     Barbara Fischer (Bfischer) | Tuesday, April 17, 2001 - 11:43 am 
Help! I need some advice re: we own 4 homes, one we live in, one under a land contract and 2 empty rentals that are under a blanket mortgage. We desperately need to get rid of the rentals and the RE is not selling here. Our options as I see them: We can put them for auction and take a big loss and borrow money to cover it. leave them alone and empty because we can't afford the repairs they need or the maintainence plus we have had hell with renters, or give them back to the bank in a deed in lieu of mortgage...Dou you think this is a good option? Will this show up as a forclosure? Will it wreck our credit? Any advice Please! |
| Christine Baker (Admin) | Tuesday, April 17, 2001 - 07:18 pm
I think the correct term is "deed in lieu of foreclosure."
I can't remember seeing a "deed in lieu" on a credit report, but most likely the lender WILL report the loan and the subsequent charge-off or however they word it. I'm sure it varies by lender.
Most loan applications do specifically ask about a "deed in lieu" or foreclosure, and from my experiences in the 90s a "deed in lieu" had the same effect on mortgage underwriting as a foreclosure.
How much would it cost you to sell the properties? Would the lender agree to an assumption or maybe work out a deal with you? |
| douglas pratt (Dougpratt) | Tuesday, April 17, 2001 - 10:56 pm
"deed in lieu of performance" is a legal term for foreclosure on the property. if you're going to borrow money, use it to bring these apartments to code; in weak marketplaces you can take advantage of state and federal programs used to house needy families, eldery, and handicapped tenants. check out HUD, section 8 and 707- sometimes you can get funds needed to complete renovations in exchange for providing affordable housing to tenants who have been sitting for years on nine-mile waiting lists.
if the property is in a depressed area, it's more likely that you will get problem tenants. beggars can't be choosers, so subsidiary programs work to your advantage in this respect- with homelessness as an alternative, tenants you accept though such programs are more likely to be appreciative, and do their best to respect the opportunity you have given them. in my marketplace (boston), subsidies cannot even remotely approach market rents, so it is virtually impossible to place this sector of a client base, bearing in mind that actual vacancy rate is 0.4%-- average rents are statistically on par with midtown manhattan, second in the country only to the bay area of san francisco.
depending upon loan to value, the mortgage holder might be willing to negotiate voluntary surrender of the deed, leaving your credit undamaged. most lenders don't like being landlords, so this might cost you a bit-- the property will most likely be resold, probably at auction, so be prepared for a big bite into whatever equity you had, worse is a debt left to settle or structure if proceeds from the sale don't cover the note and other expenses: lawyer, broker, advertising, appraisal, runaround with papers, seller closing costs, etc. infinitum ad nauseum, that means endless puke in latin-- *.
try to find somebody interested in buying it out. FICO underwriting software qualifies anybody for anything, so long as the name and social security number generate high enough scores. a high school student, welfare recipient, derelict, it makes no difference- with FICO it's even possible to build a very lucrative real estate portfolio sitting in prison-- all it takes is a phone, 680 FICO score, and basic intelligence. if this property of yours is true liabilty, distressed and worthless, pass it on to someone who wants it. don't misrepresent anything-- that could come back to haunt you. the american taxpayer is already predestined to clean up this last little F*COp in corporate worldview, so why not make use of it as the law blesses you, and save yourselves from a costly default.
eat, drink, and be merry-- for tomorrow it may be illegal, or subject to heavy penalties imposed by vomputer--*
that last word was a typo, but after seeing the mistake i thought it would be best left standing.
not that i have any bias against computers; quite the contrary. long before this brave new world is controlled by machines, stupid people sitting in high places make a decision to stop thinking for themselves, and pass that responsibility along to someone or something else. when no one is left to blame, should we outlaw computers forever??--
a message to the author of FICO scoring, [UN]fair isaac, comes to mind: GROW A BRAIN!--
that's all for now--
goodnight-- * |
| BFischer (Bfischer) | Wednesday, April 18, 2001 - 05:46 am
Thanks for the info, the mortgage on the properties is 42K so the cost of selling them isn't great if we could get that price, but most likely we would be selling for about 15K less than the mortgage-(it seems like it is cheaper to leave them empty)- I talked to HUD and there is no money in our area to fix these properties. Can a person on HUD by the property on land contract?
The houses do have an "assumable mortgage" but in researching it with our bank, find that they will not release us from the mortgage even if someone else "assumes" it! (plus I couldn't find a buyer even under those conditions! And they are not horrible houses!) As for the next question, please forgive my ignorance: What is FICO? |
| Christine Baker (Admin) | Wednesday, April 18, 2001 - 08:06 am
Doug was talking about FICO credit scoring, which fortunately has nothing to do with you or anyone who wants to buy your properties. FHA loans don't use those scores.
Have you looked into a 203K FHA loan to fix the properties? I have found talking to HUD is about as productive as talking to a rock. Try a mortgage broker?
What's your current interest rate?
Where are the properties located? And why do you owe so much more than they're worth?
Any chance of the market recovering in a few years?
You say they're not horrible houses, how much work do the properties need?
Would you be able to sell if you structured a no money down deal? There are several discussions on these programs in the Finance section.
What about getting a lease option tenant?
