow from the property - and ask for an interest rate reduction. You should do your homework first and request a rate that would allow for positive cash flow. Furthermore - you and your in-law may think about what amenities you could add to the property to potentially boost the rental income.

Also - you say you have a 2nd - I'm gonna go out on a limb and guess you did a 100% financing and your second has an interest rate around 11% or so. You may want to run a cash flow analysis to determine the cost of paying off the second using some of your assets vs the monthly $400.00 coming out of your pocket.

But first - talk to the bank an see what they will do to help out. I can guarantee you - the last thing your lender wants right now is another foreclosure property in Las Vegas.

Good Luck-
Glenn

**Greg** · 08-20-2009, 06:21 AM

Originally Posted by mindzeye

The house is under my name and I don't mind if my credit is dinged for a while since I do not plan on making any big purchases in the near future.

People are already finding out that their credit will be more than dinged for a little while. This was true under the old rules but the old rules are history and new rules are coming out every day.

**mindzeye** · 08-20-2009, 10:18 AM

Glennet, thank you very much for your detailed response. Your help is much appreciated.

Greg, how long would you say credit is affected nowadays? Years?

**tucsonhomes** · 08-22-2009, 05:06 PM

I just got a copy of the Wells Fargo standards for underwriting in the new "world" of mortgages.

The current situation with them is that is you have had a bancruptcy, a short sale, a loan mitigation, or a foreclosure, they will not even consider a new loan application for 4 years and the minimum credit score then is 680.