- An error has occurred; the feed is probably down. Try again later.
Should You Let A House Go To Foreclosure?
Last week I had lunch with a good friend of mine who is a successful real estate investor and in the last several years he’s bought, sold, flipped, rehabbed and rented countless houses.
But the times have changed and he now finds himself owning several houses that he does not want.
With the values dropping/correcting he owes more than the houses are worth plus he has negative cash flow. Let’s just say with all the houses he owes 500K more than the houses are worth.
Financially he’s doing very well and has plenty of cash. His credit score is in the 700’s.
There is no bailout for him nor should there be. Nobody forced him to do anything. Nobody expected values to drop so fast or hard. It is what it is.
He asked me what he should do and my answer may surprise you.
I told him to make a business decision and asked him the following question…
Would it be worth 500K to trash your credit?
The answer should be obvious.
The challenge for many is pride and ego. The truth is when the loans were taken out the agreement was if the loan was not paid the lender could foreclose and the borrower will lose the property. As much as I am against losing a home to foreclosure tough decisions must be based on an intelligent decision and not emotion.
The markets have changed. If you are carrying negative equity you should consider making the best business decision available and this may include letting a house go to foreclosure. You could literally owe 200K today and buy back the same house or one like it for 100K as a foreclosure or REO on the same street.
Donald Trump has had companies file for bankruptcy several times and even the Governor of Texas filed for bankruptcy while they were governor.
These are changing times and even though my friend is well off financially he has to decide if it is worth 500K or more to lose several houses to foreclosure and rebuild his credit. The alternative is to keep losing more and more money every month.
What would you do?
Please post a response in the blog below.
Author: Gerald Romine
6 Responses to “Should You Let A House Go To Foreclosure?”
Leave a Reply
You must be logged in to post a comment.
-
-
State-of-the-art software is the first and only fully programmable real estate investing system that you can use to build, manage, analyze, automate, and profitize your real estate business!
If the investor purchased the properties with financing in his name, would it really do him any good to have the new LLC petition the Court? The bankruptcy would be in the name of the LLC, of course.
Unfortunately, we are in a similar situation with one of our investment properties in Tucson. We made the business decision to let it go (preferably via a short sale) in August after the tenants who were there for 2 years moved out; knowing the worst outcome is foreclosure. We purchased it for 202K in 2006 and our list price is now 139K from 149K 3 months ago. Too many properties in the development being lost to foreclosure or a short sale. Based on our loan, we subsidized the rent to pay the mortgage. Once the tenants chosed to move, we decided to cut our losses so that we can move on. Now the bank is taking there time (over 5 months) to even begin the foreclosure process. Sometimes the hardest business decision, is to let go. Personally, we Let Go, Let God.
Here was another response from Jerome:
Like you said, it all depends on the situation. Look at this point the dollar is loosing value every day, negative cash flow is never good especially when you don’t know when things are going to turn around. I don’t think we should take it personal while major corporations are looking to the government for assistance.
America’s in debt.
To answer MarkPowers80: Rick may know something I don’t but I do not see the benefit of his plan because when the loan was originally taken out it would be in your personal name. Changing the title to an LLC does just that… changes the title.
The loan would still be in your name and a foreclosure would be reported by the lender IN YOUR NAME.
There is a positive side to the changing market beyond the worn out “buying opportunity” hype we hear from many. Real money is being made with wholesaling and buy and hold right now. I’ll talk more on that soon…
The purpose of my article was to bring awareness to foreclosure being a business decision that could make sense for many.
I have 2 houses in foreclosure. One I had been living in. I had to move out because I could no longer make payments because I lost my business. Any way of getting bailed out on that one? Even tho I no longer live in it? Also what is the best route to rebuild credit after a foreclosure? I owe 200,000. on it and my real estate agent told me I might be able to get 90,000 for it at this time.
Has anyone heard about these companies or individuals who renogiate your mortgage? I have a personal recommendation from a fellow investor who is going to use one (a couple of guys who starting doing this). I’ll probably wait and see if she is successful. I also received an e-mail the other day from AdjustMyLoan.com. They say they are “Arizona’s #1 website for information and advice on LOAN MODIFICATIONS. We are an Attorney Based Loan Modification Company that specializes in helping homeowners and investors renegotiate their current loan terms with their lenders, resulting in lower monthly payments and peace of mind.” Is this for real? Does anyone have experience or information about this? Thanks.