I don't know anything about land contracts, AND real estate law is regulated by STATE. |
| BFischer (Bfischer) | Wednesday, April 18, 2001 - 10:31 am
Thanks, I will look into the 203K FHA loan (after I find out what it is!) Our interest rate is 8.5 fixed at 30 years. The properties are in Steubenville Ohio,(only 40 minutes from Pittsburgh) home of the Steel industry which is on the skids right now, so the economy has really taken some hits. Plus everyone here loves the unions so new industry doesn't thrive here. I can't see it getting better any time soon until they get some new industries going. Basically the properties need things like new windows, paint, cosmetic plumbing- structurally they are sound and livable, the neighborhood they are in is a problem. It is quite mixed with good families and bad tenants. Actually the one house is quite nice and could go in the 50s-60s if it weren't for the neighborhood. the other is worth about 20. The lease-option is like a land contract without the option. We have one going right now for the other house because it too wouldn't sell even after 4 years on the market. (we took a 20K hit on it). We have offered the house with owner financing, no money down and almost had it go through 2 times, in one all the buyer had to do was make the monthly bank payment of $380, and keep the rent from the other- they didn't make the payments. The other went south when we checked his credit history and found that he had defaulted on previous rentals. We are discouraged! The problem with loans is that we are struggling to make our payments now, perhaps the 203k is different.
If you would like to see one of the houses, I put it in a web site last fall- abouthouse.freeservers.com/
Thanks again. |
| douglas pratt (Dougpratt) | Wednesday, April 18, 2001 - 09:36 pm
your best opportunity to find quality tenants for this property lies with state and federal welfare recipients, under sections 8 and 707. you can get grants and low/no interest loans for renovations, and the larger share of rents are guaranteed by the sustaining entity, even when the tenants fail to perform. use of FHA or VA is virtually unknown in our marketplace, because the only thing buyers might hope to purchase using these programs would be deeded parking spaces. rarely does one 330 sq. ft. basement space with a closet kitchen, closet bath, appear on the market at or below $100,000.
sorry i can't offer more information about FHA or VA. i grew up in vermont, and nothing happens up there, except for skiing, snow, and deer hunting. people i have known coming out of ohio tell me of squalid living conditions, economic blights, and over-industrialization belching filth into skies of hopelessness and despair, so i'm not surprised to learn that a house there is worth no more than a slab of pavement big enough to park a car here, in tandem at that!--*. a pre-qualification from FHA or VA should be sufficient-- consult a lawyer or legal aid representative if you're not sure.
read the terms of your mortgage carefully-- if it says the note is asssumable and the lender claims otherwise, let an expert review it. legal aid is available if you can't afford an attorney. file a complaint with the state attorney general if they want to be "pricks" about it.
chances are you won't encounter FICO-- it affects borrowers much more so than sellers, and will most likely benefit you, granting financing to anybody wanting to buy your property. conventional mortgage underwriting is now done exclusively by computer-- this means a borrower can buy anything anywhere, so long as the mysterious software likes their profile. if you want to get rid of undesireable property, accept any offer you can survive without question, if accompanied by a commitment letter from any fannie mae or freddie mac lender. taxpayer funds have already been committed to guarantee these loans, so walk [don't run] away from your distressed property. you have done nothing wrong--when the time comes to pay the piper, authors of grand scale deceit will be the ones left watching their precious children of false hopes following truth into the mountains of suffering and despair they alone have built up unto themselves--***
if a buyer comes along making use of FHA or VA,
you're just as well off accepting this, cash, or an offer from a borrower using conventional loan products underwritten by FICO, or any portfolio lender.
time to say goodnight before i digress further-*
douglas pratt |
| BFischer (Bfischer) | Thursday, April 19, 2001 - 04:43 am
Thanks for the info and advice! I shall persevere in my search for a buyer, or low-interest loan to rehab and list them with Hud. You have given me fresh options!
Thank you! Thank you!
I shall also go back to the mortgage papers and find out if the bank fully disclosed the terms of the "assumable" (non) and take action if possible.
This is a great site and I have learned much! |
| Christine Baker (Admin) | Thursday, April 19, 2001 - 11:53 am
I had a look at the house and it really doesn't look bad.
Having said that talking to HUD is frustrating, I do think that a rehab loan to get the property up to Section 8 standards is appropriate. Talk to your local HUD office again about getting those subsidized tenants. Have HUD inspect the property and give you a written estimate of required repairs/upgrades. Then decide whether it's worth it.
It IS nice to get that timely rent check from the government.
You don't want to put too much money into the property, but it should be up to codes.
And since you're currently experiencing economic difficulties in your area, sales will hopefully be better in a few years.
Also, do what you can to keep the properties looking nice from the outside and encourage your neighbors to do the same.
At 8.5% you have a good interest rate, I think the 203k loans are more for major projects, but there are the "small" home improvement loans.
Check with your city/county if they don't have some kind of rehab program. Sometimes they have grants or low interest loans for "target" areas, i.e. the not so good neighborhoods. And while you talk with them, ask about programs for buyers too.
Your local banks should also have info on the CRA (Community Reinvestment Act) special financing for target areas.
You have a lot of options, try not to ruin your credit with the deed in lieu unless all else fails. And of course post if you have more questions. |
